Paying a 30 per cent tax slab on your total salary might seem overwhelming to many. But there are certain provisions maintained by the Central Government as per the Income Tax Act of 1961 that can help ease this financial burden.
Here are a few things that can get you exemptions and waivers on your new tax slab:
A home loan can help you achieve the dream of owning your own home. But did you know it will also help you cut down your tax slab? You can get tax deductions up to INR 150000 on the amount that you spend on the repayment of your principal borrowed amount, under Section 80C. In addition, you are also entitled to a tax exemption up to INR 200000 on the interest section of your home loan, under Section 24(b). This section will also get you tax benefits on home construction, provided the construction is completed within five years.
Also, if you are planning to rent out your newly acquired property, the entire interest that you pay on your home loan will be tax exempted.
First-time Homeowners are entitled to an additional tax reduction under Section 80EEA. They can claim a waiver of up to INR 150000 if the stamp duty value of their property is under INR 4500000.
Health Insurance Policy
Purchasing a health insurance policy has become inevitable in today’s world with all the rising medical costs and deteriorating quality of health. Not only does a health insurance policy relieve your financial strain, but it can also get you some exemptions on your income tax slab. You can claim tax deductions on the amount that you spend towards paying the premium of your health insurance under Section 80D. The amount exempted varies depending on your age. Also, these rates keep getting amended over time.
Apart from this, you can also get an exemption of up to INR 5,000 on the amount that you spend on health check-ups (under Section 80D).
You can accumulate your wealth by investing money in government-mandated schemes and the capital market. Apart from the high returns, you also get to enjoy certain tax-saving benefits. Here is how you can reduce your tax slab by investing in various tax-saving instruments (under Section 80C):
- Equity Linked Savings Scheme (ELSS) is a great investment tool for those who can handle the risk factor. The lock-in period here is three years, and you can get a tax waiver up to a maximum of INR 150,000.
- You don’t have to pay any tax on the profits realized if your total capital gains are well within the limit of INR 100,000.
- 5-year fixed deposits can get you some tax exemption benefits in a risk-free way.
- You can claim tax waivers up to INR 150,000 (under Section 80C) if you invest in government-mandated schemes. Some such schemes include Senior Citizen Savings Scheme (SCSS), the National Pension Scheme (NPS), the Sukanya Samriddhi Yojana (SSY), and the Public Provident Fund (PPF)
Life Insurance Plans
Apart from health insurance policies, life insurance policies can also help you enjoy tax waivers of up to INR 150000 on the premiums (under Section 80C) that you pay. However, the annual premium that you pay should be less than 10 percent of your total sum assured if you have taken out the policy after the first day of April 2012. For policies availed before this period, the total premium should be less than 20 percent of the total sum assured.
You can also get tax exemptions on the amount that gets disbursed upon the maturity of the life insurance policy or the death of the insured (under Section 10(10D)). The rules are as follows:
- Tax waivers up to INR 150000 can be claimed on the purchase or renewal of a policy as well as annuity payments made from a yearly salary (under Section 80CCC).
- You can claim tax waivers up to INR 150000 (under Section 80CCD(1)) on certain pension funds that come under Section 23AAB.
- If you have invested in ULIPs (Unit Linked Insurance Plans) you can enjoy these tax waivers if you lock in your investments for five years. You can’t withdraw any money from this scheme before this period.
Living on Rented Premises
You can enjoy tax exemptions on your HRA (House Rent Allowance) under Section 10(13A). The condition, however, is that there should be an HRA component in your salary breakdown.
Three things are considered when it comes to calculating the total tax exemption on the rent that you have paid. First is the annual HRA that you have received. Second is 50 per cent of your yearly salary in case you are residing in any of the metro cities (40 per cent for non-metro city residents). And the third component is your total annual rent after deducting 10 percent of your basic salary.
If there is no HRA component in your salary break-up or monthly income, you can still claim tax exemptions on your annual rental expenses (under Section 80GG). The components that are considered while calculating these deductions include your rent payment (up to INR 5,000 per month), 25 percent of your gross total income, and the total rent that you have paid after deducting 10 percent of your basic salary.
You can claim tax waivers up to INR 2,000 for the cash donations that you make to specific organizations (under Section 80G). Complete tax exemptions can be enjoyed if you make wire or bank transfers.
Political Party Donations
You can claim tax waivers for the entire amount that you donate to your preferred political party (under Section 80GGC). However, the political party or organization should be registered under Section 29A of the Representation of the People Act of 1951. No tax benefits are available for cash deposits.
There are more such exemptions and waivers you can claim, to reduce your tax slab in 2022–2023. A consultation with a chartered professional accountant should help you get all the information you need. For more information, visit the Piramal website, which is your go-to destination for personal loans.