Income Tax Saving Guide in India

Published On: 11-Sep-2020

Benjamin Franklin once said, “there is nothing certain in this world, except death and taxes.” Paying taxes is generally not-so-good feeling for the taxpayers, but it can be seen as one’s contribution towards the economic prosperity of the Nation. However, the taxpayers can also avail certain benefits within the overall ambit of Income-tax laws.

A person wearing a suit and tie

Description automatically generated

Here are a few income tax saving tips for an individual to adopt:

The standard deduction in respect of Salaried Individuals

A salaried individual is eligible to claim a standard deduction of Rs. 50,000 in respect of salary income. No action is required on the part of the taxpayer except for claiming such deduction in while paying the tax.   

Investment in Equity Linked Savings Scheme (ELSS)

Section 80C of the Income Tax Act 1961 provides tax benefit up to Rs. 1.50 lakhs in a financial year on account of certain eligible tax-saving payments and investments. One of such eligible tax-saving investments is the ELSS

It is a specified category of equity-oriented funds that invests 65% or more in equities and equity-related securities and carry a lock-in period of 3 years from the date of investment. This lock-in period is the lowest among all the available investment options u/s 80C. 

Contribution to PPF Account

PPF account is also one of the available options under Section 80C. The taxpayer may deposit an amount up to Rs. 1.50 lakhs in a financial year in their PPF account. PPF accounts may be opened for a minimum period of 15 years and may be further extended for further 5-year blocks. 

The Finance Ministry set the interest rate every year for the PPF investments. PPF allows a minimum investment of Rs 500 and a maximum of Rs 1.50 lakhs for each financial year. The current interest rate notified for PPF accounts is 7.1% per annum as applicable from April 1st, 2020 (Source – Ministry of Finance). 

Payment of Life Insurance Premium

If one has paid the premium for life insurance policies, such payment is eligible for tax benefit under Section 80C. 

Tax Benefit on Home Loan

If an individual has taken a home loan, they may claim in respect of interest on such a home loan under Section 24 of the Income Tax Act. Further, the repayment of the principal amount is also eligible for tax benefit u/s 80C, subject to the overall ceiling limit of Rs. 1.50 lakhs for all the eligible tax-saving payments.

Interest on Savings Accounts

An individual may avail tax benefit of up to Rs. 10,000 in respect of interest on Savings Account only. However, the Senior Citizens are eligible for a tax benefit of up to Rs. 50,000 in respect of interest on savings accounts and deposit accounts (fixed deposits/ recurring deposits) etc. under Section 80TTB.

Exemption in respect of Rent Paid

Salaried employees often enjoy the HRA (House Rent Allowance) component in their pay packages. But, if one does not receive HRA as per the compensation structure, one may still avail benefit u/s 80GG. It allows benfits in respect of rent paid to the extent of the lowest of Rs. 5,000 per month, 25% of income and rent paid minus 10% of income

Medical Insurance Premium

Tax benefit for medical insurance premium payment is covered under Section 80D of the IT Act. One may pay the medical insurance premium for self, spouse, dependent children, and parents and avail tax benefit up to Rs. 25,000 in respect of such insurance premium, which increases to Rs. 50,000 in case the policy is for the benefit of senior citizen parents.

Voluntary Contribution towards National Pension Scheme (NPS)

The investors may avail tax benefit for making a voluntary contribution towards NPS under 80CCD(1B) up to Rs. 50,000 in a year, which is over and above the limit of Rs. 1.50 lakhs under Section 80C. Further, only the investment in Tier-1 Account in NPS is eligible for an additional benefit of Rs. 50,000.

Tax Benefits under the New Tax Regime with Reduced Tax Rates

Union Budget 2020 has allowed an option to the taxpayers to opt for reduced income tax rates if they opt to forego certain tax benefits. As such, the tax benefits may not be available to the taxpayer if he/ she chooses the new tax regime. In such cases, the taxpayer will not be eligible to avail any of the tax benefits discussed above, except in respect of the home loan. 

 Disclaimers: The information set out above is included for general information purposes only and is not exhaustive or comprehensive guide to Income Tax Savings in India, also does not constitute legal or tax advice. In view of the individual nature of the tax consequences, each investor is advised to consult his or her or their own tax consultant with respect to specific tax implications arising out of their participation in the Scheme. Income Tax benefits to the mutual fund & to the unit holder is in accordance with the prevailing tax laws/finance act 2020. Any action taken by you on the basis of the information contained herein is not intended as on offer or solicitation for the purchase and sales of any schemes of UTI mutual Fund. Please read the full details provided in SID and SAI carefully before taking any decision.

UTI AMC Ltd is not an investment adviser, and is not purporting to provide you with investment, legal or tax advice. UTI AMC Ltd or UTI Mutual Fund (acting through UTI Trustee Company Pvt. Ltd) accepts no liability and will not be liable for any loss or damage arising directly or indirectly (including special, incidental or consequential loss or damage) from your use of this document, howsoever arising, and including any loss, damage or expense arising from, but not limited to, any defect, error, imperfection, fault, mistake or inaccuracy with this document, its contents or associated services, or due to any unavailability of the document or any part thereof or any contents or associated services.