Example: Tax-saving Investments

Let’s consider the example of Mr Sharma, a salaried individual with a gross annual income of ₹10 lakh. Here’s how he maximized his tax deductions:

1. Invested in PPF and NSC:

• ₹70,000 in PPF.
• ₹30,000 in NSC.
• Total deduction: ₹1 lakh under Section 80C.

1. Paid Life Insurance Premium:

• ₹20,000 for a life insurance policy.
• Deduction under Section 80C: ₹20,000.

1. Contributed to EPF:

• ₹30,000 contributed to EPF.
• Deduction under Section 80C: ₹30,000.

1. Medical Insurance Premium:

• ₹20,000 for self and family.
• Deduction under Section 80D: ₹20,000.

1. Interest on Home Loan:

• ₹1.8 lakh interest paid on home loan.
• Deduction under Section 24(b): ₹1.8 lakh.

Total deductions claimed by Mr. Sharma:

• Under Section 80C: ₹1.5 lakh (max limit).
• Under Section 80D: ₹20,000.
• Under Section 24(b): ₹1.8 lakh.

By leveraging these deductions, Mr. Sharma reduced his taxable income from ₹10 lakh to ₹6.7 lakh, significantly lowering his tax liability.

How to Maximize Your Tax Deductions

Paying taxes is a responsibility for every earning individual, but understanding the tax system can help you save a significant amount of money. Maximizing your tax deductions can reduce your taxable income, ultimately lowering your tax liability. This blog will provide you with essential tips on claiming deductions under various sections like 80C, 80D, and more. Let’s dive in!

Understanding Tax Deductions

Tax deductions reduce your taxable income, thereby decreasing the amount of tax you need to pay. Various sections of the Income Tax Act, of 1961, offer deductions for specific investments, expenditures, and incomes. By strategically planning your finances, you can ensure you take full advantage of these provisions.

Section 80C: Your Best Friend in Tax Saving

Section 80C is the most popular section for claiming tax deductions. The maximum deduction limit under this section is ₹1.5 lakh. Here are some key investments and expenses that qualify for deduction under Section 80C:

1. Public Provident Fund (PPF):

• A long-term savings scheme with a tenure of 15 years.
• The interest earned is tax-free, and contributions qualify for tax deductions.

1. Employees’ Provident Fund (EPF):

• Mandatory for salaried employees.
• Both employee and employer contributions are eligible for tax deductions.

1. National Savings Certificate (NSC):

• A secure investment with a fixed return rate.
• The interest earned is taxable, but reinvested interest qualifies for 80C deduction.

1. Tax-saving Fixed Deposits:

• Fixed deposits with a lock-in period of 5 years.
• The interest earned is taxable, but the principal amount is deductible under 80C.

1. Life Insurance Premiums:

• Premiums paid for life insurance policies qualify for deductions.
• Policies can be for yourself, your spouse, or your children.

1. Tuition Fees:

• Fees paid for the education of your children are eligible.
• The deduction is available for up to two children.

Section 80D: Health and Well-being

Section 80D provides deductions for medical insurance premiums and preventive health check-ups. The maximum deduction available is ₹25,000 for individuals and ₹50,000 for senior citizens. Here’s how you can maximize this deduction:

1. Medical Insurance Premiums:

• Premiums paid for self, spouse, and dependent children qualify.
• Additional deduction for premiums paid for parents.

1. Preventive Health Check-ups:

• Up to ₹5,000 can be claimed for preventive health check-ups.
• This is within the overall limit of ₹25,000 or ₹50,000.

Section 80E: Education Loan Interest

Section 80E provides a deduction for the interest paid on education loans. There is no upper limit for this deduction, and it is available for up to 8 years or until the interest is paid, whichever is earlier. This deduction is particularly beneficial for those pursuing higher education.

Section 24(b): Home Loan Interest

Interest paid on home loans qualifies for deduction under Section 24(b). The maximum deduction for self-occupied properties is ₹2 lakh per annum. For properties that are let out, there is no maximum limit. Additionally, the principal repayment of home loans is eligible for deduction under Section 80C.

Conclusion

Maximizing your tax deductions requires careful financial planning and awareness of the various sections of the Income Tax Act. By investing in tax-saving instruments, paying medical insurance premiums, and taking advantage of home loan interest deductions, you can substantially reduce your taxable income. Always keep updated with the latest tax laws and consult with a tax advisor to make the most of your deductions. Happy tax saving!

For professional assistance,

Contact Adv. Avinash Ray & Adv. Supriti Bhargava

A&S Firm

Financial Gupshup

+91 7521819429, +91 9993138969