Layman's perspective: How to save tax legitimately in India

Every person wants to minimize his/her tax burden. Government has been encouraging to inculcate the habit of savings among the citizens. For this purpose, various provisions have been made in the Income Tax Act, which help in minimizing tax burden. This article discusses those Sections from a layman's perspective.

Every working person wants to minimize his/her tax burden through legitimate means. At the same time, Government of the country also wants to lessen the tax burden on the citizens. Furthermore, Government wants that the citizens save more for the sake of themselves as well as for the country. To inculcate the habit of savings among the citizens of the country, Government of India has made various provisions under Income Tax Act, 1961 which allows for certain deductions which can be claimed to save income tax at the end of financial year. These deductions help in saving tax and are available for the tax-payers who have done proper tax planning. Such deductions are subtracted from the total income of the tax-payer and the income tax is levied on the balance income.

Let us discuss some of the important Sections of the Income Tax Act, 1961 for the purpose of saving tax in a legitimate manner.

Section 80C

This provision is well-known to all tax-paying Indian citizens. Generally, contributions under Provident Funds, Equity Linked Saving Scheme (ELSS) an life insurance premia come under this Section. This Section is also applicable for NSCs, Sukanya Samriddhi Yojna and home loan principal repayment. The maximum limit under this Section is Rs.1.50,000/- p.a.

Section 80CCD

This is a new provision incorporated by the Government of India. If a person has subscribed to Natonal Pension Scheme (NPS), he/she is eligible for an additional tax benefit of maximum of Rs. 50,000/- p.a.

Section 80D

A medical insurance policy is a must for the protection of the entire family of a person in case of medical emergency or accident. If a person does not have any medical insurance, medical bills during such emergency can simply finish the unfortunate person's entire savings. So it is absolutely necessary to have medical insurance for every family. To encourage this, the Government has made a provision in the Income Tax Act under Section 80D, which allows an additional tax deduction of maximum of Rs. 50,000/- in respect of medical insurance premia.

Section 80DD

This Section deals with expenditure on the health of a disabled person in the family. This deduction is available to the tax-payer for the expenditure incurred by him/her on the health and maintenance of a disabled family member (spouse, children, brother, sister) who are dependent on him. The maximum deduction admissible under this Section is Rs. 75,000/- per annum. This can be increased up to Rs.1,25,000/- p.a. in case the dependent is suffering from severe disability. The deduction can be claimed by attaching a copy of certificate issued by the medical authority along with Form 10-IA while filling the Income Tax Return.

Section 80DDB

This deduction can be claimed on expenditure on a specific disease. The deduction amount is equal to the amount actually expended or Rs. 40,000/-, whichever is less. If the person for whom the expenditure is made is above 60, the limit is Rs. 60,000/- and Rs. 80,000/-, if the person is above 80 years of age.

Section 80EE

This Section is relating to payment of interest on home loan. The maximum deduction that can be claimed under this section is Rs. 50,000/- p.a., subject to certain conditions.

Section 80G

If a person donates to a fund notified by the Central Government, he/she is eligible for deduction of the amount denoted subject to the condition that such amount should not exceed 10% of the gross total income.

Section 80GG

This Section relates to rent payment on accommodation. If a person does not receive HRA as a part of salary, then he/she can claim this deduction.

Section 80GGA/Section 80GGC

If a person donates to specified institutions and to the political parties, he/she can claim these deductions.

Section 80TTA

Interest earned on saving bank accounts is allowed as deduction. The maximum amount that can be claimed as deduction under this section is Rs.10,000/-p.a.

Concluding comment

If a person starts tax planning from the beginning of the financial year and takes note of the Sections mentioned above, he/she can legitimately save a considerable amount of income tax.

Article by Partha K.
“Those who will not reason, are bigots, those who cannot, are fools, and those who dare not, are slaves.” - George Gordon Byron

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Author: Kailash Kumar02 Oct 2016 Member Level: Platinum   Points : 4

Under section 80 D of Income Tax Act, the taxpayer can get a tax deduction of maximum Rs 25,000 on the health insurance premium for self and family. In Addition to above, the taxpayer can further claim a tax deduction for the insurance premium of maximum Rs. 25.000 paid towards the health insurance premium of their parents. However, the limit is increased to Rs. 30,000 in case the taxpayer or the parents are senior citizens.

Thus a taxpayer of age 30 years having parents of above 60 years of age can get the benefit of section 80 D by investing up to Rs. 55,000. Also, the limit will increase to Rs. 60,000 in case both the taxpayer and their parents are senior citizens.

Author: NK SHARMA08 Oct 2016 Member Level: Gold   Points : 0

The article explain the tax saving for the serving person excellently. People generally are not aware of all these sections.
If low salaried people start using these sections to claim tax benefit, what will be left to take home?

Author: Neeru Bhatt13 Jan 2018 Member Level: Gold   Points : 3

A very informative article by the author.
I would like to mention some other savings by an individual which are considered under section 80C within the overall limit of 1,50000 in a year.

One is a deposit made in PPF account (Public Provident Fund) and other is tax saving FD in a bank. These are some instruments where people can deposit some amount in a year to get tax relief.

Author: Partha K.13 Jan 2018 Member Level: Platinum   Points : 3

Neeru Bhatt: Sincere thanks for reading this article. In the present article, I have mentioned various Sections of the Income Tax Act which help common people to save Income Tax. So far as investment in Public Provident Fund is concerned, it is covered under Section 80C. Many other investment vehicles, viz., investment in EPF and GPF, Life Insurance premium, investment in ELSS, etc. are covered under Section 80C of the IT Act. The maximum limit of exemption under this specific section is Rs. 1.5 lakh per anum. I sincerely hope that this limit is modified in the coming budget.

Author: Umesh14 Jan 2018 Member Level: Diamond   Points : 4

Today there are many avenues for tax exemptions but a majority of them are under section 80C. As the overall limit is curtailed at 1,50,000, there is limited scope in this section.

The other exemptions are case specific and not towards general savings. Until and unless the limit under 80C is revised, these exemptions will not be generating interest.

People who are paying tax and are in the bracket above 5 lacs are not much bothered by these exemptions. They are looking for rate cuts in the slab rates of 20% and 30% respectively.

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