Each year we get reminders from the taxmen, the chartered accountant, or the employer that it is the season to plan your taxes. In all likelihood, your reaction isn’t going to be like somebody just gifted you the latest iPhone.
Let’s face it ‐ most of us are averse to paying taxes, and at some point in our lives, we all have fantasized about living in a tax-free world.
Apart from the fact that taxes are viewed as a financial burden, what could further add to the stress could be a lack of knowledge about tax planning. A majority of taxpayers struggle with fitting the tax-saving piece in the puzzle of their finances. Perhaps, it is time to teach taxes to students while they are still in school to prepare them for the inevitable as adults – taxes.
If you can relate to this, then fret not. We have compiled a detailed and elaborate tax-saving guide to ensure your tax-planning journey is smooth sailing.
The Income Tax Act came into effect in 1961. Everything pertaining to the imposition, collection, recovery, and administration of income tax falls under the purview of the Income Tax Act.
While you must pay taxes on your income to the government, they also offer some relaxations in the form of multiple deductions and exemptions.
These deductions are related to expenses incurred or investments made in tax-saving schemes. However, they totally depend on the tax regime you have chosen.
Currently, we have two tax regimes: Old Tax Regime and New Tax Regime.
The New Tax Regime is the default tax regime, first introduced in 2020. It offers lower tax rates. However, these lower tax rates also limit the ability to forego popular deductions such as Section 80C, 80D, 80E, 80G, 80U, and so on.
While you have to forego multiple deductions in this regime, there are still some options for tax saving, such as :
– Employer contribution in your PF or NPS
– Deduction for interest on home loan under Section 24B
– Contribution to Agniveer Corpus Fund under Section 80CCH
– Standard deduction of Rs 50,000 for salaried individuals
– Deduction on family pension income of 33.33% or Rs 15,000, whichever is less.
Check out the other exemptions and Deductions Available Under New Tax Regime in 2024
On the other hand, the old tax regime offers a host of deductions and exemptions across various sections.
You can use these deductions to reduce your taxable income and maximize your tax savings. Let’s first start with the most popular deductions under Section 80C.
| Investment | Tax applicable | Surcharge (4%) | Total amount | |
|---|---|---|---|---|
| Section 80C (ELSS, Term Life Insurance, NPS, PPF, etc.) | ₹150,000 | ₹45,000 | ₹1,800 | ₹46,800 |
| NPS under Section 80CCD (1B) | ₹50,000 | ₹15,000 | ₹600 | ₹15,600 |
| Health insurance for self, family, and parents under Section 80D | ₹50,000 | ₹15,000 | ₹600 | ₹15,600 |
| – | – | – | Total tax savings | ₹78,000 |
As you can see, you can get tax savings of up to Rs. 78,000 per year through all these deductions. Hence, it is important to estimate your deductions and calculate your tax liability. For easy calculation of income tax liability and tax savings from investments, you can use the Income Tax Calculator.
Section 80C of the Income Tax Act 1961, reduces your tax liabilities by allowing deductions from your total taxable income in a financial year.
According to Section 80C of the Income Tax Act 1961, taxpayers can claim deduction benefits on any investments, contributions, or payments toward financial products and schemes as stipulated by the Income Tax law. Section 80C came into effect on April 1, 2006, as a replacement of the older Section 88. Currently, the maximum deduction allowed under Section 80C is ₹1,50,000 in a financial year. Earlier, until FY 2014-15, the limit was ₹1,00,000.
Equity Linked Savings Schemes are a type of mutual fund with a lock-in period of three years. It is the only mutual fund category in India, which qualifies for a tax deduction under Section 80(C) of the Income Tax Act. Investments are primarily made in equity markets, thus generating significantly higher returns than other tax-savings schemes in the long run. You can either choose to invest a lump sum amount or take the SIP (Systematic Investment Plan) route. However, you cannot withdraw your money before the three-year lock-in is over. Since these mutual funds invest in the stock markets, they could carry moderately high risk however the risk factor gets evened out in the long run, making it one of the most profitable tax-saving investments. In terms of taxes on returns, on the gains from your ELSS investments exceeding ₹1 lakh in a financial year, you have to pay an LTCG tax of 10%. If you want to earn decent returns and can stay invested in the long run, ELSS investments can be an excellent venture.
The National Pension System is a retirement benefit plan, administered and regulated by the Pension Regulatory Fund Authority of India. If you subscribe to the NPS, your money will be invested primarily in equity and debt instruments, and the value of the investment on maturity will depend on the performance of these asset classes. Currently, the equity exposure is capped in the range of 50% to 75% and is limited to 50% for government employees. You can either decide how much money gets invested in each asset class or opt for an age-based asset allocation model.
On attaining the age of 60, you can only withdraw 60% of the maturity amount; the remaining 40% is used to purchase an annuity to help you receive a pension. Premature withdrawals of up to 25% are only allowed after three years.
The Public Provident Fund (PPF) scheme is a long-term investment option through which you can also avail tax benefits. The current (April to June 2023) rate of interest on a PPF account is 7.1% p.a., compounded annually and the lock-in period is 15 years. This means you have to stay invested for 15 years although partial withdrawals are allowed from the seventh year. You can open an account with as little as ₹100. The minimum and maximum investments allowed in a financial year are ₹500 and ₹1.5 lakhs, respectively. In case your annual investment exceeds ₹1.5 lakhs, interest cannot be earned on the excess amount. You will have to make at least one deposit a year for 15 years. PPF is regarded as a safe tax-saving investment avenue. You do not have to pay any taxes on the deposit or interest at the time of withdrawal.
You can invest in tax-saving fixed deposits and claim maximum tax deductions of up to ₹1.5 lakhs. The interest rate you get is what the prevailing 5-year FD rate is and the lock-in period is five years which means you can’t take out the money before five years. You can only make a one-time lump sum deposit, while premature withdrawals are not allowed. The minimum investment amount varies depending on your bank, but the maximum amount is capped at the 80C limit i.e. ₹150,000. You can either reinvest the interest or opt for monthly or quarterly payouts. TDS is applicable to the interest earned on your FD, but you can avoid it by submitting Form 15G or Form 15H (in case you are a senior citizen) to the bank.
To help you in this regard, Sections 80C, 80D and 80G of the Income Tax Act list the ways you can save on taxes. If you are confused about how to plan your finances for maximum tax benefits, here are a few recommendations based on your risk appetite:
Section 80CCD discusses the tax deductions available to taxpayers regarding the investments in National Pension System (NPS). There are two subsections here:
Under Section 80D of the Income Tax Act, you can claim deductions up to ₹1 lakh for contributions towards medical insurance premiums bought for insuring self, your spouse, children, and parents. The deductions under 80D are over and above exemptions you can claim under Section 80C. This benefit can be claimed by individuals and Hindu Undivided Families (HUFs).
If you file your taxes as an individual, you can claim deductions for insuring yourself and your family. In addition:
Overall, if you purchase a life insurance policy for your family as well as your parents (and your parents are below the age of 60), you can claim a maximum tax deduction of ₹50,000. But if you and your parents are above the age of 60, you can avail a maximum deduction of ₹1 lakh under Section 80D.
Expenditure incurred on preventive health check-ups is also eligible for deduction under Section 80D with a maximum cap of Rs 5,000 for self or family. But remember that this deduction is within the limit of Rs. 25,000 or Rs. 50,000.
Under Section 80E of the Income Tax Act, the amount you spend in repaying the interest of your education loan can qualify as a deduction from your total income.
The loan should have been taken for the education of self, spouse, children or a student for whom you are the legal guardian and should have been taken from a bank or an approved financial institution.
The total amount paid in repaying the loan interest in a financial year is regarded as the deduction amount and there is no cap on the maximum amount you can claim as a deduction. You will have to acquire a certificate from the bank that differentiates the principal from the interest component of the education loan you have repaid.
Section 80EE of the Income Tax Act, of 1961 allows a tax deduction benefit on the interest paid on home loans taken by a first-time homebuyer. If you fall in this category, you can claim a tax deduction up to ₹50,000 under section 80EE. This deduction limit is over and above the limit provided under section 80C and Section 24 of the IT Act, 1961.
As a taxpayer, you need to satisfy the following conditions to be eligible to claim this deduction
Charity begins at home, but did you know that if you widen the scope of your charitable acts, it can help you save taxes? Section 80G of the Income Tax Act allows you to claim tax deductions on donations made to charitable organizations.
Only the donations made towards charitable institutions registered under Section 12A can qualify for deductions. The donations must have been made through taxable income sources. Only those donations where contributions have been made via cash or cheque or demand draft will be eligible. All taxpayers, including non-resident Indians, are eligible.
Cash donations exceeding ₹2,000 are not allowed as a deduction. For donations above ₹2,000 to qualify as a tax deduction, the contribution has to be made using other modes of payment. The various contributions are eligible for a deduction of up to either 100% or 50%, with or without restriction, under Section 80G.
If you are a salaried individual, you may have a House Rent Allowance (HRA) as a component of your salary that you can claim a deduction on it. If your salary does not have an HRA component, but you pay rent for any furnished or unfurnished accommodation occupied for living purposes, you can claim a deduction under Section 80GG on the rent.
In order to claim tax benefits under Section 80G, these are the conditions that have to be fulfilled.
As per the first condition, you can avail of a tax exemption of ₹60,000. According to the second condition, the permissible deduction would be ‐ ₹1,92,000 ‐ ₹80,000 (10% of income) ‐ ₹1,12,000. Under the third condition, ₹2 lakhs. The least of these amounts will qualify as a tax deduction under Section 80GG, which means you can claim only ₹60,000 as a tax deduction.
Section 80TTA allows you to claim a deduction of ₹10,000 on your interest income. This deduction is only available to individuals and HUFs. The deduction is allowed on:
Living with a disability or taking care of a family member with a disability is never easy. Certain sections of the Income Tax Act have provisions that allow different-abled individuals or family members with a disability to claim tax benefits.
You can claim a deduction under section 80DD of the Income Tax Act if you have a dependent who is differently-abled and entirely dependent on you for maintenance.
The following conditions have to be met to claim tax deductions under Section 80DD
Under Section 80DDB of the Income Tax Act, you can claim tax deductions on medical expenses incurred to treat specific ailments. Deductions can only be claimed on the treatment of the diseases listed under Section 80DDB. The treatment must be for the taxpayer or a family member such as a spouse, parent, or sibling, dependent on the taxpayer.
Only individuals and Hindu Undivided Families (HUFs) can claim deductions under Section 80DDB. Tax deductions are only available to residents of India. From Assessment Year 2019-20 onwards, a tax deduction equal to the total amount paid for the treatment or ₹40,000 can be claimed depending on whichever is lower. For senior and super-senior citizens, a deduction of ₹1,00,000 or the actual amount paid for the treatment can qualify as a deduction based on the smallest amount.
To qualify for a tax deduction under Section 80DDB, you will need to produce a certificate of the disease. If you have been treated at a private hospital, you must acquire the certification from the same hospital. This is also true for treatments conducted at a government hospital.
Under Section 80U of the Income Tax Act, individuals who have been certified to be at least 40% disabled by relevant medical authorities according to government rules, can claim tax benefits. Any person suffering from the following ailments can claim tax benefits under Section 80U. These are:
A person suffering from at least 40% disability, can claim a tax deduction up to ₹75,000. For those severely disabled, i.e., with 80% disability or more, the tax deduction limit under Section 80U is ₹1,25,000.
Section 80GGC of the Income Tax Act allows individuals to claim tax deductions on contributions made to political parties registered under Section 29A of the Representation of the People Act, 1951, and electoral trusts.
Should you choose to contribute to a political party, tax deductions can be availed on 50-100% of the contribution amount. According to Income Tax Act regulations, you can donate up to 10% of your gross earning to any political organization of your choice.
This benefit is only available to individual taxpayers. Local authorities and companies cannot avail of tax deductions under this section. Also, Artificial Juridical Persons, who receive funds from the government are ineligible.
If you file for deductions on donations towards a political party or electoral trust, 100% of your contribution is eligible to qualify as a deduction. Thus, your taxable income can decrease in proportion to gift donations. The entire donated amount is deductible from your taxable income.
Before choosing a tax-saving instrument, it is important to factor in the risk level, lock-in period, liquidity, and returns. There is no point in opting for a tax-saver product if doesn’t suit your also individual needs. It also helps to stay updated about the latest developments in tax-saving provisions. Barring Section 80C, many taxpayers are not familiar with the other sections of the Income Tax Act using which they can significantly reduce their tax burden.
How can I save more tax on my salary?You can save tax on your salary by claiming deductions and exemptions. There are various deductions and exemptions available on your income such as house rent allowance (HRA), Leave Travel Allowance (LTA) and Standard Deduction, under the Income Tax Act. You can avail deductions up to Rs 1.5 lakh for various expenses incurred and investments under Section 80C of the Income Tax Act. You can also take an additional Rs.50,000 deduction if you invest in the National Pension System (NPS) scheme. More tax savings opportunities are available under various sections, such as Section 80D for health insurance premiums paid and Section 80E for interest on education loans paid during the year.
How can I save tax if I earn 15 lakh?Firstly, you can claim various exemptions such as House Rent Allowance (HRA), Leave Travel Allowance (LTA), Children’s education, hostel allowance, other reimbursements etc., to reduce your net salary income.
After this, you can claim various deductions under Section 80C (For various investments and expenses), Section 80D (Health insurance premiums), and Section 80E (Interest paid on education loan), which will reduce your net taxable income for tax savings.
Yes, you can save tax on your salary. The Income Tax Act provides various deductions and exemptions to lower the tax burden of a taxpayer. Using these, you can definitely lower your tax burden. You can avail tax deductions under multiple sections such as Section 80C, 80D, 80GG, 80E, 80EE, 80U, etc.
As per the Income Tax Rules, under the old regime, income up to Rs.2.5 lakh is exempt for tax purposes, so you do not have to pay tax on income up to Rs. 2.5 lakh. Additionally, if your income is up to Rs. 5 lakh, you are eligible for a tax rebate of up to Rs.12,500; hence in this case also, your tax outgo will be zero. Therefore, technically if you have an income up to Rs 5 lakh it is tax free.
If your net taxable salary income after all deductions and exemptions exceeds Rs. 5 lakh, you must pay tax as per your slab rate.
There are multiple options to save tax. One of the popular ways is to claim deductions under Section 80C. Some of the investments as well as expenses made during the financial year up to Rs 1.5 lakh, qualify as deductions under Section 80C. For example, you can claim the investments made in a Public Provident Account (PPF) as a deduction under section 80C. Some of the other expenses that can be claimed as deduction under Section 80C are life insurance premium paid, tuition fees of children, and home loan principal repayments. Apart from Section 80C, there are various other deductions that help you save tax. You can claim a deduction of up to Rs 25,000 under Section 80D for health insurance premiums paid during the year.
To reduce your taxable income, you can claim deductions under Section 80C for investments and expenses up to Rs 1.5 lakh, such as PPF contributions, life insurance premiums, child’s tuition fees, and home loan principal repayments. In addition to Section 80C, you can also claim a deduction of up to Rs 25,000 under Section 80D for health insurance premiums. Also, if you are paying health insurance premiums for your senior citizen parents, you can claim an additional deduction of up to Rs.50,000.
It is mandatory to submit investment proof for claiming tax deductions. Hence you cannot save tax without proof. The government requires documentation and proof of income and expenses to ensure that taxes are calculated accurately. Attempting to save taxes without proof is considered as tax fraud and can result in serious consequences, including fines and imprisonment.
Under Section 80C of the Income Tax Act, an individual can claim maximum tax savings of Rs 1.5 lakhs per financial year through deductions. Additional tax savings opportunities are available under various sections, such as Section 80D for health insurance and Section 80E for education loans, etc. The maximum tax saving depends on the specific deductions and exemptions you are claiming for.
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Written By Sridhar SahuSridhar Kumar Sahu is a Content Writer for ET Money. He has over six years of experience in covering personal finance topics and markets. He holds a Master’s degree in English Journalism from IIMC, New Delhi and B.Tech in Mechanical Engineering from BPUT, Odisha.