Last Updated: 1st May 2019
Everyone wants to increase their income and everyone want to save taxes.
And there are many ways to save income tax.
You might know a few of these but I am sure you will find at least one new way from the article that can help you save more tax this year.
This is a long list, so I will keep the descriptions short to save your time.
How to Save Income Tax in India 2019
#1. Interest Income on Saving Account
(Tax Saving Under Section: 80TTA/80TTB)
Max Tax Saving Limit – Rs. 10,000
You might not be aware that interest income on savings accounts is not taxable up to Rs. 10,000.
Suppose, 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).
You can also 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.
#2. Interest Income on NRE Account
Indian Government is very friendly to NRIs. Individuals with NRE account doesn’t have to pay tax on interest income earned on savings or fixed deposits.
Some smart Indians residing abroad, take a loan from the foreign country at 3-4% and invest their income in India through NRE account and earn tax-free income at 8-9%.
Point to note- though their income from NRE account is tax-free in India, but the earnings may get taxed in their residing country (as per country law).
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:
Any proceeds received on account of maturity/surrender of an insurance policy were exempt from tax only if the premium paid did 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 was required to be Rs 50,000.
If the sum assured was 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.
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.
You may also like to read – best investment options in India 2020
#6. Dividends Received on Shares or Equity Mutual Funds
Stocks and Mutual Funds (Equity focused) distribute dividends to all the shareholders. The dividends are tax-free in the hands of the receiver.
Like in the previous example, where you bought stocks worth Rs. 100,000, let’s assume you receive dividends of Rs. 2000 after 10 months. Even though one year is not completed since the time you bought stocks, you still don’t have to pay any tax on such dividends received.
#7. Amount Received as Gifts on Marriage
Tax-Free Income Under Section: 56(2)
Did you know that the gifts received (through cash/cheque/gifts) on marriage are totally tax-free?
You can receive gifts from your relatives, friends, and family on the occasion of your marriage and you don’t have to pay any taxes.
#8. 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
#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. You will pay tax on 2,50,000 on your salaried income and 1,00,000 on your secondary income as per latest income tax slabs.
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 Rs. 1,00,000 in tax saving instruments.
Also Read : Best Credit Cards in India 2020
#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. Well Known Tax Saving Options under section 80C
Maximum Benefit: Rs. 1.5 Lakhs
Everyone knows 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.
For more details, I have written a detailed article on tax saving options under sec 80C.
#12. Tax Savings on Additional Contribution to NPS
Income Tax Section: 80CCD (1B)
Max Tax-free Amount: Rs. 50,000
Your additional contribution towards NPS can fetch exemptions over and above the regular deduction of Rs. 150,000. Up to Rs. 50,000 can be saved 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)
Also Read: Best Health Insurance Plans In India
#14. Tax Saving from Home Loan
Get Deductions u/s: 80C, 24 & 80EE
Use your home loan efficiently to save more tax. There are three 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
- 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.
#15. 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.
#16. 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.
#17. Medical Treatment of Disabled (handicapped) Dependant 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.
#18. 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 back deductions.
#19. 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
- Haematological disorders like haemophilia 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.
#21. 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.
Tax Savings Tips for Business Person in India
#22. 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 benefit because their partnership firm has already paid taxes on the profits.
#23. 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.
Smart people always show expenses before taxation.
#24. 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.
Tax Savings Tips – Only for Salaried Persons
#25. 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 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.
#26. 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 PAN card copy of your landlord if you are paying more than 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 per cent of your salary (including your allowances)
- 50 per cent of your basic salary (for a metro) or 40 per cent of your basic salary (for non-metro).
#27. 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
#28. 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.
#29. Meal Coupons
You can ask your employer to issue your meal coupons (like Sodexo) those are not taxable up to Rs. 2600 per month.
#30. Standard Deduction
Maximum Deduction: Rs. 40,000
For the current financial year, you can avail a standard deduction of Rs. 40,000.
The standard deduction replaced the earlier non-taxable benefits of daily travel allowance and medical expenses.
#31. 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.
#32. 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.
#33 Money under VRS
Voluntarily Retirement Scheme – Up to 5 lacs
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 lakhs.