Effective Tips for a Smarter Tax-Saving Plan To Reduce Your Tax Burden

Tax-saving tips to save more

Given below are some useful and practical tips that can help you save tax –

1. Choose the right income tax regime

   
   

   There are two tax regimes – the old tax regime and the new tax regime. Both regimes have different income tax slab rates. Have a look –

    

   Old regime (for individuals aged below 60 years)

   
   

   Income level	Tax rate
   Up to ₹2.5 lakhs	Nil
   ₹2.5 lakhs to ₹5 lakhs	5%
   ₹5 lakhs to ₹10 lakhs	20%
   ₹10 lakhs and above	30%

    

   New regime (as changed in Budget 2025)

   
   

   Income level	Tax rate
   Up to ₹4 lakhs	Nil
   ₹4 lakhs to ₹8 lakhs	5%
   ₹8 lakhs to ₹12 lakhs	10%
   ₹12 lakhs to ₹16 lakhs	15%
   ₹16 lakhs to ₹20 lakhs	20%
   ₹20 lakhs to ₹24 lakhs	25%
   ₹24 lakhs and above	30%

    

   While the old regime has higher tax rates, it offers deductions under Sections 80C, 80D, 80TTA, 80G, etc. The new regime, on the other hand, offers lower tax rates but does not allow deductions and exemptions.

   
   

   You can assess your tax liability under both regimes and choose one that offers the lowest tax liability.

   
   

2. Claiming standard deduction

   
   

   If you are a salaried employee and choose the new tax regime, you can claim a standard deduction of ₹75,000 from your taxable income1. This will reduce your tax liability and help you save more.

   
   

3. Restructure your salary

   
   

   There are various components of your salary that can be claimed as a tax-free exemption. These exemptions bring down the taxable salary and help you save tax. Some of the common exemptions that you can claim are as follows–

   
   
   • House Rent Allowance
   • Meal coupons
   • Mobile reimbursements
   • Children education allowance
   • Children’s hostel allowance
   • Leave encashment, etc.

4. Savings with home loan

   If you have availed of a home loan below are the benefits that you can claim subject to other provisions of the Act –

   
   
   • The principal repaid for the home loan is allowed as a deduction under Section 80C
   • The interest paid on the home loan is allowed as a deduction under Section 24(b). The limit is up to ₹2 lakhs

5. Use the tax-saving benefits of life insurance

   
   

   A life insurance policy not only provides financial security but also helps save taxes. Here’s how4 –

   
   

   a.The premium paid for the life insurance policy is allowed as a deduction u/s 80C of the Income Tax Act, 1961 (under old tax redime), up to ₹1.5 lakhs.

   b.The death benefit that the nominee receives is tax-free.

   c.The maturity benefit that is received is also tax-free under Section 10(10D), subject to specified terms and conditions such as ;

   1. If the premium paid on a life insurance policy does not go beyond 10% of the total sum assured for policies issued on or after 1 April 2012, the amount received on the insured’s death or on maturity/surrender is fully tax-exempt under Section 10(10D). Any bonus received is also tax-free under this section.
   2. The exemption applies for policies issued before 1 April 2012 if the premium does not exceed 20% of the sum assured. In such cases, the maturity amount and any bonus received remain tax-free.
   3. For policies issued on or after 1 April 2013, covering individuals with disabilities or diseases listed under Sections 80U and 80DDB, the maturity amount is tax-free if the premium does not exceed 15% of the sum assured.
   4. However, Unit Linked Insurance Plan with annual premiums above ₹2.5 lakh and traditional policies exceeding ₹5 lakh do not qualify for tax-free maturity benefits. The Finance Act 2023 amended Section 10(10D) of the Income Tax Act, removing the tax exemption for maturity proceeds if the total premium for non-linked policies issued on or after 1 April exceeds ₹5 lakh.

   You can maximise these tax-saving benefits of life insurance policies and choose a plan that matches your needs. This will help you plan for unexpected emergencies, save for your financial goals and also lower your tax liability.

   
   

Tips for buying life insurance

As life insurance plans can help in saving taxes, they can be a good addition to your portfolio. Here are some tips for buying the right life insurance plan –

1. A term insurance plan covers the risk of premature demise and can provide financial security to your family. Choose a policy with an adequate sum assured for optimal protection.
2. If you want to plan a corpus for your child’s future, you can choose child insurance plans. These plans would help you create a savings corpus for your child even when you are not around.
3. For retirement planning, annuity plans can be a good choice. They can create a source of annuity income for financial independence in your golden years.
4. If you are looking at life cover along with market-linked investment-oriented returns, choose ULIPs. They can help you earn market-linked returns, provide flexibility, and also give life insurance coverage.
5. Also, choose suitable life insurance riders to enhance the scope of protection and also claim additional tax benefits.

Save taxes optimally

There are various ways in which you can lower your tax liability legally. So, plan your taxes efficiently and minimise your tax outgo. You can also consult an expert tax professional and look for ways to save taxes. As you lower your tax liability, your disposable income increases. This helps you save more for your financial goals and create an optimal corpus. So, use the tips and plan your taxes efficiently.