Best tips to save Income tax very Easily

This Article discusses the tips and ways for an individual or HUF to save tax legally abiding all rules of the tax laws__, and on basis of the provisions provided by government to its citizens. There are various rules which if used intelligently can result in a good tax saving for individuals.

The first step towards that is the planning of income tax which should begin in beginning of each financial year, there should be various goals which each individual has in future to save or to invest in various vehicles to accumulate an income for future, these goals and planning for future has the key to save income tax for us. Let’s discuss them in details…

What is Income Tax?

The Income tax is the tax which an earner needs to pay as portion of tax to the government, as per the laws of income tax. There are various provisions and conditions for paying the taxes to government, so everyone need to abide the tax laws and pay income tax in align with those laws.

The income tax is collected calculated on Annual basis however the tax is deducted each month for salaried individuals, but the assessment for it done for a full financial year, ie. Total income in a year is calculated and total tax paid is calculated for a full financial year, if the tax assessment by govt is more than the tax you paid then you need to pay more tax on filing the ITR and if the tax assessment of government is less and you had paid more then you are eligible for refund of the amount you have paid extra as tax.

Not Everyone need to pay income tax, below table can help in calculating whether you fall in the category to pay income tax. Here are the new tax rates announced in financial year 2020-21, these tax rates are corresponding to new tax structure released in 2020-21, this tax structure does not let an individual to take benefit of deductions, but this can be concluded that if someone has an income up to 2.5 lakhs do not need to pay any income tax to government.

Total Income in Rupees	Income tax rate.
Income Up to 250,000(2.5 lakh)	Nil (No tax needs to be paid)
From 2,50,001 to Rs 5,00,000(5 lakh)	5 percent
From 5,00,001 to Rs 7,50,000(7.5 lakh)	10 percent
From 7,50,001 to 10,00,000(10 lakh)	15 percent
From 10,00,001 to Rs 12,50,000(12.5 lakh)	20 percent
From 12,50,001 to 15,00,000(15 lakh)	25 percent
Above 15,00,000(15 lakh)	30 percent

Two Ways to Save Tax.

If we look all the ways to save tax then all of them fall in any one of the two categories mentioned below.

• Claiming Expenses or Income tax Exemptions
• Claiming deductions

I would go through each one in the successive article sections.

Claiming Expenses or Income tax exemptions.

What is an Income tax exemption?

A particular income which is exempted from tax, means it is not considered as part of Actual tax liability and is reduced straight forward from the income. This actually leads to a less taxable income for an individual. Section 10 of Income tax Act talks about the income tax exemptions, some of the general used exemptions are described below.

Any individual can claim the exemptions with no or very little conditions.

Expenses allowed for income tax exemptions?

1. Section 10(13A) House rent allowance.

The House rent allowance is the easiest allowance or expense where an individual can save tax easily and without any kind of complexity. A tax exemption of 40% can be claimed by Non-Metro residing individuals and 50% can be claimed by Metro city residing individuals.

The house rent allowance should be the first step where an individual starts his tax planning as this is an expense and he does not need to invest anything to get a benefit in this section.

The house rent allowance has a formula which is based on the Basic Salary and Allowance receive for house rent from the employer, this formula can be checked and optimized to get maximum tax benefit in this section of income tax.

There is an HRA calculator in this website which will help you to calculate the amount of house rent you can claim where you can utilize maximum benefit in this section. This calculator also tells you how much maximum rent you can declare to get the maximum possible benefit under this section.

2. Conveyance Allowance.

Conveyance Allowance is the Allowance provided by the employer to individuals, the Conveyance allowance is given by the employers for commuting to office and home, but as this comes under an expense one can claim a deduction under this allowance. An amount of 1600 Rupees per month allowed as the maximum exemption for conveyance allowance. Yearly it comes out to be 19200 rupees.

3. LTA (Leave Travel Allowance).

The leave travel allowance is another easier method to save tax, but this has to make sure that it is allowed by the employer as an expense option or it is put as part of CTC. The LTA is allowed twice ie. In a span of 4 years. The expenses incurred on air fares, Railways, buses or Taxis are allowed as part of deduction, also there is a restriction that journey for which LTA is being claimed should be only in India not abroad. It is also to note that other expenses like hotel expense or any other luxury expenses are not allowed as deduction, it is limited to only travel fare expenses only.

4. Food coupon

Food coupon is also one of the easiest options given by the employers as a tool to save tax.

However, it can only be availed if the employer gives food coupon option to its employees, if the employer is not giving food coupons then benefit for this expense cannot be availed.

The coupon can be in the various forms like Sodexo coupons, Food cards etc. each month a particular amount is given by the employer, as chosen by employee for the amount he/she need to be as part of food coupon. The limit for food coupons is calculated on the basis of 50 rupees per meal for 22 days in a moth, so an individual can maximum avail 2200/- Rupees in a month and a total of 26400/- in a year.

5. Uniform Allowance

Some of the establishments need to have employee wear a uniform and provide them uniform allowance as part of salary, this is also a significant expense which can help to reduce the tax liability for an individual.

6. Research or Academic Allowance

This is an exemption given by educational institutions to encourage the individuals for research and academic related trainings and education.

Claiming deductions

What is an income tax deduction?

This is the amount which is reduced after calculating the actual tax liability of the employee. This deduction amount is reduced from the actual tax liability of the employee, the deductions does not reduce the taxable income for an individual but are deducted from actual taxable income of the individual which leads to a less tax liability this is in a contrast to exemptions which are strait forward reduced from Actual earnings, so the Taxable income is less for the employee in case of exemptions, however for deduction it is reduced from the Taxable income.

Tax deductions are majorly covered from section 80C to 80U of income tax act.

Deductions are primarily referred in CHAPTER-VIA of income tax act.

What are Sections of the income tax under which deductions can be claimed?

1. Section 80C

Section 80C was introduced in 2006 this section has a comprehensive structure for the investment done by the individual of HUF (Hindu Undivided Family). The limit of this section is up to Rupees 150000/-. This section is not applicable to corporate or partnership firms or business entities etc.

Ie. I there are any investments in this section then an individual total taxable income is reduced by the amount invested in this section but to the limit of 1.5 lakhs only.

E.g. If your taxable in come after exemption is 10 lakhs, but you have invested 1 lakh in section 80C then your taxable income now would be 9 lakhs, and you need to pay tax only on 9 lakhs.

What investments are coved by section 80C?

Section 80C covers following investments as the total investment in any or total in from the list should not exceed 1.5 Lakhs.

• Life Insurance Policy Premium
• Sukanya Samriddhi Yojana scheme for daughters.
• Employee provident fund
• Public Provident fund investment
• Equity Linked Saving Scheme investment
• Five Year Bank Deposit investment
• Any charges and Stamp Duty and Registration
• Senior Citizens Savings Scheme investment
• National Savings Certificate (NSC)
• Home Loan Principal Repayment
• Education Tuition Fees
• Infrastructure Bond
• Unit Linked Insurance Plan
• National Savings Certificate interest
• Senior Citizens Savings Scheme
• Post Office Time Deposit

What are sub sections for 80C?

In additions to above there are some subsections which included in section 80C of income tax, however claiming the amount for tax user cannot claim deduction more than 1.5 lakhs. Following are subsections of 80C.

• Section 80CCC
• Section 80CCD
• Section 80CCF
• Section 80CCG

What comes under section 80CCC?

Section 80CCC covers the deductions made towards the payment for Annuity pension plan/Retirement plans of LIC or any other service provider. The interest earned by any plans under section 80CCC would attract taxes and do not qualify for tax deduction. If the policy is surrendered in between then the amount of the policy attracts taxes. The pension amount if received by the policy however is taxable based on the income tax slab.

What comes under Section 80CCD?

Section 800CCD talks about the deduction available to individuals for contributions made towards National Pension Scheme (NPS) or the Atal Pension Yojana (APY).

The Contribution made by employers too comes under this section and is eligible for income tax benefits

Section 80CCD has two subsections:

• 80CCD (1)
• 80CCD (2)

What comes under section 80CCD (1)?

This section describes the benefit available to individuals for self-contribution but deducted through salary, towards the pensions scheme of National Pension Scheme or Atal Pension Yojana. Any individual can contribute towards this section be it an employee, self-employed etc. This section is even available to NRI (Non-Resident of India) as well and they can also contribute under this section and can claim tax deduction.

Limit of section 80CCD (1):

The max limit to take benefit for the amount which can be invested by the individual is limit to 20 Percent of the gross income for the self-employed individuals as was changed in FY 2017-18. For Salaried individuals this limit is up to 10 Percent (Basic + DA) for salaried individuals.

The total tax benefit combined in section 80CCD (1) and 80C cannot exceed 1.5 Lakh.

What is the subsection for 80CCD (1)?

• 80CCD(1B).

80CCD (1) has one subsection which is one of the most interesting one and was introduced in Financial year 2016-17, the subsection is called (1B). Under this Amendment an individual can claim an additional tax benefit of 50,000/- which can be claimed for income tax deduction over and above of the limit of 80C that is 1.5 lakh, but only when you have exhausted the limit of 80C ie. 1.5Lakhs, if limit of 80C is not fully utilized then the contribution to NPS would come under 80CCD (1), as an when the limit of 80C is reached the balance individual contribution to NPS can be claimed under section of 80CCD(1B).

What is the difference between 80CCD (1) and 80CCD (1B)?

80CCD (1)	80CCD (1B)
It is a part of section 80C.	It is a part of section 80CCD (1)
The limit of this section combined with 80C can be up to 1.5 Lakh.	This section only comes in picture when the limit for 80C+80CCC+ 80CCD (1) has been reached ie. 1.5 lakh.
An individual can claim a maximum deduction of 1.5 lakh under this section combined with 80C.	The limit of this section is 50000, which is over and above the limit of 1.5 lakh of 80C+ 80CCC+80CCD (1), so total benefit an individual can take in 80C+80CCD(1B) =1.5 lakh and in 80CCD(1B) =50000, so total benefit can extend to 1.5 lakhs + 50000 =2 lakhs. If a user also uses 80CCD(1B).

What comes under section 80CCD (2)?

This section is only is only applicable when the Contribution to the NPS is done by the Employer from employee salary, however in most of the cases it is deducted from the CTC of the employees for privately employed individuals, however the central govt also contributes to NPS for its employees for pension benefit.

So it can be concluded that this section can only be applied to only salaried individuals. This section allows employees to take benefit over and above section 80C, 80CCD (1), 80CCD (1B). The amount which can be contributed to this section is limited to the employee salary structure

i.e. up to 10% of (Basic + DA).

However, in 2019 the government has increased this benefit up to 14 percent for central government employees.

What is the difference between section 80CCD (1), 80CCD (1B) and 80CCD (2)?

Type	Tax Section	Maximum deduction benefit	Tax treatment to with other sections
It is a deduction for Employee’s contribution.	80CCD (1)	Limit 10%of (Basic + DA), Max limit is 150,000/-	This section is included in 80C
It is a deduction for self-contribution to NPS.	80CCD (1B)	Limit is Max 50000/-	This is in addition ie. Extra to 80C, 80CCC and 80CCD (2)
It is a deduction for employer contribution.	80CCD (2)	No max limit up to 10% (Basic + DA) for an employee	It is extra to all sections of 80C, 80CCC, 80CCD, 80CCD(1B)

What is Section 80CCF?

This section deduction those advances which are paid to be invested in government approved infrastructure bonds. Any individual of HUF can claim a tax deduction for this section, Deduction are not permitted for companies or any kind of firms under this section.

The maximum deduction allowed under this section is up to Rupees 20 thousand, even if someone invest 1 lakh rupees in government approved infrastructure bonds, nevertheless he will get an tax deduction for only 20 thousand rupees and rest 80 thousand would attract tax for that individual.

What is Section 80CCG?

This section is however now phased out and is no more available to individual for claiming the income tax deduction, this section was applicable to first time investors whose income was not more than 12 lakhs and are first time investing in capital markets for mutual funds, equity shares etc. the limit of this section was up to 50% of the amount invest in capital market to an capped deduction of 50 thousand Rupees only.

2. Section 80D

What is section 80D?

Section 80D is also included in Chapter IVA of income tax and the deductions allowed in this section are over and above section 80C limit of 150000/-.

This section provides an income tax deduction for the premium paid by the individual for self or family members, which may include Self, spouse or dependent children, in addition to that the deduction for parents which may be senior citizen or not senior citizen, premium paid for health insurance for them too is also allowed as deduction in this section.

This section makes a contrast and limit the deduction amount for premium if the parents or self-individual are senior citizen or not senior citizens. The table below describe the limit for section 80D.

What is limit for section 80D?

Premium paid for Health insurance for	Total limit available for deduction
Self & family	25000
Self & family + Parents (Not senior Citizen)	25,000(Self + family) + 25,000(Parents) = 50,000
Self & family + Parents (senior citizens)	25,000 (Self + family) + 30,000(Parents) = 55,000
Self (senior citizen) & family + Parents (senior citizens)	30,000(Self + family) + 30,000(Parents) = 60,000

3. Section 80U

What is section 80U?

Deduction in this section as well are over and above the deductions claimed under section 80C which has a limit of 1.5 lakhs.

This section considers the income tax deductions only for individuals if he or she is 40% disabled at least, dependents are not covered by this section, they are covered in section 80DD. This section differs in limit for the deduction based on disability of self or family members. The limit for deduction for disability i.e. (40% to 79%) is 75000, if the disability is more that or equal to 80% then a limit of deduction is 125000/-

The treatment for following is covered as part of disability.

• Blindness
• Low Vision
• Leprosy (cured)
• Hearing Impairment
• Locomotor Disability
• Mental Retardation
• Mental Illness
• Autism
• Cerebral Palsy

What is limit for 80U deduction?

Disability	Deduction Limit
Disability (up to 40%)	75000/-
Disability (80% or above)	125000/-

4. Section 80DD

What is section 80DD?

This section discusses about the deductions with respect to the expense incurred for self or physically handicapped dependent or a dependent with a disability for treatment, training or rehabilitation. The NRIs cannot take benefit of deduction under this section, However the individual and HUF can easily take benefit under this section.

The individual or assessee cannot take benefit of this section if he has taken benefit already in section 80U for himself.

In addition to the treatment of dependents for the listed illnesses the section also covers the insurance premium covered for Mediclaim for disabled dependents.

Deduction in this section as well are over and above the deductions claimed under section 80DD which has a limit of 1.5 lakhs.

This section considers the income tax deductions for treatment of individual if has any disability or any family members have any disability, a person is qualified for disability is only when he or she is 40% disabled at least. This section differs in limit for the deduction based on disability of self or family members. The limit for deduction for disability i.e. (40% to 79%) is 75000, if the disability is more than or equal to 80% then a limit of deduction is 125000/-

The treatment for following is covered as part of disability.

• Blindness
• Low Vision
• Leprosy (cured)
• Hearing Impairment
• Locomotor Disability
• Mental Retardation
• Mental Illness
• Autism
• Cerebral Palsy

What is limit for 80DD deduction?

Disability	Deduction Limit
Disability (up to 40%)	75000/-
Disability (80% or above)	125000/-

5. Section 80DDB

What is section 80DDB?

This section discusses about the deductions with respect to the expense incurred for self or dependents with specific terminal diseases which are specifically mentioned as part of section 11DD, the HUF too is covered by this section to take benefit, it is to be noted that payment of health insurance premium would not be covered by this section but would be covered by section 80D of income tax.

The specific diseases covered by this section are shown below.

• Neurological Diseases (Mind related ailment) identified by a specialist, where the level of disability is certified to be 40% and above.
• Dementia
• Dystonia
• Musculo rum Deformans
• Chorea
• Motor Neuron Disease
• Ataxia, Aphasia
• Parkinson’s Disease
• Hemiballismus
• Malignant Cancers
• AIDS- Acquired Immuno-Deficiency Syndrome
• Chronic Renal failure
• Hematological disorders like Hemophilia or Thalassemia(Blood related disorders).

The limit of benefit amount which can be claimed for this section depends on the person age for which the deduction is being claimed.

The claiming amount has varied many times but from financial year 2018-19 the amount below is given as a reference for deduction under this section.

• If the person age for which the deduction under this section is seek is under 60 then upper cap is 40000/- rupees.
• If the person age is above 60 or above 80 then the limit is 100000/- this refers to the amount which is actually paid for treatment or whichever is less.
• The reimbursement received from Mediclaim or any other reimbursement mechanism are to be deduction from total expense in this section the actual amount gone from pocket can only be claimed as deduction.

6. Section 80E

What is section 80E?

Section 80E of income tax discussed the provisions for income tax deduction on the interest paid as part of education loan payment. It is to be noted that only interest payments against the education loan qualifies for deduction under this section.

Anyone from parent or child for whom the education loan is being paid can take benefit under this section, subject to the condition whosoever is making the payment for the loan.

The deduction for this section can be maximum be available for 8 years from the period of starting the loan repayment. The income tax department provides a relaxation of 1 year from the completion of course date, and thereafter for 8 years of this repayment can qualify for deduction under this section.

What is the limit for section 80E?

There is no limit for deduction under this section, whatever be the loan interest amount for repayment, that can be claimed as part of deduction in section 80E of income tax act.

There are various other sections under chapter IV A of income tax act which would be covered as part of deduction claiming for income tax, but he most common of them are included above.

For other sections please read more on individual section on fincali.in