Paying taxes is a vital aspect of being a responsible citizen, but it is equally important to take advantage of legitimate tax-saving opportunities to reduce one’s tax liability.
For individuals earning 7.75 lakh or less, it is possible to ensure minimal or even zero tax payable by employing effective tax planning strategies. In this article, we will explore various methods to achieve this goal, including understanding how 7 lakh income is tax free, utilizing tax benefits on personal loans, and smart ways to save tax on an 8 lakh salary.
Utilizing Tax Deductions and Exemptions
One of the primary ways to minimize tax liability is to leverage available tax deductions and exemptions. For individuals earning up to 7 lakh, they can claim a standard deduction of Rs. 50,000. Additionally, tax-saving investments like Public Provident Fund (PPF), National Savings Certificate (NSC), and Equity-Linked Savings Scheme (ELSS) under Section 80C of the Income Tax Act offer deductions up to Rs. 1.5 lakh, which can significantly reduce taxable income.
Understanding Tax-Free Income of 7 Lakh
Many individuals might be surprised to know that an income of up to 7 lakh can be tax-free with the right approach to tax planning. By taking full advantage of deductions and exemptions, as mentioned earlier, taxpayers can effectively bring their taxable income below the taxable threshold, resulting in zero tax liability. It is crucial to make informed investment decisions and utilize tax-saving opportunities effectively to achieve this goal.
Exploring Tax Benefits on Personal Loans
Another effective strategy to save taxes is by understanding and utilizing tax benefits on personal loans. If you have taken a personal loan for specific purposes, such as higher education, home renovation, or medical emergencies, you might be eligible for tax benefits on the interest paid. Under Section 24(b) of the Income Tax Act, you can claim deductions of up to Rs. 2 lakh on the interest paid for personal loans used for approved purposes, thus lowering your taxable income.
Opt for Salary Restructuring
For individuals earning 7.75 lakh or less, optimizing the salary structure can significantly reduce tax liabilities. Speak to your employer about restructuring your salary to include components like House Rent Allowance (HRA), Leave Travel Allowance (LTA), and medical allowances. HRA is exempt from taxes up to a certain limit if you live in a rented accommodation. LTA and medical allowances can also be claimed for tax exemptions, effectively reducing your taxable income.
Invest in Health Insurance
Investing in health insurance is not only crucial for securing your well-being but also offers tax benefits. Under Section 80D of the Income Tax Act, taxpayers can claim deductions on health insurance premiums for themselves, their spouse, children, and parents. If you are below 60 years of age, you can claim a maximum deduction of Rs. 25,000, and an additional Rs. 25,000 for the health insurance of parents. For senior citizens, the maximum deduction limit increases to Rs. 50,000.
Utilize Section 80CCD(1B) for NPS Contributions
The National Pension System (NPS) provides an excellent option for tax planning and securing a retirement corpus. Under Section 80CCD(1B) of the Income Tax Act, taxpayers can claim an additional deduction of up to Rs. 50,000 over and above the Section 80C limit for contributions made to the NPS. This further reduces your taxable income, making it easier to achieve zero tax payable.
Achieving zero tax payable on an income of 7.75 lakh is possible with prudent tax planning and leveraging available tax-saving provisions. By understanding the benefits of deductions and exemptions, exploring tax benefits on personal loans, optimizing salary structures, investing in health insurance, and contributing to the NPS, individuals can effectively reduce their tax liability. However, it is essential to consult with a qualified tax professional or financial advisor to ensure compliance with tax laws and to make informed decisions tailored to your financial situation. Remember, responsible tax planning not only helps you save on taxes but also contributes to your financial security and overall well-being.
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