As individuals earn a steady income, saving taxes becomes a crucial consideration to maximize their take-home pay. For those with a salary of 7.75 lakhs in India, there are several effective strategies to minimize tax outgo. In this article, we explore the detailed strategies on how to save tax on salary income of 7.75 lakhs in India, along with insights into the difference between bank and NBFC when availing loans for financial planning.
Understand Your Tax Bracket
To effectively save on taxes, it is essential to first understand your income tax bracket. As per the current financial year, individuals earning between ₹5,00,001 and ₹10,00,000 fall into the 20% tax bracket. This implies that the taxable income after permissible exemptions, deductions, and rebates will be taxed at 20%.
Utilize Section 80C Deductions
The most common method to reduce taxable income is to avail deductions under Section 80C of the Income Tax Act. The maximum limit under this section is ₹1.5 lakhs. Various investments and expenses qualify for this deduction, including:
- Public Provident Fund (PPF)
- Employees’ Provident Fund (EPF)
- National Saving Certificate (NSC)
- Equity Linked Savings Scheme (ELSS)
- Life Insurance Premiums
- Principal Repayment of Home Loan
- Tuition Fees for Children
Maximize this limit to reduce your taxable income effectively.
Benefit from Section 80D
Under Section 80D, individuals can claim a deduction for premiums paid towards health insurance for themselves and their family. The deduction limit is ₹25,000 for self, spouse, and children, and an additional ₹25,000 for parents below 60 years. If parents are senior citizens, the limit increases to ₹50,000.
Use the House Rent Allowance (HRA)
If you reside in a rented house and receive House Rent Allowance (HRA) as part of your salary, you can claim HRA exemption under Section 10(13A). The amount exempt from tax is the minimum of the following:
- Actual HRA received
- 50% of salary (for metropolitan cities) or 40% (for non-metro cities)
- Actual rent paid minus 10% of salary
Take Advantage of the Standard Deduction
Salaried employees are entitled to a standard deduction of ₹50,000 from their taxable salary, as introduced in the Union Budget 2020.
Leverage Home Loan Benefit
Interest on a home loan is eligible for deduction under Section 24(b) up to ₹2 lakhs per annum for a self-occupied house. Additionally, first-time homebuyers may claim an extra deduction under Section 80EE up to ₹50,000.
Claim Deductions under Section 80TTA
Savings account holders can claim a deduction of up to ₹10,000 on interest earned from savings accounts with banks, cooperatives, or post offices under Section 80TTA.
Education Loans
Interest paid on education loans is deductible under Section 80E. The deduction is allowed for a maximum of 8 years or until the interest is fully repaid, whichever is earlier.
Understand Section 80G Deductions
Contributions to approved charitable institutions and funds can avail deductions under Section 80G. Donations can be claimed at 50% or 100% deduction, depending on the institution.
Tax Saving Fixed Deposits
Investing in tax-saving fixed deposits with banks can help you claim a deduction under Section 80C. The investment must be held for five years to qualify for this benefit.
Difference Between Bank and NBFC
Financial planning often involves availing loans for various needs. It’s crucial to understand the difference between bank and NBFC when considering borrowing.
Regulations and Supervision
Banks operate under the stringent regulations of the Reserve Bank of India (RBI) and need to adhere to strict compliance requirements. On the other hand, Non-Banking Financial Companies (NBFCs) have relatively relaxed regulatory norms compared to banks.
Interest Rates
Banks generally offer loans at lower interest rates owing to their larger asset base and greater liquidity. NBFCs, while offering quicker and more flexible loan processing, usually charge higher interest rates due to lesser regulatory oversight.
Loan Approval Process
Banks have a more rigorous loan approval process with higher checks for creditworthiness and documentation requirements. NBFCs have a more lenient approval process, often providing loans to individuals with a lower credit score or reduced documentation.
Service Offerings
NBFCs may offer niche or customized financial products and services catering to specific segments, whereas banks offer a broader range of financial services under one roof.
Ease of Access
NBFCs often provide services with greater ease of access, leveraging technology to facilitate online processes. Banks, despite also adopting technology, may have a slower turnaround time due to complex internal processes.
Conclusion
Effective tax planning not only helps to save money but also aids in organized financial growth. By utilizing the various tax-saving avenues available under the Income Tax Act, individuals with a salary of 7.75 lakhs can significantly reduce their tax liability. It is crucial to leverage deductions under Sections 80C, 80D, 80TTA, and others, maximize allowances like HRA, and opt for suitable investments. While planning finances, understanding the difference between bank and NBFC can inform better decisions when considering loan products. Stay informed, invest wisely, and reduce your tax burden strategically to enjoy a more substantial net income.
