We all know that the income tax payable by any individual is based on the principle of ‘more you earn, more taxes you pay’. So if any individual is earning an income of, let’s say, Rs 10 lakh, he would have to pay about Rs 1 lakh as tax to the income tax authorities. Whereas, if someone makes a timely decision and does efficient tax planning, they can reduce their tax liability to zero on the same income. 

To boost personal savings and investments in various schemes, the Government of India in, their annual budget, provides many deductions and exemptions under different heads and sections in the Income Tax Act. There is a misconception that the tax liability cannot be reduced and if it has to be reduced, one has to use the wrong/illegal ways. There are various ways through which one can not only reduce their personal tax liability but can also build their savings portfolio which can, in turn, generate more returns. 

As mentioned above, the Income Tax Act provides many deductions and exemptions to individuals based on the amount invested and the total limit of deductions/exemptions available. Since the end of FY 2021-22 is approaching, people should devote some time to their self-assessment of income earned or accrued during the year and the tentative tax liability thereon, which will enable them to plan the savings and investments to save taxes. 

Through the below-mentioned ways, an individual earning Rs 10 lakh and below 60 years of age can get the benefits of tax savings and reduction in tax liability. 

Under Section 80C of the Income Tax, one can make payment and save up to Rs 1.5 lakh under various savings tools such as Provident Fund, EPF, LIC Premium, Equity-linked saving scheme (ELSS), National Saving Certificate (NSC), Senior Citizen Savings Scheme (SCSS), 5 years Post Office Time Deposit (POTD), Tax Saving 5 years FD from Banks, Home Loan Principal Payment, etc. 

Under Section 80CCD (1B) of the Income Tax Act, one can invest up to Rs 50,000 annually in the National Pension System (NPS) Scheme and can get a deduction of the same from his total income. 

Under Section 80D of the Income Tax Act, one can avail of the tax benefit on the payment of a medical premium of up to Rs 50,000 annually. In the case of an individual one can claim a benefit of up to Rs 25,000 for the insurance premium for himself, spouse and dependent children. If an individual has medical cover for his parents who are senior citizens then up to Rs 50,000 annually and in case parents are less than 60 years of age then can claim Rs 25,000 annually. If both the individual and his parents are aged more than 60 years, for whom the medical insurance has been taken, the maximum deduction that can be availed under this section is Rs 1,00,000.

Section 80D also includes and allows a deduction of Rs 5,000 for any payments made towards preventive health check-ups. This deduction will be within the overall limit of Rs 25,000/Rs 50,000, as the case may be and cannot be claimed separately. 

Under the provisions of Section 80D, an individual can claim a deduction of up to Rs 50,000 for the medical expenditure incurred for his senior citizen parents (aged 60 years or more) where such amount is not covered under any insurance and should be paid in a mode other than cash. 

Under Section 24b of Income Tax, an individual can avail a deduction of up to Rs 2 lakh for the interest payment of a home loan and can reduce his tax liability. 

Under Section 80G of the Income Tax, an individual can claim deductions on the amount donated to various organisations, NGOs registered under 80G of the Income Tax and claim benefit depending upon the qualifying limit and can reduce their total income and there on saving taxes. For claiming such deductions, documents such as exemption certificate, payment receipt, PAN of the organisation and other details are required to be mentioned. 

Under Section 80GG of the Income Tax, an individual can claim deduction on the house rent being paid by him if he has not received any HRA at any time during the year. The maximum amount of deduction claimed by an individual shall be RS 60,000 annually or Rs 5,000 per month. 

Under Section 80E of the Income Tax Act, an individual can claim deduction on the total of the interest paid on an education loan taken to pursue higher education in India or outside of self, spouse or children.

Under Section 80EEA of Income Tax, an individual can claim a deduction for the interest paid on the home loan purchased under affordable housing scheme, the deduction of up to Rs 1.5 lakh per annum till the loan is repaid subject to fulfilling certain conditions and this deduction is over and above the deduction under section 24 of Rs 2 lakh as mentioned above. 

Under Section 80TTA of the Income Tax, an individual can claim a deduction of up to Rs 10,000 in regards to the interests in saving accounts and thus interest up to Rs 10,000 is tax-free. 

With the above-mentioned deductions, the total income of the individual will be reduced from Rs 10 lakh to Rs 5 lakh or lower than that. In India, there is no tax on income up to Rs 2.5 lakh and there is a tax of 5% on the income above Rs 2.5 lakh and till Rs 5 lakh. So, in this case, the tax liability would come to Rs 12,500 on the total income up to Rs 5 lakh. under Section 87A, there is a rebate of Rs 12,500 if the income is under Rs 5 lakh. Hence, the net tax liability is zero. In the end, if proper tax planning is done, we can reduce the tax liability through legal means.

The Writer is a Columnist and Finance Professional. He has keen interests in International Affairs, Politics, Economy and Law.

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