How much tax can you save via tax saving investments, expenditures?

Image result for How much tax can you save via tax saving investments, expenditures?While doing your tax saving exercise you should be aware of the amount of tax you are likely to save from all your tax-saving investments and expenditures. Not everyone will save the same amount of tax by investing equal amounts. Someone in the 5 percent tax bracket can save only a maximum of Rs 7,800 under section 80C, as per rules for FY2018-19.

The amount of tax you can save via tax-saving investments and expenditures depends on the tax bracket you fall in after claiming all the deductions for which you are eligible in the current financial year.

This can be explained with an example. For the current financial year, i.e., FY2018-19 for every Rs 10,000 invested in instruments specified under Section 80C, you are likely to save Rs 520 (inclusive of cess) for the income tax slab rate of 5 per cent.

For every Rs 10,000 invested under section 80C

Income Tax Rates Tax saved (Rs)
At 5 per cent 520
At 20 per cent 2080
At 30 per cent 3120

(Tax-savings are inclusive of cess at 4 per cent)

Income tax slabs for FY 2018-19
For resident individuals below 60 years of age

Taxable income slabs Income tax rates and cess
Up to Rs 2.5 lakh Nil
Rs 2,50,001 to Rs 5,00,000 5% of (Total income minus Rs 2,50,000) + 4% cess
Rs 5,00,001 to Rs 10,00,000 Rs 12,500 + 20% of (Total income minus Rs 5,00,000) + 4% cess
Rs 10,00,001 and above Rs 1,12,500 + 30% of (Total income minus Rs 10,00,000) + 4% cess

For resident individuals between 60 and 80 years of age (Senior Citizen)

Taxable income slabs Income tax rates and cess
Up to Rs 3 lakh Nil
Rs 3,00,001 to Rs 5,00,000 5% of (Total income minus Rs 3,00,000) + 4% cess
Rs 5,00,001 to Rs 10,00,000 Rs 10,000 + 20% of (Total income minus Rs 5,00,000) + 4% cess
Rs 10,00,001 and above Rs 1,10,000 + 30% of (Total income minus Rs 10,00,000) + 4% cess

For resident individuals of age 80 years and above (Super Senior Citizen)

Taxable income slabs Income tax rates and cess
Up to Rs 5 lakh Nil
Rs 5,00,001 to Rs 10,00,000 20% of (Total income minus Rs 5,00,000) + 4% cess
Rs 10,00,001 and above Rs 1,00,000 + 30% of (Total income minus Rs 10,00,000) + 4% cess

However, as per current income tax laws, one can claim maximum deduction of Rs 1.5 lakh by investing the money in specified investment products. Some of the commonly used products are equity-linked savings scheme (ELSS), Public Provident Fund (PPF), 5-year tax-saving fixed deposits, and premium on life insurance policy and so on.

Also Read: Investments under Section 80C

Other than the investments in specified products, one can also claim deduction for the specified expenditures incurred during the financial year. Repayment of principal on a housing loan is one of the commonly used expenditures on which tax-saving deduction under section 80C can be claimed.

Also Read: Expenditures under Section 80C

Therefore, for every Rs 1.5 lakh invested or spent as per the rules under section 80C of the Act, then at the tax rate of 5 per cent, you will be saving Rs 7,800 (inclusive of cess). If you are in the highest tax rate bracket of 30 per cent, you can save income tax of Rs 46,800 (inclusive of cess).

For every Rs 1.5 lakh tax-saving deduction claimed under Section 80C

Income Tax Rates Tax saved (Rs)
At 5 per cent 7800
At 20 per cent 31200
At 30 per cent 46800

(Tax-savings are inclusive of cess at 4 per cent)

Apart from deduction under Section 80C of the Income Tax Act, there are various other sections that can help you save tax. Section 80D of the Income Tax Act can help you save tax on health insurance premium paid.

For health insurance premiums paid for self, spouse and dependent children, one can claim maximum deduction of Rs 25,000 in a financial year. Additionally, deduction can be claimed for the health insurance premiums paid for your parents. If your parents are below 60 years of age you can claim additional deduction of Rs 25,000.

On the other hand, if your parents are above 60 years of age, then maximum deduction that can be claimed by you is Rs 50,000 in a single financial year. Similarly, if both you and your parents are above the age of 60 years, then you can claim total deduction of Rs 1 lakh (Rs 50,000 + Rs 50,000) in a financial year.

Let us say you are below 60 years of age and your parents are senior citizens, i.e., age 60 years or more, you can claim a deduction of Rs 75,000 (Rs 25,000 + Rs 50,000) in a financial year. Therefore, if your net taxable income (total income less of all the deductions claimed) falls under the tax rate of 5 per cent, then you can save tax of Rs 3,900 (inclusive of cess).

Tax saved via health insurance premium paid for self and parents

Income Tax Rates Tax saved (Rs)
At 5 per cent 3900
At 20 per cent 15,600
At 30 per cent 23,400

(Tax-savings are inclusive of cess at 4 per cent)

Apart from commonly known tax-saving deductions under sections 80C and 80D of the Income Tax Act, there are many other tax-saving deductions such as deduction under section 80DDB for expenditure incurred on specified illness and tax-saving deductions on interest paid on education loan under Section 80E. So, check all the tax-breaks you can claim under the Income Tax Act to lower your tax outgo.

[“source=economictimes.indiatimes”]

Author: Lili