As per my 10-12 yrs of experience, it’s a commonly observed trait with us Indians who are on the tax-paying side of the system that we want to save tax. I am talking about the eagerness to save tax by taking the advantage of tax saving options or otherwise just to know how to save tax by any means. This observation was backed up when I tried to check google trends, I have put up the screenshot for you all too.
How to save tax – Google Trend view
Save tax – Google Trend view
(Note – Numbers represent search interest relative to the highest point on the chart for the given region and time. A value of 100 is the peak popularity for the term. A value of 50 means that the term is half as popular)
Also, a study says that only 5% of the population in India (a total population of almost 136 core) pays tax. The figures are surprising enough to say that there is a lot of scope for awareness when it comes to paying and saving Income tax in India currently. Therefore, I felt the need to answer the most asked queries and do my bit of making taxpayers an informed citizens.
How to save Tax in India?
This is a vast topic to write on, considering there are many sections that can be used to save tax. To make it easy for my fellow taxpayers I tried to divide it and make it as short as possible. To those who are inquisitive and keen let’s start with :
80C Tax Saving options
Availing of the tax deduction by using section 80C is the easiest and most common way to save tax. There are many other subsections with 80C like 80 CCC, 80CCD & 80D. All these sections fall under Chapter VI-A of the Income Tax Act (popularly known as Chapter VI-A deductions).
Section 80C comes with the prerequisite limit of deduction regardless of whatever amount of investment a taxpayer initiates to take the benefit of the 80C section. For eg. If a person invests Rs 5,00,000 in PPF, he/she can claim a deduction of Rs 1,50,000 only.
What are the investment options that fall under 80C?
- Equity Link Saving Scheme (ELSS)
- National pension Scheme (NPS)
- Unit Link Insurance Policy (ULIP)
- Tax Savings Fixed Deposit – Maturity on minimum 5 years
- Public Provident Fund (PPF)
- Senior Citizen Saving Scheme
- Sukanya Samriddhi Yojana
- Infrastructure bonds
Let’s check what’s in the other subsection of 80C.
Section 80CCD is for the deduction of NPS (National Pension Scheme)
The calculation for NPS –
1) 80CCD (1) Employee’s contribution – Maximum deduction allowed is least of the following cases
- 10% of salary (in case taxpayer is employee)
- 20& of gross total income (in case of self-employed)
- Rs 1.5 Lakh
2) 80CCD (1b) – In this subsection, an additional deduction of Rs 50,000 is allowed for the amount deposited in the National Pension Scheme or Atal Pension Yojna.
Let’s explore a few other features of NPS –
- NPS Account can be opened online in 30 minutes
- There are two types of NPS accounts. NPS TIER-1 account, and NPS TIER-2 account. The Tax benefit is available only in the NPS TIER-1 account.
- The minimum contribution every year in the NPS TIER-1 account is Rs 1000/- and the minimum contribution every year in the NPS TIER-2 account is Rs 250/-
- TIER -1 account have withdrawal restriction while TIER -2 account does not have any withdrawal restriction
- The maturity of the NPS account is 60 years. You must contribute to the NPS account till the age of 60 years. However, there are withdrawal options as mentioned below – After the completion of 3 years, 25% of the Corpus is allowed to be withdrawn – After completion of 5 years, 20% of the Corpus is allowed to be withdrawn and the balance 80% will be converted to an annuity plan for receiving the pension
Other ways to save tax other than 80C section
There are many other ways to save tax when section 80C is not in the picture like Section 80D, 80DDB, 80E, 80G, 80GGB, 80GGC, 80GG, 80TTA, 80TTB, 80U, and so on.
This section allows for avail deduction via buying medical insurance. Individuals or HUF can claim a deduction of Rs.25,000 under section 80D on insurance for self, spouse, and dependent children. There is also an additional deduction for insurance of parents which is available up to Rs 25,000 if they are less than 60 years of age.
If parents are aged above 60 years, the deduction amount will be increased to 50,000. If the taxpayer and his/her parents both are above 60 years of age, the maximum deduction rises to Rs 1,00,000 in that case.
If the dependent of the family is disabled section 80DD comes into the picture but there are certain conductions to it.
- Deductions are available to resident individuals or HUF.
- Deductions are available on expenditure incurred on medical treatment (including nursing), training, and rehabilitation of handicapped dependents (Relative- Need to ask)
Limit of deductions in section 80DD
- Where disability is 40% or more but less than 80% there is a fixed deduction of Rs 75,000.
- Where there is a severe disability (disability is 80% or more) there is a fixed deduction of Rs 1,25,000.
(Note: To claim this deduction a certificate of disability is required from the prescribed medical authority.)
This section allows a taxpayer to avail of the deduction for medical expenditure on self or any Dependent Relative. There are a few prerequisite conditions to avail of the deduction which are as follows –
For individuals and HUFs below age 60
A deduction of up to Rs.40,000 is available to a resident individual or a HUF. It is only available with respect to any expense incurred towards the treatment of specified medical diseases or ailments for himself/herself or any of his/her dependents. For a HUF, such a deduction is available only with respect to medical expenses incurred toward these prescribed ailments for any of the HUF members.
For senior citizens and super senior citizens
If the individual on behalf of whom such expenses are incurred is a senior citizen, the individual or HUF taxpayer can claim a deduction of up to Rs 1 lakh.
For reimbursement claims
Any reimbursement of medical expenses by an insurer or employer shall be reduced from the quantum of deduction which the taxpayer can claim under this section.
(Note – A taxpayer need to get a prescription for such medical treatment from the concerned specialist in order to claim such a deduction)
This section helps to reduce the tax of taxpayers by availing the deduction for the interest on higher education loans taken. The loan can be for taxpayers, spouse, or children or for the student to whom a taxpayer is a legal guardian.
Note that the 80E deduction is available for a maximum of 8 years (beginning the year in which the interest starts getting repaid) or till the entire interest is repaid, whichever is earlier.)
There is no restriction on the amount that can be claimed in this section.
This section enables taxpayers to claim a deduction for any donations he/she has made for social causes. There are certain conditions when it comes to donation.
The various donations specified in u/s 80G are eligible for deduction up to either 100% or 50% with or without restriction.
- From FY 2017-18 any donations made in cash exceeding Rs 2,000 will not be allowed as a deduction. Donations above Rs 2000 should be made in any mode other than cash to avail of the deduction for 80G deduction.
- Donations with 100% deduction without any qualifying limit –
- “National Defence Fund set up by the Central Government”
- “Prime Minister’s National Relief Fund”
- “National Foundation for Communal Harmony”
- “An approved university/educational institution of National eminence”
- “Zila Saksharta Samiti” is constituted in any district under the chairmanship of the Collector of that district
- “Fund set up by a State Government for medical relief to the poor”
- “National Illness Assistance Fund”
- “National Blood Transfusion Council or any State Blood Transfusion Council”
- “National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation, and Multiple Disabilities”
- “National Sports Fund”
- “National Cultural Fund”
- “Fund for Technology Development and Application National Children’s Fund”
- “Chief Minister’s Relief Fund or Lieutenant Governor’s Relief Fund with respect to any State or Union Territory”
- “The Army Central Welfare Fund or the Indian Naval Benevolent Fund or the Air Force Central Welfare Fund”
- “Andhra Pradesh Chief Minister’s Cyclone Relief Fund, 1996”
- “The Maharashtra Chief Minister’s Relief Fund during October 1, 1993, and October 6, 1993”
- “Chief Minister’s Earthquake Relief Fund, Maharashtra”
- “Any fund set up by the State Government of Gujarat exclusively for providing relief to the victims of the earthquake in Gujarat”
- “Any trust, institution, or fund to which Section 80G(5C) applies for providing relief to the victims of the earthquake in Gujarat (contribution made between January 26, 2001, and September 30, 2001)”
- “Prime Minister’s Armenia Earthquake Relief Fund Africa (Public Contributions — India) Fund”
- “Swachh Bharat Kosh (applicable from the financial year 2014-15)”
- “Clean Ganga Fund (applicable from the financial year 2014-15)”
- “National Fund for Control of Drug Abuse (applicable from the financial year 2015-16)”
- Donations with a 50% deduction without any qualifying limit
- “Jawaharlal Nehru Memorial Fund”
- “Prime Minister’s Drought Relief Fund”
- “Indira Gandhi Memorial Trust”
- “The Rajiv Gandhi Foundation”
- Donations to the following are eligible for a 100% deduction subject to 10% of adjusted gross total income
- Government or any approved local authority, institution, or association to be utilized for the purpose of promoting family planning
- Donation by a Company to the Indian Olympic Association or to any other notified association or institution established in India for the development of infrastructure for sports and games in India or the sponsorship of sports and games in India
- Donations to the following are eligible for a 50% deduction subject to 10% of adjusted gross total income
- Any other fund or any institution which satisfies the conditions mentioned in Section 80G(5)
- Government or any local authority to be utilized for any charitable purpose other than the purpose of promoting family planning
- Any authority constituted in India for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development, or improvement of cities, towns, villages or both
- Any corporation referred in Section 10(26BB) for promoting the interest of minority community
- For repairs or renovation of any notified temple, mosque, gurudwara, church, or other places
Section 80GGB deduction is allowed to an Indian company for the amount contributed by it to any political party or an electoral trust. The deduction is allowed for contributions done in any way other than cash.
Deduction under section 80GGC is allowed to an individual taxpayer for any amount contributed to a political party or an electoral trust. It is not available for companies, local authorities, and an artificial juridical person wholly or partly funded by the government. A taxpayer can avail of this deduction only if he/she pays in any way other than cash.
This section enables a taxpayer to claim a deduction for the House Rent Paid. There are a few conditions to it which are as follows-
- Section 80GG deduction is available for rent paid when HRA is not received. The taxpayer, spouse, or minor child should not own residential accommodation at the place of employment
- The taxpayer should not have self-occupied residential property in any other place
- The taxpayer must be living on rent and paying rent
- The deduction is available to all individuals
Deduction available is the least of the following:
- Rent paid minus 10% of adjusted total income
- Rs 5,000/- per month
- 25% of adjusted total income*
Also, adjusted Gross total Income is arrived at after adjusting the gross total income for certain deductions, exempt income, long-term capital gains, and income related to non-residents and foreign companies.
Section 80 TTA
If a taxpayer is an individual or a HUF, he/she may claim a deduction of a maximum of Rs 10,000 against interest income from your savings account with a bank, cooperative society, or post office. It is important to include the interest from the savings bank account in other income.
Section 80TTA deduction is not available on the interest income from fixed deposits, recurring deposits, or interest income from corporate bonds.
Section 80 TTB
A new section 80 TTB has been inserted in Budget 2018 in which deductions with respect to interest income from deposits held by senior citizens are allowed. The limit for this deduction is Rs.50,000.
No further deduction under section 80TTA shall be allowed. In addition to section 80 TTB, section 194A of the Act will also be amended so as to increase the threshold limit for TDS on interest income payable to senior citizens.
A deduction of Rs.75,000 is available to a resident individual who suffers from a physical disability (including blindness) or mental retardation. In case of severe disability, one can claim a deduction of Rs 1,25,000.
As I said, this topic is vast and for you guys to comprehend correctly I tried explaining it in the simplest form. We understand that finance, accounts, and tax can sometimes be daunting when we sit to work on them. If something is unclear don’t hesitate to comment or the best option is to call your chartered accountant. Rest we are going to come with part 2 of this blog after a while.