How to save income tax in 2021
Wondering how to save tax on salary or business income? The tax filing season is here, and it is time to plan your finances prudently so that you can reduce your tax liability. Thanks to the Income Tax Act, 1961, there are various income tax-saving options that you can choose from to lower your tax liability.
How to reduce income tax?
Take advantage of Section 80C
Chapter VI A of the act lists various sections that allow tax exemptions from your income. Section 80C is a popular section that allows you to claim a deduction of up to Rs. 1.5 lakhs by investing in various avenues. Some of these income tax-saving options include the following:
- Life insurance premiums
- PPF and EPF investments
- ELSS funds
- Five-year fixed deposit schemes in banks or post offices
- Sukanya Samriddhi Yojana
- Senior Citizen Saving Scheme
- Buy health insurance
A health insurance plan is not only a necessity in the face of rising medical costs but also has tax benefits. Premiums paid towards health plans qualify for a deduction under Section 80D. The limit is Rs. 25,000, which increases to Rs. 50,000 for senior citizens. Moreover, premiums paid for parents can be claimed as additional deductions up to Rs. 50,000.
Invest in National Pension System
The National Pension System gives distinct tax benefits besides creating a retirement corpus. Investment into the scheme is allowed as a deduction, up to Rs. 1.5 lakhs under Section 80CCD (1). This limit, however, is clubbed with the limit available under Section 80C. However, Section 80CCD (1B) allows an additional deduction of up to Rs. 50,000 for investments into the National Pension System, giving you additional tax-saving benefits.
Buy your dream house with a home loan
A home loan taken for your dream house has tax-saving benefits too. The principal paid on loan is an eligible expense under Section 80C up to Rs. 1.5 lakhs. Conversely, the interest paid is allowed as an exemption under Section 24(B). Moreover, if you fulfil the requirements of Section 80 EEA, you can claim an additional deduction of Rs. 1.5 lakhs on home loan interest.
Make the most of other deductions
Besides Sections 80C, 80CCD, and 80D, there are other tax-saving sections available under the act. These are as follows:
|Income Tax Section||Tax benefit|
|80TTA||Tax-free interest on savings accounts up to Rs. 10,000|
|80TTB||Tax-free interest on deposits for senior citizens up to Rs. 50,000|
|80G||Tax deduction on approved donations up to a specified percentage of the donated amount|
|80GG||HRA deduction for rented accommodation for those who do not get HRA benefits from employers|
|80EEB||A tax deduction of up to Rs. 1.5 lakhs on interest paid on a vehicle loan for electric vehicles|
A penny saved is a penny earned
Use these tax-saving provisions to save more and thus see your wealth grow. When it comes to growing your wealth in the long-term, you can also opt for different investment avenues that will not only fulfill your objective but will also give the added benefit of saving taxes.
You can choose from Public Provident Fund (PPF), Unit Linked Insurance Plans (ULIPs), Equity Linked Savings Scheme (ELSS), to name a few. However, when making investment decisions, it always prudent to explore your options through a financial advisor, who can suggest avenues based on your investment goals, horizon and appetite for risk.