I know you don’t want to, but still, as law-abiding citizens of India, we must still pay income tax. That said, and before we discuss best ways for you to save income tax, let me remind you what I have said for years – tax saving isn’t enough. You really need to plan your finances with goals as the central agenda and not just focus on maximizing tax savings.
But still, there are ways to save some money via tax saving by being a bit insightful and planning your investments.
So, here are the top ways to save income tax for FY 2023.
Also Read – If all Income Tax Exemptions are Removed?
10 Aspects to Consider to Save Income tax legally in India
If you are wondering how to save income tax, here are 10 ways that will help you save IT in India for the FY 2023. Have a look at the below points:
1 – Make the Most of Section 80C
When it comes to saving income tax, most individuals turn to Section 80C of the Income Tax Act, 1961. The section provides a range of investment options, which generate considerable returns, alongside allowing deductions while calculating one’s taxable income.
In addition, under this section, a taxpayer can claim deductions up to Rs 1,50,000 for a given financial year. Furthermore, it allows deductions for specified expenditures made by an individual.
Given below is a list of various investments and expenditures that you can claim as deduction under Section 80C:
- Voluntary Provident Fund (VPF)
- Employees’ Provident Fund
- Life Insurance Premiums
- Public Provident Fund
- Equity Linked Savings Scheme (ELSS)
- Principal Repayments of Home Loan
- National Savings Certificate (NSC)
- Sukanya Samriddhi Account
- Senior Citizen Savings Scheme (SCSS)
- 5-Year Bank Fixed Deposits (FDs)
- Payment of Tuition Fees (only for a university, college, or school in India)
- 5-Year Post Office Time Deposit Scheme (POTD)
- Unit Linked Insurance Plan (ULIP)
- NABARD Rural Bonds
2 – Do Not Ignore 80CCD
Section 80CCD of the Income Tax Act, 1961, offers deductions against one’s contributions to the National Pension Scheme (NPS) or Atal Pension Yojana (APY). The maximum amount of deduction available under this section is Rs 2,00,000, including an additional deduction of up to Rs 50,000 under sub-section 1B.
Moreover, taxpayers should bear the following points in mind:
- Salaried employees, as well as self-employed individuals, can claim deductions under Section 80CCD.
- Deduction under this section is mandatory for government employees and voluntary for other individuals.
- The combined deduction under Section 80CCD and 80C cannot exceed a sum of Rs 2,00,000.
- Tax benefits already availed under Section 80CCD cannot be reclaimed under Section 80C.
3 – Leverage the Benefits of Home Loans
Under Section 80EEA, interest payments on home loans of up to Rs 1,50,000 are available for deduction. Additionally, this deduction stands over and above the deduction for interest payments under Section 24, the maximum amount of which is Rs 2,00,000. As a result, a taxpayer in India can claim a total deduction of Rs 3,50,000 as interest on a home loan, given they fulfil the criteria of Section 80EEA, such as:
- The taxpayer must be a first-time homebuyer.
- He/she should not own a residential property on the date of home loan sanction.
- A house property’s stamp value should not exceed Rs 45,00,000.
- The taxpayer should avail a home loan from a housing finance institution or financial institution to buy the residential property.
Further, your HRA will help you save income tax by way of tax exemption on yearly rent at the end of FY 2023. However, the amount eligible for HRA exemption varies based on several conditions.
So, it is wise to use an HRA exemption calculator to know the exact exemption amount.
4 – Avail Deductions under Section 80D
Individuals and Undivided Hindu Family (HUF) are eligible to apply for tax deductions on money spent on personal and family healthcare. The deductions are available on the money spent on paying premiums of a health insurance policy and preventive healthcare expenses, including health checkups.
The maximum deductions available under Section 80D are below:
- People aged below 60 years can claim deductions of up to Rs 25,000, including Rs 5000 on preventive health checkups.
- Insured people aged above 60 years are eligible for deductions of up to Rs 50,000.
- Individuals can claim tax deductions of up to Rs 75,000 on premium paid for self, spouse, children and dependable parents aged above 60 years.
- Again, the deductions of up to Rs 1,00,000 can be claimed if a person pays a health insurance premium for self, spouse, children and dependent parents aged above 60 years.
However, you should consider the exclusions which apply if the premium is paid for working children, siblings, grandparents. Additionally, the deductions are not applicable if the premium payment is done in cash. Or, an employer pays the premium for a group health insurance plan.
5 – Tax Deductions on Interest Income
Taxpayers can claim tax deductions of up to Rs 10,000 on the interest income from the sources below:
- Fixed deposits
- Recurring deposits
- Other time deposits
Both individuals and HUFs can claim this deduction on their taxable income. If the interest income is less than Rs 10,000, the entire amount will be the deduction. Similarly, if the interest income is more than Rs 10,000, the deductions will be capped at Rs 10,000.
6 – Deductions on NRE Account Interest
As per the FEMA provisions, an NRI cannot maintain a savings account on his/her name in India. Therefore, if an Indian national intends to go abroad and stay here, he/she needs to open a Non-resident External Account or NRE.
Now, NRIs of India are also entitled to enjoy tax deductions on the interest income from Non-Residential External Accounts. The interest earned on such accounts is tax-free as per the section 10(4) of the Income Tax Act.
7 – Tax Savings from Life Insurance Policy
Under Section 80C and 10D, people can claim tax deductions on life insurance policies. You can claim tax deductions of up to Rs 1.5 lakh on the amount paid towards life insurance premiums. The deduction is available in the following instances:
- If the annual premium amount is 20% of the sum assured for the insurance policy issued before 31st March 2012.
- For insurance policies issued after 1st April 2012, the premium paid annually is 10% of the sum assured.
Additionally, under section 10D, the maturity is tax-free if the premium is not more than 10% of the sum assured. Also, in case of the demise, the maturity paid to the nominee is tax-free.
8 – Save Tax on Sold Shares and Equity Mutual Funds
The long-term capital gain on equity shares listed on a Stock Exchange is eligible for tax deductions on a limit of up to Rs 1 lakh.
The Equity-linked Savings Scheme or ELSS is the only mutual fund eligible for tax deductions under section 80C of up to Rs 1.5 lakh.
Also Read – Income tax on Switching in Mutual Funds (2023)
9 – Invest in PF to Save IT
The amount deposited in a PPF is eligible for tax deductions of up to Rs 1.5 lakh under section 80C. Similarly, the interest earned from this account is tax-free.
Additionally, the entire EPF balance, including interest, is tax-free, only if withdrawn after 5 years of continuous employment.
10 – Tax Saving on Fixed Deposit
A tax-saving fixed deposit or FD account offers tax deduction as per Section 80C of the Income Tax Act. Investors can, therefore, invest in a tax-saving FD account and claim a deduction of a maximum of Rs 1.5 lakh per annum.
So that’s it. I hope you found the above ready-reckoner to figure out how to save income tax for FY 2023.