From the financial year 2020-21, individual taxpayers can choose between two tax regimes- the existing or old tax regime and new concessional one. The rates of payable tax for a given tax slab differ between these two regimes.
What is a tax slab? The slab system, based on which income tax is levied in India, simply implies that the rate at which individual taxpayers are liable to pay their taxes is decided according to the income tax slab that their annual income falls under.
The differences between these tax systems can be easily identified, and at first glance, the new system seems more concessional, especially for people with more than Rs.10 lakh of annual income. The old regime has higher tax rates and three tax slabs, whereas the new regime has lower tax rates and six tax slabs. Surcharge is applicable for both the old as well as new tax regime.
When it comes to tax savings, only the individuals opting for existing regime are eligible for tax deductions under the Income Tax Act of 1961, more specifically under the subsections of Section 80, etc. In contrast, those who opt for the new tax regime can only avail deductions under section 80CCD(2).
Hence, the popular preference is still expected to be the existing regime accompanied by the best ways to save taxes that are listed below.
Under section 80C and section 24, of the Income Tax Act, you can find provisions that allow deductions on income tax for individuals availing a home loan.
You are eligible for deduction under this section if the property in question is going to be constructed upon. If the construction is completed within 5 years of availing the tax deduction, the amount of possible deduction on the payable interest will be up to Rs.2 lakh. However, if the construction takes longer than 5 years to complete, this deduction can only be up to Rs.30,000.
Under this section, when you avail a home loan, you can avail deduction on the amount of Principal payment of loan up to Rs.1.5 lakh. According to this section, you can also avail an deduction on the expenditure that occurs in the registration process. However, the latter can be availed only once. Loans sanctioned during the FY 2016-17 are eligible for deduction. Hence, any home loan availed after FY 2016-17 will not be eligible for deduction.
If you purchase a health insurance policy for yourself, your spouse, or a dependent (this cannot include siblings), you are eligible under section 80D of the Act to claim an income tax deduction. The amount of possible deduction will be Rs.25,000 for each financial year if the insured individuals are under the age of 60 years.
If, however, an insured individual is above the age of 60 years, this amount can go up to Rs.50,000.
You can get a two-fold benefit where you can simultaneously earn and save with investments. If you take on investment (typically long-term), you can claim an income tax deduction of up to Rs.1.5 lakh under section 80C of the Act,. This could be a risky investment like Equity Linked Savings Scheme that has potentially high returns or a safer investment with lower returns like a fixed deposit.
Savings on income tax through investment can also be accomplished by investing in a government scheme. There are various schemes launched by the Indian Government that enables individuals to not only get secure returns but also save up to Rs.1.5 lakhs on income tax under Section 80C.
Some examples of such government schemes are National Pension Scheme, Public Provident Fund, Sukanya Samriddhi Yojana, and Senior Citizens Savings Scheme.
Section 80C of the Act also allows for a deduction that you are eligible to avail of when you buy a life insurance policy. This section allows you deduction of up to Rs.1.5 lakh on premium payments. However, if the sum assured amount of your policy is less than ten times the premium you are paying, then the tax deduction on the premium will be equal to up to 10% of the sum assured amount.
There are also certain deduction/exemptions available under Sections 80CCD(1) and 10(23AAB) that some people may be eligible for. Furthermore, Section 10(10D) states that the income of the amount received as a sum assured on the maturity of a life insurance policy will not be levied with income tax subject to the condition therein.
Under sections 80G and 80GGA, there are some provisions stated for deductions on payments made to charities. If you make a donation to a recognized charitable organization in cash, you are eligible to claim an deduction up to Rs.2,000. While donations to the same via bank transfers, cheques, demand drafts, etc., can potentially eligible for a deduction of up to either 100% or 50% with or without restriction, as provided in section 80G on the donation.
These are the best ways to save tax available in India that everyone must be aware of when looking into the most effective methods to accomplish tax savings. Avail of these options with products offered by Canara HSBC Oriental Bank of Commerce Life Insurance such as Invest 4G, iSelect Star, Guaranteed Income4Life. Browse through our wide range of plans and go through the brochures to find the details about all the plans and how they can help you save tax.