Income tax is the direct tax imposed by the government on the taxable income of individuals, businesses, and other entities. The tax rate differs according to income level, and the funds collected are used to settle government expenses which include infrastructure, education, healthcare, and defense.
There are multiple standard procedures on Tax saving options in India that individuals and organizations can comply to save income tax. It is crucial to organize and invest in a tax-efficient way, while at the same time ensuring compliance with the restrictions of Indian tax law, to limit tax liability and maximize savings.
For Individuals in India
Here are some ways an individual in India can save income:
Interest on Savings Account
Interest earned on savings accounts is tax-free up to Rs. 10,000 per year.
NRE Account Interest Income
The interest earned on NRE accounts is tax-free.
Life Insurance Maturity or Claim Amount Received
Section 10(10D) exempts the maturity or claim amount paid from life insurance policies from income tax.
Educational Scholarship
Section 10(16) excludes any scholarship obtained for educational purposes from income tax.
Amount Earned as Wedding Gifts
Any amount received as a gift during a marriage is tax-free.
Agriculture Income
Agriculture income is not subject to income tax.
Money Under VRS
Up to a specific extent, any sum received under the Voluntary Retirement Scheme (VRS) is tax free.
Section 80C Tax Saving Options
Section 80C allows you to save income tax by investing in tax-saving components including Life Insurance Policies, Public Provident Fund (PPF), National Savings Certificate (NSC), Equity-Linked Saving Scheme (ELSS), and others.
Tax Exemptions for Additional NPS Contributions
Section 80CCD(1B) enables you to save income tax by making additional contributions to your National Pension Scheme (NPS) account.
Money from Provident Funds (received after 5 years)
After 5 years of constant service, all money received from a certified Provident Fund is exempt from income tax.
Tax Benefits from a Home Loan
Sections 24 and 80C of the Internal Revenue Code allow you to deduct the principle and interest paid on a home loan from your taxable income.
Tax Relief for Long-Term Capital Gains on the Sale of a House
Section 54 permits you to defer income tax on long-term capital gains (LTCG) from the sale of a home by reinvesting the proceeds in another home.
Savings on Education Loans
Section 80E lets you to deduct the interest paid on an education loan from your taxable income.
Medical Insurance
Section 80D provides a way to save income tax by paying the premium for medical insurance, up to a certain amount.
Medical Care for a Disabled (Handicapped) Relative
Section 80DD allows you to claim a tax deduction for the medical care of a disabled dependent relative.
Disabled Individual’s Medical Expenses and Treatment of Specified Disease for Individual or Dependent Relative
Section 80DDB facilitates you to deduct medical expenses incurred for a disabled individual and a deduction for medical treatment of selected diseases for yourself or a dependent relative.
Donations
Donations to charity organizations are tax deductible under Section 80G.
Donations to Political Parties
Donations to political parties are tax deductible under Section 80GGC.
Electric Vehicle Purchased Interest
You can save money on your taxes by depreciating the interest paid on the loan used to acquire an electric vehicle.
Self-employment Housing Allowance
Section 80GG facilitates self-employed individuals to claim a deduction for office rent.
Post Office Savings Account Interest
Section 80TTA empowers you to deduct interest earned on a post office savings account from your taxable income.
Businessperson in India
Some of the most prevalent strategies for Indian businessmen and women to save income tax:
Profit is distributed to partners in partnership firms
Profits in a partnership firm can be dispersed among partners in a way that decreases the firm’s overall tax liability.
Business Travel/Hotel Expenses
Expenses incurred on business travel and hotel stays can be deducted from taxable income.
Allowance for Leave Travel
Employer-provided leave travel stipend for travel within India can be deducted from taxable income.
Business Food Expenses
Expenses for business-related meals and refreshments can be deducted from taxable income.
Meal Coupons
Meal coupons paid by the company may be deducted from taxable income.
House Rent Allowance (as a percentage of salary)
House rent allowances earned as part of a salary can be deducted from taxable income.
HRA (not included in wages)
If HRA is not part of a pay, it might be deducted from taxable income.
Profit from Gratuity
Employer-provided gratuity income can be deducted from taxable income.
Standard Deduction
Salaried employees are entitled to a standard deduction of Rs. 50,000.
Company Leased Car
If a firm provides an automobile for personal use, the taxable value of that use might be lowered by applying a formula established by the Income Tax Department.
Telephone/Internet Charges
Expenses for business-related telephone and internet services can be deducted from taxable income.
Rebate Under Section 87A
Individuals having an income of up to Rs. 5 lakhs can claim a rebate of up to Rs. 12,500 under Section 87A.
Depreciation
Depreciation on assets utilized for company purposes can be claimed as a tax reduction.
Section 80C
Businesses can save income tax by investing in tax-saving instruments such as PPF, NSC, ELSS, and others under Section 80C.
Research and Development
Expenses incurred for research and development activities can be deducted from taxable income.
Donations
Section 80G allows businesses to make tax-deductible payments to charitable organizations.
Business Losses
To lower tax burden, business losses can be carried forward and offset against future earnings.
Health Insurance
Section 80D allows the companies to deduct the cost of health insurance premiums.
Section 80CCD
To save income tax, business owners can make additional contributions to their NPS account under Section 80CCD(1B).
Section 80GG
Business owners who do not receive HRA can deduct rent paid under Section 80GG.
Startup Investment
Section 80-IAC allows you to deduct your investment in a startup.
Finally, it should be noted that the tax-saving choices available to business owners may differ based on the type of business and the applicable tax legislation. As a result, it is strongly advised to seek advice and guidance from a tax professional.
Any questions on saving income tax? Ask us! info@taxvic.com
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