Filing Income Tax Returns (ITR) can often feel like a complex tax, but with strategic planning and a thorough understanding of tax-saving opportunities, you can significantly reduce your tax liability and boost your savings. Whether you are a salaried employee, a business owner, or a professional, knowing how to optimise your taxes legally can help you retain more of your hard-earned money. With this comprehensive guide we will provide you tips on how to save tax while filing ITR, covering everything from investments and deductions to exemptions and financial products that offer significant tax benefits.
1. Utilise Section 80C deductions
Section 80C of the Income Tax Act allows for deductions up to Rs. 1.5 lakh on various investments and expenses. Here are some common ways to utilise this section:
- Public Provident Fund (PPF): Contributions to PPF are eligible for tax deductions under Section 80C. The interest earned is also tax-free.
- Employee Provident Fund (EPF): Contributions made by you and your employer to the EPF can be claimed as deductions.
- National Savings Certificate (NSC): Investments in NSC are eligible for deductions, and the interest earned is taxable.
- Equity Linked Saving Schemes (ELSS): These mutual funds offer tax benefits and potential for capital appreciation.
- Life insurance premiums: Premiums paid for life insurance policies for yourself, spouse, and children can be deducted under Section 80C.
- Home loan principal repayment: The principal portion of your home loan EMI is eligible for deduction under Section 80C.
2. Claim deductions under Section 80D
Section 80D provides deductions for health insurance premiums. You can claim:
- Rs. 25,000 for premiums paid for yourself, spouse, and dependent children.
- Rs. 50,000 for premiums paid for senior citizen parents.
- Additional deduction of Rs. 5,000 for preventive health check-ups.
3. Take advantage of Section 24(b)
Section 24(b) allows for deductions on the interest paid on home loans. You can claim:
- Up to Rs. 2 lakh for a self-occupied property.
- The entire interest amount for a let-out property, which can significantly reduce your tax liability.
4. Avail the benefits of Section 80E
If you have taken an education loan for higher studies, the interest paid on such a loan can be claimed as a deduction under Section 80E. This deduction is available for a maximum of 8 years or until the interest is fully repaid, whichever is earlier.
5. Utilise House Rent Allowance (HRA)
If you are a salaried individual receiving House Rent Allowance (HRA), you can claim a deduction on the rent paid. The amount of deduction will be the least of the following:
- Actual HRA received.
- 50% of your salary (if living in a metro city) or 40% (if living in a non-metro city).
- Rent paid minus 10% of your salary.
6. Section 80G: Donations to charitable institutions
Donations made to specified charitable institutions and relief funds can be claimed as deductions under Section 80G. Depending on the institution, the deduction can be either 50% or 100% of the donation amount.
7. National Pension System (NPS)
Contributions to the National Pension System (NPS) are eligible for tax deductions:
- Up to Rs. 1.5 lakh under Section 80C.
- An additional Rs. 50,000 under Section 80CCD(1B).
- NPS is a great way to save for retirement while enjoying tax benefits.
8. Interest on savings account: Section 80TTA and 80TTB
- Under Section 80TTA, you can claim a deduction of up to Rs. 10,000 on interest earned from savings accounts.
- Senior citizens can claim a deduction of up to Rs. 50,000 on interest earned from savings accounts, fixed deposits, and recurring deposits under Section 80TTB.
9. Tax benefits on home loans
Home loans not only provide the benefit of owning a home but also offer significant tax savings.
- Principal repayment (Section 80C): As mentioned earlier, the principal portion of your home loan EMI is eligible for deduction up to Rs. 1.5 lakh.
- Interest payment (Section 24): Interest paid on home loans can be claimed up to Rs. 2 lakh for self-occupied property.
By opting for a home loan from financial institutions like Bajaj Housing Finance, you can avail of attractive interest rates and customised repayment options, enhancing your overall tax savings.
10. Fixed deposits and tax-saving instruments
- Tax-saving fixed deposits: Investments in tax-saving fixed deposits with a 5-year lock-in period are eligible for deductions under Section 80C.
- Senior Citizen Savings Scheme (SCSS): This is another investment option for senior citizens, providing tax benefits under Section 80C.
11. Invest in health insurance
Health insurance not only secures your health but also offers tax benefits. Premiums paid for health insurance policies can be claimed under Section 80D as discussed earlier. Opting for a comprehensive health insurance plan from reputed insurers ensures you get the best coverage along with tax benefits.
12. Consider tax-free bonds
Interest earned from tax-free bonds issued by government organizations is exempt from tax. These bonds are a good investment option for individuals in higher tax brackets, offering decent returns with no tax liability on the interest earned.
13. Tuition fees
Tuition fees paid for up to two children can be claimed as a deduction under Section 80C. This includes payments made towards full-time education at any school, college, or university in India.
14. Save on capital gains
By investing in specified instruments, you can save on capital gains tax:
- Section 54EC: Invest in bonds issued by NHAI and REC to save on long-term capital gains from the sale of property.
- Section 54F: Reinvesting the sale proceeds from a long-term capital asset into a residential house can help you save on capital gains tax.
Saving tax while filing your ITR requires careful planning and strategic investments. By understanding and utilizing the various sections of the Income Tax Act, you can significantly reduce your tax liability. Remember to keep proper documentation for all your investments and expenses to ensure a smooth and hassle-free filing process.
