7 ways in which taxpayers can reduce their tax liability
October, 18th 2021
Nobody in this world likes to pay tax. If you have taxable income there is no way you can avoid paying tax. However, you can reduce your tax liability by proper planning from the very beginning of the financial year. In India, income tax rules have exempted certain expenses and investments from tax or if you do certain investments or make certain expenses then those will be eligible for tax deduction and exemption. So you can reduce your tax liability by making such investment and expenses.
Here are seven ways you can reduce your tax liability:
1. Payments for life insurance premium, pension schemes, provident fund Section 80C of Income Tax Act 1961 allows individuals to claim deduction up to Rs 1.50 lakh in payments towards life insurance premium, provident fund, PPF, investment in ELSS schemes, tuition fees paid for up to two children, National Savings Certificate, housing loan principal repayment etc.
Premium paid for annuity plans and pension plans of insurance companies can also be claimed for deduction under Section 80CCC. Similarly, under Section 80 CCD (1), deduction can be claimed on investments made in pension scheme of the Central Government.
But the total deduction under all the above three sections can not exceed Rs 1.50 lakh.
2. Investment in National Pension System (NPS) Under Section 80 CCD (1B), an additional deduction up to Rs 50,000 can be claimed on investments made in NPS by the employee. This is over and above the investment made under Section 80CCD (1).
Under Section 80 CCD2, a deduction towards contribution made by an employer to NPS can be claimed. But the extent of tax benefit will depend on the category of employer.
-In case the employer is a PSU, state Government or any other private sector company, the deduction limit is 10% of basic salary plus dearness allowance(DA).
-In case the employer is Central Government, the deduction limit is 14% of basic salary plus DA.
3. Income from house property Under Section 24(b), an individual can claim tax benefit on interest payment on home loan, home improvement loan on self-occupied property to the tune of Rs 2 lakh. But amount paid towards principal repayment of home loan can be claimed under Section 80C under the overall limit of Rs 1.50 lakh.
However, if you have opted for the new tax regime you can not claim this tax benefit.
4. Payment for health insurance premium Under Section 80 D, deduction can be claimed on premium paid to purchase health insurance for self and dependent family members and towards preventive health check-ups. However, there are various limits:
For self/spouse or dependent children or patents: Deduction of Rs 25,000 is allowed under Section 80D. In case the claimant or any family members are senior citizens then this deduction can be up to Rs 50,000. For preventive health checkups, only Rs 5000 deduction is allowed under Section 80D. Even, a deduction of Rs 50,000 can be claimed on medical expenditure incurred on a senior citizen under Section 80D.
5. Expenses on maintenance/treatment of disabled dependent A deduction up to Rs 75,000 can be claimed on expenses made for maintenance or medical treatment of a disabled dependent. But in case of severe disability (80% or more), the deduction can be up to Rs 1.25 lakh.
6. Payment for medical treatment Under Section 80 DD (1B), a deduction up to Rs 40,000 can be claimed for expenses made on medical treatment of self and dependent family members for specified diseases. This deduction limit will increase to Rs 1 lakh in case any of the family members is a senior citizen.
7. Interest paid on education loan Under Section 80E, an individual can claim deduction on interest payment on education loan taken for the higher education of seld, or dependent child or spouse. Worth mentioning here is that there is no upper limit on this deduction.