Every year people have to pay income tax to the government according to their gross income for that financial year. The tax slabs differ and change according to the income slab. The Indian government has given specific provisions under which a taxpayer can claim deductions and exemptions and save on the amount of tax to be paid. These provisions were introduced to inculcate saving habits in the people. 

This article will teach you about the many tax deductions and exemptions you can use to pay less income tax within a given fiscal year.

Different Deductions and Exemptions for Taxpayers to Claim

The many provisions of the Indian Income Tax Act 1961 cover deductions and exemptions. Taxpayers can save money by availing of one or more than one of the below. There are more to the list, but these are some of the common ones for your reference:

Public Provident Fund (PPF)

Section 80C of the Income Tax Act lets you claim a tax deduction. The maximum you can claim is Rs. 1.5 lakhs in total under the section of 80C. PPF is a long-term investment plan, and you can open the account for as low as Rs.500, considered the safest investment option.

Life Insurance Premiums

It also comes under section 80C and applies to the insurance premium paid for self, spouse, and children. The money you will receive after the maturity of your policy will be free of tax; however, it also depends on the rules and regulations mentioned in the policy document.

National Savings Certificate

NSC, or the National Savings Certificate, is also a provision under Section 80C of the Income Tax Act. Like PPF, NSC is also considered the safest investment option, and the amount invested can be claimed as deductions. The interest amount received, however, is taxable income. If you reinvest the interest amount, you can again claim it under deductions.

Fixed Deposits

Different banks in India offer tax-saving fixed deposit options to their customers. Bank FDs or Fixed Deposits are for a tenure of five years and are applicable for tax deductions under section 80C. Only the amount invested is tax-free; the interest earned is taxable.

Senior Citizen Saving Scheme

As the name suggests, this scheme is specially designed for senior citizens and is offered by different banks in India. If a senior citizen wishes to invest in it, they can get the deduction benefit on the total amount invested, but the interest earned will be taxable.

Home Loan EMIs

Most salaried people buy their homes by taking home loans. So, as per the Indian Income Tax Act, any taxpayer who pays the EMIs to repay the principal amount can avail of tax deductions as per section 80C.

Tuition Fees

If your child obtains full-time education in a recognised school, college, or university, you can avail of tax deduction benefits per the Income tax act. You can help with these benefits for two children. However, remember that these would only be tuition fees; no payment for the school development or donation is included.

Medical Insurance Premium

Like life insurance, medical insurance premiums are also a part of tax deductions. Taxpayers can claim it for themselves, their spouses, and their children in a financial year. The tax deduction amount, however, is different for youths and senior citizens. It is Rs.25000 for kids and Rs.50,000 for senior citizens.

House Rent Allowance

Most of the salaried people stay on rent or do not own their residential accommodation. In that scenario, the employees can avail of a tax deduction under section 80GG of the Indian Income Tax Act. 

Retirement Savings Plan

If taxpayers invest in a retirement savings plan offered by LIC or any other insurance company, they can avail of tax deduction benefits. You will also get a tax deduction benefit if you invest in the national pension scheme.

Benefits of Tax Deductions

Below are some of the benefits of availing the various tax deductions:

• You will be able to save taxes and money.
• The money saved can be invested in some other investment scheme, hence, inculcating the savings habit.
• You can invest in multiple options and take advantage of the maximum amount that can be claimed.

Conclusion

Every person needs to pay income tax to the Indian government every financial year. Therefore, it becomes imperative for everyone to understand how and where they can invest money to avail the various tax deductions and exemptions. To know more about income tax return filing, read this blog.