12 Ways to Save Income tax in Financial Year 2018-19

A Complete Guide to Tax Savings for Financial Year 2018-19

Tax planning is a bit tedious task for most of us. With the complicated network of various sections, sub-sections, and provisions, it is important to completely understand tax provisions are relevant to you and what can work for or against you.

If you are not able to sleep due to your taxes, look no further. Here we bring to you a complete guide to tax savings for the financial year 2018-19.

Budget 2018 has created a noteworthy impact on personal finance, in respect of savings, investments and taxes.

The Income Tax Act allows certain deductions that can be claimed for certain expenses or payments, made by us, from his total income. Deductions that can be claimed by us are covered under Chapter VI –A of the Income Tax Act.

It is important to know that there are other options too beyond Section 80C, to maximize your income tax benefits. Also, you must align your investments with your tax-saving instruments to get the best out of it.

Given below is a complete list of tax deductions you can claim under the Income Tax Act (financial year 2018-19)-

1)     Section 80C – Investments

There are approximately 14 instruments through which you can claim a deduction under Section 80C. Financial instruments like Employee Provident Fund, National Savings Certificate, PPF, National Pension System, payments made towards children’s tuition, Life Insurance premium, ELSS, deposits in Sukanya Samriddhi Yojana, etc offer tax benefit under this section.

A deduction of Rs.1,50,000 from your total income in FY 2017-18 can be claimed by an individual or a HUF, u/s 80C.

2)     Section 80CCD – Government Pension Scheme

Under the above section, you can claim a deduction for contribution made towards National Pension Scheme.

Section 80CCD (1) – Employee’s Contribution –

If you are an employee: Maximum deduction allowed is 10% of your salary.

If you are self-employed: Maximum deduction allowed is 20% of your gross total income.

Section 80CCD (1B) – Self contribution –

An additional deduction of up to Rs.50,000 for investment in a Tier I NPS account. The contribution made towards Atal Pension Yojana is eligible as well.

Section 80CCD (2) – Employer’s Contribution –

An additional deduction of up to 10% of the salary of the employee, towards contribution made to employee’s pension fund. No financial limit exists on this deduction.

3)     Section 80D – Health Insurance

Tax benefit u/s 80D of Rs.50,000 shall be available for senior citizens.

If you pay a premium for a Health Insurance, on behalf of your parents, an additional deduction of up to Rs.20,000 (Rs.50,000 (less) Rs.30,000) shall be available.

If you fall under the tax bracket of 30%, you shall be eligible for an additional tax benefit of upto Rs.6,000 (30% of Rs.20,000).

In case of super senior citizens (aged above 80 years) who are uninsured, medical expenses of upto Rs.30,000 shall be allowed as a deduction.

4)     Section 80DDB – Critical Illness

Under section 80DDB tax deduction of Rs.40,000 is available, for medical treatment of specified ailments, for individuals below 60 years of age. These specified ailments include AIDS, Thalassaemia, Cancer, etc.

Rule 11DD has the list of these specified ailments. A certificate from a registered doctor, in Form 10I will have to be furnished.

Tax exemption on treatment expense of specified critical illness increased to Rs.1,00,000 for all senior citizens.

5)     Section 80TTA – Savings Account

Interest earned on Savings Account in post office, bank, or cooperative society, shall be exempt up to Rs.10,000.

Interest earned from this account will have to be included in Other Income. Deduction claimed will have to be on the total interest earned or Rs.10,000, lower of both. This benefit is available for an individual and a HUF.

This tax benefit is not allowed on interest earned via Recurring Deposits, Fixed Deposits, or Corporate Bonds.

6)     Section 80GG – HRA

If you are residing in a rented house, HRA is a great tax saving option for you. The tax benefit under this section would depend on your Basic Salary, the HRA that has been provided by your employer, the rent you pay, and your place of residing.

7)     Section 80G – Charity & Relief Funds

Tax exemption of up to 50% of the amount paid via cash, draft, or cheque (up to Rs.10,000), towards a charitable organization or relief fund can be claimed. Contribution towards specified organizations makes you eligible for 100% tax exemption.

W.e.f FY 2017-18, a donation in cash, in excess of Rs.2,000, shall not be allowed as a deduction. A donation made above Rs.2,000 will have to be made in any mode other than cash, to avail tax benefit.

8)     Section 80GGB – Political Party Contribution

In respect to this section, “Political Party” means a political party registered u/s 29A of Representation of the People Act.

100% tax exemption is available under this section on the contribution made by a company toward an electoral trust or political parties, under sec. 80GGB.

9)     Section 80E – Education Loan

Interest paid on loan for higher education, after completion of your Senior Secondary Examination, shall be eligible for a tax deduction claim under this section.

This benefit shall be allowed on loan taken for higher education of yourself, your spouse, your children or a student for whom you are a local guardian.

Tax deduction under this section can be availed for up to 8 years or till the payment of interest, whichever is earlier.

No limit has been set on the amount of interest.

10)   Section 56(2) – Gift Tax

If you receive a gift in the form of cash, cheque, etc, of a value of up to 50,000 from anybody other than a blood relative, you do not have to pay tax towards the same.

For a gift in excess of Rs.50,000, the entire amount shall be taxable.

11)  Standard Deduction of Rs.40,000

A standard deduction of Rs.40,000 has been introduced for employees. One will have to forego the transport allowance with deduction Rs.19,200 and medical reimbursement with deduction Rs.15,000.

This standard deduction will provide a benefit of Rs.5,800 (Rs.40,000 (less) Rs.34,200)

12)  Section 24(b) – Home Loan

You can claim a tax benefit on the interest component of your housing loan u/s 24(b). In case of properties that are self-occupied, deduction of up to Rs.2,00,000 shall be applicable.