In the Indian tax regime, income tax is the most essential tax individual taxpayers pay. Regulated by the Income Tax Act of 1961, it is levied on individuals with an annual income above a specific exception limit.
Planning your taxes is essential in financial management. In India, there are multiple ways to legally save on paying taxes that will not only provide you with tax savings but also contribute to the creation of wealth.
So, let’s explore the multiple ways to save tax legally in India.
Also read: Does The New Tax Slab Require a New Savings Strategy? Find Out!
What Are The Various Ways To Save Tax Legally In India?
Following are some of the ways by which you can save tax legally in India:
- Investment Options Under Section 80C: To legally save on taxes, you can invest your money in the Public Provident Fund (PPF), National Savings Certificates (NSC), Sukanya Samriddhi, National Pension System (NPS), and many more. Under this section, the upper limit that can be claimed for deduction from taxable income is Rs. 1.5 lakhs.
Following are the details regarding the tax-saving investment options under this section:
- Equity-Linked Savings Scheme (ELSS): It is a type of mutual fund that invests in equity and other related instruments with a lock-in period of 3 years, which is the shortest among all available options under section 80C.
- Public Provident Fund (PPF): The government offers This long-term savings option with a lock-in period of 15 years, and the interest earned on this is tax-free.
- National Savings Certificate (NSC): This is a government-sponsored fixed-income investment scheme the post office offers with a 5-year lock-in period.
- Employee Provident Fund (EPF): Contributions made by an individual under this fund are also eligible for tax deductions under Section 80C.
- Sukanya Samriddhi Yojana (SSY): This government-backed scheme is offered to save money for the education and marriage-related expenses of the girl child.
- Senior Citizens Savings Scheme: Under this savings scheme, senior citizens can receive regular income with various tax-saving benefits.
- Tuition Fees: The amount paid as tuition fees for the education of 2 children is also eligible for a tax deduction under this section.
Apart from this, there are many other tax saving options other than 80C, which are discussed below.
- Tax Savings on Health Insurance: Under Section 80D of the Income Tax Act, a tax deduction of Rs. 25,000 is allowed on taxable income for premiums paid towards health insurance plans for yourself and your loved ones. Additional savings of Rs. 25,000 are permitted on your taxable amount if you pay for your parent’s health insurance coverage, with an upper limit of Rs. 50,000.
- Education Loans: Under Section 80E of the Income Tax Act, you can get tax-saving deductions on the interest paid on your or your close one’s education loan. This section has no limit concerning the deductions in taxable amounts under the loan.
- Charitable Donations: 50% of the donated amount and up to a maximum of 10% of your total income is the limit on tax savings from taxable income for the donations you make in charitable organisations under Section 80G of the Income Tax Act.
- Savings Deposit: under Section 80TTA of the Income Tax Act, an individual can save taxes on the interest earned on their savings account deposits of up to Rs. 10,000 from their taxable income. For senior citizens, the limit of savings deposit for tax savings is Rs. 50,000 under Section 80TTB.
- Term Insurance: It refers to life insurance coverage for a specific term that does not offer maturity or investment benefits. However, under Section 80C of the Income Tax Act, 1961, term insurance policyholders can claim tax deductions of up to Rs. 1.5 lakhs per year for the premiums they pay for the cover.
Also read: What are the tax benefits on a Term Insurance?
- Home Loans: Interest paid on a home loan of up to Rs. 50,000 from the taxable income can be saved from taxes under Section 80EE of the Income Tax Act. This provision applies to first-time home buyers, with an upper limit of Rs. 50 lakhs on home loans under other specified terms.
- Some other cases where tax saving is applicable include wedding gifts, donations to political parties, educational scholarships, business expenses, inheritance money, and expenses for treating specific diseases.
What are the Benefits of Legally Saving Taxes in India?
Following are the benefits that help in long-term financial protection and overall well-being:
- Attain Overall Peace of Mind: Beforehand tax planning offers peace of mind as you become aware of your tax payments and helps avoid fines. It ensures that you pay the least amount of money as taxes, considerably reducing the overall tax liability.
- Meet Financial Targets: The right tax-saving investment tools help you meet your short and long-term financial goals. You can use the maturity amount of your long-term investments for other payments, which saves your taxes today while providing other benefits tomorrow.
- Get Comprehensive Health Coverage: Saving up on taxes gives you an additional reason to get a health insurance policy for yourself and your loved ones. Apart from the tax deductions, you can get other related benefits of the insurance coverage, like covering medical expenses in times of emergencies and much more.
- Rise in Your Savings: By investing in schemes mentioned under Section 80C of the Income Tax Act, you can increase your long-term savings and deductions on your taxable income.
Effective tax planning and strategic use of tax-saving instruments can be a cornerstone of overall financial well-being. They not only reduce the tax burden but also help increase income, thus achieving long-term financial goals.
With an experienced financial planner, you can strategically analyse and tailor taxes legally, thus enjoying the best government benefits and the assurance that your loved ones are financially protected.
Bhupendra Singh Chundawat is a seasoned technology journalist with over 22 years of experience in the media industry. He specializes in covering the global technology landscape, with a deep focus on manufacturing trends and the geopolitical impact on tech companies. Currently serving as the Editor at Udaipur Kiran, his insights are shaped by decades of hands-on reporting and editorial leadership in the fast-evolving world of technology.
