5 Ways To Save On Your Income Tax

No matter where you come from, where you live, and where you work, there is one element that all earning people have in common – tax. Taking tax from people is the primary source of income for the government. It is what funds the building of roads and other essential infrastructure. It pays for the subsidies on LPG and food, and it ensures the economic growth and development of the nation. But there are ways in which people can save on their income tax. Common people are always on the lookout for opportunities to save on income tax. Here are five ways you can reduce your income tax:

1. Health Insurance

Health insurance is mandatory for any responsible adult. The pandemic that most of us survived through over the past two years has highlighted this fact with more urgency. You never know when any kind of illness can affect you. You can claim deductions of up to ₹25,000 in premium payments per year from your taxable income slab. This means that if your taxable income is ₹5,00,000 and you pay a premium of ₹10,000 per year for your health insurance, you can simply deduct this amount from your total payable. You will only have to pay a tax on ₹4,90,000.

2. Life Insurance

Life insurance plans have a dual benefit, in terms of tax savings. Firstly, you get exemptions on the premium payments. Secondly, the amount that you get on maturity is tax-free. You can claim deductions of up to ₹1.5 lakhs on the annual premium payments. This means that whatever you pay as a premium is subtracted from your tax liability. Tax payment is calculated on the remaining amount only.

3. Investments

However attractive equity investments may be, they don’t have tax benefits. If you’re earning high returns from the capital markets, the government is going to want a share. However, there are certain specific types of mutual funds that can provide you with tax benefits. ELSS (Equity-Linked Saving Scheme) mutual funds, for instance, offer deductions up to ₹1.5 lakhs. These instruments are also exempt from Long Term Capital Gains Tax. Any profit that you make will also be completely tax-free in this case.

For normal equity investments and other mutual funds, you can simply claim exemptions from the long-term capital gains tax, if your profits for the year are less than ₹1 lakh.

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4. Government Schemes

Government schemes include policies like PPF, EPF, NPS (Everything To Know About National Pension System (NPS) Scheme) etc. These are essentially tax-free investment vehicles that have been launched by the government. Here, too, you can claim deductions of up to ₹1.5 lakhs. However, in this case, there is a high lock-in period. For example, PPF has a lock-in period of 15 years. Before this lock-in period is over, you will not be able to access the amount being invested.

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5. Loans

You can claim attractive tax benefits on certain types of loans. In particular, home loans offer the highest benefits and exemptions. You can claim deductions both on the principal amount as well as the interest payment. The maximum exemption allowed is ₹1.5 lakhs per year.

You can also claim exemptions on education loans. For other types of loans, there are no exemptions. There are other tax-saving methods as well, but these are by far, the most popular ones.

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