- 18-Mar-2025
- Corporate and Business Law
Reducing your taxable income is a key part of tax planning in India. By utilizing various tax-saving options, individuals can lower their taxable income, thus reducing their overall tax liability. There are several ways to save on taxes through deductions, exemptions, and other benefits under the Income Tax Act of India.
Section 80C of the Income Tax Act provides deductions for various investment options and expenses. The maximum deduction allowed under this section is ₹1.5 lakh per annum. Some common tax-saving instruments under Section 80C include:
Section 80D allows you to claim deductions on premiums paid for health insurance for yourself, your spouse, children, and parents. The maximum deduction limits are:
Under Section 24(b), you can claim deductions on the interest paid on a home loan. The maximum deduction allowed is ₹2 lakh per year for self-occupied properties. This deduction can be claimed regardless of whether the property is rented or not.
Under Section 80CCD(1B), you can claim an additional deduction of up to ₹50,000 for contributions made to the National Pension Scheme (NPS). This deduction is over and above the limit of ₹1.5 lakh available under Section 80C, making it a valuable option for tax savings.
Under Section 80E, you can claim a deduction on the interest paid on loans taken for higher education for yourself, your spouse, children, or a student for whom you are a legal guardian. There is no upper limit on the amount of deduction, but it is available only for a maximum of 8 years or until the interest is fully repaid, whichever is earlier.
Donations made to charitable organizations or funds specified under Section 80G are eligible for deductions. The percentage of deduction depends on the type of charity and can range from 50% to 100% of the donation amount. Certain donations are eligible for 100% deduction, while others provide 50% deductions with or without restrictions.
If you are living in a rented house and do not receive House Rent Allowance (HRA) from your employer, you can claim a deduction under Section 80GG. The maximum deduction is ₹5,000 per month, subject to certain conditions. If you have a disability (with a certificate), this limit can go up to ₹8,250 per month.
If you or a dependent family member suffers from a disability, you can claim a deduction under Section 80U. The deduction for individuals with a disability is ₹75,000 and for those with severe disability is ₹1.25 lakh.
If your total taxable income is ₹5 lakh or less, you can claim a rebate of ₹12,500 under Section 87A, which can effectively reduce your tax liability to zero.
Agricultural income is not taxable in India. If you have agricultural land or earn income from agricultural activities, you can exclude this income from your total taxable income.
Salaried employees are entitled to a standard deduction of ₹50,000 on their gross salary. This deduction is automatically applied and reduces your taxable income.
If you sell a property and make a long-term capital gain, you can claim exemptions under Section 54 if the proceeds are reinvested in another property. Similarly, under Section 54EC, you can claim deductions if you invest the capital gains in specified bonds.
Let’s say Mr. Raj, a salaried individual, has the following details:
In this case, Mr. Raj can reduce his taxable income by ₹4,30,000 using deductions available under various sections.
By utilizing various tax-saving options available under the Income Tax Act, individuals can significantly reduce their taxable income and lower their overall tax liability. Tax planning should be done carefully to ensure that you make the most of available deductions and exemptions while also meeting your financial goals.
Answer By Law4u Team
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