Top 10 Ways to Reduce Income Tax Legally in India as a Salaried Individual

A Guide to Lowering Your Tax Liability

Greetings, salaried individuals! Reducing your income tax in a legal manner is not just about finding creative loopholes; it’s about utilizing the tax laws to your advantage. One of the most popular methods to reduce your taxable income legally is by investing in products under Section 80C of the Income Tax Act. Let's explore the specific investment options and other tax-saving measures you can utilize to lower your tax liability.

Utilizing Section 80C for Tax Deductions

Investing Rs 1.5 lakh in products mentioned under Section 80C of the Income Tax Act is one of the most effective ways to save on taxes. Here are some popular investment options like ELSS (Equity Linked Savings Scheme), PPF (Public Provident Fund), NSC (National Savings Certificate), and Sukanya Yojana. These investment options offer both guaranteed returns and market returns. The key takeaway is that you can claim a combined tax deduction of Rs 1.5 lakh for all these products under Section 80C.

Exploring Additional Tax Savings Options

While Section 80C can significantly reduce your tax liability, there are other powerful options available that can take your tax-saving strategy to the next level. Here are 10 additional methods to legally lower your income tax in India.

NPS Section 80CCD1B

You can save an additional tax deduction of Rs 50,000 under Section 80CCD1B for NPS (National Pension Scheme) contributions apart from the Rs 1.5 lakh deduction under Section 80C. This means a taxpayer can claim a maximum deduction of Rs 200,000 for an NPS contribution. Additionally, if your employer contributes to NPS, you can claim an additional deduction of up to 10% of your basic salary plus Dearness Allowance (DA).

Health Insurance Premiums (Section 80D)

Another important tax-saving avenue is through health insurance. Section 80D allows you to claim a deduction for health insurance premiums and healthcare expenses. You can claim up to Rs 25,000 for self, spouse, and dependent children. If you or your spouse are above 60 years, the deduction can go up to Rs 50,000. Additionally, you can claim an additional deduction of Rs 25,000 for your parents' health insurance, with an upper limit of Rs 50,000 if they are above 60 years old. Expenses on preventive health check-ups and treating senior citizens are also eligible.

Educational Loan Interest (Section 80E)

Taxpayers can claim deductions for the interest paid on educational loans borrowed from any financial institution. There is no limit on the total deduction for interest paid on an education loan. However, this deduction is only available to the parent or the child student depending on who repays the education loan. So, before claiming this deduction, ensure that you or your dependents are the ones repaying the loan.

Home Loan Interest (Section 24 and 80EE)

Homeowners can claim a tax deduction for the interest component of their home loan under Section 24 of the Income Tax rules. The maximum deduction available is Rs 200,000 for a self-occupied property. For first-time homeowners, Section 80EE offers an additional tax deduction of up to Rs 50,000 for the interest paid on the home loan. Important: This deduction is only available to first-time homeowners who do not have any other house property on the date of loan sanction. It's a potent way to reduce your tax liability if you are in the market for a first home.

Renting without HRA (Section 80GG)

Under Section 80GG, if you do not receive HRA (House Rent Allowance) from your employer, you can claim the deduction for rent paid. You can claim a deduction up to Rs 60,000 in a financial year. This is a handy option for salaried individuals living in high-cost urban areas.

Bank Interest from Savings Account (Section 80TTA)

Interest earned from savings bank accounts can be claimed under Section 80TTA, with a maximum deduction limit of Rs 10,000. This includes the total of all interest income earned from all savings accounts. If your total interest income exceeds Rs 10,000, the excess amount is considered "income from other sources." It's a low-risk way to save a small amount of tax.

Medical Expenses for Disabled Dependents (Section 80DD)

If you are caring for disabled dependents, including spouse, children, parents, brothers, or sisters, you can claim a tax deduction for medical expenses. Any expense related to the medical treatment, nursing, training, rehabilitation, or health insurance of a disabled dependent is eligible for deduction. The deduction is capped at Rs 75,000 if the disability is at least 40%, but it can go up to Rs 125,000 if the disability is at least 80%.

Treatment of Specified Diseases (Section 80DDB)

As a taxpayer and if you or any of your dependents have been diagnosed with a specified illness, such as cancer, neurological disease, AIDS, etc., you can claim a tax deduction under Section 80DDB. You can claim up to Rs 40,000 for expenses incurred on treating a dependent suffering from a specified disease. However, for senior citizens, the deduction is Rs 1 lakh.

Charitable Donations (Section 80G)

Donations to approved charitable institutions are deductible under Section 80G of the Income Tax rules. Remember, donations of more than Rs 2,000 should be made by check as cash donations do not qualify for tax deductions. The deduction amount can be 50% or 100% based on the institution category. This is a noble way to save on taxes while supporting worthy causes.

Conclusion and Recommendations

Exploring all the avenues available to reduce your income tax legally is crucial. From traditional Section 80C investments to exploring newer options like NPS, health insurance, and education loans, every step can help minimize your tax liability. It’s important to understand each option and how it can benefit you. Consulting a certified tax advisor can provide you with personalized advice tailored to your specific financial situation.

Hope this helps in your journey to save on taxes legally! If you learned something new, please UPVOTE and SHARE to help us reach more readers. To learn more about personal finance, Follow us at ET Money.