While tax preparation is important, tax-saving strategies are also necessary. With the finest tax-saving plans in India, you may save money while also earning money. The beginning of the fiscal year is the best time to plan for tax-saving investments. This ensures that you do not pay additional taxes and save taxes in India, as well as year-long rewards on tax-saving investments.
In India, we all want to save taxes, but only a few of us succeed. The answer could be a lack of understanding or difficulties in incorporating the best-suited option into your investment strategy. We have covered each of the greatest tax-saving investment alternatives in India in this article to help you compare and make an informed investment decision.
When considering how to save tax in India, keep in mind that your goal should be more than just tax savings. The goal must be to invest in the best-suited investment option while also saving money on taxes. In this post, we’ve compiled a list of the greatest tax-saving programmes for 2022.
Here are the popular and commonly practiced 12 ways to save income tax in 2022:
- Buy Pension Plans
If you can maintain a comfortable lifestyle now and desire to continue doing so after retirement, it is prudent to invest in pension plans. It is never enough to save for retirement. Pension plans are simply a tool for ensuring your retirement security. When you pay a premium, you also obtain life insurance. This means that if something occurs to you during the insurance term, the nominee will receive the sum assured.
Consider your expenses, premium-paying capacity, plan benefits, policy term, and premium-paying term before purchasing a pension plan. The premium you pay is tax-deductible under Section 80 C of the Income Tax Act of 1961.
- Get a Health Insurance Policy
In today’s world, health insurance policies are not just a tax-saving strategy, but also a necessity. Those who have health insurance for themselves and their families are wise. Lifestyle-related disorders, as well as communicable diseases that spread quickly, have recently harmed the health and economic well-being of families.
It is critical to note that any decrease in health is not always foreseen. You must plan ahead of time and save money to cover unexpected and unanticipated medical bills. Section 80 D of the Income Tax Act of 1961 allows for the tax-exemption of health insurance policy premiums. Individuals can deduct up to Rs.25,000 in insurance premiums for themselves, their spouses, and their dependant children.
- Invest in Life Insurance Policy
Buying insurance for your family and yourself offers various benefits, one of which is tax savings. Section 80C of the Income Tax Act of 1961 allows for deductions on the premiums and payouts of life or term insurance policies, allowing you to reduce the amount you invest in insurance.
Life insurance premiums are repaid in a large lump sum or installments ( as specified at the beginning of the policy). The sum is payable in the event of the insured person’s death and is tax-free if less than Rs 1.5 lacs. Term plans, ULIP plans, kid plans, and savings plans are some of the insurance available.
- Buy Market-Linked Investment Risks
If you want to earn substantial returns over a long period while also saving tax on your investments, you should consider the Equity Linked Saving Scheme (ELSS). The scheme has a three-year lock-in term. These are market-linked investment techniques that can help you earn high returns over a long period.
Risk-averse investors might put their money in the government-backed tax-saving plan NSC. Aside from these two, you can save taxes by investing in FDs, ULIPs, and PPFs. Only if the entire amount does not exceed Rs 1.5 lacs per annum may you claim a deduction under section 80C for these various investment options such as NSC, ELSS, and so on.
- Sukanya Samridhi Yojana (SSY)
Sukanya Samriddhi Yojana has grown to be one of the most prominent tax-saving programmes. The government of India launched it in 2015 as part of the Beti Bachao Beti Padhao campaign. It had a significant impact on the general people. The scheme allows for a fixed income investment in which the taxpayer can make regular deposits while earning interest. Investing in the Sukanya Samriddhi Yojana is also deductible under Section 80C of the Income Tax Act.
The rate of interest on the programme is determined quarterly by the government of India and is payable at maturity. The scheme has a 21-year lock-in term and will mature after that period expires. A minimum deposit of Rs. 250 is required per year for 15 years. Failure to pay the required amount in a year will result in the account being disconnected. To reactivate the account, you must pay Rs. 50 penalty in addition to the original Rs. 250 deposit.
The following are the eligibility requirements for opening a Sukanya Samriddhi account:
- This scheme is only available to female children.
- The girl child cannot be older than ten years old. A one-year grace period is granted, allowing the parent to invest with 1 year of the girl kid being 10 years old.
- The investor must verify the daughter’s age.
- Senior Citizen Savings Scheme
A Senior Citizen Savings Scheme is a type of income tax saving scheme that is available to senior citizens who live in India. The scheme, which is available for investment through banks and post offices, has one of the highest interest rates among the many savings schemes.
Depositors can invest with a minimum of Rs. 1000 and in multiples of that amount. The scheme also allows for cash investments if the total amount invested is less than Rs. 1 lakh. The deposits placed into the scheme mature after 5 years. Depositors might also choose to prolong the maturity period by another three years.
Investment in the Senior Citizen Savings Scheme allows for a deduction from taxable income under section 80C up to Rs. 1.5 lakhs. The interest on such deposits is fully taxable and deductible if the interest exceeds Rs. 50,000. Deposits to a Senior Citizens Savings Scheme account are compounded and paid out once a year.
- School Tuition Fees
Section 80C of the Income Tax Act of 1961 offers a deduction for payment of children’s school tuition. This tax-saving option is offered under Section 80C, along with other investments like PPF, NSC, ELSS, and so on. Tuition paid to any registered university, college, school, or educational institution is eligible for a deduction of up to Rs. 1.5 lakh.
Furthermore, only tuition costs are deductible under the Income Tax Act. Any other price, such as a donation or development fee, even if paid to such an entity, is not deductible.
The income tax act permits both parents to claim a deduction up to the amount they paid. So, if the total cost paid by the parents is Rs 1 lakh, of which the father has paid Rs 40,000 and the mother has contributed Rs 60,000, both can claim the money individually based on their contributions.
- Repayment of an education loan
Section 80E of the Income Tax Act gives a tax benefit on loan repayment as a tax deduction. You should keep in mind that this tax break is only accessible to the individual who is repaying the loan. Once an educational loan is obtained, the interest paid on the loan is tax-deductible for a maximum of 8 years, or until the interest is repaid, whichever comes first.
The deduction is available to either the parent or the child, depending on who pays the EMI for the education loan. The deduction under section 80C is possible only if the loan is obtained from a financial institution rather than from family members. You can claim the tax deduction beginning in the year when the repayment begins.
The income tax authorities grant the borrower a moratorium period of up to one year from the date of completion to begin repaying the loan. This gives the taxpayer enough time to manage their finances and claim the deduction once the loan is repaid.
- Rent paid and no HRA received
In general, you receive HRA as part of your salary and consider HRA to be a big tax-saving strategy when completing your income tax returns. However, it is possible that it does not form part of the employee’s salary. In such a circumstance, the usual HRA deduction cannot be claimed, and the taxpayer cannot claim the benefit even if they are paying the rent. In such circumstances, the taxpayer must also claim a tax advantage under section 80GG.
Section 80GG was enacted to offer benefits to taxpayers even when HRA is not received. According to this clause, a taxpayer can claim a deduction for rent paid even if they do not receive HRA. This is subject to the following terms and conditions:
- The individual is either self-employed or employed.
- HRA was not received at any point during the fiscal year for which a deduction under section 80GG is being claimed.
- You, your spouse, or the HUF of which you are a member do not own any residential property in the area in which you presently reside.
To claim a deduction under section 80GG for rent, you must complete form 10BA. Under this clause, the lowest of the following will be regarded as a deduction:
- 5,000 rupees per month
- 25% of total income (excluding long-term capital gains, short-term capital gains under Section 111A, income under Section 115A or 115D, and deductions under Sections 80C to 80U).
- Actual rent minus 10% of income
- Interest paid on home loan
To claim the interest component of a home loan as a tax deduction, you must meet the following criteria:
- For the purchase or building of a house, a home loan must be obtained.
- The house must be built within 5 years after the end of the fiscal year in which the loan was obtained.
- The interest component of the loan can be claimed as a deduction under section 24 up to a limit of Rs. 2 lakh. In the case of a self-occupied property, this is relevant. In the case of a rented property, there is no cap on the amount of interest that can be claimed.
- In the case of interest paid on a home loan during the pre-construction period, the pre-construction interest paid might be deducted. The deduction is allowed in five equal installments beginning with the year the property is purchased or construction is finished. The highest limit, however, is Rs. 2 lakh.
- Medical expenses towards disabled dependent
A taxpayer may claim a deduction if they are caring for disabled dependents under the requirements of Section 80DD. This tax advantage will assist in reducing the tax liabilities of the person who is caring for a disabled member of the family who is reliant on them.
Section 80DD defines disabled dependents as spouses, children, parents, or siblings (brother or sister). A crippled dependent may be a member of the Hindu undivided family in the case of HUF. A deduction under section 80U should not have been taken to claim tax benefits under section 80DD. Here are a few examples of disabilities:
- Vision impairment
- Impairment of hearing
- Autism is a mental disease
Medical expenses for which you can claim tax breaks are as follows:
- Any expense incurred in the medical treatment, nursing, training, or rehabilitation of a disabled dependent.
- Any sum paid as a premium for a specific insurance policy created for such scenarios, as long as the policy meets the legal requirements.
- Donations made to charitable institutions
Section 80G allows the taxpayer to claim a tax deduction for contributions made to an eligible charitable organization. Donations to such organizations should be made in the form of a check or an internet transfer. Cash transfers over Rs. 2,000 are not deductible under this provision. To claim the deduction, it is critical to obtain a stamped receipt from the organization where the donation was made.
The tax deduction under section 80G might be either 50% or 100% of the donation amount, depending on the type of organization where the donation was made. However, the amount is limited to 10% of the taxpayer’s adjusted gross total income. The term “adjusted gross total income” can be defined as:
- the gross total income (sum of income under all heads) minus
- the amount deductible under Sections 80CCC to 80U (but not Section 80G), minus
- exemption from income, long-term capital gains, and minus
- income referred to in Sections 115A, 115AB, 115AC, 115AD, and 115D, relating to non-residents and foreign corporations.
Donations can be classified into four categories to receive a tax deduction.
a) Donations having a full tax deduction and no qualifying limit, such as the Central Government’s National Defence Fund.
b) Donations with a 50% deduction and no qualifying limit, such as the Jawaharlal Nehru Memorial Fund or the Prime Minister’s Drought Relief Fund.
c) Donations with a tax deduction of 100% are limited to 10% of adjusted gross total income. The donation must be made to the government or any designated local authority, institution, or group to encourage family planning.
d) Donations with a 50% deduction subject to a 10% limit on adjusted gross total income, such as an institution that meets the standards outlined in Section 80G.