How to do income tax planning this financial year

How to do income tax planning this financial year
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Tax-planning can be a tedious job for most of us, that is why here we are with Everything you need to know in order to save Taxes this financial year. Most of the tax-payers know about common tax-saving deductions such as section 80C of the Income Tax Act but what most people do not know is that there are several other provisions available in the Income Tax Act under which you can save taxes. We all want to invest and save but the approach here turns out to be wrong as if we do not focus saving first then there will be no investment and in order to save maximum we can, efficient tax-planning is very important.  

From the current financial year, an individual have two choices, one is to choose to continue with the old regime and get the already existing tax deductions and the other one is to file under new regime and discontinue with the earlier ones and get new tax deductions. Now let’s have a look at these provisions using which you can save a good chunk. 

  1. Section 80C

This is one of the most common and known tax-deduction provision. It can help you save up to 1.5 lakh in a financial year by investing in Employees’ Provident Fund (EPF), Public Provident Fund (PPF), Equity-linked savings scheme (ELSS) mutual funds, National Pension system (NPS). What a lot of people do not know is that they can also save the same amount (1.5lakh) by spending instead of investing. The saving can be done by spending on repayment of principal amount or even EMI of home loan, children’s school fees, insurance premium, stamp duty on the registration charges on buying of your first house etc. 

  1. Section 80CCD 1(b)

Even though National Pension system (NPS) was included in the section 80C, there is a provision of deducting another Rs. 50,000 by investing in NPS. You should keep in mind that this deduction is over the deduction done in Section 80C and thus make the total savings to Rs. 2 lakhs. One important thing to know about NPS here is that the interest money that you will receive at the time of retirement is fully taxable. 

  1. Section 80CCD (2) 

This is a deduction available on the employer’s contribution to an employee’s Tier-I NPS account. A maximum contribution of 10% of the basic salary plus dearness allowance (if applicable) is allowed under this section.

According to the new regime, employer’s contribution to retirement funds – EPF, superannuation funds, NPS – of more than Rs 7.5 lakh in a financial year will be taxable in the hands of the employee. Already mentioned, any interest earned will also be taxed. So, if your total contribution to these schemes do not exceed Rs. 7.5 lakh annually, then you can use the benefits under this section. 

  1. Section 80D 

Premium paid (up to Rs. 25,000) on health insurance for self, spouse or children are exempted from taxes under this section. Premium paid for the health insurance of parents can offer additional tax break up to Rs 25,000. If your parents are senior citizens (age 60 years and above), then this tax break would go up to a maximum of Rs 50,000. Therefore, health insurance premium paid for self (including spouse and dependent children) and senior citizen parents can help you save tax up to Rs 75,000 in a financial year. If you and your parents’ are senior citizens then you can save up to 1 lakh under this section. In case your senior citizen parents’ are not covered under health insurance then their medical bills up to Rs. 50,000 can also be covered under this section. 

  1. Section 80DD and Section 80DDB

Other than Section 80D, there are two other sections that can help you save tax in case of medical expenses incurred for disabled and/or specified persons. Section 80DD offers a tax break on the medical expenses incurred for a dependent disabled person. Dependent here includes spouse, children, parents, brothers and sisters of the individual.

The severity of disability is also considered here. If the dependent is at least 40% disabled, then the maximum deduction that can be claimed is Rs 75,000. On the other hand, if the disability is 80% or more, then it is considered as severe disability and the maximum deduction that can be claimed is Rs 1.25 lakh.

Section 80DDB offers a deduction for the medical expenses incurred for the treatment of specified illnesses such as cancers, chronic kidney diseases etc. This deduction can be claimed for the expenses incurred on self or the dependent. For individuals below 60 years of age, whether self or dependent, the maximum deduction allowed is Rs 40,000. For senior citizens aged 60 years and above, the maximum deduction that can be claimed is Rs 1 lakh.

  1. Section 80U

If you are an individual with disability of 40% and above, then you can claim a tax break under section 80U. You can claim tax deduction either under section 80U or section 80DD and not under both. Deduction under section 80U is claimed by the disabled individual whereas deduction under section 80DD is claimed by the dependant who has incurred expenses for the treatment of the disabled individual. The deduction amount under this section is same as section 80DD. 

  1. Section 24

Apart from the tax benefit available on home loan principal repayment under section 80C, you can also claim tax benefit on a maximum of Rs 2 lakh on the interest paid on the loan during a year. Benefit under this section can only be availed for loan taken for self-occupied property and not for the property that is under-construction. 

  1. Section 80EEA

If you have taken a home loan to buy a house under the affordable housing segment during FY 2020-21, then you are eligible to claim additional tax break on interest paid up to a maximum of Rs 1.5 lakh. This deduction is available over and above section 24. There are certain conditions to be fulfilled in order to get tax deduction under this section. 

  1. Section 80G

If you are into doing charity, that can also help you save taxes. If you donate to specified government notified funds under section 80G you can claim up to 100% of the donation as a deduction from your gross total income thereby reducing your taxable income. 

  1. Section 80TTA

“Interest from other sources” is taxable and we know it but interest earned from these sources up to Rs 10,000 in a financial year can be claimed as a deduction from gross total income under section 80TTA except senior citizens as they get tax deduction benefits on interest in section 80TTB.  

  1. Section 80TTB

Senior citizens (those aged 60 years and above) can claim a maximum deduction of Rs 50,000 from their gross total income under this section. The deduction can be claimed on the interest earned from specified sources such as savings account, fixed deposits, senior citizen savings account etc.

  1. Section 80E

The Interest paid on education loan will also help you save taxes but only individuals can claim this deduction and not HUFs. One interesting thing is that there is no limit on the maximum amount that one can claim as a deduction from gross total income under this section in a financial year. This benefit is only available for a maximum of 8 years from the start date of loan repayment. 

You may not be eligible to get tax deduction under all of these sections but this is all you need to know before filing your ITR. Happy Tax-Planning!  

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