5 easy ways you can save tax this year

Meet Amit and Sumit. They’re both product managers in the same company, earning the same level of income and having pretty much similar financial profiles. Except for one major difference — Amit paid Rs. 50,000 less in taxes than Sumit this year.

If you, like Sumit, are wondering how this was possible, the answer is simple — Amit knew just how to save taxes. And by the end of this article, you will too, because here are 5 effective ways to bring down your income tax liabilities significantly.

Your home loan is an MVP

If you are planning to avail a home loan (or if you already have), you’re in for a surprise. Both the principal and the interest components of the EMIs are eligible for deductions. Check out the deduction limits that are available as per the Income Tax Act, 1961.

So, the bottomline is that you can claim a minimum deduction of Rs. 1.5 lakhs on the principal repayments each year, and Rs. 2 lakhs on the interest repayments u/s 24 — in addition to the deduction u/s 80EE or 80EEA as applicable. That should reduce your tax burden by around Rs. 1.09 lakhs (at a 30% tax rate + cess).

Park your funds in government schemes

If you’ve already repaid your home loan or if you have no plans of buying a house now, you can still save taxes by investing in specific government schemes. These schemes give you deductions up to Rs. 1.5 lakhs u/s 80C, and simultaneously help you save up for the long term. Some examples of such schemes are:

• Public Provident Fund (PPF)
• National Pension Scheme (NPS)
• Sukanya Samriddhi Yojana (SSY)
• Senior Citizen Savings Scheme (SCSS)

Your life insurance and health insurance policies can also help

Insurance policies also give you the two-fold benefit of securing your finances and simultaneously saving taxes. There are two kinds of insurance that are relevant here. Take a look at what they are and how much you can claim as a deduction on the premiums paid for them.

For salaried employees, HRA is an old friend. But if you belong to this category of taxpayers, are you really making the most of your house rent allowance? Because HRA exemption can save you a fair bit of tax, actually.

If you live in a rented house and if you receive HRA as a part of your salary, you can claim the least of the following amounts as an exemption from your income:

• Actual HRA received from employer
• 50% of (basic salary + DA) if you live in a metro city
• 40% of (basic salary + DA) if you live in a non-metro city
• Actual rent paid minus 10% of (basic salary + DA)

If you have no investments and no home loan, you probably have most of your funds parked in a savings account. The good news is that you can still save a bit of tax by claiming a deduction on the interest you earn from this account. Under section 80TTA of the Income Tax Act, 1961, savings account interest is deductible to the extent of Rs. 10,000.

If you have no investments and no home loan, you probably have most of your funds parked in a savings account. The good news is that you can still save a bit of tax by claiming a deduction on the interest you earn from this account. Under section 80TTA of the Income Tax Act, 1961, savings account interest is deductible to the extent of Rs. 10,000.

Conclusion

So, these are some deductions that you can make use of to bring down your tax liability from this financial year onward. However, the above will not be available in case you opt for the new regime of taxation u/s 115BAC.

A word to the wise: If you are planning on claiming deductions u/s 80C and other major sections, opt for the old tax regime, which allows many such deductions. But if you don’t have any major deductible investments, the new tax regime with its lower tax rates may be a better choice.

Whichever tax regime you choose, if you have some tax liability before you file your ITR, you can make your tax payment seamlessly using Kotak net banking or payment gateway — irrespective of whether or not you are a Kotak customer. So, choose Kotak and make your tax payment on time with just a few easy clicks.