Income Tax saving Guide FY 2022-23
Income Tax saving FY 2022-23 Every year, we are reminded by the taxmen, chartered accountants or employers that it is time to plan your taxes. Your reaction won’t be the same as if someone just gave you the latest iPhone.
Income Tax saving Guide – Coupons, Let’s face facts: Most people are not interested in paying taxes. We all fantasize about living in a tax-free society at one time or another.
Taxes are often viewed as a financial burden. However, a lack knowledge of tax-planning could add to the stress. Most taxpayers have difficulty finding the right tax-saving solution to their financial problems. It might be time to start teaching taxes to students in school, to help them prepare for the inevitable: taxes as adults.
This is something you can relate too. To make sure your tax-planning journey is easy, we have created a comprehensive and detailed tax-saving guide.
Income Tax saving Guide – Coupons and Income Tax Act
- Section 80C
- Section 80CCD
- Section 80D
- Section 80E
- Section 80EE
- Section 80G
1. Income Tax saving guide and Income Tax Act
1961 saw the enactment of the Income Tax Act. The Income Tax Act covers all aspects of the collection, administration, recovery, and imposition of income tax.
You may have many sources of income as a taxpayer. Income Tax 1961 states that your profits or earnings in any given financial year are subject to tax.
You must pay taxes, regardless of whether you are an entrepreneur, salaried person, or a landlord.
This section lists the tax saving options that you have, and includes sections 80C, 80D, and 80G. Here are some suggestions based on risk appetite to help you plan your finances for maximum tax savings.
High risk appetite: If your investment goals include high returns and tax benefits under Section 80C (or both), you might consider investing Rs1.5 lakh annually in Equity Linked Saving Schemes. This mutual fund, which is tax-saving, can offer double-digit returns. This means that you can get tax benefits in the short term and good returns long-term.
Moderate risk appetite: You can invest a portion in ELSS, and the rest in Public Provident Fund or Tax Saving Fixed Deposits if you have a moderate risk appetite. This strategy will give you the Section 80C tax benefits and help you balance your risk and return.
You can also invest in PPF or saving fixed deposits if you have a low risk appetite. You can get the same Section 80C tax deduction of Rs 1.5 lakh and there is very little risk.
These avenues can offer fixed returns but the rate of return is often very low (just 6-8%). If inflation is taken into account, this can lead to problems. For example, education inflation is approximately 10-12% per year. If you are investing in PPF to help your long-term goals, such as your child’s education and retirement, this could mean that you might not be able achieve them.
You can save up to Rs 46,800 annually by making these investments. It is easy to calculate your income tax liability or tax savings through investments using the free ET Money Income Tax Calculator.
Additional benefits beyond the scope of Section 80C
You can also invest in the Atal Pension Yojana or the National Pension Scheme if you wish to take deductions beyond the limit set under Section 80C. For contributions to these schemes, you can get a deduction of up Rs50,000 under Section 80CCD (1B). This section allows taxpayers to save up to Rs15,000.
Tax benefits can also be claimed for premiums paid for health insurance for yourself, your spouse, and children, as well as term insurance plans. This benefit is provided by Section 80D under the Income Tax Act. These health insurance payments can be saved up to Rs15,000.
These options combined can save you up to Rs78,000 per year. This is quite a lot of money.
How to save more per year
4.5% Surcharge on Investment Tax
Section 80C (ELSS, Term Life Insurance, NPS, PPF etc.) Rs150,000 Rs45,000 Rs1,800 Rs46,800
NPS under Section 80CCD (1B) Rs50,000 Rs15,000 Rs600 Rs15,600
Section 80D Rs50,000 – Rs15,000 – Rs600 – Rs15,600 – Health insurance for parents, spouse, and children Total tax savings Rs78,000
2. Section 80C
Section 80C, Income Tax Act 1961, reduces tax liabilities by allowing deductions of your total taxable income for a financial year.
Section 80C of 1961 Income Tax Act allows taxpayers to claim deductions on investments, contributions or payments towards financial products or schemes. Section 80C replaced the Section 88 and was implemented on April 1, 2006. The maximum deduction under Section 80C in a financial year is currently Rs1,50,000 The limit was Rs1,00,000.
Equity Linked Savings Scheme: Equity Linked Savings Schemes, a type mutual fund with a lock-in period up to three years, are a form of mutual funds. This is the only category of mutual funds in India that qualifies to receive a tax deduction under Section 80 (C) of Income Tax Act. The equity markets are the best place to invest, and they offer significantly higher returns over other tax-savings plans. You have two options: invest a lump sum or go with the SIP (Systematic Investment Plan). You cannot withdraw your money after the three-year lock-in expires. These mutual funds invest in stock markets and can have moderately high risk. However, the long-term returns are very profitable, which makes them one of the best tax-saving investments. You will have to pay a 10% LTCG tax on any ELSS gains exceeding Rs1 lakh per financial year. ELSS investments are a great way to make decent returns and stay invested over the long-term.
ELSS has the lowest lock-in and highest returns of all tax savings options. If you use it wisely, you can even avoid LTCG tax
Senior Citizen Savings Scheme – If you are already retired, or have applied for voluntary retirement, then the Senior Citizens Savings Scheme could be a good option to save tax. The Indian government supports this long-term savings option. The maturity period is five year. Investors can request an extension for an additional three-year period. You can withdraw your funds at any time after one year from the date you opened the account. You will be penalized if you close your account within two years. 1.5% of the deposit will be deducted. TDS applies if the interest exceeds Rs10,000 annually. An SCSS account will provide you with a steady income for your post-retirement years.
National Pension System: The National Pension System, a retirement plan, is administered and regulated in India by the Pension Regulatory Fund Authority of India. Subscribe to the NPS and your money will be invested in equity and debt instruments. The value of the investment at maturity will depend on how these asset classes perform. The equity exposure is currently limited to 75%. You have two options: you can choose how much money is invested in each asset type (Active Choice), or you can opt for an age-based allocation model (Auto Choice).
You can withdraw only 60% of the maturity amount after you reach 60 years old. The remaining 40% is used for an annuity that will help you get a pension. After three years, you can only withdraw up to 25% of the maturity amount.
NPS is the most affordable equity investment product.
Premium for Term Life Insurance: If you’ve purchased life insurance policies, your premium may be eligible to receive tax deductions according to Section 80C. Eligible premiums are those paid to insure oneself, your spouse, dependent children, or any member of the Hindu Undivided family. The annual premium of up to 20% of the insured sum is tax-deductible if the policy was issued before March 31, 2012. 10% of the assured sum is exempt from tax for insurance policies issued after April 1, 2012. Life insurance policies provide financial support for your family in the event of your death. They should be purchased by all. Additional benefits include the tax benefit. Select the right life insurance plan for you and your loved ones. Insurance coverage should not be viewed as a way of saving taxes.
Public Provident Fund: You can get tax benefits through the Public Provident Fund scheme. Current interest rates on PPF accounts are 7.9% p.a. compounded annually, and the lock-in period for PPF accounts is 15 years. You must keep your investments in place for at least 15 years, although you can withdraw partial amounts starting the seventh year. A minimum deposit of Rs100 is required to open an account. There are two maximum and one minimum investments that can be made in a financial calendar year: Rs500 and Rs1.5 million. Interest cannot be earned on any amount above Rs1.5 lakh if your annual investment is greater than Rs1.5 lakh. For 15 years, you will need to make at most one deposit per year. PPF is considered a tax-saving investment option. There are no taxes due on interest or deposits at withdrawal.
The government allows you to transfer your entire PPF corpus into NPS to enjoy greater returns and flexibility.
National Savings Certificates: A fixed-income investment that the Government of India offers, the National Savings Certificate. Visit a local post office to invest in this scheme. The current interest rate is 7.9% annum and the lock-in period is five years. A minimum purchase amount of Rs100 is required to buy an NSC certificate. Certificates can be purchased in denominations as low as Rs10,000, Rs5,000 or Rs1,000. They also come in Rs500, Rs500, and Rs100. Only the certificate holder’s death or forfeiture of certificates makes it possible to withdraw prematurely. Because the scheme is supported by the Government of India, it ensures your capital’s safety. Only the interest earned during the last year is subject to tax.
Fixed deposits that save taxes: Tax-saving FDs are an option. You can claim maximum tax deductions up to Rs1.5 million. The interest rate you receive is the prevailing 5-year FD rate. There is a lock-in period of five years, which means that you cannot withdraw the money prior to five years. A lump sum deposit is the only option. Premature withdrawals are prohibited. The minimum investment amount will vary depending on the bank. However, the maximum amount can be made up to the 80C limit. Rs150,000. You have the option to reinvest or choose monthly or quarterly payments. TDS will be applied to interest earned on your FD. However, you can opt for a monthly or quarterly payout by submitting Forms 15G and 15H (in the case of senior citizens) to the bank.
Tax-saving FDs offer just enough returns to beat inflation. Your gains in wealth are therefore negligible.
Repayment of a home loan: The EMI portion that goes towards the principal amount can be deducted under Section 80C. This section does not allow you to deduct interest payments.
Tuition fees: Tax deductions of up to Rs1.5 lakh can be claimed on tuition fees for your child’s education. This benefit is not available to guardians or parents and can only be claimed for up to two children. The child’s class does not affect the deduction. It must be a full time education course at an Indian school, college, or university. These benefits are also available to parents of adopted children, divorced parents, and unmarried people.
3. Section 80CCD
Section 80CCD explains the tax deductions that are available to taxpayers for investments in the National Pension System (NPS). Two subsections are available here:
Section 80CCD (1): NPS investments are eligible for tax deductions. Indian citizens between the ages of 18 and 60 can invest in NPS to receive this tax benefit. This benefit is available to NRIs as well.
This section allows you to deduct 10% of your salary. This includes basic salary + DA. The limit for self-employed persons is 20% of their gross income.
You can also get maximum benefits under this section every year up to Rs1.5 lakh
Section 80CCD (1b), This subsection allows for an additional Rs50,000 deduction on NPS investments. This deduction is in addition to the Rs1.5 lakh allowed by Section 80CCD(1). In other words, you can get a Rs2 lakh tax deduction each year if you invest in NPS.
4. Section 80D
You can get a deduction of up to Rs 1 lakh for your contributions towards medical insurance premiums that you have purchased for yourself, your spouse and children. . Deductions under 80D go beyond exemptions that you may claim under Section 80C. This benefit is available to individuals as well as Hindu Undivided Families.
You can take deductions for your family and yourself if you file your taxes as an individual. You can also:
A maximum deduction of Rs25,000 per financial year can be claimed on your health insurance premiums for yourself and your family (spouse, parents, and children).
Senior citizens can get a maximum deduction up to Rs50,000 per fiscal year.
These are the details of premiums for parents who have purchased medical insurance for their children.
You can get a maximum deduction up to Rs25,000 per annum for parents who are younger than 60.
Senior citizens can deduct Rs50,000 per financial year.
If you buy life insurance policies for your family and your parents, and your parents are under 60 years old, you can claim a maximum tax deduction up to Rs50,000. If you or your parents are over 60, you may be eligible for a maximum tax deduction of Rs1 lakh under Section80D.
5. Section 80E
Section 80E (the Income Tax Act) allows you to deduct the amount that you have spent on repaying your education loan interest from your total income.
The loan should have been used to educate yourself, your spouse or children, or for the support of a student. It should have been obtained from a bank or other financial institution that is approved.
The deduction amount is the total amount that you have paid to repay the loan interest over a financial year. There is no limit on how much you can deduct. A certificate issued by the bank will be required to distinguish the principal and interest components of the education loan.
6. Section 80EE
Section 80EE allows for a tax deduction on interest on home loans taken out by first-time homebuyers. You can claim a tax deduction of up to Rs50,000 if you are in this category. This limit exceeds the limits provided by section 80C or Section 24 of 1961’s IT Act.
To be eligible for this deduction, you must meet the following conditions as a taxpayer
On the date of sanction, you must not be in possession of any residential property.
The house must not be worth more than Rs 50 lakh. A commercial property is not eligible for the loan.
The loan amount must not exceed Rs 35 lakh
Only the interest portion is exempted from the deduction.
To be eligible, you don’t necessarily need to live in the property.
7. Section 80G
Charity starts at home. But did you know that expanding the scope of your charitable acts can help you to save taxes? You can claim tax deductions for donations to charities under Section 80G.
Only donations to charitable institutions registered under Section 12A are eligible for deductions. Donations must have come from taxable income sources. Eligible donations are those where the contributions were made by cheque, cash, or demand draft. All taxpayers are eligible, even non-resident Indians.
Donations exceeding Rs2,000 cannot be deducted. To be eligible for a tax deduction on donations exceeding Rs2,000, you must make the contribution using another method of payment. You can deduct up to 50% or 100% depending on whether you meet the requirements of Section 80G.
8. VPF Withdrawal
VPF allows both partial and full withdrawals. This is a great option to have in case of an unforeseen financial emergency, such as paying hospital bills for your family or yourself. For reasons such as:
Construction of a new home or the purchase of a residential lot
Repayment of an existing mortgage
Higher education or marriage for a child
VPF is very popular with investors as the accumulated amount can always be withdrawn at any time. If you wish to avoid tax on the maturity amount, make sure your account is open for at least five years.
9. Connecting the UAN number to the EPF
The Universal Account Number (UAN), a 12-digit number that is assigned by the Employee Provident Fund Organisation, to all employees with an EPF account, is a 12-digit code. The UAN is portable and can be used at any time during an employee’s life.
You don’t have to withhold your EPF if you change jobs. This is the main benefit of the UAN. Transferring your EPF from one employer to another is easy and quick. You can build your EPF corpus no matter how many times you have changed jobs.
10. UAN benefits for employees
Transfer your EPF balance to a new account via the UAN.
Every new PF account that has a new job will be under the aegis a single unified account.
You can instantly download your PF statement whenever you need it. Log in with your member ID, UAN, or send an SMS.
If your UAN has been KYC-verified and Aadhaar verified, new employers don’t need to validate it.
Online withdrawals of EPF can be made easier with UAN.
It’s easier to make sure that your employer regularly deposits their contribution into the PF account.
11. How can I check the EPF balance online?
Online, you can check your EPF account balance in one of two ways.
EPFO website allows you to check your EPF balance. If you want, you can print the information.
Click on ‘Our services’ to choose ‘For employees.
Select the “Member passbook” option from the menu.
To view your passbook, type your UAN password.
The EPFO will provide you with the UAN but your employer must activate it for you to be able to use the services.
You can check your EPF balance using the Umang app. The Umang app was launched by the Government of India. This app allows you to view your passbook and make claims. You can also track the claim. Register on the app by entering your one-time password, which will be sent to you mobile.
Send an SMS to check your EPF balance. You can view the message in English or Hindi. You can send the above message if you wish to receive the update English. You can also request it in another language by using the first three letters of the desired language, instead of ‘ENG. To receive updates in Punjabi, type EPFHO UAN PEN.
Only after you have integrated your UAN and KYC details (i.e. Aadhar, PAN, or bank account details.
You can make a missed phone call by calling 011-22901406 using your registered mobile number. An SMS will be sent to you containing your EPF balance. You will also receive an SMS containing your EPF balance. This service can only be obtained if your UAN is integrated with your KYC details (i.e. Aadhar, PAN, or bank account details.
Employees can get a retirement fund from the EPF scheme. You can also be sure to get the benefits of the provident funds under the same umbrella account throughout your career. If you decide to invest, the VPF provides additional protection.
EPF does have its downsides. Other retirement savings options, such as the National Pension System (NPS), or Equity Linked Savings Scheme (ELSS), can earn higher investment returns. VPF has its limitations. Only at retirement can you withdraw all of your VPF account. If you have other financial goals, this can be a problem. If you are looking for inflation-resistant returns in retirement, a good option is to invest NPS or ELSS.