Team AckoSept 25, 2023
People are constantly looking for ways to reduce their income tax obligations. And there are several ways to do so. If you want to expand your knowledge about tax-saving instruments, this article features 20 easy ways to save Income Tax in 2023. Read on to know more.
A share of your income that you pay to the government is called income tax. The government uses these funds for administrative purposes.
You can save tax in the following two ways.
Investing money in tax-saving instruments
The government encourages citizens to invest in the tax-saving investments mentioned under section 80C of the Income Tax Act in order to reduce their tax burden. In this way, you can make sure you have some sort of investment and stop worrying about spending excessive money on paying taxes. Here are some examples of tax-saving instruments.
Public Provident Fund
National Pension Scheme
Premium Paid for Life Insurance policy
National Savings Certificate
Equity Linked Savings Scheme
Home loan’s principal amount
Fixed deposit for five years
Sukanya Samariddhi account
Children’s tuition fees
Claiming tax benefits from the deducted amount
You have the option to let your employer deduct tax on a monthly basis. If this amount exceeds the expenses made for non-taxable payments, the government will return the balance or extra tax you paid. You must notify the Tax department about the same. These are called Income Tax Returns.
Read the following points if you're interested in learning more about tax savings options in India to reduce your 2021–22 taxes. Note that these points may have some changes based on yearly updates.
Tax deduction when taking out a home loan: If you use section 80C of the Income Tax Act to your advantage when structuring your house loan and reducing your taxable income, you can get a benefit of Rs. 1.5 lakhs on the principal amount and Rs. 2 lakhs on the interest paid as per section 24.
Earnings from Interest on Savings Accounts: For a maximum of Rs. 10,000, interest earned on savings accounts is generally tax-exempt. This sum represents the total of all savings accounts. For senior citizens, this cap is increased to Rs. 50,000 under section 80TTB.
Interest received through NRE accounts: Indian citizens who do not reside in India have NRE accounts. They receive interest on both the accumulating and fixed deposit amounts. The amount of interest is referred to as tax-free income.
Money Received from Life Insurance Policy: The maturity amount or bonus is completely free from income tax under Section 10 if the premium is below 10% of the sum assured (if the policy is purchased after 1st of April, 2012). The maturity amount is tax-free for policies purchased before this date if the premium is 20% of the sum assured. Policies issued after April 1, 2013 that cover the life of a person with a disability or a disease listed under Sections 80U or 80DDB, respectively, are also included in this category. In these cases, the amount received at maturity is tax-free as long as the premium is below 15% of the sum assured.
Scholarship for education: Under section 10(16) of the Income Tax Act, any scholarship awarded to deserving students to help with educational expenses is exempt from income tax.
Amount received from shares or Equity Mutual Funds: Long-term capital gains (LTCG) up to Rs. 1 lakh are excluded from income tax if equity mutual funds or shares are sold after being kept for one year or longer.
Wedding gifts: Any kind of wedding present received from direct relatives is exempt from taxation under the Income Tax Act. The most that can be spent on presents from friends or unrelated individuals is Rs. 50,000. Gifts that exceed this amount will be subject to the applicable tax slab.
Income from agriculture: Income from agriculture is not subject to income tax. However, the Income Tax Act established an indirect taxation method for such income. It is called the partial integration of agricultural and non-agricultural incomes. It intends to impose higher tax rates on non-agricultural income.
Hindu Undivided Family (HUF) and extra income: HUFs are recognised as separate tax entities and are entitled to separate tax exemptions for each of their members, as well as a basic tax exemption of Rs. 2.50 lakh, regardless of the HUF's residency status.
Amount received through inheritance: The money you receive through a will or by being a legal heir is entirely tax-free because India has no inheritance tax.
Provisions under Section 80C: The Indian government provides a provision to invest up to Rs. 1,50,000 under section 80C of the Income Tax Act in order to promote saving. As a result, investing in tax-saving instruments under 80C allows you to both reduce your income tax liability and make investments for the future.
Contributions to the National Pension Scheme (NPS): Typically, Section 80C, which has a ceiling of Rs. 1,50,000, applies to contributions to the National Pension Scheme. To invest an additional Rs. 50,000 tax-free in the National Pension Scheme, however, is an option.
Amount from provident funds: Any interest that is earned on a provident fund is not subject to taxation.
Getting a loan for education: The Income Tax Act's Section 80E applies to this. The amount of interest paid on a student loan is not taxable. There is no established cap for this category.
Health insurance premium: A person may deduct (for taxation purposes) up to Rs 25,000 for their own insurance premium as well as their spouse's and dependent children's insurance premium. If your parents are below 60 years of age, you can deduct an additional/separate amount for their insurance premium up to Rs 25,000; if they are above 60, it can be up to Rs 50,000.
Expenses to treat disabled dependent: The set discount offered by this provision is independent of age and expenditure. The upper limit for deduction from gross income is Rs. 75,000 for 40% disability, and from the total income, it is Rs. 1,25,000 for 80% or above disability. Even if the costs are less than the specified amount, a full deduction is allowed under Section 80DD.
Expenses for treating specific diseases: According to Section 80DDB of the Income Tax Act, medical costs spent by a person or a HUF for the treatment of a specific disease or ailment are eligible for a deduction under certain conditions and are limited to a certain amount.
Charity donations: For donations given to particular relief funds and charity organisations, you are eligible for a deduction under Section 80G of the Income Tax Act. But under Section 80G, not every donation qualifies for a tax deduction. Only contributions made to designated funds are tax deductible.
Money spent on donations to Political Parties: Tax deductions for money spent making a donation to a political party have no upper limit. These deductions fall under Section 80GGC. Such a donation amount equals a 100% deduction under Section 80GGC and 80GGB for individuals and a company, respectively.
Tax savings for business owners: To avoid paying taxes, business owners might claim travel expenses as a part of business costs.
To avoid paying taxes, business owners might claim food bills as business costs.
Following are some common questions and answers about saving income tax in 2023.
The five income classifications are salary income, revenue from capital gains, profit or gains from a business or profession, income from real estate, and other sources of income.
The lower limit for paying income tax on salary is Rs 2.5 lakhs as per the old regime. This is the base for an individual below 60 years of age. For people above 60 years, the lower limit is Rs. 3 lakhs; for Super Senior Citizens, the lower limit is Rs. 5 lakhs. The lower limit is Rs. 2.5 lakhs as per the new tax regime, irrespective of the person's age.
Yes, you can save tax by investing money at a post office. You can invest in a five-year time deposit with a post office just like you may in a five-year fixed deposit. The interest rates on a post office time deposit are higher than those on a fixed deposit tax saving instrument.
Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on several secondary sources on the internet. Please consult an expert before making any related decisions based on the content.
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