When it comes to paying tax, everyone looks around for the ways through which they can get some tax benefits. Tax Evasion is a crime but to save tax via some legal ways is just a top-notch solution for all your queries. To get you out of this trouble Taxofile has made it easy for you to understand some important Allowances, Exemptions and Deductions through which you can definitely save your tax.
And in case you are looking forward to calculate your Income Tax click on the link below and just check it out:
Check out top 10 ways to save Income Tax in India:
1. House Rent Allowance [Section 80GG]:
House Rent Allowance is basically an allowance given to salaried individual and can claim only if that individual lives in rented accommodation and pays rent to the owner of the apartment. This can be partially or completely exempt from taxes. If your salary does not have an HRA component, but you pay rent for any furnished or unfurnished accommodation occupied for living purposes, you can claim deduction under Section 80GG on the rent.
Following conditions needs to be fulfilled to claim tax benefits under Section 80GG.
● You are either self-employed or salaried.
● There should be no HRA component in your salary during the year for which you are claiming a deduction under Section 80GG.
● You or anyone from your family, i.e., your spouse or minor child or HUF of which you are a member ‐ should not own a residential property in the city you are living or running a business.
● This benefit is only applicable to individuals and Hindu Undivided Families (HUFs).
● You are not eligible for a deduction if you are claiming a benefit, for a house you own in another location, listed as Self-Occupied Property.
Check out the below formula to know the computation of HRA:
2. Leave Travel Allowance [Section 10 (5)]:
Leave encashment means receiving an amount from an employer for equivalent number of days in exchange of number of leaves not availed by an employee. If taken during employment it is fully taxable for all employees and if taken at the time of retirement it is as follows:
Leave encashment salary received by government employee is fully exempt from tax.
Check out the below diagram made by Taxofile to understand this concept in better way:
3. Income from Gratuity [Section 10(10)]:
Gratuity is normally paid in lieu of the long-term service of an employee (usually>5 years close) but is a voluntary payment by the employer as an appreciation of the long-standing services.
The Gratuity so received is exempt as under:
a) For the central or State Government employees and for the members of the Defence Services any amount received as gratuity at the time of retirement / death is fully exempt.
b) For all other employees in the private sector refer point b.I & b.II:
b.I] In case the employee is covered under the Payment of Gratuity Act, 1972, any death-cum-retirement Gratuity is exempt to the extent of least of the following:
● INR 20,00,000
● Gratuity actually received
15 Days salary based on salary last drawn for each year of service or part thereof in excess of 6 months
(For simplicity sake, this is calculated as last drawn salary x number of years in employment x 15/26 (where last drawn salary is Basic salary and DA and number of years in service is rounded off to the nearest full year)
Here salary would mean (Basic + DA) and number of days in the month to be assumed to be 26.
b.II] In case the employee is not covered under the Payment of Gratuity Act, 1972, any death-cum-retirement Gratuity is exempt to the extent of least of the following:
● INR 20,00,000
● Gratuity actually received
● Half month’s Salary based on last 10 months average salary drawn immediately preceding the month of retirement / death, for each completed year of service
i) Here, salary would mean Basic + DA (only to the extent of forming of part of the retirement benefits) + Commission as a % of turnover and number of days in the month to be taken at 30.
ii) If Gratuity received by an employee from any of his past employer then amount of gratuity exempted earlier shall be reduced from Rs.20,00,000.
iii) If employee has not received any gratuity from his past employer, then period of past employment shall also be considered for calculating years of service.
4. Various Deductions [Section 80C]:
As per the provisions of Section 80 C of Income Tax Act, 1961, the taxpayers can claim the deduction maximum upto Rs.1,50,000 from their Gross Total Income for certain investments and payments such as:
- Mutual Fund
- Unit Linked Insurance Plan (ULIP)
- Home Loan Principle Payment
- Equity Linked Savings Scheme
- Senior Citizen Savings Scheme
- National Pension System
- Term Life insurance premium
- Public Provident Fund
- National Savings Certificates
- Tax-saving FDs
- Home loan repayment, etc.
5. Investments in National Pension Scheme [Section 80CCD]:
If a person is investing in National Pension Scheme then he can avail the tax benefit of deductions. Section 80CCD is divided in two sub-sections as follows:
a) Section 80CCD (1):
Investments in NPS are eligible for tax deductions under this sub-section. Any Indian citizen and NRI between the age of 18 and 60 years can invest in NPS and avail this tax benefit. The Maximum deduction can avail under this section is 10% of Salary (Salary Includes Salary + DA) and for self-employed individuals it is 20%.
b) Section 80CCD (1B):
A new section 80CCD (1B) has been introduced for an additional deduction of up to Rs 50,000 for the amount deposited by a taxpayer to their NPS account. Contributions to Atal Pension Yojana are also eligible.
a) Section 80CCD (2):
You can also claim deduction upto 10% of your salary on contribution made by the Employer. There is no monetary ceiling on this deduction.
6. Donation (Section 80G):
This allows you to claim tax deductions on donations made to charitable organizations.
Only the donations made towards charitable institutions registered under Section 12A can qualify for deductions. The donations must have been made through taxable income sources. Only those donations where contributions have been made via cash or cheque or demand draft will be eligible. All taxpayers, including non-resident Indians, are eligible.
a) Any donation made through cash and if the amount is above Rs.2000 then the particular person cannot claim for deduction.
b) The various contributions are eligible for a deduction of up to either 100% or 50%, with or without restriction, under Section 80G.
For the detail information of Section 80G click on the below link:
7. Interest Income [Section 80TTA]:
Section 80TTA allows you to claim a deduction of ₹10,000 on your interest income. This deduction is only available to individuals and HUFs. The deduction is allowed on:
a) The interest earned on a savings bank account.
b) The interest earned on a savings bank account with a co-operative society engaged in banking activities
c) The interest on a savings bank account with a post office
If the interest amount is less than Rs.10,000 entire interest income will qualify as a deduction. If your interest income is more than ₹10,000, then will get the deduction of Rs.10,000 only.
8. Disabled Dependent [Section 80DD]:
The Income Tax Act, 1961 has certain provision which gives benefit of saving tax income to those who are taking care of differently-abled individuals or a family member.
Following conditions needs to be satisfied to claim deduction under section 80DD:
● You are allowed to claim deduction only for dependent and not for yourself
● This deduction can be claim only by Individual and HUF
● In case of individual, dependent can be spouse, parents, siblings, and children. In case of HUFs, dependent can be a member of the HUF.
● Disability of the dependent should not be less than 40%. The disability should be as per the provisions given in Disabilities Act, 1995.
a) If the disability is more than 40% but less than 80% then can avail deduction upto Rs.80,000 and if it is more than 80% then can avail deduction upto Rs.1,25,000
b) The deduction amount does not depend on your expenditures towards caring for the dependent.
c) If you have bought a life insurance policy or a cover from the Unit Trust of India for the differently-abled dependent person, those expenses are deducted from the income tax calculation.
9. Contributions made to Political Parties [Section 80GGC]:
Section 80GGC of the Income Tax Act allows individuals to claim tax deductions on contributions made to political parties registered under Section 29A of the Representation of the People Act, 1951 and electoral trusts. You can get the deduction of entire amount unless you are contributing via cash.
This deduction is available only to individual taxpayers. Local authorities, Artificial Juridical Persons and companies cannot avail tax deductions under this section.
10. Interest on Education Loan [Section 80E]:
As per the provisions of Section 80E of Income Tax Act, 1961, you can get the deduction on the amount you spend in repaying the interest of your Education Loan.
This loan should have been taken from Bank or any approved Financial Institution and should have been taken for self, spouse, children and any student for whom you being a legal guardian.
a) Deduction Amount = Total amount paid in repaying Interest on education loan
b) Maximum Limit = There is no cap on maximum amount on which you can claim deduction
c) Condition = You need to acquire certificate from bank that differentiates the Principal and Interest component of your education loan.
All the allowances, deductions and exemptions are applicable to a person as per their investments and contributions. After considering lock in limit, liquidity, risk level and returns one need to decide whether to invest or not.