Let’s cut to the chase and get down straight to the methods!
Using House Rent Allowance (HRA)
If you’re a salaried person and paying rent, you can avail exemption, being least of the below provisions, under section 10 (13A) of the Income Tax Act, 1961:
- Total annual rent paid for the accommodation – 10% of your basic annual income, including any dearness allowance.
- Actual HRA amount provided by your employer.
- 40% of basic salary in case of non-metro cities and 50% for metro cities i.e. Chennai, New Delhi, Kolkata and Mumbai.
Using Section 80C of the Income Tax Act, 1961
You can claim a tax deduction of up to Rs. 150,000 using section 80C of the Income Tax Act, 1961. To do so, you’ll need to invest in one or more of the following. However, please keep in mind that regardless of the amount you invest, the maximum deduction you can claim under this section cannot be more than Rs. 150,000.
- Post Office and/or bank fixed deposits (5 years)
- Life insurance premium
- Principal amount repayment for home loans
- Public Provident Fund payments
- Investments into NSC or National Savings Certificate
- Children’s tuition fee (for not more than two children)
- Investments into ELSS or Equity Linked Savings Scheme
Through profit earned from sale of equity mutual funds or shares
If you’ve sold any units of equity mutual funds or shares that were held for more than one year, profits earned on such investments are tax-free in nature. For instance, if you had invested Rs. 200,000 in an equity mutual fund and the value of your holding rises up to Rs. 240,000 in 11 months’ time, you’ll be liable to pay tax on the Rs. 40,000 profit earned by you. However, you won’t be held liable for any tax payment on that profit if you hold onto those units for one more month (completing one year).
Through inherited money
There is no tax levied on money received as inheritance from one’s deceased relatives or parents in India, provided you get such inheritance through a legal will. For this purpose, relatives can be any of the following:
- Spouse and spouse’s brother and his wife, sister and her husband, father, mother, grandfather, grandmother, great grandfather, great grandmother
- Brother and his wife
- Sister and her husband
- Mother, her brother and his wife, sister and her husband,
- Father, his brother and his wife, sister and his wife
- Grandfather and grandmother
- Great grandfather and great grandmother
- Son and his wife
- Daughter and her husband
- Grandson and his wife
- Granddaughter and her husband
By saving taxes on education loan interest payments
You can use section 80E of the Income Tax Act, 1961 and earn tax deduction on account of the interest paid on education loan (for a qualified course), no matter what the amount may be. This deduction can also be claimed if the education loan is instead taken for your children or spouse.
Through amount received in the form of a gift
Any amount received by you in cheque or cash from your family, friends and/or relatives, as a gift on your wedding, is considered completely tax-free.
Through interest earned from savings account balance
If you’re someone who consistently maintains a healthy savings account balance and invests his/her money only at the end of the financial year, please keep in mind that any interest earned by you on such savings is non-taxable up to a limit of Rs. 10,000 under section 80TTA of the Income Tax Act, 1961.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme related documents carefully.