Tax filing season is almost here. Many of you would have done your tax planning already but some of you must be in the habit of planning your taxes right before the due date of filing.
This year the tax filing deadline for salaried individuals is 30th November 2020. Along with filing returns of last year, you should also start tax planning for the current financial year.
You can save a substantial amount of money through proper tax planning. That’s why I urge you to take it seriously. Even if you have hired a CA to do your taxes, it helps to know about the tax planning measures because, at the end of the day, you know more about your finances than your CA.
The tax regulations can be complicated to understand with so many changes happening each year.
In this article, I will try to simplify the different ways in which you can save tax.
35 Easy Ways to Save Income Tax in India 2020
#1. Interest Income on Saving Account
(Tax Saving Under Section: 80TTA/80TTB)
Max Tax Saving Limit – Rs. 10,000 under TTA and Rs. 50,000 under TTB.
Section TTB is applicable for senior citizens and TTA for other individuals less than 60 years of age.
If you are less than 60 years of age then, the interest earned on savings accounts is not taxable up to Rs. 10,000 under section 80TTA.
For example, in the last financial year, you earned Rs. 15,000 as interest from all your savings accounts (you need to add up interest received on all your bank saving accounts), then you need to pay tax only on Rs. 5,000.
The exemption is higher (Rs. 50,000) in case of senior citizens (80TTB).
Here you also need to consider interest earned on the savings accounts of a post office and co-operative society(engaged in the business of banking) too for claiming the exemption.
Remember, that this deduction is only available for interest on savings accounts and not fixed deposits.
#2. Interest Income on NRE Account
Indian Government provides tax incentives to attract investments from NRIs. Individuals with deposits in an NRE account don’t have to pay tax on interest income earned on these deposits.
Some Indians residing abroad borrow loans from their resident foreign country at 3-4% and invest it in India through an NRE account and earn tax-free income at 6-8%.
There is an exception to this provision – If the individual has lived in India for more than 182 days during the financial year, his interest income from NRE deposits will become taxable.
Watch Interview with CA Karan Batra
#3. Maturity or Claim Amount Received on Life Insurance
Income Tax Saving U/S: 10(10D)
If you hold a life insurance policy issued prior to 1 April 2012 then
Any proceeds received on account of maturity/surrender of an insurance policy is exempt from tax only if the premium paid does not exceed 20% of the sum assured.
For example, if the annual premium is Rs 10,000, to qualify for the exemption, the minimum sum assured under the policy is required to be Rs 50,000.
If the sum assured is less than the said value, the entire maturity proceeds would be taxable.
For policies issued after 1 April 2012
The premium paid in respect of such policies should not exceed 10% of the sum assured.
In case you bought the policy after 1 April 2013 and the policy covers disability (as referred u/s 80U) or specified disease (as per section 80DDB), then in order to claim the deduction, the premium should not exceed 15% of the sum assured.
#4. Educational Scholarship
Save Income Tax Under IT Section: 10(16)
Max exemption: No upper limit, full scholarship amount is tax-free
Any amount received as a scholarship for education is not taxable. It does not matter if the scholarship is granted by the government or from a private trust.
#5. Profit From Selling Shares or Equity Mutual Funds
Only after 1-year holding (Long Term Capital Gains)
Maximum Tax-free Gains: Rs. 1 Lakhs
If you invest in stocks or mutual funds then you can make your profits 100% non-taxable up to Rs. 1,00,000.
For example, if you have invested Rs. 100,000 in TCS stock and in 11 months your investment becomes Rs. 1,20,000 then you have to pay tax on 20,000 profit.
However, if you hold it for another month, then you are not liable to pay any tax on the profits (up to Rs. 1 Lakh).
Same is applicable to equity mutual funds.
Remember any long term capital gain over Rs. 1 Lakh attracts a tax of 10%. Further, in such case, you will not be able to avail indexation benefits.
Expert Tip – If you have long term or short term loss in equity, make sure you file your return in time so that you can carry forward your losses.
You will be able to set off future gains against these losses. But you will not be able to carry forward any losses if you miss the return deadline date.
You may also like to read – best investment options in India 2021
#6. Amount Received as Gifts on Marriage
Tax-Free Income Under Section: 56(2)
Gifts received (through cash/cheque/gifts) on marriage are totally tax-exempt.
You will not have to pay any tax on the gifts that you receive from your relatives, friends, and family on the occasion of your marriage.
#7. Agriculture Income
Agriculture Income exempted u/s: 10(1)
Any income derived from Agriculture land is tax-free in India. The agriculture income can be:
- Any rent or revenue derived from land
- Income from agriculture products
- Income from a farm building
#8. Money Under VRS
Voluntarily Retirement Scheme – Up to 5 Lakh
Only applicable for employees of public sector company or of authority established under Center or State Govt.
If any employee takes voluntary retirement then the amount received is non-taxable with the upper limit of 5 Lakh.
#9. HUF Account for Secondary Income
You can take benefit of tax saving under HUF account if you have any additional income to your salary. You can pay tax on your salary under your name and deposit secondary income into HUF account.
Hindu Undivided Family (HUF) status is available to Hindu, Sikh and Jain families in India.
You have to get a separate PAN and bank account number. Income Tax Department considers HUF as a separate entity for taxation purpose.
You have 500,000 income from your salary and 3,50,000 income from blogging and consulting. Then you can show income from blogging and consulting as income of the HUF.
You can save tax on both of your entities by investing in various tax saving options like under section 80C. You will virtually pay no taxes on your secondary income if you invest in tax saving instruments.
Also Read: Best Credit Cards in India 2021
#10. Inherited Amount Through Will
There is no inheritance tax in India.
So anything you get from your parents or uncles through WILL is not taxable in your hands. It becomes your legitimate non-taxable income.
#11. Tax Saving Options Under Section 80C
Maximum Benefit: Rs. 1.5 Lakhs
You must be aware that Section 80C offers a maximum deduction of up to Rs. 1,50,000. A few of the options are as follows:
- Public Provident Fund
- National Pension Scheme (NPS)
- Life Insurance Premium
- National Savings Certificate
- ELSS Mutual Funds (Equity Linked Savings Scheme)
- Principal Amount Repaid on Home Loan
- 5 year fixed deposits with banks and post office
- Sukanya Samariddhi Account
- Tuition fees paid for children’s education, up to a maximum of 2 children
ELSS mutual funds are one of the best tax saving options under 80C, due to lesser lock-in period and the high potential return on investment.
#12. Tax Savings on Additional Contribution to NPS
Income Tax Section: 80CCD (1B)
Max Tax-free Amount: Rs. 50,000
Additional contribution towards NPS can fetch exemptions over and above the regular deduction of Rs. 150,000.
You can claim a deduction of upto Rs. 50,000 by making an additional contribution to NPS.
#13. Money Received From Provident Funds (after 5 years)
You will save tax on investments in Provident Account in the year of investment. The good news is that you don’t have to pay taxes on interest received from EPF/PF investments (note that Interest received on Fixed Deposit is taxable).
You have to keep your Provident Fund active for at least five years before you start withdrawing money (however not recommended unless an emergency). Otherwise, PF withdrawal money will be taxable.
Note – Withdrawals before completion of 5 years are not taxable if withdrawals are due to discontinuation of employer’s business or service termination due to employee’s ill health or any reason beyond the control of the employee.
Also Read: Best Health Insurance Plans In India
#14. Tax Saving From Home Loan
Get Deductions u/s: 80C, 24, 80EE & 80EEA
Use your home loan efficiently to save more tax. There are five ways to get an income tax deduction on your home loan(s).
- The principal amount repaid in the current financial year is included under section 80C, offering a deduction up to Rs. 1,50,000.
- The interest portion offers a deduction up to Rs. 2,00,000 separately under section 24.
- Benefit on interest on home loan for First Time Buyers – Rs. 50,000 under section 80EE
- Benefit of interest repayment for first time affordable home buyer – Rs. 1.5 Lakh under section 80EEA. This deduction is over and above the deduction of Rs 2 Lakh for interest payments available under Section 24.
- If you are living in the home on which you took a first home loan, you can get another loan for the second house. There is no limit on income tax deduction on the interest payment of the second home loan. Very few people are aware of this benefit of tax saving on a second home loan.
Deduction under section 80EEA is in addition to the Rs. 2 Lakh limit allowed under section 24.
So if you can meet the conditions of both sections 24 and 80EEA then you can claim Rs. 2 Lakh + Rs. 1.5 Lakh = Total Rs. 3.5 Lakh in the deduction.
#15. Tax Savings on LTCG on Sale of House Property
Under Section: 54
In order to claim full amount of tax exemption, the entire long term capital gains have to be invested in:
- Up to two new residential house property that must be purchased or constructed
- The new residential property must be purchased either 1 year before the sale or 2 years after the sale of the property/asset.
- Or the new residential house property must be constructed within 3 years of sale of the property/asset
- The capital gains must not exceed Rs. 2 Crores
- Tax exemption can be claimed once in a lifetime.
If the entire long term capital gains are not invested, then the amount not invested is charged to tax.
#16. Tax Saving on Education Loan
Max Tax Savings: No upper limit
Under Section 80E – Interest paid on education loan is also non-taxable. There is no upper limit on the amount.
The education loan for higher studies is applicable for the deduction if taken for self, spouse or children.
#17. Medical Insurance
Tax Savings u/s Section 80D – Deduction for the premium paid for medical insurance
Deduction of Rs. 25,000 for medical insurance of self, spouse and dependent children.
Additional deduction of Rs. 25,000 for medical insurance of parents less than 60 years of age. Rs. 50,000 in case the parents are more than 60 years old.
In a rare scenario, if the age of the taxpayer and his parents are 60 years or above then the maximum deduction you can have is Rs. 100,000. For example, if the age of Ram is 61 years and that of his father is 92 years. Then Ram can claim a deduction of Rs. 1 Lakh.
#18. Medical Treatment of Disabled (Handicapped) Dependent Relative
Applicable Section: 80DD
You get a fixed deduction of Rs. 75,000 in case of 40-80% disability. In case of severe disability (more than 80%), you can claim a deduction of Rs. 125,000.
The expenses should be:
- incurred on medical treatment, training, and rehabilitation of handicapped dependent relative.
- towards payment or deposit to specified scheme for maintenance of dependent relative.
You will require a certificate of disability from medical authority to back deductions.
#19. Medical Expenses of Disabled Individual
Deduction u/s: 80U
Any individual who suffers from a physical disability or mental retardation can claim a fixed deduction of Rs. 75,000.
In case of severe disability, deduction of Rs. 125,000 can be claimed. Here also you will require a certificate of disability from medical authority to support the deductions.
#20. Medical Treatment of Specified Disease for Self or Dependent Relative
Applicable Section: 80DDB
Deduction of Rs. 40,000 can be claimed in respect of any expenses incurred towards specified medical disease. In case, if you are incurring expense on behalf of, dependent senior citizen, then deduction up to Rs. 1 Lakh can be claimed.
You will require a certificate of disability from a specialist working in a government hospital to back deductions.
- Neurological diseases like Dementia, Aphasia, Parkinson’s, and others
- Malignant Cancers
- Chronic Renal Failure
- Hematological disorders like hemophilia and thalassemia.
Tax Savings Under Section 80G
Donations to specified funds or charitable institutions. You need to retain the stamped receipts of the donations and make sure the charitable organization is registered.
Donations made in cash up to Rs 2,000 will be allowed as deduction.
The donations above Rs 2,000 should be made in any mode other than cash to qualify as a deduction under section 80G.
#22. Donations to Political Parties
Exemption U/S: 80GGC
Max Exempted Amount: No upper limit
Your donations to political parties qualify for 100% deduction. There is no upper limit and all the donation amount can be claimed as a deduction.
#23. Interest Paid on Purchase of Electric Vehicle
Exemption U/s: 80EEB
Max Exempted Amount: Rs. 1.5 Lakh
The interest paid on the loan taken for the purchase of an electric 2,3 or 4 wheeler can be claimed as a deduction up to Rs. 1.5 Lakh.
To be eligible for deduction the loan for the purchase of an electric vehicle must be sanctioned between 1 April 2019 till 31 March 2023.
Tax Savings Tips for Business Person in India
#24. Distributed Profit to Partners in Partnership Firms
There is no tax in the hand of partners if their partnership firm is making profits and partners decide to distribute profits among themselves.
Partners get tax benefits because their partnership firm has already paid taxes on the profits.
#25. Travel/Hotel Expenses in Business
Business owners can file travel and hotel expenses as business expenses to save tax. Businessmen never pay for travel from their salary but from the company account.
Look what a salaried person do – Assume he has taxable income of Rs. 10,00,000 (after all deductions) and paying his taxes as per income tax slab. Then he spends Rs. 2,00,000 on travel vacation on leftover income.
And what a businessman does – He shows his travel as a business expense and takes the rest of profits as salary. He will pay tax on 8,00,000 only (net of travel expenses).
Smart people always show expenses before taxation.
#26. Food Expenses in Business
Similarly, business owners need to meet so many people like customers, vendors, and potential hires. Often he spends money on paying bills on food.
They save tax by showing all food expenses as the business expense.
If you are new to tax filling then I have written an article on how to file online for salaried employee. You would also like to read how to pay income tax online in India.
#27. Leave Travel Allowance
Under Section: 10(5)
Employees can utilize Leave Travel Allowance for the expenses on domestic vacations. This policy covers the expense of travel tickets for yourself and your family.
You will not be taxed on the travel expenses of your spouse, two children and parents if they are part of your journey. Brother or Sister are covered only if they are solely dependent on you.
You can avail of this facility twice in the block of four years. If you were unable to claim the benefits in four year block then you can carry over one LTA in the next block, provided you avail in the first year of the block itself.
#28. House Rent Allowance (part of salary)
Applicable Section: 10(13)
You can claim HRA to save tax on your house rent. This is applicable only if you are not owning any house near to your office. You must be living in rented space and should receive rent receipts from the house owner.
You have to submit a PAN card copy of your landlord if you are paying more than Rs. 100,000 annual rent.
If HRA forms part of your salary, then the minimum of the following three is available as exemption:
- The actual HRA received from your employer
- The actual rent paid by you for the house, minus 10 percent of your salary+DA (including your allowances)
- 50 percent of your basic salary+DA (for a metro) or 40 percent of your basic salary+DA (for non-metro).
#29. HRA (not part of salary)
Deduction Claimed u/s: 80GG
Applicable in case your employer does not give HRA and other conditions of rent are met. If HRA is not part of your salary, the least amount from the below three options can be claimed as a deduction.
- Rent paid minus 10% of the total income
- Rs. 5000 per month
- 25% of total income
#30. Income From Gratuity
Maximum Tax-free Amount: Rs. 20 Lakhs
Gratuity received on retirement or on becoming incapacitated or on termination or any gratuity received by his widow, children or dependants on his death is exempt subject to certain conditions.
The maximum amount of exemption is Rs. 20 Lakhs.
#31. Meal Coupons
You can ask your employer to issue meal coupons for you (like Sodexo) as Rs. 50 for two meal coupons are not taxable. Suppose, you have 26 working days then you can save up to Rs. 2600 per month.
Rs. 50 coupon per meal x 2 meals x 26 working days = Rs. 2600 per month.
#32. Standard Deduction
Maximum Deduction: Rs. 50,000
For the current financial year, you can avail of a standard deduction of Rs. 50,000.
The standard deduction replaced the earlier non-taxable benefits of daily travel allowance and medical expenses.
#33. Company Leased Car
Check with your employer if they have a car lease policy. In that case, you can drive the company leased car to save tax on car EMI & fuel.
#34. Telephone/Internet Expenses
Your company may not be reimbursing your telephone or internet expenses but may have any policy to make these expenses tax free. You can either get telephone expenses reimbursed or claim tax benefits.
#35. Rebate Under Section 87A
If you are a resident with a total income of less than Rs. 5 lakh (after deductions), then you get a tax rebate of Rs. 12,500. This means that if your tax payable is less than 12,500, you do not have to pay any tax.
You cannot claim any rebate if your tax payable is more than 12,500.
For instance, if the tax payable is Rs. 10,000, you can claim a rebate of 10,000 and pay no tax. But if your tax payable is 40,000, you cannot claim any rebate and will have to pay the entire 40,000.
New Tax Regime vs. Old Tax Regime
In FY 2020-21, individuals and HUFs have an option to move to a new tax regime. Depending on suitability, you can opt to file your taxes either as per the old or new regime.
The income tax slabs are as follows:
|Income slabs (Rs)||Tax Rate(Old Regime)||Tax Rate
(New Regime – devoid of
exemptions & deductions)
|Up to 2.5 lakh||Nil||Nil|
|Above 15 lakh||30%||30%|
The tax rates are lower in the new regime, but you will not be able to avail a total of 70 exemptions and deductions available under various sections of the Income Tax Act, such as.
Standard deduction of 50,000, Leave Travel Allowance (LTA), House Rent Allowance (HRA), Entertainment allowance. And deductions under Section 80 (such as 80C, 80CCC, 80CCD, 80D, 80DD, 80E, 80EE, 80G, 80GG, 80GGA, 80GGC).
Simply put, if you are not interested in making any tax-saving investments and want to avoid paperwork, the new regime is more advantageous for you.
If you are earning more than 15 lakh and availing deductions of more than 2.5 lakh, you are better off with the old regime.
If you are earning less than 15 lakh, it is better to do a calculation of what you will pay under the old regime by availing the usual deductions. Even if you are just availing the standard deduction of 50,000 and Section 80 deductions of 1.5 lakh, you will be better off in the old regime.
You will have the option to choose a regime every year, so your choice will not be permanent.