The hardest thing to understand in the World is the Income Tax. This was said by none other than the great scientist, Albert Einstein. Taxes pinch and you must find a way to reduce the tax burden. The Government has given you tax exemptions and tax deductions to help you save tax. Why not use these exemptions and deductions to save tax?
Tax planning is always done at the beginning of the financial year. It's still not too late to do your tax planning and pay zero tax. If your income is within Rs 10 Lakhs, you can reduce tax to zero.
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1. Use Section 80C to save tax
Investments in certain financial instruments are eligible for tax deductions under Section 80C, up to a maximum of Rs 1.5 Lakhs a year. The premiums you pay for life insurance plans, the EMI (Principal) on the home loan, investments made in PPF, NSC, ELSS, Senior Citizen Savings Scheme, Tax Saver FD, Sukanya Samriddhi Yojana and some other investments are eligible for tax benefits under Section 80C.
2. Health Insurance helps you save tax
You get a tax deduction on the premiums paid for health insurance plans for you/spouse/kids/parents, up to Rs 25,000 a year. Senior citizens get a deduction of Rs 30,000 a year on the premiums paid on health insurance plans.
You get a total deduction of Rs 55,000 a year on the health insurance premiums paid for self/spouse/kids + senior citizen parents.
3. Invest in NPS and save tax
National Pension Scheme popularly called NPS is an excellent investment for retirement. You get a tax deduction up to Rs 1.5 Lakhs a year under Section 80C of the income tax act. NPS invests your money in equities (E), Government securities (G) and Corporate Bonds (C). You have the active choice, where you can invest a maximum of 50% in equities.
You get an additional tax exemption up to Rs 50,000 a year under Section 80CCD(1B) on your investment in NPS.
4. Tax rebate under Section 87A
There is a maximum rebate of Rs 2,500 a year under Section 87A. For you to enjoy this rebate, your total income - all deductions under Section 80, must be equal to or less than Rs 3,50,000.
You get a tax deduction under Section 24 up to a maximum of Rs 2 Lakhs a year, on the interest paid on a home loan. You get an additional deduction of Rs 50,000 a year under Section 80EE on the interest paid on the home loan if you are a first-time-home buyer.
If you are a first-time-home buyer, you get a maximum deduction on home loan interest, up to a maximum of Rs 2.5 Lakhs a year.
6. Your donations can save you tax
There are ways to save tax if you want to donate towards a charitable cause. If you contribute to specific relief funds and charitable institutions, you enjoy tax deductions under Section 80G.
You earn a salary of Rs 9 Lakhs a year. Let's calculate the taxes you pay without any tax deductions.
With Available Exemptions:
Do Note: The tax rate is 10% for an income between Rs 2.5 Lakhs to Rs 5 Lakhs a year, if you are filing ITR for FY 2016-17.
Tax liability can be reduced by using the tax rebate under Section 87A. You may contribute to specific tax relief funds or there are more tax exemptions and deductions you can avail to pay zero tax. Be Wise, Get Rich.
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