How to Save Tax in India – 41 Ways to Save Tax

How to Save Tax in India – 41 Ways to Save Tax

Everyone loves to save tax in India.  Who doesn’t wants to?

I always wondered how some rich people pay very less income tax compared to a common man in India.

I decided to figure out how to save tax in India so that I can use them effectively to my benefit.

Now, I’m sharing the information I found useful to you, so that you too could benefit from it.

 

Table of Contents

41 Ways to Save Tax in India

If you think that you are paying too much tax on your income, and wondering how to save tax in India, here are the 41 legal ways to save income tax in India.

 

How to Save Tax in India in Bank Deposits

#1 Interest earned from savings account

  • Upto Rs.10,000 is non-taxable
  • Any interest amount above the 10K bracket will be taxed, after deducting Rs.10000 from it.
  • However, interest from fixed deposit account is fully taxable.

#2 Interest earned from NRE Bank account

  • Eligible if you lived more than 6 months abroad(NRE status) in a year.
  • No upper limit.  All interest earned is tax free.

 

How to Save Tax in India in Real Estate

#3 Income from rented properties

  • Flat 30% tax deduction on the rental income.
  • The 30% deduction is for carrying out any repair work/maintenance work on the property.
  • Property tax paid to municipality is tax deductible

#4 Tax savings on the Home Loan

  • Updated for FY 2018-2019
  • First Home(Self Occupied Home)
    • Principal amount repaid is tax deductible under Section 80C
    • Home loan interest paid is tax-deductible upto 2 Lacs each year.
  • Second Home(Let-Out House)
    • Only Home Loan Interest is tax deductible; No maximum limit.
    • Principal amount repaid is not eligible

#5 Profit from sale of real-estate property

  • No tax to be paid, if you used the profit for buying a land or building other property in the same financial year as of the sale.
  • If not possible to invest in the same year, put the profit money alone(not the entire sale proceeds) in a CAGS account.
  • CAGS accounts can be opened in few PSU/Government run banks only, as per Capital Gains Account Scheme, 1988

#6 Inherited Wealth

  • Land/House/Money/Gold are eligible
  • received through will or as a gift.
  • totally tax free.

 

How to Save Tax in India in Stock Market Returns

#7 Profit from Stock Investments

  • Long Term capital Gain (stocks sold after 1 year) eligible for full tax deduction.

#8 Dividends from Invested Stocks

  • Totally tax free (because the company whose stock you invested in already paid the corporate tax.)
  • The brokerage firm will not withhold any tax on it.

 

How to save tax in India in Education & Marriage Gifts

#9 Interest paid on Educational Loan

  • Education loan taken for self, spouse or  children only are eligible;
  • Education loan taken for siblings, parents are inelligible
  • No tax on the interest amount paid.
  • The principal amount paid is still taxable.

#10 Educational scholarships received

  • Any amount; totally tax free

#11 Gift money received in marriage

  • Any amount; totally tax free

 

How to Save Tax in India in Insurance

#12 Maturity or Claim amount from Life Insurance

  • Life Insurance Claim amount is Non-taxable
  • Amount received after maturity is not taxable if the premium paid is not > 10% of the amount insured.

#13 Medical Insurance under Section 80D

  • For you, your wife, and children – Upto 25000 tax deductible
  • For your parents aged above 60 – Upto 30000 tax deductible

#14 Car Insurance Premium

  • Eligible under the Company Car Lease Program available to some salaried employees in corporate companies.
  • Entire insurance premium amount paid is tax deductible

#14(b) Car Insurance Accident Claim Amount

  • The law is not clear on this; Please confirm with a CA.
  • But ideally, it should be tax free if you use the claim amount to buy another car.

#15 Travel Insurance

  • Small Businesses can claim Travel Insurance as business travel expense.
  • Applicable only if the insurance was used for business travel

 

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Small Business or Home Business

After reading this section you’ll realize why you should own a small business and not be a salaried employee your entire life.

#16 HUF account for secondary income

  • Treated like a separate entity for taxation purposes
  • Need to get a separate PAN and Bank Account
  • You should deposit all your secondary income or side income to this account.
  • Section 80C investments also are possible in HUF

#17 Profit distributed to partners in partnership firms

  • No tax need to be paid by the partners because the firm would have already paid corporate income tax to the govt on the profit it generated.

#18 Lodging expenses in Business

  • Many business people claim their vacation expenses as company expense if their business clients live in some exotic locations such as Goa.

#19 Food expenses in business

  • Many business people claim food expenses incurred during meeting with clients as company expense.

#20 Travel/Car expenses in business

  • This is similar to the Company Car Lease program available to salaried employees in corporate companies.
  • In the case of business, all travel expenses incurred to meet a client can be claimed as a business expense.

#21 Interest paid on any business loan is tax deductible

 

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Salaried Employees

#22 Leave Travel Allowance

#23 House Rent Allowance

#24 Income from gratuity

  • No tax upto Rs. 10 Lacs possible.
  • Any amount after that taxable.

#25 Meal Coupons:

  • No tax for amount upto Rs2600 per month for food coupons like Sodexo/Zeta Card.

#26 Medical Expenses & Conveyance allowance

  • standard deduction of Rs.40,000 from your salary income.
  • pensioners and salaried employees eligible
  • no bills or proof of expense required.

#27 Company Car Lease program

  • Loan EMI/Fuel/Maintenance Service

#28 Voluntary retirement scheme

  • No tax upto 5 Lacs.
  • Applicable only to govt/public sector company employees

#29 Tax savings investments under section 80C

Investments upto Rs. 1.5 Lacs are eligible for tax deduction.

  • Employee Provident Fund(EPF) or Voluntary Provident Fund(VPF)
  • Public Provident Fund(PPF)
  • National Savings Scheme(NSC)
  • 5 Year Post Office or Savings Bank Fixed Deposit(FD)
  • Unit Linked Insurance Plan(ULIP)
  • Equity Linked Savings Scheme(ELSS)
  • Sukanya Samriddhi Scheme
  • Senior Citizen Savings Scheme(SCSS)

#30 Provident Fund

  • money withdrawn after 5 years of investment
  • If you rolled-over your previous company PF to the new company PF account then the previous company’s PF investment years will also be counted towards the 5 year calculations.
  • Totally tax free

#31 Home Internet & Mobile expenses

  • Totally tax free
  • Reimbursed by most corporate companies

 

Social Investments

#32 Donations under Section 80G

  • No upper limit;
  • 100% tax free

 

Agriculture

If you own a farm land in your native place, any income from your farm is 100% tax free.  Many rich people in India with illegal income misuse this tax hole heavily.

#34 Agricultural Crops

#35 Profit from sale of farm land – Section 54B

#36 Rental income from farm land

#37 Rental income from building in the farm

#38 Rental income from farm pumps and wells

#39 Income from rearing & selling farm animals

  • Income from selling cow, goat, hen, duck etc. is tax free

#40 Income from selling cattle by-products

  • By-products from the cattle farm such as pasteurised cow’s milk, goat’s milk, cow dung.
  • But, dairy products made from processing the milk such as curd or butter or ghee or paneer will be taxed under value added tax category.

#41 Interest earned from deposits in co-operative societies

  • Interest earned upto Rs.12,000 is tax free under Section 80L.

 

Conclusion:

I hope you enjoyed reading this blog and found it informative.  Now you know how to save tax in India better than a common man.

Don’t just stop with reading, try to take some actions to save your income and reduce tax.  If you are aware of any other tax saving options or if you see any incorrect information, do let me know and I’ll update the blog.

 

Disclaimer:  I’m not a professional tax advisor.  The information presented in this article is based on the information I collected from publicly available sources.  Please talk to your tax advisor or CA for authentic information.

 

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