Tax saving guide | How to save Income tax 2021: A quick guide on how to save tax in a financial year

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Tax payers are usually conscious of the widespread tax-saving deductions (comparable to part 80C of the Revenue-tax Act, 1961) that may be availed throughout a monetary yr. Nevertheless, there are different deductions out there underneath completely different sections of the Revenue-tax Act that may assist a person carry down their tax legal responsibility additional.

Do understand that from FY 2020-21, a person can proceed with the outdated tax regime by availing of present deductions and tax exemptions. He/she additionally has the choice to pay tax underneath the brand new, concessional tax regime which disallows many of the present deductions and tax exemptions.

In each the tax regimes, a rebate is on the market in case your internet taxable revenue doesn’t exceed Rs 5 lakh throughout a monetary yr. Successfully, this might imply that there might be no tax legal responsibility in case your internet taxable revenue doesn’t exceed Rs 5 lakh.

Here’s a fast have a look at how one can save tax through the use of varied deductions allowed underneath the Revenue-tax Act.
It’s the mostly used part the place a person can save tax by investing or spending most of Rs 1.5 lakh in a monetary yr in/on specified avenues. A number of the generally used funding/expenditure avenues underneath Part 80C are: Workers’ Provident Fund (EPF), Public Provident Fund (PPF), Fairness-linked financial savings scheme (ELSS) mutual funds, Nationwide Pension System (NPS), compensation of principal quantity of residence mortgage, kids’s college charges and so on.

Additionally Learn: Investments to avoid wasting tax underneath part 80C

You may additional save tax by investing further Rs 50,000 in NPS. Do understand that this deduction is on the market over and above the tax profit out there underneath part 80C. Thus, it can save you tax by investing as much as Rs 2 lakh in a monetary yr -Rs 1.5 lakh underneath part 80C and Rs 50,000 underneath Part 80CCD(1b).
This deduction is on the market on the employer’s contribution to an worker’s Tier-I NPS account. A most contribution of 10% of the essential wage plus dearness allowance (if relevant) is allowed underneath this part.

Do understand that efficient from FY 2020-21, employer’s contribution to retirement funds – EPF, superannuation funds, NPS – of greater than Rs 7.5 lakh in a monetary yr might be taxable within the fingers of the worker. Additional, any curiosity earned on such contributions can even be taxable within the fingers of the worker.

Thus, whereas availing the tax profit underneath this part, do make sure that employer’s contribution to your NPS account in addition to EPF contribution doesn’t exceed Rs 7.5 lakh in a monetary yr.

Additionally, do notice that that is the one deduction out there underneath each the outdated and new tax regime.

Premium paid for the medical insurance coverage of self, partner and dependent kids might be claimed as deduction underneath part 80D of the Revenue-tax act as much as Rs 25,000. Along with that, premium paid for the medical insurance of oldsters can provide further tax break as much as Rs 25,000. In case your dad and mom are senior residents (age 60 years and above), then this tax break would go as much as a most of Rs 50,000. Due to this fact, medical insurance premium paid for self (together with partner and dependent kids) and senior citizen dad and mom might help you save tax as much as Rs 75,000 in a monetary yr. If each the taxpayer and oldsters’ are senior residents then, the utmost deduction of Rs 1 lakh might be claimed in a monetary yr.

In case your senior citizen dad and mom should not lined underneath any medical insurance coverage, then the medical expenditure incurred for them might be claimed as deduction underneath part 80D. The utmost quantity that may be claimed as deduction underneath part 80D for medical payments on this method is at the moment Rs 50,000.

Additionally Learn: Your dad and mom’ medical payments might help you save tax: This is how

  • Part 80DD and Part 80DDB

Other than part 80D, there are two different sections that may assist you to save tax in case of medical bills incurred for disabled and/or specified individuals. Part 80DD affords a tax break on the medical bills incurred for a dependent disabled individual. Dependent right here contains partner, kids, dad and mom, brothers and sisters of the person.

The deduction allowed will depend on whether or not the dependent is disabled or severely disabled. If the dependent is no less than 40% disabled, then the utmost deduction that may be claimed is Rs 75,000. Then again, if the incapacity is 80% or extra, then it’s thought-about as extreme incapacity and the utmost deduction that may be claimed is Rs 1.25 lakh.

Part 80DDB affords a deduction for the medical bills incurred for the therapy of specified diseases comparable to cancers, power kidney illnesses and so on. This deduction might be claimed for the bills incurred on self or the dependent. For people under 60 years of age, whether or not self or dependent, the utmost deduction allowed is Rs 40,000. For senior residents aged 60 years and above, the utmost deduction that may be claimed is Rs 1 lakh. The checklist of illnesses for which deduction might be claimed underneath this part is specified within the Revenue tax Act.

Additionally Learn:Medical bills that may save tax underneath part 80DDB

In case you are a person with incapacity of 40% and above, then you’ll be able to declare a tax break underneath part 80U. Nevertheless, deductions underneath sections 80U and 80DD can’t be claimed concurrently. Deduction underneath part 80U is claimed by the disabled particular person whereas deduction underneath part 80DD is claimed by the dependant who has incurred bills for the therapy of the disabled particular person. The deduction quantity underneath Part 80U for incapacity and extreme incapacity is similar as talked about for part 80DD.

Additionally Learn:Deductions out there for disabled individuals

Other than the tax profit out there on residence mortgage principal compensation underneath part 80C, one also can declare tax profit on a most of Rs 2 lakh on the curiosity paid on the mortgage throughout a monetary yr. This profit is on the market just for mortgage taken for self-occupied property. In case you are paying curiosity on residence mortgage for an under-construction property, this profit might be out there after the possession of the home, supplied it occurs inside 5 years. The curiosity paid through the development interval might be gathered and claimed in 5 equal instalments after getting possession of the home.
If in case you have taken a house mortgage to purchase a home underneath the reasonably priced housing phase throughout FY 2020-21, then you’re eligible to say further tax break on curiosity paid as much as a most of Rs 1.5 lakh. This deduction is on the market over and above part 24 (talked about above) the place you get a tax good thing about as much as Rs 2 lakh. Nevertheless, there are specific situations that it’s essential to fulfill earlier than claiming tax profit underneath Part 80EEA.
Contributing to charity also can assist you to save tax. Should you donate to specified authorities notified funds underneath part 80G you’ll be able to declare as much as 100% of the donation as a deduction out of your gross whole revenue thereby lowering your taxable revenue and consequently the tax payable.

Additionally Learn:
How a lot tax profit you’ll get for donating cash

Curiosity earned on balances in financial savings accounts held with banks or submit places of work is taxable underneath “Revenue from different sources”. Nevertheless, curiosity earned from these sources as much as Rs 10,000 in a monetary yr might be claimed as a deduction from gross whole revenue underneath part 80TTA. Nevertheless, senior residents can’t declare this deduction as they’re eligible to say deduction underneath part 80TTB.
Senior residents (these aged 60 years and above) can declare a most deduction of Rs 50,000 from gross whole revenue underneath this part. The deduction might be claimed on the curiosity earned from specified sources comparable to financial savings account, fastened deposits, senior citizen financial savings account and so on.

Additionally Learn: How senior residents can save tax on curiosity revenue

Curiosity paid on training mortgage can even get you a tax break. Solely people can declare this deduction. HUFs should not entitled to this deduction. There is no such thing as a restrict on the utmost quantity that one can declare as a deduction from gross whole revenue underneath this part in a monetary yr. Nevertheless, the profit is on the market for a most of 8 years from the beginning date of mortgage compensation.

How Part 80C helps you in tax-saving: 5 issues to remember

​You may go for these deductions if…

You’ve heard sufficient point out of it, particularly round this time of the yr, ie. the tax-saving season. Part 80C is maybe probably the most steadily used route for saving revenue tax. Quite a few deductions can be found u/s 80C. Such deductions might be claimed provided that the taxpayer decides to go for the outdated or present private revenue tax regime in a particular monetary yr.

Choosing the brand new concessional tax regime will prohibit you from claiming any of those deductions. So in case you are sticking to the present regime, listed here are 5 essential issues to learn about 80C and the way it features that can assist you carry down your general tax legal responsibility in a given monetary yr.

Additionally Learn:
Your information for tax financial savings for FY 2020-21

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