Saving tax is always at the forefront of every taxpayer’s mind. That is why individuals look at legal avenues to lower their tax liability. Thanks to the Income Tax Act provisions, there are ways in which an individual tax-payer can lower his tax outgo. The provisions provide for tax deductions and tax exemptions from the taxable income. These deductions and exemptions reduce your tax liability.
Must read: – Difference between Tax Exemption and Tax Deduction
Moreover, the Union Budget also makes changes and modifications in the available deductions and exemptions. This year’s Union Budget 2020 also made a major change by introducing the optional new tax regime. It is therefore necessary to first check which tax regime will be best suitable to you – Old tax regime or New tax regime. You may read our previous blog on the same here where we have explained the Old vs New tax regime.
In order to get more benefits, you should ideally be opting for the old tax regime. Here are some useful tax saving tips for Financial year 2020-21 to lower your tax:-
Tax saving tips for FY 2020-21
- Utilise the deductions available under Section 80C :- Section 80C is one of the most popular tax deduction sections which allow you tax-free investments and expenses of up to Rs.1.5 lakhs. The popular instruments which qualify for Section 80C deductions include the following –
- Utilise your 80C deduction. Make eligible investments and claim for the allowed expenditure. ELSS investments and life insurance premiums are the most popular go-to instruments for availing maximum 80C deductions.
- Don’t forget to invest in a NPS scheme :- Section 80CCD (1B) allows you an additional deduction of Rs.50, 000 if you invest your income in the National Pension Scheme. Thus, investments in NPS serve you dual purposes. You can claim an additional deduction and also plan for your retirement.
- Buy Health Insurance :- Section 80D of the Income Tax Act allows the premiums paid for a health insurance policy as eligible deductions from your taxable income. So, don’t ignore a health insurance plan. The plan would come in handy in meeting the financial expenses of a medical contingency you and your family faces. Moreover, premiums paid for self and family are allowed as a deduction from tax up to a maximum of Rs.25, 000. If you also buy a health plan for your senior citizen parents, you can claim an additional deduction of Rs.50, 000 making the total available deduction Rs.75, 000.
- Invest in your dream home :- Having your own home must be your dream. Well, for home-owners, there is a tax-relief too. While the principal repayments of a home loan are deducted under Section 80C, interest paid on the home loan qualifies for deduction under Section 24 of the Income Tax Act. Thus, you can claim a tax deduction of up to Rs.2 lakhs on your home loan interest payments.
- Claim a deduction on your savings account interest earnings :- The Prime Minister’s Jan Dhan Yojana scheme has made savings accounts popular among the Indian population. Besides having a banking account, your savings account also earns you an interest. This interest earned, if limited till Rs.10,000 in a financial year, is allowed as a tax deduction under Section 80TTA. So, if you earned an interest on your saving account, claim it as a deduction.
If you follow the above-mentioned tips, here is how your gross total income of Rs.9.85 lakhs would result in zero tax outgo –
|Gross total income from all sources||Rs.9.85 lakhs|
|Less: Section 80C deductions||Rs.1.5 lakhs|
|Less: Section 80CCD (1B) deductions||Rs.50,000|
|Less: Section 80D deductions (for self and senior citizen parents)||Rs.75,000|
|Less: Deductions under Section 24||Rs.2 lakhs|
|Less: Section 80TTA deductions||Rs.10, 000|
|Net taxable income||Rs.5 lakhs|
|Tax payable @5% on the income exceeding Rs.2.5 lakhs to 5 lakhs||Rs.12500|
|Less: Rebate available under Section 87A||Rs.12500|
|Total tax payable||Nil|
If you are a salaried employee, you can claim an additional standard deduction of Rs.50,000 from your salary income for the financial year 2020-21. For senior citizens, interest earned from fixed and post office deposits, up to Rs.50, 000, are also allowed as tax-free income. Taxpayers can also make donations to a charitable cause and earn deduction under Section 80G.
So, these tax-saving tips would definitely help you in lowering your taxes in this financial year. Keep these tips handy and try to minimise your tax liability.