How to Reduce the Burden of Income Tax and Increase Your Take-Home Salary?
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Updated date : 11 June 2020
After the declaration of Budget 2017, many people in the country are still muddled whether the Finance Minister has left them poorer or richer. However, concealed in the tangle of provisions, there are several means and ways that can help you save a chunk of tax. This article is designed to help you minimise the pinch of income tax and increase your take home salary.
Section 80C of Income Tax, the Rs. 1.5 lakh tax-saving window, allows exemption of spending and investment from income tax. But there are many other ways to reduce the burden of income tax and maximise your savings. These methods include some common investments that are mentioned below:
- Provident Fund Contribution
- Education Loan Interest
- Contribution to Unit-Linked Insurance Plans for yourself, your spouse and children.
- Life Insurance premiums for your spouse, children and yourself.
- Home loan interest
- Investing in Public Provident Fund (PPF) account.
- Investing in National Savings Certificates (NSC) plans
- A five-year term deposit with bank
- The investment made in Sukanya Samriddhi Account up to Rs. 1.5 lakh a year, in the name of your daughter
There are several methods apart from Section 80C that help you in tax saving:
1. National Pension System (NPS):
National Pension System (NPS) is a retirement savings scheme that is flexible in nature. The NPS offers both a monthly pension, i.e. a fixed monthly income, and a lump sum amount to an employee after retirement. The contribution by an employee for NPS is deductible up to 10% of salary based on an overall cap of Rs. 1.5 lakh. Also, a supplementary exemption of Rs. 50, 000 is offered if the employee makes any contribution to NPS. Employer’s contribution is also made available for the exemption up to 10% of salary (without any cap).
2. Home Loan Interest:
Another means to save tax is throug0068 home loan. It is an ideal option that does not let you dip into your reserves and helps you save tax. It is a better choice to pick, as there are benefits provided for both repayment of the principal amount and payment of interest, as per the applicable tax laws in the country.
A maximum exemption of Rs. 2 lakh is provided on interest to be paid on home loans under the ‘Income from house property’ head for self-occupied property. At present, there is no limit for let-out property/deemed let-out property. But according to Budget 2017, the FM has proposed to bind the sum of ‘loss from house property’ up to Rs. 2 lakh per annum for both rented houses and deemed to be rented houses. This step would limit the interest amount paid by a person on his home loan that can be claimed by him as a set-off.
3. Education Loan Interest:
There is no limit defined for education loan interest.
4. Interest on Savings Bank Account with Bank or Post Office:
As per the applicable tax laws, you can get an exemption up to Rs. 10, 000 in aggregate per year on interest earned on savings bank account. If the interest is received from a fixed deposit (FD), then there is no deduction.
5. Buying Medical Insurance Policy for Self, Spouse and Dependent Kids:
You can avail an exemption up to Rs. 25, 000 by purchasing a medical insurance policy for yourself, your spouse and dependent children. Deduction up to Rs. 30, 000 is available if you and your spouse is above 60 years of age. You get an additional exemption of Rs. 25, 000 if you get your parents insured. However, no such exemption is provided for parents-in-law.
In order to save tax, many taxpayers show benevolence by making donations for philanthropic purposes or by contributing to National Relief Fund. In a few cases, 100% exemption is allowed and in a few cases, 50% deduction is allowed. The FM has pre-defined the list of organisations to which you can donate and avail the tax benefit. Donations made in kind are not liable for any deductions.
7. Treatments for diseases like AIDS, or malignant cancers for oneself and dependents:
Exemption up to Rs. 40, 000 is allowed for treatment of diseases like cancer and AIDS for self and his dependents. However, a deduction of Rs. 60, 000 is offered for patients of age 60 and above, and Rs. 80, 000 for the age of 80 and above. You can also avail a tax-free reimbursement in a year if you or any of your dependent is differently-abled.
8. Investing in Sukanya Samriddhi Account:
The Prime Minister of India, Mr. Narendra Modi has introduced opening of Sukanya Samriddhi Account under ‘Beti Bachao Beti Padhao’ campaign. You can open an account under this scheme in the name of your daughter and get tax exemption.
The prevailing tax structure in India is intricate and you may find it difficult to understand the whole structure of tax and enjoy the benefits. Hence, the article intends to help you better understand the several ways you can reduce the income tax legally.
You may also like to read: Income Tax Planning For Salaried Employees in India
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