How can I end up paying less tax ?
Imagine you’ve come home after a dog day afternoon and are keen to refuel your energies with a well-deserved triple-scoop ice cream. When you open the freezer, you realize that one of the scoops is missing because someone else ate it. You wouldn’t feel great, right? This is essentially what income tax can do to you too.
While income tax is a familiar term, not many are aware of tax-saving options. However, there are several ways you can save taxes. Sweat not if you are not aware of them. This piece is intended to give a snapshot of the different options that can help you pay less tax.
How to save taxes?
The Income Tax Act of 1961 has multiple provisions that can help you claim tax deductions.
- The most popular provision is Section 80C. Under this section, you can claim tax deductions up to Rs 1.5 lakh. You are eligible if you invest in Provident Fund (PF), National Savings Certificate (NSC), Equity Linked Savings Scheme (ELSS), Unit-Linked Insurance Plan (ULIP), among others. Besides, you can also claim tax deductions for children’s tuition fees, repayment of principal for home loan, stamp duty and registration charges for house property and so on.
- Under Section 80CCC, you can claim deductions for premium paid for annuity plans.
- Section 80CCD gives you the privilege to claim deductions for contributing to your pension account.
- Another section is 80D, under which you could claim deductions for payments towards medical insurance premiums and health check-ups.
- Section 80 CCG is applicable for people investing in listed shares or mutual funds for that financial year. This is also known as the Rajiv Gandhi Equity Savings Scheme.
- Section 24 of the Income Tax Act allows deductions for interest on home loans.
- Section 80DD and 80U are for disabled people. The former allows deductions when the individual is differently-abled, while Section 80U allows deductions in case a family member is a disabled person.
- Section 80DDB allows you to claim deductions on payments made for treatment of specified diseases. The patient could be an individual or a dependent.
- You could even claim deductions for interests paid on your, your spouse’s or your children’s educational loans under Section 80E.
- There are also provisions that allow you to claim deductions on donations. Section 80G is for general donations, while Sections 80GGA, 80GGB and 80GGC are for different categories of donations.
- Even the rent you pay can be claimed under Section 80GG.
- The dividend payouts from the mutual fund house are tax exempted.
- Equity funds are exempted from tax if you sell it after 12 months.
- When it comes to debt funds, they don’t offer indexation. Instead, they offer the benefit of double indexation. (Indexation is when you adjust your purchase price for inflation using a Price Index. Say, you buy a debt mutual fund on March 29 of a year and sell it on April 3 of the next year. Your investment spans two financial years, while your actual holding period is only 1 year 5 days. This is how you could explore the option of double indexation.
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