10 Tips to Save Income Tax in India for FY 2021-22

If you are confused about how to save maximum income tax, I have shared 10 tips to save income tax in India for you to do your tax planning. 

10 Tips to Save Income Tax in India

#1. Tax Loss Harvesting

You can reduce your taxable income earned from stocks, by selling the loss-making stocks in the portfolio in the same financial year. The tax is calculated on the net profit after reducing loss from gross profit from stocks. 

This is called Tax loss harvesting. 

The profit/loss is calculated for one each complete transaction which includes both buy and sell transactions. If you buy the same stock after selling at the same price, then the profit/loss on the new buy will be calculated at the time you sell the stocks. 

For example, you hold 3 stocks right now – ICICI Bank, Tata Steel, and Eicher Motors.

You booked a short term capital gain of Rs. 1,10,000 by selling 550 ICICI Bank shares and 200 shares of Tata Steel during the same financial year. You are holding Eicher motors stocks at a loss of  Rs 67000

Stock investment details

tax loss harvesting

Now you have to pay the short-term capital gain of 15% on the realized profit earned because of shares sold within 1-year.

The tax you have to pay without tax-loss harvesting 

Realized ProfitRs. 1,10,000
Realized Loss0
Total IncomeRs. 1,10,000
Tax LiabilityRs. 16,500
(15% of Rs. 1,10,000)

If you sell your Eicher motors shares with an unrealized loss of Rs. -67,000, the loss would be deducted from the profits of the other two stocks.  

Tax loss harvesting new

You can buy the Eicher motors stocks again on the same day if you want to hold for a long time.

The tax you have to pay with tax-loss harvesting 

Realized ProfitRs. 1,10,000
Realized LossRs. 67,000
Net IncomeRs. 43,000
Tax LiabilityRs. 6,450 (15% of Rs. 43,000)

You could save Rs. 10,050 (16,500 – 6,450) in taxes if you use the tax-loss harvesting technique.

Also read – Best demat account in India

#2. Tax Saving on HRA Deduction

You can claim HRA to save tax on house rent. Only salaried people can avail of the HRA deduction. 

You can get the HRA deduction under the following 3 situations

#1. HRA part of salary (under section 10(13))

If HRA is a part of your salary, then you can get a deduction on the conditions below (whichever is lower) –

  • HRA received from your employer
  • House rent paid minus 10 % of your total salary (Basic salary + DA)
  • For metro cities – 50% of your total salary (basic salary+DA), or
  • for non-metro cities – 40% of your total salary (basic salary+DA)

#2. HRA not part of salary (under section 80GG)

You can still claim deduction on house rent paid if your employer doesn’t give you HRA. You get a deduction on the conditions (minimum of the following three).

  • Rent paid minus 10% of the total salary (Basic salary + DA)
  • Rs. 5,000 per month
  • 25% of  total income

#3. Pay Rent to Parents (under section 10(13A))

If you are salaried and living with your parents,  you can still save taxes by paying rent to your parents. You shouldn’t be the co-owner of the property to get the deduction.  

You get a deduction on the following conditions (whichever is lower).

  • Rent paid minus 10% of the total salary (Basic salary + DA)
  • Rs. 5,000 per month
  • 25% of  total income

Your parents can also claim a flat 30% deduction on annual rent for maintenance purposes.

You need to create a rental agreement with your parents to avail the benefit.

Note: You need to submit your landlord’s PAN card copy if your annual rent is more than Rs. 100,000.

#3. LTA Cash Voucher

An employee can avail of Leave Travel Allowance from the employer to pay the travel expenses while on leave within India. LTA covers ticket expenses of your spouse and children as well.

You can get tax exemption on LTA on performing two journeys in a block of four calendar years.

The conditions to meet for tax exemption are –

  • An actual journey is a must.
  • Only domestic travel is considered.
  • Employees alone or with their family consider (includes spouse, children, dependent parents, dependent brothers, and sisters).

But due to the COVID-19 lockdown in 2020, the government offered the LTA cash voucher scheme that allowed employees to get deductions on the LTA part of their salary.

If the pandemic condition persists, the government may offer the LTA cash voucher scheme for 2021-22 as well but currently, there’s no information available.

Conditions to comply under LTA cash voucher scheme

  • The scheme is equivalent to the usage of 1 trip (out of 2) allowed in the block of 4 financial years from 2018 to 2021
  • The taxpayer or his family member should have spent on the purchase of goods or services that attract the GST rate of 12% or more.
  • The maximum exemption is up to Rs. 36,000 per person or 1/3rd of the expenditure amount, whichever is lower.
  • Expenditure must have a GST tax invoice and payment for the expense made via a digital medium like credit or debit card, UPI, or net banking.
  • In case you don’t avail of the scheme, you can carry forward the amount to next year.

#4. Medical Treatment

You can save tax on the medical treatment of yourself, your spouse, parents and children. The tax deduction amount varies under various conditions.

#1. Medical Insurance u/s 80D

You can claim a tax deduction on the premium paid for medical insurance as below –

  • Rebate of Rs. 25,000 for medical insurance of self, spouse, and dependent children.
  • Rebate of Rs. 25,000 for medical insurance of parents less than 60 years of age or
  • Rs. 50,000 tax rebate in case the parents are 60 years old or above.

If the taxpayer and his parents are 60 years old or above, he can claim a deduction of Rs. 100,000.

#2. Medical treatment of specified disease u/s 80DDB

Any person (or dependent) suffering from a specified disease can get tax deductions up to Rs. 40,000 on treatment.

The specified diseases are –

  • Neurological diseases like Dementia, Aphasia, Parkinson’s, and others
  • AIDS
  • Chronic Kidney Failure
  • Malignant Cancers
  • Blood or bone marrow disorders like Hemophilia and Thalassemia.

#3. Medical treatment of handicapped dependent u/s 80DD

You can claim a tax deduction on the medical expenses of a disabled dependent family member which includes parents, spouse, children, and siblings.

The conditions of deduction with respect to disability are as below –

  • In case of 40-80% disability –  tax deduction of Rs. 75,000. 
  • In case of 80% and above disability – tax deduction of Rs. 125,000.

You need a disability certificate issued by a concerned authority like the Chief Medical Officer to avail of tax deductions.

#4. Medical treatment of disabled individual 

Any person with a physical or mental disability can get a fixed deduction of Rs. 75,000 u/s 80 U.

If the disability is above 80%, the deduction enhances to Rs. 125,000. You need a disability certificate from the medical authority to avail of the deductions.

Deduction UnderFamily members or parents
(below 60 years)
Family members or parents 
(above 60 years)
Section 80DNot allowedRs. 50,000 to Rs. 1,00,000
(both tax payer & parents above 60 age)
Section 80DDBRs. 40,000Rs. 1,00,000
Section 80DD or 80U(for disabled dependent)Rs. 75,000 to Rs. 1,25,000(depending upon the disability)Rs. 75,000 to Rs. 1,25,000(depending upon the disability)

#5. Tax Saving From Home Loan

You get tax benefits on a home loan under various sections. 

#1. Home loan tax savings under section 80 ©

The total amount of home loan tax rebate options u/s 80 C will be clubbed with other 80(C) investments for a total of Rs. 1.50 lakh

A. Principal repayment 

You get a tax rebate of up to Rs. 1.50 lakh on repayment of the principal amount in the current financial year. 

But you cannot sell that house within 5 years of possession if you want to claim this deduction.

Otherwise, the deduction claimed earlier will be added to your income in the year of sale.

B. Deduction for stamp duty and registration charges

You can also claim a deduction for stamp duty and registration charges within the overall limit of Rs  1.5 lakh u/s 80 C.

#2. Interest paid on home loan u/s 24

You can avail of deduction up to Rs. 2,00,000 separately on the interest paid on home loan u/s 24.

#3. First time home buyers additional rebate u/s 80EE

If you are a first-time homebuyer, 

You can get a tax exemption of up to Rs. 50,000 under section 80EE on interest paid for your first home. 

Remember, the loan must be sanctioned between 01.04.2016 to 31.03.2017 and you can avail of the deduction every year until the loan is repaid.

Note: The loan amount should not be higher than Rs 35 lakh, and the property’s value should not exceed Rs 50 lakh.

#4. Additional deduction u/s 80EEA for loans after 2019

The first-time homebuyers can also get a tax exemption of up to Rs. 1,50,000 per year under section 80EEA if the stamp value of the property is not higher than Rs 45 lakh.

Conditions to meet –

  • The loan must be sanctioned between 1 April 2019 to 31 March 2020.
  • You can claim any one of the tax deductions either 80EE or 80EEA.
  • You should not own any other house property on the date loan sanctioned
  • You are not eligible to claim deduction under the existing Section 80EE.

#5. Joint home loan

If you and your partner (that could be spouse, parent, or child) have taken a joint home loan, then each of you can claim the tax deduction of two types –

  • Up to 1.50 lakh, u/s 80 C on principal repayment (within the overall limit of Rs 1,50,000 of Section 80C)
  • Up to 2 lakh, u/s 24 on interest paid  

Note: Your home loan partner must be the co-owner of the property and the total interest claimed by the co-owners should not exceed the total interest paid for the loan.

#6. Tax Savings from Business Activities

Expenses for business activities like travel, food are considered as business expenses and allowed to deduct them from overall business profits. 

Following expenses are allowed to be created as business expenses.

#1. Travel business expenses

Whenever you travel for business purposes you can show that expense as business expenses and get that deducted from your overall profits to reduce the taxable income.

#2. Business food expenses

Business people need to meet several people like clients, vendors, and when you spend money on tea, business lunch, or office party, you can show them as business expenses.

#3. Distributed partnership profits

If you have a partnership firm, you need not pay taxes on the profit distributed among the partners. 

Because the business firm would have paid the taxes already on the overall business income.

#7. Tax Rebate Under Section 87A

If your net taxable income is less than Rs. 5 lakh, you get Rs. 12,500  tax exemption. But you can’t get any rebate if your net taxable income exceeds Rs 5 lakh. 

Let’s understand.

If your taxable income is Rs. 5 lakh per year. You get tax exemption up to Rs. 2.5 lakh as per the tax slab and 5% on the income earned within the range of Rs. 2.5 lakh to Rs. 5 lakh.

Income slabTax Rate Tax on Your Income
(Assuming Income Rs. 5 lakh)
Up to 2.5 lakhNilNo tax on 2.5 lakh income (5 lakh – 2.5 lakh)
2.5 – 5 lakh5%Rs. 12,500 on the rest of the 2.5 lakh, equals to tax rebate

But if your income is above Rs. 5 lakh, you won’t get the rebate benefits as you will come under a higher income tax slab of 20% (under the old regime).

#8. Tax Savings on Additional Contribution to NPS

You can claim an additional deduction of Rs. 50,000 under section 80CCD(1B) for additional contribution towards NPS (National Pension Scheme).

This 50K exemption would be extra from the regular deduction of Rs. 150,000 under section 80 C. 

That means if you invest 1.50 lakh in PPF and 50,000 in NPS, you will get a total benefit of Rs. 2 lakh.

ContributionDeduction under Section 80CCE (up to Rs 1,50,000)Deduction under Section 80CCD(1B) (up to Rs 50,000)
Contribution of Rs 2 lakh
(1.50L + 50K) to NPS from salary deduction
YesYes
Contribution of Rs 2 lakh
(1.50L + 50K) to NPS directly
YesYes
PF contribution Rs 1.5 lakh and NPS contribution is Rs. 50,000YesYes
NPS contribution is Rs. 50,000. No other investmentDeduction limited to Rs. 50,000Deduction limited to Rs. 50,000

#9. Interest Paid on Electric Vehicle Purchase u/s 80EEB

To encourage people to purchase electric vehicles, the government has offered a tax deduction of up to Rs. 1,50,000 against the interest paid on the loan amount of the electric vehicle. 

Your vehicle loan must have been sanctioned between 1 April 2019 till 31 March 2023 to avail of the benefits

You can avail of the tax rebate on multiple electric vehicle loans up to a maximum of Rs. 1.50 lakh.

#10. Tax Saving Investments (Under Section 80C)

You can invest money in investments that come under section 80 C and save tax. The maximum deduction is up to Rs. 1,50,000.

Some investment options for tax saving u/s 80 C

  • Tax Saver Fixed Deposit – 5 years fixed deposit but interest earned is fully taxable. Interest rate between 5% to 7% per annum.
  • Public Provident Fund – 15 years lock-in period. Contribution and interest earned both are tax-free. Interest rate 7.1% per year.
  • ELSS Funds – A mutual fund with a 3 years lock-in period but you have to pay LTCG tax on the profit earned. Interest rate between 12% to 15% annually.
  • National Pension Scheme – You can withdraw on retirement and avail up to 2 lakh tax rebates with additional contributions. Interest rate between 9% to 12% per year.
  • National Saving Certificate – Investment up to Rs. 1,00,000 per year qualifies for tax rebate but interest earned is taxable.  Interest rate 6.8% per annum.
  • Senior Citizen Saving Scheme – People above 60 years can invest for a 5 years maturity period. Interest rate 7.4% per annum.

Tax Regime – Old vs New

In 2020-21, the government of India has introduced a new tax regime with the flexibility to individuals and HUFs to go with the old or new tax regime.

Income slabTax Rate (Old Regime)Tax Rate (New Regime)
Up to 2.5 lakhNilNil
2.5 – 5 lakh5%5%
5 – 7.5 lakh20%10%
7.5 – 10 lakh20%15%
10 – 12.5 lakh30%20%
12.5 – 15 lakh30%25%
Above 15 lakh30%30%

You have to update your employer about your choice at the start of the financial year. 

However, you can’t avail of up to 70 tax deductions in the new tax regime such as –

  • Standard deduction of 50,000 (only salaried employees can avail)
  • Leave Travel Allowance (LTA), House Rent Allowance (HRA), and Entertainment allowance.
  • Deductions under Section 80 (such as 80C, 80CCC, 80CCD, 80D, 80DD, 80E, 80EE, 80G, 80GG, 80GGA, 80GGC)

So if you are not interested in tax deductions under section 80, then you can get the benefit of the new tax regime, otherwise, the old tax regime is good to go. I would suggest you calculate the tax under both the regimes before filling the ITR. 

You can change the tax filing options in every financial year.

Final Thoughts

I have shared with you some important hacks to save your money from paying income tax. The best way is to start tax planning as early as possible to save as max as you can.

If you know of any tax-saving tip which I missed, please share in the comments section.

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