Income tax is the unfortunate reality of income. If given a choice, most of us wouldn’t want to pay tax on the income we earn. But we should, because the income tax we pay is an important source of revenue for the government. As citizens of India, we are also consumers of the country’s public infrastructure and facilities. When we want these facilities and infrastructure to improve, it is also our duty and responsibility to contribute towards building and maintaining it. Paying income tax and filing income tax returns is one way of doing that.
We should fulfill this duty with pride because the income tax payers form a very small part of the Indian population. Government data for AY2014-15 shows that only around 1.5% of Indians pay income tax. This is because India is a developing country and 93% of Indian households earn less than ₹2.5 lakh annually, which is the minimum threshold limit for income to be taxable. Furthermore, agricultural income is entirely exempt from tax even when it crosses this ₹2.5 lakh limit. Hence, anyone who earns a taxable income should be proud to be a part of the tax-paying population and should dutifully fulfill this responsibility.
While the government expects you to pay income tax, it also allows you to legally save on income tax. You don’t have to pay income tax if you earn less than ₹2.5 lakh in a year. Income more than that is taxed as per different slabs, with the tax rates going up with increase in income. No matter how much taxable income you earn, there are certain exemptions and deductions available to all individual and HUF taxpayers that can be used to pay less income tax.
1. By buying life insurance:
The premiums paid on life insurance policies are eligible for deduction from taxable income under Section 80C resulting in tax save. Some of the other tax-savings options which fall under this section are PPF, NSC (National Savings Certificates), Sukanya Samriddhi, NPS (National Pension System) and kid’s tuition fees. However, the maximum amount which can be claimed as deduction from taxable income under this section is `1.5 lakh.
2. By insuring your and yours loved one’s health:
Under Section 80D, premiums paid in any mode other than cash towards insuring the health of self, spouse, and dependent children are eligible for deduction for up to `25,000 from your taxable income. Paying the premium on health policies of senior citizen parents makes you eligible for an additional deduction of `30,000 from your taxable income, thereby helping you save more tax. This limit includes the expenses of up to `5000 incurred on preventive health checkups.
3. By submitting rent receipts:
If you are staying in a rented accommodation and receive HRA from your employer, you can claim deduction under Section 10(13A). The least of the following three will be allowed as exemption from taxable income before calculating tax on total income
- Actual HRA received from the employer
- The actual rent paid in excess of 10% of basic salary
- 50% of the basic salary if you stay in a metro city and 40% if you stay in a non-metro city
However, under Section 80GG, if you do not receive house rent allowance (HRA) from your employer or do not own a residential house, you can get deduction of house rent expenses from your taxable income. The least of the following three will be allowed as deduction from taxable income:
- `60,000 per annum
- Rent paid minus 10% of adjusted total income.
- 25% of total income for the year.
4. By making a charitable donation:
A donation made towards certain relief funds and charitable organizations is eligible for deductions under Section 80G. However, any donation made in items such as food material, medicines, etc.; are not eligible for deduction.
5. By financing higher education:
Under Section 80E, the interest paid on a loan taken for higher education qualifies for a deduction from taxable income. The deduction is offered for a maximum of 8 years or till the time the interest is paid, whichever is earlier
6. By buying a house:
Under Section 24, you can get tax benefit on home loan for interest payment for up to 2 lakhs. Also, first time home buyers can claim an additional deduction of Rs. 50,000 on home loan interest under section 80EE, provided the following criterions are met:
- The housing loan should be sanctioned in the FY 2016-17
- The loan should not be more than 35 lakh
- The residential house value should be less than 50 lakh
- The home buyer should not have any other residential property registered in his name.