How to make best use of your tax saving through investment

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Everyone wants to increase their income and each one wants to save taxes. And there are many ways to save income tax. Do you know there are certain taxes saving investments that help us save for our future, at the same time they reduce current taxes? Let us take a look at each slab of income and tax bracket you fall into.

What is my tax slab?

In India, income tax is charges on income earned. This tax applies to vary of income, which is called Income Tax Slabs. These slabs of income tax keep changing from year to year. This income is classified into different groups on basis of income amount. Each group is known as Tax Slab. Tax is charged at different rates on range of income falling under different income tax slabs.

Income Tax Act 1961 is law that governs the provisions for our income tax in India. This income tax slab rates are revised every year during budget. Various deductions that are allowed to taxpayer under Section 80C, Section 80D etc.

Normal tax rates applicable for an individual

Normal tax rates will depend on age of resident individual. However, in case of a non-resident individual, tax rates will be same on age. For purpose of tax slab, an individual can be classified as per below. Also Read How to avoid NRIs tax problems

Income Tax Slab rate

Tax is calculated according to slabs of income tax announced by government every year in Budget. Following are income tax slab rates and deductions in India for different categories of tax payers.

Income Tax Slab for below 60 years of Age

Income Tax Slab Slab for tax for below 60 years
Up to 2.50 Lakhs Nil
Income between Rs. 2.5 to 5 Lakhs 5%
Income between 5 to 10 Lakhs 20%
10 Lakhs and Above 30%

Government gives us tax breaks for your retirement long-term saving. Section 80 C deals with these investments. However, upper limit for this is Rs 1.50,000, at any rate of tax slab you come under. If any investment you make beyond this limit does not qualify for tax break.

Let us look at how much can be saved under Section 80 C

Tax Slab Maximum Limit Tax Saved
Tax free Rs. 1,50,000 No Tax
5% Rs. 1,50,000 7500
20% Rs. 1,50,000 30,000
30% Rs. 1,50,000 45,000

This means that if you reached Rs 1, 50,000 limits in this group, then tax you owe does not change. Now you need to know that there are any other ways available to save tax? But you can reduce your tax liability up to 35,000 under Section 80D.

For Example, here you can reduce to Rs 15,000 under any tax bracket for premium paid on medical insurance. If you are paying for your parents then also you can add Rs. 15,000 for them and Rs. 20,000 if your parents are senior citizens. So, you can deduct maximum of Rs. 35,000 from your taxable income in total.

Let us take a look at how much can be saved under Section 80 D.

Tax rate Maximum Limit Tax saved
No tax Rs. 35,000 Nil
5% Rs. 35,000 1,750
20% Rs. 35,000 7,000
30% Rs. 35,000 10,500

Apart from these, you can save tax from other ways. For instance, below are more types listed along with upper limit that can be exempted from taxed?

Save Tax under Section 80 D, 80DD, Section 80DDB

Income Tax Act also allows for deduction to save tax if costs have been made by taxpayer for insuring his own health or relatives’ health. Different amount of deductions are allowed each of these sections which help in tax saving depending on type of Insurance Policy which is as follows.

  • Section 80D : Medical Insurance Premium of Self or Spouse or Children
  • Section 80 DD: Medical Treatment of Handicapped dependents
  • Section 80 DDB : Treatment of Specified Diseases

All tax planning options to save tax specified below are over and above Rs, 1, 50, 00 deduction allowed under Section 80DD, 80CCD & Section 80DDB as specified below. Read IT unit start ‘Online Chat’ facility to answer taxpayers’ queries

Section Maximum Limit Specification
80CCD 10% salary not exceeding Rs. 1 lakhs Pension a/c contribution by employer (NPS)
80DD Rs 50,000/- and Rs. 1 lakhs in severe cases Medical treatment of handicapped dependent
80DDB 60,000 House rent
80RRB 300,000 Patent income

In 2015 budget, an additional deduction of up to Rs.50000 under section 80CCD is planned for National Pension scheme investment. This additional deduction is applicable from Financial Year 2015-16 onwards. These are some tips to help you to figure out how much you shall invest for maximum savings on tax you owe.

If you start investing from beginning of financial year. This would give you time to weigh your options so that you can decide which investments are best to save tax. Once you understand how much you get from saving on tax then you can take decision on how much you to invest? Also Read Income Tax deduction for Education Loan.

Income Tax Deduction under Section 80G for Donations

If you make donation for charity, social or contribution makes towards National Relief Fund, then this donation can be claimed as deduction u/s 80 G of Income Tax Act. When you invest early in financial year then you will get interest for full year. Read All about RGESS.

Donation made in kind is not allowed to be deducted. Only deductions made through cash or cheque are allowed to be deducted. In some cases, 100 percent of donation made is allowed to be claimed as deduction where as in certain cases only 50 percent donation made is allowed to be claimed as deduction for purpose of saving taxes.

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