No one likes paying taxes. Even though the Government has allowed various exemptions and made provisions for tax-saving investments, parting with your hard-earned money on taxes always pinches your pockets. Is there a way to reduce tax liability?
Actually, there is! There are various tax exempt investments which reduce your taxable income and consequently, your tax liability. In fact, if your income is within Rs.10 lakhs, the various tax-saving investment avenues can reduce your tax to zero! We assume that your CTC is Rs 9.5 lakhs per annum. Let us find out how you can reduce your tax to zero.
Investments under Section 80C
Section 80C is a savior in reducing taxes as it allows the maximum number of instruments to avail a total tax exemption of Rs.1.5 lakhs in a year. Some popular investments which qualify for Section 80C exemption are as follows:
- Life insurance premiums
- 5-year fixed deposits
- Investment in ELSS schemes
- PPF investments
- NSC, KVP investments, etc.
Investment towards health insurance under Section 80D
Premiums, which you pay for a health insurance policy also qualify for tax exemption under Section 80D. The limit on exemption for premiums paid towards self and family is Rs.25,000, which increases to Rs.30, 000 if you are a senior citizen. Moreover, if you also pay premiums for a health insurance policy for your dependent parents, you can claim an additional exemption of Rs.25, 000 which increases to Rs.30, 000 if your parents are senior citizens. Thus, you can claim a total exemption of Rs.60, 000 if you and your parents are senior citizens and you pay premiums for two separate policies for yourself and your parents.
NPS investment under Section 80CCD (1B)
The Government has allowed an additional tax exemption if one invests in the National Pension Scheme of the Government. Exemption up to Rs.50, 000 can be claimed for NPS investment which is over and above the Rs.1.5 lakh exemption allowed under Section 80C.
Exemptions for interest paid on home loan
If you have availed of a home loan for buying a residential property, the interest paid on the home loan is allowed as exemption under Section 24. The home should be used as a residential property for you and your family and the construction should be completed within 3 years. The maximum amount of exemption is Rs.2 lakhs. Moreover, if you have bought the house property for the first time, you can claim an additional exemption of Rs.50, 000 on the home loan interest paid under Section 80EE. Thus, you can avail a maximum of Rs.2.5 lakhs of deduction for interest paid on a home loan.
Now, considering all these exemptions, let us see the tax liability on income of Rs.9.5 lakhs:
As against the liability of Rs.1.15,000, your tax liability reduces to Rs.19,000 through various exemptions. If you want to further reduce your tax liability to zero, you can make donations to various charitable institutions which qualify for tax exemption under Section 80G and reduce your tax liability to zero. So, if you donate Rs.1.4 lakhs, your taxable income becomes Rs.3 lakhs and the tax liability becomes Rs.2500. You can claim a tax rebate of Rs.2500 on incomes up to Rs.3 lakhs thus bringing your tax liability to zero.
So, if you have an income within Rs.10 lakhs, there are ways to reduce your tax liability to zero.