Top Tax Savings Methods & Strategies: How To Save Tax In India

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Tax Savings Methods in India

Without further delay, let's take a closer look at the deductions available under the Income Tax Act, of 1961 and find the best strategies to maximise your tax savings.

Under Section 80C

One of the most popular ways to save taxes is by claiming the deductions under section 80C. This will allow you a deduction of up to ₹1.5 lakh per year. Some of the eligible investments include:¹
- EPF (Employee Provident Fund)
- NPS (National Pension Scheme)
- PPF (Public provident fund)
- ELSS (Equity-linked savings scheme)
- Life insurance premiums
- FD (Fixed Deposit)- Tenure of 5 years or more
Note:
These benefits are applicable only under the old tax regime.
Deductions under Section 80D

Health insurance premiums qualify for tax deductions under Section 80D. In case you are contributing to a central government health scheme or a mediclaim policy, here's how much you can deduct:²
- Self, spouse, children, parents: up to ₹25,000
- If your parents are above 60, the deduction limit increases to ₹75,000.
In case you or your dependents have a certain disease, Section 80DDB can allow you further deductions for medical expenses.³ However, it comes with its own set of considerations and exemptions. Make sure you provide a mandatory medical certificate according to the specifications of Section 80DDB to avail deductions under it .

Note: If you and your parents are below 60, you can get a deduction of ₹50,000 in insurance premiums. This is available under the old tax regime only.⁴
Tax Deduction on home loans

Having a home loan can also have tax benefits. Few include:
- Section 24(b):
  
  For fully constructed properties it allows an exemption of up to ₹2 lakh on the interest of your home loan for a property that is self-occupied and construction or acquisition of the house is completed within 5 years. Additionally, there are other specifications under section 24 (b), and it is recommended to seek guidance from your tax consultant for further clarification. ^5,6 There is no limit for claiming tax exemption on interest if it is a let-out property.⁷
- Section 80EE:
  
  This offers an additional deduction of ₹50,000 per year for first-time homebuyers under certain conditions.^8,9
Note: These benefits are available under the old tax regime only. You will only be eligible to claim tax benefits under Section 80EE if you have serviced the home loan between 1st April 2016 to 31st March 2017.^5,7
Via NPS (National Pension System)

Under Section 80CCD(1B), the NPS allows an extra tax benefit beyond Section 80C.⁸
- Employees can claim ₹50,000 additional deduction under Section 80CCD (1B) by contributing to NPS. ^8,10
- Employers’ NPS contributions (up to 14% of basic salary) are tax-free under Section 80CCD (2).¹¹
Note: As per the old tax regime, the limit was 10% of the basic salary. However, it has been increased to 14% as per the new tax regime. ¹²
Through HRA (House rent allowance) for salaried individuals

Section 10(10 A ) gives deductions or exemptions that can be availed by salaried individuals for HRA ¹³ The amount you can claim depends on factors like your rent paid, salary, and city of residence. However, Under section 80 GG it can still be claimed even when you aren't receiving any HRA from your employer and stay in a rented house . ^13,14
On education loans
¹⁵
If you have taken an education loan (either for yourself/spouse/children), you can claim tax benefits under Section 80E. This applies to studies pursued in the nation or abroad. The entire interest amount paid on the loan is eligible for deduction, with no upper limit. This benefit can be claimed for a maximum of 8 years. There is no cap on the deduction amount. ¹⁶
Under capital gains
¹⁷
If you sell long term assets and make a capital gain, reinvesting the proceeds can help you reduce the tax liability. Section 54F allows exemption if the proceeds from selling a residential property is reinvested into another residential property either 1 year before the sale or 2 years after the sale. Section 54EC allows you to reinvest your capital gains from sale of first property into certain bonds (Rural Electrification Corporation, NHAI) upto 50 lakhs. Note that there are several considerations under capital gains tax deductions that come to play. Make sure you don’t rush. Do thorough research before availing this.
Donations

Donating to approved charities/relief funds can provide tax benefits. Section 80G, 80GGA, and 80GGB allows deductions of 50% or 100% of the donation amount (depending on the section under which the donation has been made).¹⁸ Contributions made to funds like the PM CARES fund ^2,19 and certain NGOs can be fully deductible. For those contributions towards scientific research and rural development, Section 80GGA offers deduction.²⁰

Conclusion

By using these tax-saving strategies, you can significantly reduce your taxable income while also making smart financial decisions. However, make sure you have a deep knowledge and do your homework. Understanding these strategies not just ensures compliance with tax laws but also helps you to build long-term wealth.

Additionally, make sure you evaluate your options, choose the correct tax regime, and take advantage of the available deductions. Remember, the right investments, deductions, and exemptions can help you maximize your savings.

FAQs

How many tax-free instruments can I avail?

Subject to your eligibility , you can avail as many tax-free investments as you want. ¹
Is FD interest taxable?

Yes. Interest earned on FDs is taxable as per your income tax slab. However, if you're a senior citizen, you can claim up to ₹50,000 per year. ²¹
Can I switch between the old and new tax regimes every year?

Yes. Salaried individuals can switch between tax regimes every year while filing Income Tax Returns . However, business owners and professionals can change only once. ²²