Oh taxes, why do you keep getting higher? This could well be a song that most of us are singing in the shower albeit a little regretfully as another year goes by and we realize that we’ve failed to take advantage of investments and other strategies en route towards ensuring a lower taxable income. Forget taking advantage, most of us don’t even have strategies for this in the first place. If you fall in this category, then you seriously need to change your style of functioning (and also the song that you were singing earlier!) and take note of what you can do to fix this.
The new budget has some income tax laws that are expected to benefits millions of taxpayers in the country. According to experts, while not many changes are in the pipeline, the interim budget has introduced some ways in which tax payers will be able to enjoy some better tax rebates for sure and overall tax expenditure will be minimized. The number of tax deduction limits has gone up and they will be effective from the financial year 2019- 20 and the accounting year of 2020-21. At first glance, it definitely seems like the low and middle income group are going to be beneficiaries under the new rules.
According to the new laws, a full tax rebate would be applied for individual tax payers who have a net income up to Rs 5 lakhs. That means that the income limit for which one is eligible to receive tax rebate under Section 87A of the IT Act has gone up from 3.5 lakhs to 5 lakhs, which means that the maximum tax rebate under Section 87A has been increased from a mere Rs 2,500 to Rs 12,500. If in case, however, the net taxable income exceeds Rs 5 lakhs for the accounting year 2020- 2021, then there will be no rebates.
How is Income Tax actually calculated?
The gross income of the tax payer is calculated by taking into account all the earnings and then tax exempted allowances and deductions are subtracted to find out the net taxable income. So, if the net taxable income is Rs 5 lakhs, then one can enjoy full tax rebate. It can also be availed by those who earn between Rs l lakhs and 11 lakhs by planning their income structure and claiming deductions accordingly.
Here are some of the deductions one can claim under the new tax rules:
- Section 80C: It is the most used income tax rule which allows investments in tax saving policies and reduce the net taxable income. A tax payer can invest up to Rs 1.5 lakhs in the Public Provident Fund, Employees Provident Fund, Sukanya Samriddhi Yojana, some policies under LIC and much more.
- Section 80 CCD 1B: The tax payer can claim a further deduction of Rs 50,000 after they have invested in the National Pension Scheme. Any citizen who is between 18 to 65 years of age can open this account.
By taking the total deductions under Section 80C and Section 80C CCD IB, one can save up to Rs 2 lakhs in a financial year.
- Section 80 CCD 2: Under this section, a tax payer can further claim deduction on the employer’s contribution to his NPS account. A maximum discount of 10 percent of the basic salary plus dearness allowance can be claimed under this section.
- Section 80D: In case a tax payer has a tax payer has a health insurance, a tax deduction may be claimed in that regard. So if one is paying a considerable amount for the health insurance of the family, including the parents, a sizeable deduction may be claimed. One can claim up to Rs 25000 for the health insurance of one’s wife and child and an additional 25000, for paying mediclaim of the parents. If the parents are above 60 years of age, them a further deduction of Rs 50,000 may be claimed.
- Section 80DD: In case a tax payer is responsible for taking care of a differently abled person, then he can claim a deduction of Rs 75000 if the disability of the person is more than 40% but less than 80%. If the disability is more than 80% then a deduction can be claimed of Rs1,25,000. This deduction can only be claimed if the dependant has claims under Section 80U.
- Section 80U: In this section, an individual can get some deduction if he or she is suffering from any of the previously specified diseases under the It Act.
- Section 80DDB: This is for any kind of expenditure that one has incurred for oneself or for the family member for any medical treatment for a certain specified disease. The diseases are listed under Rule 11DD of the Income Tax. Some of these are chronic renal failure, Parkinson’s disease among others. An additional amount of Rs 40,000 can be claimed as deduction.
- Section 80 E: Any kind of interest that is paid as repayment towards education loan is eligible for deduction and the income paid for the interest is deductible from the gross income. This will only apply towards loan taken for oneself, spouse or child and it can be claimed for a maximum of 8 years, or till the interest is fully paid.
- Section 80EE: Homebuyers who have availed a home loan can get tax deduction under this section if the interest is paid over and above the limit of Rs 2 lakhs on an existing home loan. Certain other conditions however, have to be complied with.
- Section 80G: In case one has made any kind of contribution to a charity or welfare certain exemptions can be claimed under 80G of the Income Tax. With this, one can claim income tax benefit of 50% to almost 100% of the donation amount, within limits as specified in the IT Act. Moreover, a receipt of the donation has to be submitted along with PAN, registration number of the trust etc.
- Section 80GG: Those who live in a rented house and do not claim any HRA benefit can claim deduction under 80GG and one cannot own a house in the city or have it assessed as self occupied property.
- Section 80TTA: A deduction of up to Rs 10,000 is allowed to those below 60 years on interest earned from savings in bank or deposit.
- Section TTB: A deduction of up to Rs 50,000 is allowed to those above 60 years on interest earned from savings in bank or deposit.
It should be noted that one will still have to file ITR as the tax exemption limit still remains at Rs 2.25 lakh per annum for those below 60 years, and Rs 3 lakhs for senior citizens.