- HubPages»
- Personal Finance»
- Tax & Taxes»
- Income Tax
How to save income Tax in India? Different Ways to get Tax exemption in India
How to save income Tax in India? Different Ways to get Tax exemption in India
In India, all class of taxpayers viz Individuals, businessmen, professionals etc have to pay income tax. The income tax act 1961 provides for income tax exemptions which can be claimed at the time of filing of IT (income tax) returns each year. These deductions help in saving tax. Income tax act provides for exemption under section 80C, 80CCC, 80CCD etc. The combined maximum exemption limit under these sections is Rs 1,50,000 per year.
The government has specified certain investment instruments which provide additional tax exemption in addition to the Rs 1.5 lakh limit each year. People investing in these instruments will get tax exemption benefit over and above the Rs 1.5 lakh limit each year. Some of the popular instruments are Life insurance policy, National Savings Certificate, Pension Plans, PPF accounts, 5- year Tax saving fixed deposit etc
National Pension Scheme (NPS): Under this scheme, government provides an additional tax benefit of Rs 50,000 each year under section 80CCD of Income tax act, apart from the general tax exemption limit of Rs 1.5 lakh per year
Infrastructure Bonds: Infrastructure Bonds are becoming very popular in India as a form of long term investment. If you wish to invest for the longer term and enjoy tax saving benefit, there is nothing better than infrastructure bonds. Infrastructure bonds are suited for individuals who come within the higher tax bracket. Infrastructure Bonds are tax-free in India, implying that you could invest any additional money in these bonds and the interest (returns) from these bonds will be tax-free
RGESS (Rajiv Gandhi Equity saving scheme): This scheme is suitable for middle class people and first time investors. Under this scheme, an individual having annual income of less than Rs 12 lakh can avail additional tax deduction under section 80CCG by investing in specified shares and mutual funds. This tax benefit is available only for first time investors
Long term Capital Gains: To encourage people to invest more in long term capital instruments, government has provided tax deduction benefit if the person invests the capital gain from sale of property in certain specified instruments.
Further, to encourage people to invest in shares and mutual funds, government has exempted income tax on long term gains on sale of equity shares, provided that they are held for a period of more than 1 year ( Generally, if the sale of equities take place within 1 year, they are taxed at 15%)
Home Loans: If you have availed a home loan, you are eligible to claim tax deduction for repayment of principal under section 80C of Income tax act. You can also claim for deduction towards interest paid on home loans. In India, deductions under home loans can be claimed under 3 different sections, thereby providing huge tax savings
Educational loans: If you have availed an educational loan for yourself or for your child or spouse, you can claim deduction under section 80E of Income tax act. However this deduction is allowed only towards repayment of interest and not towards loan principal
Donations: If you make donation for charity or philanthropic purpose, you could claim tax deduction under 80G of Income tax act. Contributions towards National Relief fund are also eligible for deductions. In some cases, 100% of the donation amount is eligible for deduction whereas in some cases only 50% of the donation amount is eligible for deduction