Paying taxes is unavoidable, but the government does provide certain reliefs to ease the burden. To fully benefit from these opportunities, it’s important to understand what they are. Let’s check out these tax reliefs in this article.
In India, you have the option to choose between two tax regimes based on how you manage your finances. Let’s explore both options to help you determine which one suits you best.
Old Tax Regime
- Tax Slabs: Fewer tax brackets with higher rates
- Deductions & Exemptions: You can claim a range of deductions and exemptions (like Section 80C and 80D)
- Tax Rates:
| Taxable Income | Old Tax Regime |
| 0 to Rs 2,50,000 | 0% |
| Rs 2,50,001 to Rs 3,00,000 | 5% |
| Rs 3,00,001 to Rs 5,00,000 | 5% |
| Rs 5,00,001 to Rs 7,00,000 | 20% |
| Rs 7,00,001 to Rs 10,00,000 | 20% |
| Rs10,00,001 to Rs12,00,000 | 30% |
| Rs 12,00,001 to Rs 15,00,000 | 30% |
| Rs15,00,001 and above | 30% |
- Tax Calculation: More complicated due to multiple deductions
- Best For: People with significant investments and many deductions
- Tax Rebate: Up to ₹12,500 for taxable income up to ₹5 lakh under Section 87A
New Tax Regime
- Tax Slabs: More tax brackets with lower rates
- Deductions & Exemptions: Limited to mostly a standard deduction
- Tax Rates:
| Taxable Income | New Tax Regime |
| 0 to Rs 2,50,000 | 0% |
| Rs 2,50,001 to Rs 3,00,000 | 0% |
| Rs 3,00,001 to Rs 5,00,000 | 5% |
| Rs 5,00,001 to Rs 7,00,000 | 5% |
| Rs 7,00,001 to Rs 10,00,000 | 10% |
| Rs10,00,001 to Rs12,00,000 | 15% |
| Rs 12,00,001 to Rs 15,00,000 | 20% |
| Rs15,00,001 and above | 30% |
- Tax Calculation: Simpler with fewer deductions to consider
- Best For: Individuals with fewer investments or those who don’t claim many deductions
- Tax Rebate: Up to ₹25,000 for taxable income up to ₹7 lakh
Tax-Smart Investment Options
Here are some popular investment options that offer tax benefits:
Deductions Under 80C:
It’s important to note that all tax deductions under Section 80C are combined, with a maximum limit of ₹1,50,000.
- Public Provident Fund (PPF): You can invest up to Rs. 1.5 lakh in a PPF account within a single financial year, either as a lump sum or through monthly contributions. The entire invested amount qualifies for tax exemption, making it one of the top tax-saving options under Section 80C. Additionally, any interest earned on the invested amount is also tax-exempt.
- Equity-Linked Savings Scheme (ELSS): The Equity-Linked Savings Scheme (ELSS) is a highly popular investment tool among investors, primarily aimed at tax savings. It is one of the best ways to save tax under Section 80C while also offering the potential for substantial returns in the long run by leveraging market performance. ELSS offers tax deductions of up to ₹1,50,000 per year under Section 80C of the Income Tax Act, 1961, potentially saving you up to ₹46,800 annually on taxes. Keep in mind that your investments are subject to a three-year lock-in period from the date of investment.
- National Pension System (NPS): The National Pension Scheme (NPS) is a structured investment plan aimed at ensuring financial security during retirement. For salaried individuals, both employers and employees can contribute, with employees eligible for a tax-free investment of up to 10% of their salary under Section 80CCD (1). Self-employed individuals can claim an additional Rs. 50,000 in tax benefits under Section 80CCD (1B). Moreover, funds in an NPS account can be partially allocated to equity schemes based on the investor’s preference.
- Tax-Saving Fixed Deposits (FDs): Fixed deposits with a tenure of five years qualify for tax deductions under Section 80C. The interest earned is taxable, though.
- Tuition Fees: You can claim a deduction for tuition fees paid for your children’s education under Section 80C. This deduction covers fees for up to two children and is included within the ₹1.5 lakh limit for Section 80C.
- Life Insurance Premiums: Premiums paid for life insurance policies are eligible for tax deductions under Section 80C. The maturity benefits are also tax-free under Section 10(10D), subject to certain conditions.
- Home Loan Interest: The interest on home loans is eligible for tax deductions under Section 24(b) up to ₹2 lakh per year for self-occupied properties. Moreover, principal repayments, up to ₹1.5 lakh, qualify for deductions under Section 80C.
- Senior Citizens Savings Scheme (SCSS): The Senior Citizen Savings Scheme (SCSS) allows a tax deduction of up to Rs. 1.5 lakh on your investment. However, it has stricter eligibility criteria: you must be 60 years or older, above 55 years and have taken voluntary retirement, or over 50 years and employed in the Indian defense sector.
Deductions Under 80D:
Health Insurance Premiums: Health Insurance Premiums: Premiums paid for health insurance policies are deductible under Section 80D. This includes coverage for yourself, your spouse, children, and parents. You can claim up to ₹25,000 for yourself and your family, and an additional ₹25,000 (or ₹50,000 for senior citizens) for your parents.
Additional Strategies for Reducing Your Tax Liability
Here are an additional ways to reduce your tax payouts:
Leave Travel Allowance (LTA):
- LTA allows you to claim tax deductions for travel expenses incurred during vacations, provided they are within India and meet certain conditions. This benefit is available for the employee and their family.
Tax Relief Through Sections 80DD, 80DDB, and 80U
Here’s how you can use Sections 80DD, 80DDB, and 80U to reduce your tax payouts:
- Section 80DD: Deduction for Disabled Dependents
- If you have a dependent with a disability, you can claim a deduction for expenses incurred on their treatment, training, and rehabilitation. Up to ₹75,000 per year for individuals with a disability. This increases to ₹1.25 lakh per year if the disability is severe.
- Section 80DDB: Deduction for Medical Treatment of Specified Diseases
- This deduction is available for expenses incurred on medical treatment of certain diseases or ailments for yourself, your spouse, children, or parents. Up to ₹40,000 per year. For senior citizens (aged 60+), the limit is ₹1 lakh. The diseases covered include cancer, neurological diseases, and chronic renal failure, among others.
- Section 80U: Deduction for Disability
- If you have a disability, you can claim a deduction under this section. Up to ₹75,000 for individuals with a disability. This increases to ₹1.25 lakh if the disability is severe.
Understanding Tax Benefits for Donations
Donations can offer tax benefits, but they aren’t always entirely tax-free. Here’s a breakdown:
- Section 80G: Tax Benefits for Donations
- Eligibility: Donations made to certain charitable organisations and institutions qualify for deductions under Section 80G.
- Deduction Amount: The amount you can claim as a deduction varies. Some donations are eligible for 50% deduction, while others might qualify for a 100% deduction, depending on the organisation and the nature of the donation.
- Conditions: To claim the deduction, the donation must be made to a registered charity, and you need to have a receipt from the organisation.
- Section 80GGA: Tax Benefits for Donations for Scientific Research or Rural Development
- Eligibility: Donations made towards scientific research or rural development can qualify for deductions under Section 80GGA.
- Deduction Amount: Generally, 100% of the donation amount is deductible, provided you meet certain conditions and have a valid receipt.
- Section 80GGB and 80GGC: Tax Deduction on Political Parties Contribution
- Eligibility: Donations made by companies (80GGB) or individuals (80GGC) to political parties or electoral trusts qualify for deductions under these sections.
- Deduction Amount: The entire amount donated is deductible.
Conclusion
Effective tax strategies can significantly benefit you as a high-income earner by lowering your liabilities and boosting your financial growth. Utilising tax-saving investments, deductions, and charitable contributions can make a significant impact.
If you need personalised advice and help managing your finances, reach out to financial experts at Geojit.
