Taxpayers are generally aware of the standard tax-saving deductions that can be availed during the tenure of the financial year 2020-2021. The tax-saving assumptions are under section 80C of the Income TAX Act, 1961. But there are also other deductions available under various sections of the Income Tax Act that assist the individuals in bringing their tax liability down further.
Also, one needs to keep in mind that from the financial year 2020-2021, a person can keep on continuing with the initial tax regime by availing of the existing tax exemptions and existing deductions. The person also has the option to pay the tax amount under a concessional, new tax regime that does not allow most of the tax exemptions and existing deductions. Let us have a quick look at how one can reduce the taxable income in the financial year 2020 - 2021.
Amount of tax one can save in the financial year 2020-2021
Many people are aware of the fact that how to save income tax in India. There are a number of changes that the budget of 2019 shows which are related to the income tax. By making the use of these changes that are mentioned in the budget, the income tax assessee is able to make most of her/his earnings in the financial year 2020-2021.
Out of all the changes related to the income tax, one of the most important and valuable is the entire tax rebate given to one individual with an annual salary of up to Rs. 5 lakh. Once the income tax changes come into power, there will be many taxpayers who will be able to get the benefit by planning their investments wisely.
According to the income tax Act Section 80C, it has also seen a rise of 25% in the standard deduction threshold. In such a way, the income taxpayers can make use of the earned income in the financial year 2020-21 and therefore can easily calculate their income tax.
Tax saving options
When a question arises that how to reduce taxable income 2021, you must be aware that there are many tax-saving options available. Let us read about some of the tax-saving options.
· Section 80C:
Under section 80C, the maximum of the tax exemption is allowed, and it is not altered. It is also retained to Rs. 1.5 lakh. Some of the different investment options that are claimed for deduction of tax under this section are:
1. PPF or Public Provident Fund
2. EPF or Employee Provident Fund
3. 5-year bank saving accounts or post office
4. NSC or National Savings Certificates
5. National Pension System
6. ELSS or Equity Linked Savings Scheme
7. Tuition fees of kids
8. Post Office Senior Citizen Scheme
All these schemes will help to reduce the taxable amount.
- Section 80CCD:
Upto Rs. 50,000 is the maximum deduction of tax that is being allowed under section 80CCD. One will be able to avail the benefits of this section by investing in the government pension schemes, such as the NPS or National Pension Scheme.
- Section 80D:
It became necessary for ordinary people to purchase healthcare schemes due to the rising price of healthcare treatment. This is how an ordinary person can reduce tax. In addition to all these, if an individual purchases the health insurance plan, it enables one to save the taxable amount under this section that is 80D of the Income Tax Act. Rs. 25,000 is the maximum amount that is being allowed under section 80D. On the other hand, the premium that an individual pays off for parents, spouse, and children is liable for claims under this section.
- Section 80G
Under this section, the donations that one makes towards various charitable funds, institutions, and other government aids are liable for consideration for a tax deduction. The donations that individuals contribute should not exceed 10% of her/his gross annual income. On the other hand, if someone is making the contribution in cash, it should not exceed Rs. 2,000.
- Section 80E
Under section 80E, the repayment of the educational loan's interest is eligible for getting a tax exemption. In case one has taken an educational loan, he/she can claim under this section.
- Section 80TTL or 80TTA
The interest accumulated by an individual from the savings account is liable for consideration under this section for the income tax deduction. The maximum limit that is being allowed is Rs. 10,000.
- Section 80TTB
Senior citizens also avail a certain amount of interest from their respective savings account, post office savings, term deposits, fixed deposits, and recurring deposits. All these interests are liable for tax deduction under this act.
Ways by which a salaried person can lower his/her taxes
It is that time of the year again when you are thinking about tax planning. With the end of the financial year, one may think about how to reduce tax as an employee? As a salaried person, one should first understand the tax slab for the particular income as well as understand the breakup of the salary. This will eventually help to save the taxes being an employee. There are a few tips that can save taxes.
- HRA or House Rent Allowance
- LTA or Leave Travel Allowance
- PF or Employee Contribution to Provident Fund
- Professional Tax
- Standard Deduction
- Exemption of Leave Encashment
- Exemption Under Section 89(1)
- Exemption from the Receipt which is availed while opting for the voluntary retirement
- Meal coupons
- Donations to the political parties
- Expenses that are related to the phone or internet
- A car that the employer leases
More ways to save tax being a non-salaried person
Apart from all the ways mentioned earlier of saving the taxes, if a non-salaried person starts a side business, it also offers various tax advantages. When used during daily business, many expenses can be deducted. One may again think about how to reduce taxes owed to IRS? By following all the IRS's strict guidelines, the owner of the business may reduce some of the home expenses. The IRS evaluates several factors.