How to save Income Tax in India

Are you someone who loves Bollywood a lot? Do you also find Bollywood life glamorous? The life of celebrities always seems so exciting and full of glamour. Whether it comes to clothes, travel, or lifestyle, they are always ahead.

You must be knowing that these actors are always paid a jaw-dropping, hefty payment for everything they do, whether it's movies, song albums, advertisements, or performances.

But, people are usually so blinded by this glamorous show, that they often forget that if the income is high, the income tax will also be high. 

Not only is the income of Bollywood stars whooping high, but the income tax amount is also quite pompous. You must have heard in the news 'Akshay Kumar pays highest income tax this year', 'Massive tax amounts worth crores paid by film stars this year'. Well, Income Tax is a word, which always hits hard on the taxpayers. 

However, these amounts are always slashed with the help of income tax saving techniques. Do you know these techniques? If not, no worries! Let's understand everything bit by bit.  

What is Income Tax?

Income tax is a tax that is imposed on the income of individuals or entities. It varies with the income and profits of individuals and entities, respectively. There are differences in the amount of income taxes as its rates vary according to the type and characteristics of the taxpayer.

The amount of income tax will increase simultaneously with the increase in the taxable income of the taxpayer. Earnings subject to taxable income encompasses salaries, wages, dividends, rent, royalties, interest, product sales, and gambling winnings as well.

So, when we see comedian Kapil Sharma tweeting about his massive income tax amount, it includes not only his regular income from the show but also the income from all other activities he is indulged in.

Now, are you wondering how much amount would land up to you for this year's income tax payment? The following table shows the different tax rates for the different categories of taxable income for the fiscal year 2020-2021.

Oops!! Have you got a high-income tax amount to pay? Do you wish to save your money from getting vanished in Income Tax?

Read further to understand how to save on income tax.

Income Tax Saving Tips

The government of India also provides certain ways in which the income tax of taxpayers could be minimized. Income Tax Act, 1961 entails some tax savers which includes mutual funds, insurance premiums, NPS, medical insurance, home loan, and many others.

There are some sections that act as a relief for the taxpayers, as under these predominant sections, they can save tax. These sections are 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80CCG, 80G.

They can certainly be helpful for many taxpayers, especially the income tax by salaried employees. Discerning the exemptions and allowances for income tax is the foremost thing in the financial planning of any individual or entity.

Therefore, the following table shows the sections and exemption limits for each.

How to Save Income Tax Under Section 80C?

Under section 80C, various investments and expenses options are present through which you can claim a deduction to a limit of Rs. 1.5 lakh in a financial year. These options are as follows:

Equity Linked Saving Scheme (ELSS)

Equity Linked Saving Scheme is the only mutual funds' category which provides the facility of tax deduction under the Income Tax Act. ELSS comes with a lock-in period of 3 years.  

The returns of ELSS are higher than other income tax saving schemes in the long run, as the investments are made in the equity markets. But two things to be kept in mind with ELSS is that it cannot be withdrawn before the lock-in period of 3 years and have high risk as the investments are in equity markets.

National Saving Certificates (NSC)

NSC is another income tax saving technique that comes with a tenure of 5 years. The National Saving Certificate provides a fixed rate of interest, which is currently 6.8% per annum. 

The interest which is received from this income tax saving technique is a decent tax-saving option and under section 80C, up to Rs. 1.5 lakh could be taken as a rebate. 

Public Provident Fund (PPF)

PPF is one of the most sought after income tax saving techniques in India. In PPF, a long-term investment could be made with a tenure of 15 years. One can open a PPF account in banks and post offices with a minimal amount of Rs. 500. 

The PPF rates change every quarter, which is currently 7.1%. The interesting thing about PPF is that the interest on PPF is tax-free. 

Employees Provident Fund (EPF)

The 12% part of the salaries of employees subjected to Employees Provident Fund is tax-free. Therefore it is a beneficial income tax saving scheme for the service line individuals.

Senior Citizens Saving Scheme (SCSS)

SCSS is an income tax saving scheme which is specially designed for senior citizens. It comes with a tenure of 5 years, which is available for only those who are above 60 years. 

The current rate of interest is 7.4% (taxable). However, the exemption limit of this is Rs. 1.5 lakh. It means the tax deduction of this limit can be availed under this scheme. 

Sukanya Samridhi Yojana (SSY)

This income tax saving technique is especially for those individuals who have daughters that are below the age of 10 years. The investment made by the individuals under the Sukanya Samridhi Yojana scheme helps in reducing their income tax. The interest earned is also tax-free. 

This scheme is valid for 21 years until the daughter gets spousal support. The current rate of interest for the same is 8.5%. 

Tuition Fees

As the name suggests, this income tax saving technique is for those individuals who are parents and fund their children's education. Again the tax dedication of Rs. 1.5 lakh can be claimed under this income tax saving technique. 

The deduction of tax is not dependent upon the child's class or level of education. This income tax saving scheme is for parents of all kinds including, divorced, single parent, or those who have adopted a child. 

Repayment of Home Loan

For not allowing the income tax to hinder the process of buying one's own home, the section 80C comes with a scheme where those people, who are already paying the EMIs for their home loan, are exempted from paying income tax on the interest. 

They can claim tax deductions under section 80C. 

What are the Other Income Tax Saving Options?

Apart from section 80C, there are other sections (mentioned earlier) that provide income tax exemptions. A few of those income tax saving options are as follows:

1. There are tax deductions for the contributions to the National Pension System(NPS). The limit for deduction is 1.5 lakh. 

2. There is an income tax deduction for the medical insurance premium. This is up to Rs. 25,000, and Rs. 50,000 in case of senior citizens. 

3. There is a tax deduction on home loan interest as well; you can claim a deduction up to Rs. 50,000 under section 80EE. 

The Bottom Line

So, if you are one among those who are high earners but at the same time lacks the knowledge of saving income tax, then the above-mentioned techniques could be beneficial for you. 

Saving income tax is another way of testing the proficiency of your mind. It requires nothing but wise decisions in the process of making investments at different places. If you are successful in decently saving your income tax, then you have climbed the first step of the ladder of your financial planning.