Effective Ways to Save Tax

4 minsFebruary 11, 2017

The Income Tax Act allows taxpayers to claim various deductions under different sections to save tax at the time of filing of return. To claim these deductions, proper tax planning is essential. Different sections of the Income Tax act facilitate tax savings in the form of some or the other investment or expense.

Here’s a quick guide to help you benefit from these deductions allowable in different sections.

Section 80C / 80CCC / 80CCD

Section 80C / 80CCC / 80CCD are the most popular tax saving options for individuals. The maximum exemption available under these sections is Rs. 1,50,000.

Section 80 C provides a deduction for Investments made in eligible securities like Provident Fund, Public Provident Fund , National Savings Bond, Mutual Funds, Life Insurance, etc. Expenditures like tuition fees and repayments like home loans , etc. are also eligible for deduction under this section.

80 CCC provides a deduction for premium paid towards pension plans.
80 CCD provides a deduction for the contribution made towards Employee Pension Scheme.

  • Section 80 CCD (1B)
    Section 80 CCD (1B) provides a deduction for the contribution made towards New Pension Scheme. Maximum deduction available is up to Rs. 50,000.Self-employed people, as well as a salaried class employee both, are eligible to claim the deduction under this section. This section is over and above section 80 CCD.
  • Section 80 CCG
    Section 80 CCG provides tax benefit under Rajiv Gandhi Saving Scheme. Individuals having taxable income up to Rs. 10,00,000 and who have invested 50% of the amount in specified securities can avail deduction under this section. The maximum investible amount is Rs.50,000 and the maximum deduction available is Rs.25,000.
  • Section 80 D
    Section 80 D provides tax deduction on health insurance for self or family. The maximum deduction allowed is up to Rs. 25,000. However, for health insurance of parents (senior citizens), the maximum deduction allowed is up to Rs. 30,000. Preventive medical health check-up, up to Rs. 5,000 per family is also allowed as a deduction.
  • Section 80 DD
    This section allows a deduction up to Rs. 80,000 for the treatment of serious diseases for self or dependents. As per Income Tax laws, dependent includes individual’s spouse, children, parents or any sibling i.e. brother or sister. Serious diseases include cognitive or severe mental disabilities, blindness, low vision, locomotor disability, autism, mental illness, leprosy, hearing impairment, cerebral palsy or multiple disabilities. For claiming deduction under section 80 DD, the individual has to submit a medical certificate for the person suffering from disease or disability.
  • Section 80 E
    Section 80 E provides for deduction on the interest paid on the educational loan. There is no limit on the maximum amount that can be claimed as a deduction. The deduction is available to only an individual and not an HUF. To be eligible for the deduction, the loan should be taken from an approved charitable organisation or financial institution and not from a friend or relative or any other person. To claim an interest as a deduction, it must be paid out of individual’s income.
  • Section 24 / 80 EE
    Under this section, the exemption is available up to Rs. 2,00,000 for interest paid on the home loan for self-occupancy. An additional benefit of Rs. 50,000 is available to first time home buyers. To be eligible to claim the exemption, the value of the home should not be more than Rs. 50,00,000 and the loan taken should not be more than Rs. 35,00,000.
  • Section 80 G
    Donations made to specific funds or institutions mentioned under section 80 G are eligible for deductions up to 100% or 50%. The donations made by cash or cheque are eligible for tax deduction. No deduction under section 80 G can be claimed for a donation amount of more than Rs. 10,000, unless such amount is paid by cheque.
  • Section 80 GG
    Section 80 GG allows deduction on house rent paid. The maximum deduction available is Rs. 60,000. The tax deduction can be claimed by a self-employed person or a salaried person who do not claim the benefit of house rent allowance deduction under section 10 (13).The deduction under section 80 GG for rent payment shall be least of the following; Rs 5,000 per month or, Rent paid minus 10 % of the total income or, 25 % of the total income of the taxpayer for the year.
  • Section 80 TTA
    This section allows deduction of up to Rs. 10,000 for interest received on savings account (not time deposits) to individuals and HUFs. For example, an assessee has saving bank interest of Rs. 14,000 then, in this case, the income of Rs. 14,000 would fall under income from other sources and section 80 TTA deduction is Rs. 10,000. Similarly, if an assessee has total saving bank interest of Rs. 5,000 then, in this case, Rs. 5,000 shall form part of income from other sources and deduction available under section 80 TTA is Rs. 5,000.
  • Section 87 A
    Section 87 A provides a tax rebate of Rs. 5, 000 to individuals earning below Rs. 5,00,000. However, if your income tax liability for FY 2016-17 is less than Rs. 5,000, then the rebate is restricted to the income tax liability.

It is advisable to avoid tax planning at the end of the year. Tax planning done right from the beginning of the year lets you consider the financial objectives rightly. Last minute planning leads to investing in tax-saving instruments like life insurance policies , or any other product that may not fit your financial goals. It is better to seek the help of an expert if you are unaware of the right investments for save taxes. Contact your bank or financial advisers for effective tax planning.