The Indian Income Tax Act allows for certain deductions that can be claimed to save tax at the time of filing an Income Tax Return by all classes of taxpayers (i.e., salaried individuals, professionals, businessmen, etc.). These deductions, which help in saving tax, are only available if the taxpayer has done proper tax planning during the year.
If an individual has done proper tax planning to save tax, such deductions would be subtracted from the gross total income, and income tax would be levied on the balance income as per the income tax slabs in force.
To promote the culture of savings and to direct the savings of the common man into the rightful resources, the government allows certain deductions provided the amount saved is invested in the instruments specified in Section 80C, Section 80CCC, and Section 80CCD.
The maximum combined deduction allowed under these three sections is Rs. 1,50,000. If you have done proper tax planning during the year, you can claim these deductions to save tax by investing under any of these sections alone or in combination, but the total deduction allowed would be limited to Rs. 1,50,000 only.
Popular investment instruments for tax planning under these sections include:
All tax planning options specified below are over and above the Rs. 1,50,000 deduction allowed under Section 80C, 80CCC, and 80CCD.
An additional deduction of Rs. 50,000 under Section 80CCD has been introduced for investment in the National Pension Scheme (NPS). This additional deduction was introduced via the Finance Act 2015 (Budget 2015) and is applicable from the financial year 2015-16 onwards.
The Income Tax Act allows for deductions to save tax if the taxpayer incurs expenses on medical insurance for themselves or their relatives. Different amounts of deductions are allowed under these sections:
If you have taken a home loan, you can claim deductions for repayment of the principal amount under Section 80C.
Additionally, you can claim a deduction for interest paid on a home loan under Section 24.
Tax planning for saving tax by taking a home loan is highly advisable as the deduction for repayment can be claimed under three different sections, resulting in significant tax savings.
If a taxpayer has taken an education loan for higher education for themselves, their spouse, children, or a student for whom they are a legal guardian, they can claim a deduction under Section 80E.
This deduction is only allowed for the repayment of interest and not for the repayment of the principal amount. There is no maximum limit for claiming this deduction under Section 80E. This deduction is available only to individual taxpayers and not to HUFs.
A taxpayer with an annual income of less than Rs. 12 lakh p.a. is allowed an additional deduction under Section 80CCG for investing in shares of specified companies and specified mutual funds.
This deduction is called the Rajiv Gandhi Equity Saving Scheme (RGESS).
However, this is a complex scheme, and the deduction is only available to first-time investors. Taxpayers who have previously invested in shares/mutual funds are not eligible for this deduction.
If a taxpayer earns a long-term capital gain from selling real estate property held for more than two years, they can claim an exemption from paying capital gains tax by reinvesting the amount in specified instruments.
This exemption is beneficial in tax planning and helps taxpayers save significantly on income tax.
If a taxpayer makes a donation for charity, social, or philanthropic purposes or contributes to the National Relief Fund, they can claim a deduction under Section 80G of the Income Tax Act.
Capital Mines Money Mart encourages taxpayers to leverage these deductions and exemptions effectively to reduce tax liability and enhance financial planning.