The tax saving season is in full swing as the financial year closes on 31st March 2020 and you want to explore all possible avenues to save as much tax as possible. While the new Interim Budget 2020 has made some very good changes, these changes would be applicable from the next financial year (1st April, 2020 onwards). You would, therefore, have to file your taxes on 31st March, 2020 as per the existing tax norms.
Many of you approach seasoned tax practitioners to help you prepare your taxes while some of you like to file your taxes yourself. Whatever be your choice of tax filing, one thing which every one of you looks for is the way to save the maximum possible tax outgo. So, for all of you taxpayers, here are some of the ways of saving your tax outgo this 2020 when filing your returns for the financial year 2018-19–
- Utilize Section 80C to the fullest
Section 80C is a blessing for taxpayers as the section helps you reduce your taxable income by INR 1.5 lakhs. The section lists some expenses and investments which are tax-free in nature. If you have incurred such expenses and/or make investments in the tax-free avenues, you can claim a deduction of up to INR 1.5 lakhs under this section. Some common instances of tax-free options under the section are as follows –
- EPF and PPF investments
- Life insurance premiums paid
- Tuition fee paid for up to two children
- Home loan principal repayment
- Mutual fund ELSS schemes, etc.
So, make sure to use Section 80C to the fullest to claim a deduction of INR 1.5 lakhs on your taxable income.
- Buy health insurance and utilise Section 80D
Premiums paid for health insurance policies are also allowed as a tax deduction under Section 80D. The limit of deduction is up to INR 25, 000 if premiums are paid for you, your spouse and dependent children. This limit increases to INR 50, 000 if you are a senior citizen. Moreover, if you pay premiums for the health plan for your dependent senior citizen parents, you can claim an additional deduction of up to INR 50, 000. So, buy a health insurance plan for yourself and your senior citizen parents and save tax on up to INR 1 lakh of your taxable income under Section 80D.
Here is a video to know how to save additional tax benefits:
- Use loans to claim tax deductions
Home loans and education loans also give you tax saving advantages. Besides the principal repayment of your home loan, the interest component is also allowed as a tax-free expense under Section 24. The limit is INR 2 lakhs. Moreover, if the property is rented out, the entire interest paid on the home loan on such property is allowed to be tax-free. You also get an additional limit of INR 50, 000 on the home loan interest paid if you are a first-time homeowner under Section 80EE.
Besides home loan, education loans also give you a tax benefit. The interest paid on such loans is allowed as a tax-free expense under Section 80E.
So, if you have these loans, they can help you with tax saving.
- Save tax on your savings account interest
The interest that you earn on your savings bank account and post office savings account is allowed as a tax-free income up to a limit of INR 10, 000 under Section 80TTA of the Income Tax Act. This limit increases to INR 50, 000 if you are a senior citizen.
Donations not only give you mental satisfaction of doing charity, but they also help you save your taxes as well. Money donated to recognised charitable institutions is allowed as a deduction under Section 80G. 50% or 100% of the donated amount is allowed as a deduction depending on the charity selected. For instance, charities which allow 50% of the donation as tax-free deduction include the following –
- Prime Minister’s Drought Relief Fund
- Indira Gandhi Memorial Trust
- Jawaharlal Nehru Memorial Fund, etc.
Similarly, charities allowing 100% of the donation as a deduction are as follows –
- Prime Minister’s National Relief Fund
- An approved university/educational institution which is of National eminence
- National Defence Fund established by the Central Government, etc.
So, donations also give you tax advantage which helps you in saving tax.
You can, therefore, use these above-mentioned ways to reduce your tax liability. Be aware of the relevant tax deduction sections when you file your taxes this 2020 and save the maximum possible tax outgo. Moreover, with the new changes introduced by the Union Budget 2020 , the financial year 2020 -20 promises great tax savings for the middle-class earners. So, from the new financial year starting from 1st April, 2020 , here are the ways which would lower your tax liability –
- Claim tax rebate if your net taxable income is up to INR 5 lakhs
The highlight of the Union Budget 2020 is the introduction of tax rebate for individuals having a net taxable income up to INR 5 lakhs. As per the proposed rules, no tax would be payable in such cases giving middle-class taxpayers complete tax relief. So, if you have an income of up to INR 7.5 lakhs, you can claim a full tax rebate by lowering your taxable income using the following tax-saving measures –
- By utilising the full potential of Section 80C and reducing your taxable income by INR 1.5 lakhs
- By investing in NPS scheme to avail a further deduction of INR 50,000
- By claiming a standard deduction of INR 50,000 if you are salaried
Thus, these measures help you lower your taxable income by INR 2.5 lakhs bringing it down to INR 5 lakhs or below. When your net taxable income falls within INR 5 lakhs, you get a full tax rebate and have to pay no tax.
- Get the benefit of enhanced standard deduction limits
The Interim Budget 2020 also enhanced the standard deduction available to salaried individuals to INR 50,000 from the existing INR 40,000. So, you can get an additional tax saving on INR 10,000 of your salary income and reduce your tax outgo.
So, in the new financial year April 1st, 2020 , pay heed to the changes introduced by the Interim Budget, 2020 and save the maximum possible tax outgo. In fact, if you can bring your taxable income within the INR 5 lakh limit, you can even escape the tax burden altogether. Good news, isn’t it?