How to save income tax? Top Tips, Options – Home Credit, Education Credit, NPS, APY, 80CCD, 80C, House Rental, and more

How to Save Income Tax: We all want to save as much money as possible, provided it is legally correct. How to save income tax is probably one of the most searched terms when it comes to saving money for taxpayers. We should all always have to pay our income tax when it comes to nation building and strengthening the economy. But intelligent, planned and strategic investments can help us save some money to pave the way for a financially secure future. Ravi Singhal, Vice Chairman, GCL Securities Limited shares his options for savings on tax knowledge for FY 2021-22 and lists ways every taxpayer should explore to save some income tax: –

Use maximum benefit of 80C: If you plan on saving income tax, from now on you should avail the maximum benefit of less than 80C (Rs 1.5 lakhs per year). One can freely choose the savings instruments of their choice, such as people who do not want to take any financial risk, can choose 5-year Tax Saver FD, life insurance or other investment products with a fixed return. Those who are not shy about taking risks can invest in mutual funds under ELSS categories. There is no difference in the performance of ELSS and a normal mutual fund, except that there is a lock-in period of 3 years in ELSS category funds.

Never Ignore 80CCD: One should also consider using the maximum limit below 80CCD (Rs 50k from now on) to save Rs 15k by investing in NPS (National Pension System) or APY (Atal Pension Yojna). There is a myth that NPS provides very low returns compared to other available products, which is absolutely false. You can compare the performance of all the funds in this category and choose the fund of your choice. 50% of your money is invested in these market-related products and 50% in debt instruments such as government bonds. This ratio is changed every year by the fund manager and 100% of your money is parked in the debt market until retirement. As an assessee, you already save 15,000 in tax, so whatever you earn actually earn at 35,000, so your actual return is much higher if you save in this category. However, the products under 80CCD are pension funds only, so there are some restrictions on withdrawing funds. You should take this into account before investing.

Triple benefit of a home loan: Owning a home offers the threefold benefit of home rental savings, long-term value appreciation, and tax breaks. If you stay on a rental property, your rental costs will increase every year, while your EMIs are almost fixed (if interest rates don’t change) Finance Minister Nirmala Sitaraman has a longer timeline in her 2021 budget for taking advantage of additional tax breaks of Rs 1.5 lakhs under section 80EEA. Under ‘Housing for All’, the government gives tax deductions of up to Rs 3.5 lakhs (Rs 2 lakhs under section 24) which cannot be ignored.

In addition, you can save tax under multiple sections according to the following scheme if you buy a home: –

Section

Maximum tax benefits

Tax-saving component

Requirements

Section 24

Rs 2,000,000

Interest on mortgage loans

Tenant or any family member must live in that house, full interest can be claimed if the house is for rent.

80EEA

Rs 1.50,000

Interest on mortgage loans

-Stamp duty value of property must be up to Rs 45 lakhs

– Loan section date between April 1, 2021 and March 31, 2022

– The tenant does not own any homes until part of the loan.

– Not claim any amount under section 80EE of the income tax.

– Loan from financial institution only.

80C

Rs 1.50,000

Principal mortgage loans

– Property may not be sold within 5 years of ownership.

So if you claim all tax in all of the above components, you can claim a maximum deduction of Rs. 5 Lakhs

In addition, let’s have a look at the summary of other options for saving income tax: –

Section

Description

Annually

Deduction

Limits (in Rs)

80C

Below are the instruments covered
1. Savings in premium life insurance Mutual Funds (ELSS category only), PPF, FD (5 years, tax savings only), postal deposits, national savings program.

2. Payment of tuition fees (max. 2 children).

3. Principal repayment of a home loan.

1.50,000

80CCD

Investment in National Pension System (NPS), Atal Pension Yojana (APY).

50,000

80D

Premium paid for medical insurance for himself, spouse and children.

25,000 (50,000 if the age is over 60)

Premium paid for parental medical insurance.

25,000 (50,000 if the age is over 60)

80E

Interest paid on education loan for self, spouse or children. Interest paid for a period of only 8 years.

No limits

80EE

Interested first time home owner. The house value must be <= 50 Lac and the loan value <= 35 Lac.

50,000

80G

Donations to various govt. approved charities, social and govt. organizations. (50% amount can be claimed for some organizations)

Max. 10% of the gross annual income.

80GG

Paid housekeeping, with the individual not getting HRA and not owning property.

Rent paid minus 10% of total income, 25% of total income or 5000 / month, whichever is less.

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