How to Reduce Your Tax Liability Legally in India

Income tax in India is governed by The Income Tax Act, 1961. Under the system, there are legal ways to save tax in India. India follows a progressive tax rate system with different slabs based on income levels. The rates may vary for different age groups, like individuals below 60, senior citizens between the ages of 60 and 80 years, super senior citizens above the age of 80 years, and HUFs. However, all qualifying individuals categorised as residents must pay income tax based on their taxable income in a year. It is important to understand the taxable income in India, so that you know about the various ways in which you can go for income tax savings India.

How to reduce income tax in India:

Tax deduction when taking out a home loan: If you use section 80C of the Income Tax Act to your advantage when structuring your house loan and reducing your taxable income, you can get a benefit of Rs 1.5 lakh on the principal amount and Rs 2 lakh on the interest paid as per section 24.

Earnings from Interest on Savings Accounts: For a maximum of Rs 10,000, interest earned on savings accounts is generally tax-exempt. This sum represents the total of all savings accounts. For senior citizens, this cap is increased to Rs 50,000 under section 80TTB.

Interest received through NRE accounts: Indian citizens who do not reside in India have NRE accounts. They receive interest on both the accumulating and fixed deposit amounts. The amount of interest is referred to as tax-free income.

Money Received from Life Insurance Policy: The maturity amount or bonus is completely free from income tax under Section 10 if the premium is below 10% of the sum assured (if the policy is purchased after 1st of April, 2012). The maturity amount is tax-free for policies purchased before this date if the premium is 20% of the sum assured. Policies issued after April 1, 2013 that cover the life of a person with a disability or a disease listed under Sections 80U or 80DDB, respectively, are also included in this category. In these cases, the amount received at maturity is tax-free as long as the premium is below 15% of the sum assured.

Scholarship for education: Under section 10(16) of the Income Tax Act, any scholarship awarded to deserving students to help with educational expenses is exempt from income tax.

Amount received from shares or Equity Mutual Funds: Long-term capital gains (LTCG) up to Rs 1 lakh are excluded from income tax on salary if equity mutual funds or shares are sold after being kept for one year or longer. This is one of the top tax-saving strategies India.

Wedding gifts: Once you understand what comes under taxable income, you will know that any kind of wedding present received from direct relatives is exempt from taxation under the Income Tax Act. The most that can be spent on presents from friends or unrelated individuals is Rs 50,000. Gifts that exceed this amount will be subject to the applicable tax slab.

Income from agriculture: Income from agriculture is not subject to income tax deduction in the new tax regime. However, the Income Tax Act established an indirect taxation method for such income. It is called the partial integration of agricultural and non-agricultural incomes. It intends to impose higher tax rates on non-agricultural income. Agriculture has become one of the top tax-saving investment options in India.

Hindu Undivided Family (HUF) and extra income: HUFs are recognised as separate tax entities and are entitled to separate tax exemptions for each of their members, as well as a basic tax exemption of Rs 2.50 lakh, regardless of the HUF’s residency status.

Amount received through inheritance: The money you receive through a will or by being a legal heir is entirely tax-free because India has no inheritance tax.

Tax-saving strategies India are important ways to save your hard-earned money. Knowledge regarding the rules of income tax savings in India goes a long way in ensuring that you are taxed only on amounts which fall outside the quotas. Tax-saving investment options in India are also ways of saving your money.

ALSO READ: Income tax in India is governed by The Income Tax Act, 1961. Under the system, there are legal ways to save tax in India

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