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How to save income tax (the legal way)?

Everybody, especially salaried individuals, wants to save their taxes. However, only a few knows about the deductions available and how to use those deductions lawfully. Here are some common deductions that are widely used to plan Income tax in India (for old tax regime):

1.) Section 80C instruments:

Mostly used deductions u/s 80C are:

  • Life insurance premium paid

  • Tuition fees of 2 children

  • Public Provident Fund (PPF)

  • Employee Provident Fund (EPF)

  • National Savings Certificate (NSC)

  • 5-year Fixed Deposits

  • Repayment of Housing Loan (Principal Component)

  • Stamp duty/Registration fees for Purchase of Residential Property

  • Equity Linked Saving Schemes (ELSS)

  • Mutual Fund/ UTI eligible for 80C

The Maximum deduction under Section 80C is ₹1.5 lakh.

2.) NPS (National Pension Scheme):

Contributions to the NPS under Section 80CCD(1B) – Maximum Rs. 50,000.

3.) Health Insurance Premium (Section 80D):

Health insurance premium paid and Preventive Health checkup –

  • For yourself, your spouse, dependent children 

Maximum Rs. 25,000 (if none of them are senior citizen)

Maximum Rs.50,000 (if senior citizen)

  • For Parents

Maximum Rs. 25,000 (if none of them are senior citizen)

Maximum Rs.50,000 (if senior citizen)

4.) Home Loan Interest (Section 24):

The interest paid on a home loan is eligible for deduction under Section 24. The maximum deduction for self-occupied property is ₹2 lakh.

5.) Education Loan Interest (Section 80E):

Interest paid on education loans is eligible for deduction under Section 80E. This deduction is available for a maximum of 8 years.

6.) Donations to Charitable Institutions (Section 80G):

Donations made to specified Charitable Institutions are eligible for deduction under Section 80G.

7.) Donation to Political Parties (Section 80GGC):

Donations made to Political Parties or Electoral Trusts are eligible for deduction under Section 80GGC.

8.) HRA (House Rent Allowance):

If you live in a rented accommodation, you can claim HRA as a deduction.

9.)  Standard Deduction (for Salaried Individuals):

Salaried individuals can avail the standard deduction of ₹50,000.

10.) Leave Travel Allowance (LTA):

Utilize the LTA provided by your employer for travel expenses within India. This is eligible for exemption twice in a block of four years.

11.)  Income Splitting:

Distribute income among family members in lower tax brackets, ensuring that it is within the legal framework and complies with the Income Tax Act.

Before using any tax deduction, it is advisable to consult with a tax professional or firms like VPJ World (who have a very competent team of CA's and ex-bankers to help you with your finances) to ensure compliance with the Income Tax Act.


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