Budget 2021 is knocking on our doors and with the season of tax planning approaching, many of us are thinking to get a piece of advice on how to save tax liability. In our mind, we all dream to live in a tax-free world, but that isn’t a reality. However, you can reduce tax outgo through proper tax-planning and using various incentives provided by the government to reduce the tax burden. In this article, we tried to brief you about various tax deduction you can avail of to lower your tax liability:
Save Rs. 150,000 tax through Investments – Section 80C/80CCC/80CCD
According to Section 80C of the Income Tax Act 1961, taxpayers can claim deduction benefits of Rs. 150,000 by investing in various financial instruments including: Public Provident Fund (PPF), Employee Provident Fund (EPF), Unit Linked Insurance Plans (ULIPS), National Pension System (NPS), Sukanya Samridhi Yojana (SSY), Senior Citizen Saving Schemes (SCSS), National Saving Certificates (NSC), Term Life Insurance Premium, Equity Linked Saving Scheme (ELSS), Home loan repayment, Tuition fees, Tax Saving FD’s.
Section 80 CCD (1b) provides additional deduction of Rs. 50,000 on NPS investments. This deduction is additional to Rs. 150,000 provided in Section 80C.
Get a Health Insurance and save up to Rs. 50,000 – Section 80D
Under Section 80C of the Income Tax Act 1961, taxpayers can claim the maximum deduction benefits of Rs. 25,000 on health insurance for self and family including spouse, children, and parents. If your parents are above the age of 60 years, you can claim a maximum deduction of Rs. 50,000 on their behalf.
Disabled Dependent and save up to Rs. 125,000 – Section 80DD
Under Section 80DD of the Income Tax Act 1961, if your dependent including spouse, children, or parents have a disability of more than 40% and less than 80%, you can claim Rs. 75,000 as deduction and if a disability is more than 80% you can avail a deduction of up to Rs. 125,000. This includes expenditure on treatment, training, and rehabilitation of dependent persons with disabilities.
Suffering from Specific Ailments and save up to Rs. 125,000 – Section 80DDB
Under Section 80DDB of the Income Tax Act, you can claim tax deductions on medical expenses incurred to treat specific ailments. Deductions can only be claimed on the treatment for the diseases listed under Section 80DDB. The maximum deduction availed can be Rs. 100,000 for senior citizens and Rs. 40,000 for non-senior citizens. The treatment must be for the taxpayer or a family member such as a spouse, parent, or sibling, dependent on the taxpayer.
Have Education loan, save entire interest money – Section 80E
Under Section 80E, the Taxpayer can avail a deduction of the entire interest amount paid on education loan for self and dependent.
Buying Home for First Time, save entire interest money – Section 80EE
Section 80EE allows a deduction up to Rs. 50,000 for Interest on home loans if you are a first-time homebuyer. Certain conditions include, the value of the house should be less than Rs. 50 Lakh and loan amount should not exceed Rs. 30 lakh.
Donate and save entire interest money – Section 80G
Experience “Joy of Giving” without paying taxes on it. Under Section 80G, you to claim tax deductions on donations made to charitable organizations. Donations during the year are eligible for a deduction of up to either 100% or 50%, with or without restriction.
Living on Rent, Save Rs. 60,000 – Section 80GG
Under Section 80GG, taxpayers can save Rs. 60,000 during the year towards rent with respect to any furnished/unfurnished residential accommodations.
Deductions on Interest on Saving Account – Section 80TTA & Section 80TTB
Under Section 80TTA, taxpayers can avail a maximum deduction of Rs. 10,000 on interest earned from deposits on savings accounts with a bank or a cooperative bank or post office.
Under Section 80TTB, Senior Citizen taxpayer can avail a maximum deduction of Rs. 50,000 on interest earned from deposits on savings accounts with a bank or a cooperative bank or post office.
Suffering from Specific Ailments and save up to Rs. 125,000 – Section 80U
Under Section 80U of the Income Tax Act, individuals who are certified by medical authorities to be at least 40% disabled can claim tax deductions. A person suffering from following ailments can claim tax benefits under Section 80U: Blindness, Low vision, Leprosy-cured, Hearing impairment, Locomotor disability, Mental retardation, Mental illness. Deductions can only be claimed on the treatment for the diseases listed under Section 80U. A person suffering from at least 40% disability can claim Rs. 75,000 for self and if a person suffering from disability more than 80% can claim Rs. 125,000 for tax deductions.
Buying an Electric Car can Save Rs. 150,000 – Section 80EEB
In order to boost the green eco-system, the Government has allowed a maximum deduction of Rs. 150,000 on interest amount on loan bought for buying electric vehicle between 1 April 2019 and 31 March 2023.
Before investing in financial instruments particularly for the tax deduction, it is very important for you to consider your risk apatite, investment horizon, risk factors, liquidity, and lock-in period. It, therefore, becomes necessary to evaluate your investment product before buying.