How to reduce my Income Tax liability in India

If you have bought life insurance policies, the premium can allow you to avail tax deductions under Section 80C. Premiums paid to insure self, spouse, dependent children and any member of Hindu Undivided Family are eligible. Under Section 80C, save tax on the premium paid on insurance policies. Under Section 10(10D), maturity/death benefits are tax-free subject to the conditions mentioned therein. Under Section 80D, avail tax benefit# on the premium paid towards critical illness benefit offered by term insurance plans. If the policy has been issued on or before March 31, 2012, the annual premium up to 20% of the assured sum becomes tax-deductible. For insurance policies issued on or after April 1, 2012, 10% of the sum assured is tax-deductible. A life insurance policy will provide your family financial support in case of your untimely death and should be taken by everyone. The tax benefit is an added perk. Choose a life insurance plan appropriate for you and your family. It is important not to view insurance cover only as a way to save taxes.

Tax deductions of up to Rs. 1.5 lakh can be claimed on tuition fees paid for your children’s education. This benefit is only available to individual parents or guardians with a maximum of two children per individual. The deduction does not depend on the class of the children. However, the education course must be full-time in an Indian school, college or university. Parents who have adopted children, unmarried individuals and divorced parents can also claim these benefits.

Under Section 80E, the interest paid on loan taken for higher education qualifies for a deduction from taxable income. The interest paid on loans for higher education be it for self, spouse or children is tax free. No limit is set on this amount. One can only claim deduction for the amount of interest paid and not the principal amount. The deduction is offered for a maximum of 8 years or till the time the interest is paid, whichever is earlier.

Donations made towards certain relief funds and charitable organisations are eligible for tax waiver amounting to ₹2,000 under Section 80G of the income tax act. However, any donation made in items such as food material, medicines, etc., are not eligible for deduction. Wire and bank transfers, on the other hand, enjoy complete or partial tax exemptions, respectively.
If you are donating to an organisation facilitating scientific research or rural development, you are eligible to enjoy deductions under Section 80GGA.
Partial waivers in case of cash donations are granted, while transfers made through cheque or draft enjoy complete tax waiver.

All donations made to political parties or contribution to electoral trusts are eligible for tax waivers, under Section 80GGC of the Act of 1961. Section 80GGC of the Income Tax Act allows individuals to claim tax deductions on contributions made to political parties registered under Section 29A of the Representation of the People Act, 1951 and electoral trusts.
Such donations have to be made through wired or banks transfers itself, cash deposits are not allowed. Should you choose to contribute to a political party, tax deductions can be availed on 50-100% of the contribution amount. According to Income Tax Act regulations, you can donate up to 10% of your gross earning to any political organisation of your choice.

The National Savings Certificate is a fixed-income investment offered by the Government of India. It can be availed from the post office. One just need to do a minimum investment of Rs 100. NSC comes with a lock in period of 5 years and 10 years and the investments made in NSC’s are eligible for tax exemption. The current interest rate is 7.9% per annum. Certificates are available in denominations of ₹10,000, ₹5,000, ₹1,000, ₹500 and ₹100. The interest received on NSC is considered as a tax saving option and up to Rs 1.5 lakh can be taken as a rebate under section 80C. The scheme is safe as it is backed by the Government of India that ensures the safety of your capital. Also, only the interest earned in the final year is taxed.

Provident Funds also known as Pension Fund as they are created with a goal of long term return. PPF is the government savings scheme with a tenure of 15 years and is available at most banks and post offices in India. Interest received on the provident fund is not taxable. One can open a PPF account with as little as Rs. 500 while the maximum investment allowed in a financial year is Rs. 1.5 lakh, respectively. Wait for five years before you withdraw the amount from your Provident Fund. Deposits made in provident fund are eligible for a tax deduction under section 80C of Income Tax Act.
PPF is regarded as a safe tax-saving investment avenue. You do not have to pay any taxes on the deposit or interest at the time of withdrawal.

Under the EPF Act. 12% of the part of employees’ salary in the organized sector is deducted towards the Employees Provident Fund. This deduction is also counted towards the Rs 1.5 lakh limit under Section 80C.

Those who have a girl child below the age of 10 can benefit from this SSY scheme. Investments made towards this scheme are eligible for tax deduction under Section 80C of up to Rs. 1.5 lakhs. This account has a tenure of 21 years or until the girl gets married after turning 18. The current interest rate is set at 8.5% and the interest earned is tax-free.

If you have already retired or applied for voluntary retirement, the Senior Citizens Savings Scheme can be an option as a risk-free tax-saving investment. It is a long-term government-backed tax-saving investment. The maturity period is five years and investors can seek an extension by an additional three years. The current interest rate is 8.6%, and you can only opt for a premature withdrawal after a year of opening the account. If you close your account before two years, 1.5% of the deposit is deducted as penalty. The interest is taxable, and TDS is applicable in case the interest exceeds ₹10,000 per annum. A tax deduction of up to Rs 1.5 lakh can be availed under this scheme. With an SCSS account, you can be assured of a regular income in your post-retirement years.

The National Pension System is a retirement benefit plan, administered and regulated by the Pension Regulatory Fund Authority of India. If you subscribe to the NPS, your money will be invested primarily in equity and debt instruments, and the value of the investment on maturity will depend on the performance of these asset classes. Currently, the equity exposure is capped in the range of 50% to 75% and is limited to 50% for government employees. You can either decide how much money gets invested in each asset class or opt for an age-based asset allocation model.

On attaining the age of 60, you can only withdraw 60% of the maturity amount; the remaining 40% is used to purchase an annuity to help you receive a pension. Premature withdrawals of up to 25% are only allowed after three years.

Equity Linked Saving Schemes (ELSS), popularly known as tax saving mutual funds, are equity-oriented mutual fund which comes with a lock-in period of 3 years. As per the SEBI regulations, ELSS funds have to invest at least 80% of their corpus in equity or equity related instruments. It is the only category of mutual fund in India, that qualifies for a tax deduction for the investments of up to 1.5 Lac under Section 80C of the Income Tax Act. You can get your returns in two ways: either in dividends(if one is looking for regular income), or growth option (if one wants a long-term savings scheme). Dividends in this schemes are not taxed. This makes it tax-free for both, the dividends-pay-out investors and the long-term investors.
Capital gains from ELSS get the same treatment in Income Tax Calculation as rest of the Equity Instruments. Short term capital gains (STCG) attract a tax of 15%, while Long Term Capital gains (LTCG) are only taxable if the gains exceed ₹1 lac during the financial year. LTCG attract a tax of 10% on the amount exceeding ₹1 lac.