Wondering how to save taxes this financial year? Here is a simple guide:
Financial year and tax planning
Income tax is calculated on the income you earned during a financial year. As the financial year 2020-21 approaches, this could be the right time for you to plan and find out how much tax you can save. Starting this year, you can opt for the old tax regime and avail tax benefits, or opt for the new regime to forgo tax benefits but enjoy lower tax rates.
Assuming you go for the old regime, here’s how you can save taxes in the financial year.
Section 80C, 80CCC and 0CCD
You can reduce your taxable income by Rs 1.5 lakhs in these sections. It includes life insurance premium payment, investment in 5-year bank fixed deposit, public provident fund, national saving scheme, national pension scheme, home loan principal payment, equity-linked saving scheme etc.
Pension fund contributions in a life insurance annuity plan and pension fund of the central government also qualify for a deduction.
You get a deduction for the premium paid on medical insurance. It can be up to Rs 25,000 normally, and Rs 50,000 in the case of senior citizens. In case both taxpayer and parents are above 60 years, the total deduction can be Rs 1 lakh. Besides, there is an additional deduction of Rs 5,000 for health check-ups.
Section 80DD and DDB
Amount spent on or contributed towards a specified scheme to take care of the medical expenses of a dependent handicapped relative or on self can be claimed as a deduction. This can go up to Rs 1.25 lakhs and Rs 1 lakh under the two sections, respectively.
Under this section, you can claim a deduction of up to Rs 10,000 on the interest earned on your savings bank account.
In case you pay rent but don’t get House Rent Allowance, you can claim deduction under this section. The maximum deduction is calculated as per the prescribed formula.
You can claim a deduction on the interest paid on an education loan taken for higher studies.
First-time homebuyers can claim a deduction of up to Rs 50,000 on the home loan interest portion.
A resident individual suffering from a physical disability can claim a deduction of Rs 75,000. This can go up to Rs 1.25 lakhs in case of severe disability.
A 100 % deduction with no qualifying limit is offered on donations made for specified social causes. There are a few other funds that qualify you for a 50 % deduction on your donations.
Any non-cash contribution made to a political party is eligible for deduction under this section.
Income received against the royalty of a patent is deductible under this section.
Senior citizens can claim deduction up to Rs 50,000 on income from deposits.
Apart from the deductions, you can also save tax on the exemptions provided under House Rent Allowance, Transport Allowance, Child Education Allowance, Hostel subsidy, interest on home loans etc.
Equipped with this information, we hope you make a handsome saving on your next income tax return.
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