As an Indian taxpayer, if you choose to stick to the old tax regime as against the new tax regime, you get a plethora of options to not only save tax but also meet your long-term goals with ease. Various sections of the Income Tax Act, of 1961 allow deductions that help bring down your tax liability.
The income tax laws allow one to reduce their tax liability by claiming specific deductions from their income, such as Section 80C, Section 24, and others. The amount of tax saved by taking advantage of any such deduction depends on the taxpayer’s personal tax bracket. The individual’s tax bracket and the deduction’s upper limit are two factors that affect how much tax can be saved.
The Health and Education Cess is assessed at a rate of 4% on the sum of income tax plus surcharge, and there are three tax brackets: 5%, 20%, and 30%. As a result, the tax rates after the cess are 5.2%, 20.8%, and 31.2%. Therefore, if 30% of taxpayer claims a deduction of Rs 1 lakh, they will save a total of Rs 31200 in taxes.
Let’s now examine the maximum amount of tax savings possible through the use of a few popular deductions, including Sections 80C, 80CCD (1B), and Section 80D. These three Deductions primarily address the needs of taxpayers who are buying medical insurance and are saving for long-term goals.
Sections 80C: The maximum investment limit for any of the listed investments under Sections 80C, including PPF, NPS, NSC, ELSS, etc., is Rs 1.5 lakh each fiscal year. For someone paying 5.2%, 20.8%, and 31.2%, the maximum tax savings on an investment of Rs 1.5 lakh will be Rs 7,800, Rs 31,200, and Rs 46,800, respectively.
Section 80D: Under Section 80D of the Income Tax Act, the premium paid for health insurance policies like Mediclaim, Family Floater, and Critical illness plans is eligible for a tax deduction. The most that can be deducted from the premiums for one’s self, husband, children, and parents each year is Rs 25,000 if the person is under 60; otherwise, the maximum deduction is Rs 50,000. The maximum tax savings on an investment of Rs 25,000 will be Rs 1300, Rs 5200, and Rs 7800 for people paying 5.2%, 20.8%, and 31.2%, respectively.
Section 80CCD (1B): The tax benefit in NPS provided by Section 80CCD (1B) is in addition to that provided by Section 80CCD(1) and is capped at Rs 50,000. The investment limit for NPS under Section 80CCD(1), which is a subset of Section 80CCE, is Rs 1.5 lakh. Therefore, a person who has not benefited from Section 80CCD(1) may still do so under Section 80CCD (1B). The greatest tax savings on an investment of Rs 50,000 will be Rs 2600, Rs 10400, and Rs 15600 for someone paying 5.2%, 20.8%, and 31.2%, respectively.
Get Maxed! So, here’s what you can actually do – Invest in any of the Section 80C investments such as ELSS and ULIPS, get the maximum health insurance cover, and take benefit of Section 80CCD (1B) by investing the additional Rs 50000 in NPS. For someone paying 5.2%, 20.8%, and 31.2%, the total savings under these three common deductions will be Rs 11700, Rs 46800, and Rs 70200, respectively. You can still save more tax as the last date is March 31.
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