Overlooking tax implications could impede your capacity to reach your financial goals. Fortunately, the government provides several legitimate methods to reduce your income tax burden through various deductions, exemptions, and investment opportunities planning.
Minimizing tax obligations is a crucial factor in enhancing your investment returns. Neglecting tax considerations may hinder your ability to achieve your financial objectives. After all who does not like to reduce their tax burden when it is legally permissible? Thanksfully, the government offers numerous legitimate avenues to decrease your tax liability through a variety of deductions, exemptions, and investment options.
However, the exemptions and deductions available will differ based on the tax regime selected. Presently, taxpayers in India have the option to choose between two tax regimes: the new tax regime and the old tax regime. Depending on your income, you can select the regime that best meets your needs. Let us examine the investment opportunities and exemptions provided under the income tax regulations to facilitate tax savings in India within the old tax regime.
Section 80C
One of the most popular and effective ways to reduce your taxable income is by investing under Section 80C of the Income Tax Act. You can claim a deduction of up to Rs 1.5 lakh in a financial year by investing in eligible schemes. Some of the prominent options include:
Public Provident Fund (PPF):
A long-term government-backed scheme offering tax-free returns.
Equity Linked Savings Scheme (ELSS):
A type of mutual fund with a three-year lock-in period that offers market-linked returns and tax-saving benefits.
Life Insurance Premiums:
Premiums paid for life insurance policies are eligible for deduction under Section 80C.
Tax-Saving Fixed Deposits (FDs):
These FDs have a five-year lock-in period and offer tax-saving benefits.
National Savings Certificate (NSC):
A government savings bond with a five-year tenure and fixed interest rate
Employee Provident Fund (EPF):
Contributions made towards EPF are eligible for tax deductions under Section 80C.
Section 80D:
Under Section 80D, you can claim deductions for health insurance premiums. For yourself, spouse, and dependent children, you can claim up to Rs 25,000. If you are paying for the health insurance of your parents, you can claim an additional deduction of Rs 25,000, which increases to Rs 50,000 if your parents are senior citizens. This deduction also applies to payments made for preventive health checkups, up to Rs 5,000 within the overall limit.
Section 80CCD(1B) – National Pension System (NPS)
NPS is a government-backed pension scheme aimed at long-term retirement savings. You can claim an additional deduction of Rs 50,000 under Section 80CCD(1B), over and above the Rs 1.5 lakh limit of Section 80C. NPS offers tax-saving benefits while helping you build a retirement corpus and is a smart choice for long-term financial planning.
Home Loan Deductions – Sections 24 and 80EE
Owning a home can offer significant tax benefits. Under Section 24, you can claim a deduction of up to Rs 2 lakh on the interest paid on a home loan if the property is self-occupied. For first-time homebuyers, an additional deduction of up to Rs 50,000 can be claimed under Section 80EE, provided the loan amount doesn’t exceed Rs 35 lakh, and the property value is under Rs 50 lakh.
Section 80E – Education Loan Interest
If you’ve taken an education loan for higher studies, the interest paid on the loan can be deducted under Section 80E. This deduction is available for up to eight years from the year you start repaying the loan. There is no upper limit for the amount of interest that can be claimed, making this a valuable benefit for individuals pursuing higher education.
Section 10(14) – House Rent Allowance (HRA)
If you are a salaried individual receiving a House Rent Allowance (HRA), you can claim a tax exemption under Section 10(14). The exemption amount is the lowest of the following:
* Actual HRA received.
* 50% of salary if you reside in a metro city, or 40% if you live in a non-metro area.
* Rent paid minus 10% of basic salary.
Section 80TTA – Savings Account Interest
Interest earned on savings accounts in banks or post offices up to Rs10,000 is exempt from tax under Section 80TTA. Senior citizens, under Section 80TTB, can claim a deduction of up to Rs 50,000 on the interest earned from savings accounts, FDs, or recurring deposits.
Donations – Section 80G
Donations made to specified charitable institutions or relief funds are eligible for a deduction under Section 80G. The deduction is generally 50% or 100% of the donation amount, depending on the institution. However, donations above Rs 2,000 must be made in non-cash modes to qualify for this benefit.
Standard Deduction for Salaried Individuals
Salaried employees can avail of a standard deduction of Rs 50,000 from their taxable salary income. This deduction is automatically applied and reduces your overall tax liability.
Tax-Free Income for Senior Citizens
For senior citizens, tax-saving opportunities are enhanced with higher exemption limits. Citizens aged between 60 and 80 can avail of an exemption up to Rs 3 lakh, while those above 80 can enjoy tax-free income up to Rs 5 lakh. Additionally, senior citizens do not need to pay advance tax if they do not have income from a business or profession.
In conclusion, tax saving remains a key component of our overall financial planning and investment. It maximises our savings and help us grow our wealth over time.
