Your gross taxable income is calculated by adding the income from all sources. Then the tax deductions and House Rent Allowance or Leave Travel Allowance or any other exempted allowances are subtracted. The net result is the taxable income. You can save tax on this amount by claiming deductions under specific sections of the Income Tax Act of 1961.
The most extensive section is Section 80C. This entails all the investments that qualify for deductions as well as the amount of deductions that can be claimed to minimize tax. Deductions up to Rs. 1.5 lakh are available if you chose to opt for:
1. Equity Linked Savings Scheme
2. Senior Citizen Savings Scheme
3. Term Life Insurance Premium
4. Public Public Provident Fund
5. Home loan repayment
6. Tuition Fees
7. Tax saving FDs
8. National Savings Certificate
9. National Pension System
Life insurance is one of the best investments under this section. The number of accidental deaths or terminal illnesses are on the rise. Good medical care comes with exorbitant hospital expenses as well. As per the latest reports by India Spend, 988 million Indians still do not have life insurance. Thus the government has given tax benefits to nudge people towards opting for it. The Canara HSBC Oriental Bank of Commerce Life Insurance’s iSelect+ Term Plan offers one of the best protection plans including death and terminal illness cover. It offers special rates and discounts for women and non tobacco users. It also allows the coverage to be extended to accidental death and disability.
You can also opt for deductions upto Rs 1 lakh under Section 80D. This covers contributions to medical insurance premium bought for oneself, husband/wife, children or parents. These exemptions are over and above the claims made under Section 80C. Hindu Undivided Families (HUF) and individuals are both eligible to make claims under this section.
The other option is to claim a deduction of upto Rs. 10,000 earned on your interest income. This can be through a savings bank account, savings bank account with a co-operative society and interest on savings bank account with a post office. You are eligible through Section 80TTA of the Income Tax Act, 1961.
Contributing to charitable organizations can also help you minimize tax under Section 80G. Cash donations exceeding Rs. 2,000 are not eligible for tax deduction and the contribution must be made using a different mode of payment to claim the tax relief. Section 80GGC allows deductions to any person except local authority and every artificial juridical person for any amount of contribution made by him, in the previous year, to a political party except in cash.
While the above sections were universally applicable to all individuals, you can claim tax deductions only under special circumstances. Under Section 80E, if you have taken an educational loan for yourself, spouse or children, you can claim the interest on the loan as tax deduction.
For salaried individuals living on rent, House Rent Allowance which is a part of your salary can be claimed to minimize tax under Section 80GG. In case, your salary does not have an HRA component then the rent paid on any accommodation used for living purposes can be claimed as a tax deduction under this section.
Section 80DD has provisions allowing persons living with a disability or any family member suffering from a disability to claim deductions under this section. If you are suffering from a specific ailment as listed in Section 80DDB then you can claim deduction for the amount spent on medical expenses used for treatment at any private or government hospital. It is important to present a certificate of the disease while making the claim.
Section 80U provides tax relief for individuals certified to be at least 40% disables as certified by relevant medical authorities according to government rules. These disabilities include blindness, low vision, leprosy-cured, hearing impairment, locomotor disability, mental retardation or mental illness. Deduction upto Rs. 75,000 can be claimed for moderate disabilities and upto Rs. 1,25,000 for severe disabilities.
Thus, depending on your individual needs, you must choose the correct tax saving device while also taking into account the levels of risk, liquidity, lock in period as well as ensuring adequate returns. Make the best use of the tax saving mechanisms provided by the government and a well planned investment goes a long way in maintaining your financial health.