Every year, while filing the income tax return, you need to look for ways to save on taxes. Saving tax is one of the smartest financial moves you can make. Because not only do you have more money in your pocket. There are many ways through which you can legally reduce your taxable income and hence your tax liability. You can indeed reduce the amount of taxes you owe without making any investments at all. The key is knowing how to take advantage of all the deductions available to you.
Take a look at some of the smart ways to save tax in India without making any investment. You can use these options to reduce your taxable income and lower your tax outgo.
● Deductions Under Sec 80C, 80D and 80EE
Owning a house and paying an insurance premium is something that most people do. If you are also doing something similar, you can claim deductions under the Income Tax Act. Here’s how you can do it:
Section 80C
You can claim a deduction up to Rs. 1.5 lakh on principal repayment of home loan under section 80C of Income Tax Act. It covers major expenses like investments in PPF, NSCs, ELSS, EPF contributions, and LIC premiums. The most popular option is ELSS since it offers dual benefits of market-linked returns with tax exemption. Other options under section 80C include payment of tuition fees (for self and children), repayment of home loan principal (up to Rs. 1.5 lakh), stamp duty & registration charges for the purchase of property, and contribution towards the National Pension Scheme (NPS).
Section 80D
You can claim a deduction up to Rs. 25,000 on medical insurance premium paid in a fiscal year under section 80D of the Income Tax Act. It provides for the deduction of expenses incurred on medical insurance, preventive health checkup, and medical expenditure for specified diseases of senior citizen relatives. The maximum deduction allowed is Rs. 25,000 or Rs. 30,000 depending upon the age of the insured person, which can be increased to Rs. 50,000 if the other family members are also covered by an insurance policy. For senior citizens, the limit is Rs. 30,000 and Rs. 50,000 if they cover their family members too under their insurance policy.
Section 80EE
You can claim a deduction up to Rs. 50,000 on interest paid towards home loan under section 80EE of the Income Tax Act. This section provides for a deduction on interest paid on home loans. The total amount of deduction that can be availed by the individual is Rs. 50,000 per financial year. To avail of this benefit, your house should be under construction or should have been purchased within the last five years. Also, the value of the property should not exceed Rs. 50 lakhs and the value of your home loan must not exceed 35 lakhs.
● Children’s Tuition Fees and Hostel Allowance
You can claim an education allowance of up to Rs. 100 per month per child for a maximum of two children under Section 10(14) of the Income Tax Act. However, you cannot claim this if your employer has already provided you with a similar benefit.
Similarly, under Section 10(14) of the Income Tax Act, you can claim a Hostel allowance up to Rs. 300 per month per child (maximum two children) provided your employer hasn’t provided you with a similar benefit.
Additionally, if you have spent money on tuition fees for your children, you can also claim a deduction under Section 80C of the Income Tax Act 1961. Under this section, you can claim a deduction up to Rs 1 lakh on the tuition fees paid for your kids’ education in both private and government schools, including playschools, pre-nursery, and similar institutions.
● Deduction for Interest Paid on Home Loans
A home loan is one of the best ways to save tax at the time of payment of monthly EMIs. The interest paid on the home loan is eligible for tax deduction under section 24 of the Income Tax Act, 1961, up to Rs 2 lakh per annum.
You can reduce your tax liability by claiming a deduction for interest paid on a home loan that you have taken to buy or build a house property. Under Section 24, you are entitled to a deduction of up to Rs 2 lakh from your taxable income if you are living in the property and repaying the home loan. Similarly, if it is a self-occupied property and you haven’t started repaying the loan yet, you can still claim a deduction for up to 5 years from when the construction of the house is completed. However, this deduction will be limited to Rs 30,000 per year.
● House Rent and Transport Allowance
There indeed are several ways to save tax without making any investment but the most common one is claiming House Rent Allowance (HRA). This can be claimed by salaried individuals who stay in a rented house. An individual can claim HRA exemption if he/she stays in an owned or rented accommodation for which rent is paid by him. For claiming the exemption, the landlord’s PAN number must be furnished.
Enjoying HRA as a tax exemption depends on the city in which you reside, how much rent you pay, etc. An employee can claim HRA exemption under Section 10 (13A) of the Income Tax Act.
Section 80GG provides for deduction in respect of rent paid where HRA is not received by an employee or where he/she is not in possession of a self-occupied house property. The maximum deduction available is Rs 5,000 per month or 25% of total income (whichever is less).
Transport Allowance is paid by an employer to its employees for commuting between their residence and office. The maximum amount allowed for Transport Allowance is Rs 19,200 per annum. If an employee uses a motorcar for official purposes, the actual petrol expenses are reimbursed by the employer. However, an employee needs to provide receipts to get eligible for a tax deduction under section 10 (14).
● Employees’ Provident Fund (EPF)
EPF is a retirement benefits scheme where both the employer and employee contribute 12% of basic pay towards the fund. The interest rate offered by EPF is decided by the Central Government every year. Any amount contributed towards this fund is exempt from tax.
A contribution of 12% of an employee’s basic pay and dearness allowance is contributed by the employer to the Employees’ Provident Fund (EPF). The interest rate on the provident fund or PF is decided by the Ministry of Labor and Employment, which is currently around 8.65%.
The interest earned via the Employees’ Provident Fund (EPF) is tax-free, as well as the lump-sum withdrawal amount at maturity.
You can also claim a tax deduction under Section 80C if you voluntarily contribute more than your employer’s contribution towards your EPF account.
To claim tax deduction under section 80C for voluntary contributions made to your PF account, you must submit Form 12BB and Form 10C, along with your investment proof to your employer. Your employer will deduct taxes on your salary after considering this deduction.
● Education Loan
Any interest paid on education loans can be claimed as a deduction. The interest amount will be exempted from tax up to Rs 1,50,000 per year. No limit is imposed on the amount of deduction taken for students with disabilities such as blindness, mental illness, or hearing impairment.
The interest paid on the loan is eligible for deduction under section 80E and can be claimed as a deduction for up to eight financial years.
● Standard Deduction on Employee’s Salary
In India, most people are salaried employees. They get a salary from their employer every month. A part of the salary is deducted by the employer towards taxes i.e. TDS (Tax Deducted at Source). The amount of TDS deduction depends on the taxable income of an individual and the tax slab they fall under.
The government of India has introduced a new provision in the Income Tax Act 1961 which allows a standard deduction of up to Rs. 40,000 from your gross income. The only condition you need to satisfy to claim this benefit is that you should be an employee. The government is giving this deduction as compensation for the employees who do not have their own conveyance or medical reimbursements. This deduction can be claimed on your income from salary or pension.
To avail of this benefit, an individual needs to submit Form 16 issued by their employer to the IT department.
Wrapping up!
Discussed above are some of the best ways to save income tax without making any investment. These tips will definitely help you in saving yourself a lot of money. Avoid high-value transactions, for example, don’t buy a costly car; use a non-expensive one if you already have one. Keep your expenses below the allowed limit; that is if your income is more than the taxable limit then don’t buy any expensive stuff you can easily do without. Even better just wait for the next financial year for those luxuries.
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