Common to save Income Tax in India

Everyone wants to increase the income but don’t
want to pay taxes. There are many ways to save
income tax. You might know few of these but I
am sure you will find at least one new way from
this article that can save more tax this year.
There is a long list, so I will keep the descriptions short to
save your time.
#1. Interest Income on Saving Account
You might not be aware that interest income on saving
accounts is not taxable up to 10,000 Rupees. If you earned
15,000 as interest from all your savings accounts (sum up
interest from all your bank saving accounts), then you have
to pay tax only on 5000 rupees.
#2. Interest Income on NRE Account
Indian Government is very friendly to NRIs. Someone with
NRE account doesn’t have to pay tax on interest income on
saving or fixed deposits.
Some smart Indians residing abroad, take a loan from the
foreign country at 3-4% and invest their income in India
through NRE account and earn tax-free income at 8-9%.
Point to note that their income from NRE account is tax-free
in India, but it may be taxed in their residing country (as per
country law).
#3. Maturity or Claim amount by Life Insurance
As per amendments introduced in the Finance Act, 2003,
any proceeds received on account of maturity/surrender of
an insurance policy were exempt from tax only if the
premium paid did not exceed 20% of the sum assured. As
an example, if the annual premium is R10,000, to qualify for
the exemption, the minimum sum assured under the policy
was required to be R50,000.
If the sum assured was less than the said value, the entire
maturity proceeds would be taxable.
#4. Educational Scholarship
Any amount received as scholarship for education is not
taxable. It does not matter if scholarship is granted by
government or private trust.
#5. Profit from Selling Shares or Equity Mutual Funds
Only after 1 year holding (Long Term Capital Gains)
If you invest in stocks or mutual funds then you can make
your profits 100% non-taxable. Do not sell your equity
before holding for one year, whether shares or mutual funds
(equity).
For example, you invested 100,000 in some stock and in 11
months it becomes worth 1,20,000. If you sell all of them
then you have to pay tax on 20,000 profit. If you hold it for
another month, then you are not liable to pay any tax on the
profits.
Same is applicable to equity mutual funds.
#6. Dividends received from Shares or Equity Mutual Funds
Stocks and Mutual Funds (Equity focused) distribute
dividends to shareholders. All of the dividends are tax-free
in the hands of the receiver.
Like in the previous example, where you bought stocks
worth 100,000, let’s assume you receive dividends of 2000
after 10 months. Even one year is not completed since you
bought stocks, you don’t have to pay any taxes on
Dividends.
#7. Amount received as Gifts on marriage
Do you know that the gifts received (cash/cheque/gifts) on
marriage are totally tax-free?
You can receive gifts from your relatives, friends and family
on the occasion of your marriage and you don’t have to pay
any taxes.
#8. Agriculture Income
Any income derived from Agriculture land is tax-free in
India.
Any rent derived from land
Income from agriculture products
Income from farm building
#9. HUF account for secondary income
You can take benefit of tax saving under HUF account if you
have any additional income to your salary. You can pay tax
on your salary under your name and deposit secondary
income into HUF account.
Hindu Undivided Family (HUF) status is available to Hindu,
Sikh and Jain families in India. You have to get separate
PAN and bank account number. Income Tax Department
considers HUF as a separate entity for taxation purpose.
For example you have 500,000 income from your salary and
3,50,000 income from blogging and consulting. You will pay
tax on 2,50,000 on your salaried income and 1,00,000 on
your secondary income as per latest income tax slabs.
You can save tax on both of your entities by investing in tax
saving options like under section 80C. You will virtually pay
no taxes on your secondary income if you invest 1,00,000 in
tax saving instruments.
#10. Inherited Amount through Will
There is no inheritance tax in India. So anything you get
from your parents or uncles through WILL is not taxable in
your hands. It becomes your non-taxable income.
#11. Well Known Tax Saving Options under section 80C
Everyone knows that Section 80C offers a maximum
deduction of up to Rs. 1,50,000 (revised). A few of the
options are as follows:
Public Provident Fund
Life Insurance Premium
National Savings Certificate
Equity Linked Savings Scheme
Principal Amount Repaid on Home Loan
5 year fixed deposits with banks and post office
Tuition fees paid for children’s education, up to a
maximum of 2 children
#12. Money Received from Provident Funds (after 5 years)
You will save tax on investments in Provident Account in the
year of investment. The good news is that you don’t have to
pay taxes on interest received from EPF/PF investments
(note that Interest received on Fixed Deposit is taxable).
You have to keep your Provident Fund active for at least five
years before you start withdrawing money (however not
recommended unless an emergency)
#13. Tax Saving from Home Loan
Use your home loan efficiently to save more tax. There are
three ways to get income tax deduction on your home loan
(s).
The principal amount re-paid in the current financial year
is included under Section 80C, offering a deduction up to
Rs. 1,50,000.
The interest portion offers a deduction up to Rs. 1,50,000
separately under Section 24.
If you are living in the home on which you took first home
loan, you can get another loan for the second house.
There is no limit on income tax deduction on the interest
payment of second home loan. Very few people are aware
of this benefit of tax saving on second home loan.
#14. Tax Saving on Education Loan
Section 80E – Interest paid on education loan is also non-
taxable, there is no upper limit on the amount. The
education loan for higher studies is applicable for the
deduction if taken for self, spouse or children.
#15. Medical Insurance
Section 80D – Deduction of Rs. 15,000 for medical
insurance of self, spouse and dependent children and Rs.
20,000 for medical insurance of parents above 65 years
#16. Donations
Section 80G – Donations to specified funds or charitable
institutions. You need to retain the stamped receipts of the
donations and make sure the charitable organization is
registered.
Business Persons – Tax Savings Tips and Tricks
#17. Distributed Profit to Partners in Partnership Firms
There is no tax in the hand on partners if their partnership
firm is making profits and partners decide to distribute
profits among themselves. Partners get tax benefit because
their partnership firm has already paid taxes on the profits.
#18. Travel/Hotel Expenses in Business
Business owners have to travel to grow their business. They
can file travel and hotel expenses as business expenses to
save tax. They never pay for travel from their salary but
from company account. Smart people always show
expenses before taxation.
Look what a salaried person do – assume he has taxable
income of 10,00,000 (after all deductions) and pay his taxes
as per slab. Then he spends 2,00,000 on travel vacation on
leftover income.
And what a business person do – He shows his travel as a
business expense and take the rest of profits as salary. He
will pay tax on 8,00,000 only.
#19. Food Expenses in Business
Similarly, business owners need to meet so many people
like customers, vendors, and potential hires. Often he
spends money on paying bills of food. They save tax by
showing all food expenses as the business expense.
Tax Savings Tips and Tricks only for Salaried Persons
and some extra tips for financial management if you got
your first job.
#20. Leave Travel Allowance
Employees can utilize Leave Travel Allowance for the
expenses on domestic vacations. This policy covers the
expense of travel tickets for yourself and your family. You
will not be taxed on the travel expenses of your spouse, two
children and parents if they are part of your journey. Brother
or Sister are covered only if they are solely dependent on
you.
You can avail this facility twice in the block of four years. If
you were unable to claim the benefits in four year block then
you can carry over one vacation in next block, provided you
avail in the first year of the block itself.
#21. House Rent Allowance
You can claim HRA to save tax on your house rent. This is
applicable only if you are not owning any house near to
your office. You must be living in rented space and should
receive rent receipts from the house owner. You have to
submit PAN card copy of your landlord if you are paying
more than 100,000 annual rent.
If HRA forms part of your salary, then the minimum of the
following three is available as exemption:
The actual HRA received from your employer
The actual rent paid by you for the house, minus 10 per
cent of your salary (including your allowances)
50 per cent of your basic salary (for a metro) or 40 per
cent of your basic salary (for non-metro).
#22. Income from Gratuity
Gratuity received on retirement or on becoming
incapacitated or on termination or any gratuity received by
his widow, children or dependants on his death is exempt
subject to certain conditions.
The maximum amount of exemption is Rs. 3,50,000.
#23. Meal Coupons
You can ask your employer to issue you meal coupons (like
Sodexo) those are not taxable up to 2600 per month.
#24. Medical Bills
Keep the receipts of your medical expenses which can be
used to save tax at year end. You must know that up to
15,000 amount is non-taxable on medical expenses for
yourself and your dependents.
#25. Daily Travel Allowance
You can avail tax benefits on conveyance up to 1600 rupees
(Revised) per month from your company. You can save tax
on 19,200 per annum on conveyance allowance. You don’t
have to submit any bills or proof to avail this tax benefit.
Some companies have the policy of daily travel allowance if
an employee is commuting by car or bike. You have to
submit original fuel bills to get the tax benefit. Limit of non-
taxable amount varies with your vehicle type and capacity,
you have to check with your employer for more details.
#26. Company Leased Car
Check with your employer if they have car lease policy. In
that case, you will not be allowed to take advantage of Daily
Travel Allowance, and you can drive company leased car to
save tax on car EMI & fuel.
#27. Telephone/Internet Expenses
You company may not be reimbursing your telephone or
internet expenses but may have any policy to make these
expenses tax free. You can either get telephone expenses
reimbursed or claim tax benefits.
#27+ Money under VRS
Voluntarily Retirement Scheme – Upto 5 lacs
Only applicable for employees of public sector company or
authority established under Center or State Govt.
If any employee takes voluntarily retirement then the
amount received is non-taxable with the upper limit of 5
lacs.
#27++