Apart from the fact that taxes are viewed as a financial burden, what could further add to the stress could be a lack of knowledge about tax-planning. A majority of tax-payers struggle with fitting the tax-saving piece in the puzzle of their finances. So here is a list of various tax-saving instruments which can help you save on taxes.

• Section 80C, section 80D and section 80CCD (1B) of the Income Tax Act, 1961: These are the most common tax saving investments and help you save a maximum of INR 78,000 on taxes every year.

• Section 80E of the Income Tax Act, 1961: The amount spent in repaying the interest of your education loan qualifies as a deduction from your total income. There is no cap on the maximum amount you can claim as a deduction.

• Section 80G of the Income Tax Act, 1961: It is said that charity begins at home and so the donations made to charitable organisations qualify as a deduction from your total income. The following illustration will show how taxes can be saved upto INR 13,208 by just donating a minimal amount of INR 1,000.

• Section 80TTA / Section 80TTB of the Income Tax Act, 1961: This section allows you to claim a deduction of INR 10,000 on your interest from savings bank account. In case you are a senior citizen, the maximum deduction is INR 50,000.

• Section 24(b) of the Income Tax Act, 1961: A deduction of INR 2,00,000 can be claimed on home loan interest if you buy a house by availing a home loan from a housing finance institution or a bank subject to other conditions.

• Section 16(ia) of the Income Tax Act, 1961: A salaried individual can claim a standard deduction of INR 50,000 from the salary income.

• Section 10(13A) of the Income Tax Act, 1961: If salary is your major income, then house rent allowance (HRA) plays as a major tax saving mechanism. The tax-exempt portion of the HRA is the minimum of the following-

  • Actual HRA received during the year
  • 50% of salary (in case of metro cities) or 40% of salary (in case of non-metro cities)
  • Rent paid minus 10% of salary (*Salary = Basic salary + Dearness allowance + Commission received based on % of turnover)

    Illustration-
    Salary – INR 30,000 per month
    HRA received – INR 15,000 per month
    Rent paid – INR 10,000 per month

    Actual HRA received	15,000 * 12	1,80,000
    50% of salary	50% of (30,000*12)	1,80,000
    Rent paid – 10% of salary	(10,000*12) – 10% of 3,60,000	84,000
    HRA Exemption (least of the above)		84,000

       

• Section 80GG of the Income Tax Act, 1961: Even if you are self-employed or do not have a HRA component in your salary but pay rent, you can still claim a maximum deduction of INR 60,000 subject to other conditions prescribed.

  • INR 5000 per month
  • 25% of total income
  • Actual rent paid – 10% of income

    Illustration-
    Salary – INR 4,00,000
    PG Rent paid – INR 5,500 per month

    INR 5,000 per month	5,000*12	60,000
    25% of total income	25% of 4,00,000	1,00,000
    Actual rent paid – 10% of income	(5,500*12) – 40,000	26,000
    Exemption allowed (least of the above)		26,000

• Creation of a Hindu Undivided Family (HUF): HUF is a great tax-saving tool in case income from family business leads you to the highest tax bracket. It helps to evenly distribute the income among family members and reduce overall tax outflow on the income.
  Illustration:A family of four (husband, wife and two children) earn in the following manner-

  • Husband – INR 24 lakhs
  • Wife – INR 18 lakhs
  • Family run business – INR 8 lakhs

  The taxation impact can be viewed in different scenarios:

  Taxing in the hands of the husband	Taxing in the hands of the wife	Equally distributing the income in the hands of husband and wife	Creating a HUF
  Additional taxes to the paid @ 30% which is INR 2.4 lakhs	Additional taxes to the paid @ 30% which is INR 2.4 lakhs	Additional taxes to the paid @ 30% which is INR 2.4 lakhs which will be paid as INR 1.2 lakhs each	Additional taxes to the paid will amount to approx. INR 75,000.
  Tax savings through creation of HUF = INR 1.65 lakhs

Conclusion: Considering that you maximize your tax savings using investments and voluntary spends you may save upto INR 4,75,000 using the commonly available deductions:

It is best to begin investing in the first quarter of the financial year so that you can spread the investments over the year. Doing this will not burden you at the end of the year and will also allow you to make informed investment decisions.