Tips to save tax in financial year 2020

Everyone wants to increase their earnings for better financial stability. While you might try and increase your earnings, your tax liability would also increase. You are required to pay an income tax on the income that you earn in a financial year. So, as your earnings would increase, the tax liability would also increase. However, there are ways
in which you can reduce your tax liability. The Government allows various exemptions and deductions on your incomes, which help in lowering the tax liability. These exemptions and deductions are subject to changes in the Union Budgets which are presented every year.

If you are also looking to reduce your tax liability in the financial year 2020, here are
some tips to follow –

● Utilize Section 80C to the fullest

Section 80C is one of the most popular Income Tax Section which allows deductions from your taxable income for different types of investments or expenses that you incur.You can claim a maximum deduction of INR 1.5 lakhs through the following types of investments and expenses –

o Premium paid for life insurance policies
o Investment into ELSS schemes
o Investment in PPF schemes
o Investing into 5-year fixed deposit schemes
o Paying tuition fees of up to two children
o Repaying the principle of a home loan, etc.

Many of you might not utilise the full deduction of INR 1.5 lakhs available under Section 80C. This is a mistake. Choose any of the eligible investment avenues and maximise the tax saving potential of this section.

● Buy health insurance policies

If you buy a health insurance policy for yourself and your family, you can not only cover the expensive medical costs that you face, you can also save your taxes. The premiums paid for health insurance plans are allowed as a deduction from your taxable income. You can claim a maximum deduction of INR 25,000 on premiums that you pay for the coverage of yourself and your family. This limit would increase to INR 50,000 if you are a senior citizen. Moreover, if you buy a separate health insurance cover for your dependent parents, you can claim an additional deduction of up to INR 25,000 on the premiums paid for their policy. This limit would also increase to INR 50,000 if your dependent parents are senior citizens. So, Section 80D allows you to claim a tax deduction of up to INR 1 lakh through health insurance premiums.

● Invest in a home

Having your own home is a financial goal for many of you and you try and buy a dream home for your family. Investing in a house is also tax saving in nature as there are different deductions and exemptions which you can claim on the home loan that you avail for the house. These deductions and exemptions include the following –

• When you pay off the principle of the home loan, you can claim a
  deduction of up to INR 1.5 lakhs on the amount that you repay
• The interest on the home loan is allowed as an exemption under Section 24. You can claim a maximum exemption of INR 2 lakhs on the home loan interest
• If the value of your house property is below INR 50 lakhs and the loan that you availed is up to INR 35 lakhs, you can claim an additional deduction on the interest paid for the loan. This deduction is available under Section 80EE if you are buying a home for the first time and the limit is INR 50,000
• Furthermore, a new deduction section has been introduced in the Union Budget which is Section 80 EEA. Under this Section you can claim an additional deduction of INR 1.5 lakhs on the home loan that you avail. This deduction is available if you buy your first home and the value of the home is up to INR 45 lakhs. The deduction is available on the home loan interest paid

Thus, by buying your own home through a home loan, you can claim deductions not only on the principle repaid but also on the interest paid on the loan.

● Buy an electronic vehicle

If you buy an electric car for your conveyance needs, you would not only contribute to saving the environment, you would also be able to save tax. In the Union Budget 2019, Section 80 EEB has been introduced which gives you tax benefits on buying electric cars. According to the section, if you avail a loan to buy an electric car, the interest paid
on the loan would be allowed as a deduction from your taxable income. You can claim a deduction of up to INR 1.5 lakhs.

● Invest in the National Pension Scheme

While Section 80C allows you deduction up to INR 1.5 lakhs, you can claim an additional deduction of up to INR 50,000 under Section 80 CCD (1B). This deduction is available on the investments done in National Pension Scheme offered by the Government of India. So, if you invest in the NPS scheme, you would not only be able to create a retirement corpus for your golden years, you would also get to lower your tax liability by another
INR 50,000

● Donate

Donations and charity work give you happiness and peace of mind. Did you know that they also give you tax benefits? Donations made to specified charitable institutions and relief funds qualify for deduction under Section 80 G of the Income Tax Act. You can claim deduction on 50% or 100% of the amount that you donate depending on the
charity to which the donations have been made. These deductions would also lower your tax liability and help you in saving tax.

● Claim deductions on your savings account interest

A bank savings account is very common and almost everyone has it. If you too have a savings account in a bank, the interest that you earn from the account can be claimed as a deduction under Section 80 TTA. You can claim a maximum deduction of up to INR 10,000 for your savings accounts interest income. If you are a senior citizen, the limit increases to INR 50,000 under Section 80 TTB. Moreover, you can claim a deduction on the interests earned from your bank savings account as well as fixed deposits. So, use these two sections and let the interest income save you some tax.

● Claim deductions and exemptions under other eligible sections

There are different sections under Chapter VI A of the Income Tax Act which allow different types of deductions from your taxable income. You should, therefore, ensure that you use all the eligible sections and claim the maximum possible deductions to save tax. The Sections are as follows

– Income Tax
Sections

Deduction available

Section 80 DD Deduction of up to INR 75,000 for medical treatments of disabled
dependents. The limit increases to INR 1.25 lakhs if the disability
is severe

Section 80 DDB Deduction of up to INR 40,000 for treatments of specific illnesses.
The limit increases to INR 1 lakh if you are aged 60 years and
above

Section 80 E Deduction on interest paid for an education loan
Section 80 GG Deduction of up to INR 60,000 if you live in a rented house and do
not receive House Rent Allowance as a part of your salary
Section 80 U Deduction of INR 75,000 if you suffer from any disability. This
deduction increases to INR 1.25 lakhs if the disability is severe

● Claim rebate under Section 87 A

If, after factoring in all the above-mentioned deductions and exemptions, your taxable
income is up to INR 5 lakhs, you can save your tax liability completely. As per the
revised norms, taxable incomes up to INR 5 lakhs get complete tax rebate under Section

87 A. Through this rebate you wouldn’t have to pay any tax. The rebate is higher of the
tax liability or INR 12,500.
When you prepare your income tax returns in the next financial year, remember to keep
these tips handy. Use the income tax deductions and exemptions and lower your tax
liability. As your liability would reduce, the amount of tax that you pay would also
reduce. So, save your taxes and ensure a higher disposable income.

Frequently Asked Questions

● Can I claim multiple deductions on my taxable income?
Yes, if the deductions are applicable on your income you can claim multiple deductions
on the taxable income.
● What is standard deduction?
If you are a salaried employee you can claim a standard deduction of INR 50,000 from
your salary income.
● How is the deduction calculated under Section 80 GG?
Under Section 80 GG, if you live in a rented house and you do not get HRA in your salary,
you can claim a deduction on the rent paid. The deduction would be the lowest of the
following –

o Rent paid – 10% of the adjusted total income
o INR 5000/month
o 25% of the total income