Proper tax planning is one of the most effective ways to save on taxes you need to pay on income earned in a particular year. There are various investments, savings schemes, and expenditures that are eligible for deductions under the income tax act. Here is how to save income tax in India through major tax deduction schemes.
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12 simple ways to save income tax in India
Following are various tax savings options under different Sections of the Income Tax Act:
Investment options under Section 80C
These are the most popular tax-savings options for NRIs (Non-Resident Indians) and local taxpayers. Under Section 80C of the Income Tax Act, you can claim deductions up to Rs. 1.5 lakh on various investments and expenses in a financial year.
Tax-saver FD: You can invest in 5 year tax-saver FDs to get a deduction of up to Rs. 1.5 lakh. Interest on both domestic and NRO fixed deposits is taxable in India. Hence, NRIs who earn interest on NRO fixed deposits can also get a deduction up to Rs. 1,50,000 under Section 80C.
Public Provident Fund (PPF): You can invest in a public provident fund to save income tax, because PPF provides deduction up to Rs. 1.5 lakh u/s 80C. Public provident fund is a government scheme available at most banks and post offices. Generally, the PPF account has a lock-in period of 15 years.
While NRIs can’t open a PPF account, if you opened the account before becoming an NRI, you can continue to hold the account till maturity.
National Saving Certificate: NSC is a fixed income scheme and offers many tax benefits. NSC interest rates currently stand at 6.8%, compounded yearly. You can enjoy tax benefits on investment amount and interest earned under Section 80C.
Like PPF, If an NSC account holder becomes an NRI when the account is in operation, the account can be continued till its maturity on the non-repatriable basis.
ELSS Funds: Equity Linked Savings Schemes (ELSS) are one of the most popular investment options of tax deduction for investors. These are equity oriented mutual funds that primarily invest a minimum of 80% of their assets in equity. Both residents and NRIs are allowed to invest in ELSS funds to reduce taxable income in India.
Returns on such funds are subject to LTCG tax at 10%. You can claim up to maximum deduction of Rs. 1.5 lakh in a financial year. Tax exemption u/s 80C is applicable for NRIs and normal residents alike.
LIC premiums: Life insurance premiums are tax deductible up to Rs. 1.5 lakh. Premiums for different insurance policies including ULIPs, term insurance and endowment policies are eligible for deductions provided insurance cover is at least 10 times the annual premium.
National Pension System (NPS): NPS is a government-backed retirement fund and you can get deductions up to Rs. 1.5 lakh for contribution towards NPS. NRIs can also contribute to the National Pension Scheme.
Employee provident fund: The contribution to Employee Provident Fund (EPF) counts towards the Rs. 1.5 lakh limit under Section 80C.
Home loan repayment: Repayment of the principal amount for a housing loan is tax deductible up to Rs. 1.5 lakh per annum.
Tax savings schemes other than Section 80C
Apart from deductions u/s 80C, there are various deductions under Section 80 of the IT Act that allows you to save on income tax.
Medical insurance premium: A deduction up to Rs. 25,000 is available for premium paid for medical insurance under Section 80D. For senior citizens, this amount is Rs. 50,000. Someone paying premium for himself and senior citizen parents can claim the combined deduction up to Rs. 75,000 per annum.
Interest paid on home loan: Interest payable on a home loan is tax deductible up to Rs. 2 lakh per annum under Section 24 of the Income Tax Act. You can also claim a deduction up to Rs. 50,000 on home loan interest u/s 80EE.
Income through NRE account interest: NRIs can deposit their foreign earnings in an NRE account in India. Interest earned on NRE savings accounts and fixed deposits are tax free in India. Hence, non-residents can save their money in an NRE account to save income tax.
Charity to notified organizations: Charitable donations are tax deductible. There is no upper limit on tax deduction for charitable contributions. For most donations to NGOs, the limit is 50% of the donation and up to 10% of your adjusted total income.
There are various ways to save income tax in India, but due to a complicated tax system and recurrent amendments, understanding tax laws can be confusing, especially for NRIs. NRIs may miss claiming deductions and other benefits. At SBNRI, we understand this struggle. You can download SBNRI App to connect with our NRI Tax Experts to know more about new TDS/ TCS rules for NRIs. You will also get end-to-end assistance related to NRI tax filing.
Income can be primarily classified into five categories – income from salary, capital gains, income or profit from self-employment or business, residential property income, and income from other sources.
There are various investment schemes in India that enable resident as well as NRI taxpayers to reduce taxable income in India:
– Tax-saver NRO FDs
– ELSS Funds
– National Pension System
– NRE accounts
– Home loan repayments
Yes, NRIs can invest in mutual funds in India to reduce taxable income in India. When investing, ensure the mutual funds are tax savers. For example Equity Linked Saving Schemes (ELSS) allow investors to claim a tax rebate up to Rs 1,50,000 a year.
Other than Section 80C, following are some provisions that allow tax deductions:
– Section 24: Deduction up to Rs. 2 lakh on interest paid for repayment of home loan.
– Section 54 – 54 F: Exemption on long term capital gains from property (Section 54) and assets other than property (54F).
– Section 80D: Medical insurance premium for self, spouse and dependent parents.
– Section 80EE: For interest payment of home loan for first time home buyer.
– Section 80EEB: For payment of vehicle loan for the purchase of an electric vehicle.
– Section 80G: For donations to charitable organizations.
– 80GG: Claim rent deduction under 80GG if your income does not include HRA.
– Section 80TTA: Deduction up to Rs. 10,000 on savings accounts, deposits held in banks/ post offices.