Investments are one of the most influential factors in financial planning and ensuring adequate funds to live a peaceful life. However, financial planning also includes tax savings, which can significantly lower your total taxable income and increase your savings.
Numerous tax-saving investment instruments exist, such as Public Provident Funds, National Savings Certificates, etc., and most people believe they must regularly invest in various instruments to save tax. However, investments are not the sole tax haven. If you are looking to save tax without investing in India, you can do so without utilising various investment instruments.
Best Tips To Save Tax Without Investing
An effective financial plan is vital to ensure a burden-free financial future. However, the backbone of every effective and successful financial plan is savings. One of the best ways to save more is to lower the overall taxable income.
The Income Tax Act of 1961 regulates and monitors India's tax regime, which includes various legal ways to save tax. One of the best features of the Income Tax Act of 1961 is its option to save tax without investing in various investment instruments. Here are some of the best tips on how to save tax without investments.
1. House Rent Allowance
HRA or House Rent Allowance is an ideal way to save tax without investing in India. It is a part of an employee’s salary that the employer provides for rented accommodation. If the salaried employee resides in a rented house, the Income Tax Act of 1961 allows the salaried individual to claim the HRA exemption.
The HRA exemption is covered under section 10(13A) and rules 2A of the Income Tax Act of 1961. According to the rules, HRA is either fully or partially exempt, which you can calculate using the following factors:
● The actual amount of received HRA.
● 50% of actual salary, including basic salary and dearness allowance, for people living in metro cities, and 40% of salary for people living in non-metro cities.
● The precise amount of rent paid is more than 10% of the overall salary amount.
The Income Tax Act allows the least of these three expenses as tax exemption, allowing you to save tax without investing an amount.
2. Education Loan
Although loan products do not generally offer tax deductions, an education loan can help you save tax without investing. An education loan is a credit product that offers a loan amount to individuals to cover education expenses and repay the loan after they complete their education.
Section 80E of the Income Tax Act of 1961 allows a tax deduction on the interest paid to repay the education loan. The deduction allowed is on the total interest part of the regular EMIs without any limit on the maximum amount allowed as the tax deduction.
Once you claim the deduction on the total payable interest, your overall gross income reduces with the same amount offered as the tax deduction, making you liable to pay less tax on your earnings and save tax with zero investment.
3. Housing Loan
When you take a housing loan, the lenders require you to pay the principal loan amount with interest within the loan tenure. However, you can save tax without investing under section 24 (b) of the Income Tax Act of 1961 with a housing loan.
Under the section, the borrower is eligible for tax deduction up to Rs 2 lakh for a self-occupied residential property. These housing loan factors can help you save tax without investing.
If you have bought an under-construction house property, you can only claim tax deductions upon the completion of construction.
If you have availed of the housing loan for buying a fully constructed property, you can immediately claim tax deductions on the interest paid for the housing loan.
4. Medical Expenses For Senior Citizen Parents
One of the most effective ways to save tax without investing is to claim tax deductions for medical expenses for treating senior citizen parents. You can claim such deductions on the health insurance premium you have paid for medical purposes.
Section 80D of the Income Tax Act of 1961 allows deductions for health insurance premiums paid for senior citizen parents, self, or other family members. Under the section, you can claim a tax deduction of up to Rs 25,000 on the health insurance premium paid for yourself, your spouse, or your dependent children.
However, you can claim Rs 25,000 more, up to Rs 50,000, if you have paid a health insurance premium for your parents over 60. Furthermore, you can also claim medical expenses incurred on treatment and medicines as a deduction up to Rs 50,000 under section 80D of the Income Tax Act of 1961.
5. Children’s Tuition Fees, Education Allowance, Hostel Allowance, and Tuition Fees
Numerous companies provide various allowances to improve the standard of living of their employees, such as education allowance, hostel allowance, children’s tuition fees and other tuition fees.
Section 10 of the Income Tax Act of 1961 qualifies such allowance to be deducted as a tax exemption, making it an ideal option to save tax without investing. Under the section, you can claim tax exemption for such allowances up to the following specified limit:
● Children’s Education: Rs 1,200 annually.
● Hostel Expenditure: Rs 3,600 annually up to a maximum of two children.
Furthermore, you can save tax without investing by claiming a tax deduction under section 80C of the Income Tax Act of 1961 for the tuition fee paid to any recognised school, college, or educational institution for full-time education in India.
Most individuals believe they have to save a lot to invest in various investments to utilise the various tax saving sections of the Income Tax Act of 1961. However, you can effectively save tax without investing with the above information, which details how to save income tax without investing. Now that you know how to save tax without investing, it’s time to make informed financial decisions and lower your total taxable income to increase your savings.
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Frequently Asked Questions
Numerous sections, such as 80C, 80E, etc., included in the Income Tax Act of 1961 do not require you to invest in any instruments and offer a legal way to save taxes.
You can reduce your income tax by utilising tax exemptions offered by the Indian government under various sections of the Income Tax Act of 1961. The Sections in the Act do not require you to invest, offering to save tax without investing.
Although there are numerous tax-saving investment instruments such as PPF and NSCs, there is no need to invest to save tax. You can save tax without investing by utilising tax exemptions offered on expenses or credit products.
In investment options, Public Provident Funds, Employee Provident Funds, and Sukanya Samriddhi Yojana are some products that offer tax-free income.