How to Save Tax?

The Indian government requires every earning individual and entity to pay taxes if their annual earnings in a financial year have exceeded a specific threshold. The Income Tax Department, which oversees the taxation system through the Income Tax Act 1961, defines the earnings and the applicable rates of taxes for every individual and entity. Although paying taxes is inevitable and is ideal for creating a financial identity, there are numerous ways through which you can reduce your total taxable income. The lower the taxable income, the lower the taxes you need to pay. Saving on taxes can allow you to increase your savings, which you can use to cover various expenses.
 

If you are an earning individual or entity but want to increase your savings by paying less taxes, you should consider the best tips to save tax in India. This blog will help you know about how to save tax in India effectively. 

• Income tax is a tax levied by the government on the income earned by individuals, corporations, and other entities based on their taxable income and applicable tax rates.
• Tax deductions are expenses or contributions that taxpayers can subtract from their total taxable income to reduce their overall tax liability.
• One of the most comprehensive sections of the Income Tax Act for tax saving is section 80C, which includes numerous tax-saving investment instruments. 

Listed below are the best tax-saving instruments that can allow you to save tax:

Section 80C is one of the most comprehensive sections of the Income Tax Act 1961, containing various tax-saving investments. The section provides individuals and HUFs to claim tax deductions on contributions and expenses up to Rs. 1.5 lakh in a financial year. This section encourages savings and long-term investments in specified financial instruments, including the Public Provident Fund (PPF), Employee Provident Fund (EPF), Equity Linked Savings Scheme (ELSS), National Savings Certificate (NSC), life insurance premiums, and tax-saving fixed deposits.
 

Here are some of the section 80C investments that can allow you to save tax in India:

Equity Linked Savings Scheme (ELSS)

The Equity Linked Savings Scheme (ELSS) is a type of mutual fund that majorly invests in equities to provide higher returns. The scheme has a lock-in period of 3 years and investors can either invest a lump sum or through SIPs. You can get a tax deduction up to Rs. 1.5 lakh per financial year under section 80C for contributions made to ELSS.
 

Public Provident Fund (PPF)

PPF is a long-term savings scheme backed by the government that allows individuals to save for retirement. It has a tenure of 15 years, and investments made to PPF are eligible for tax deductions under section 80C of the Income Tax Act up to the limit of Rs. 1.5 lakh.
 

National Savings Certificate

The National Savings Certificate (NSC) is a fixed-income investment scheme offered by the Government of India. It has no maximum investment limit, and the contributions made to the scheme are eligible for a tax deduction up to Rs. 1.5 lakh under section 80C.
 

Tax-saving FDs

Tax-saving FDs are designed to offer tax benefits to investors and come with a lock-in period of 5 years. Investments in tax-saving FDs are eligible for tax deductions under section 80C of the Income Tax Act up to the limit of Rs. 1.5 lakh.

Sukanya Samriddhi Yojana (SSY)

A dedicated savings scheme for the benefit of a girl child:

• Can be opened by parents or legal guardians until the girl reaches 10 years of age
• Matures when the girl turns 21
• Partial withdrawal is allowed for higher education
• Minimum annual deposit: Rs. 250; Maximum: Rs. 1.5 lakh per financial year
• Offers tax benefits under Section 80C of the Income Tax Act, 1961

National Pension System (NPS)

A retirement-focused investment option for individuals across sectors:

• Designed to help build a retirement corpus through regular contributions
• Allows investment in a mix of equities, corporate bonds, and government securities
• Regulated by the Pension Fund Regulatory and Development Authority (PFRDA)
• Contributions qualify for deductions under Section 80C of the Income Tax Act, 1961

Employees’ Provident Fund (EPF)

A government-supported savings scheme for salaried employees:

• Managed by the Employees’ Provident Fund Organisation (EPFO)
• Both employee and employer contribute 12% of basic salary + DA
• Offers an annual interest rate of 8.25%, compounded yearly (subject to change)
• Applicable to both private and public sector employees
• Employee’s contribution is eligible for tax deduction under Section 80C
• Employer’s contribution is tax-exempt up to 12% of basic salary plus DA

Health Insurance Premiums – Section 80D

You can reduce your taxable income by claiming deductions under Section 80D for health insurance premiums. If you’ve paid the premium (via non-cash modes) for yourself, your spouse, or dependent children, you’re eligible for a deduction of up to Rs. 25,000.
Additionally, if you pay premiums for senior citizen parents, you can claim an extra Rs. 30,000. This section also includes a preventive health check-up deduction of up to Rs. 5,000, which is part of the overall limit.

Rent Payments – HRA or Section 80GG

If you live in rented housing and receive House Rent Allowance (HRA) from your employer, you can claim HRA exemption under Section 10(13A). The exemption is based on the lowest of the following:

• Actual HRA received
• Rent paid minus 10% of salary*
• 50% of salary if residing in a metro city, or 40% in a non-metro

(*Salary = Basic + Dearness Allowance, if applicable)

For those who do not receive HRA or do not own residential property, Section 80GG allows a deduction. You can claim the lowest of these three amounts:

• Rs. 5,000 per month (Rs. 60,000 annually)
• Rent paid minus 10% of total income
• 25% of total income for the year

Donations to Charitable Institutions – Section 80G

Contributions to eligible charitable trusts and relief funds can qualify for tax deductions under Section 80G of the Income Tax Act. However, donations made in kind (e.g., food, clothes, medicines) are not eligible for tax benefits.

Accepted Modes of Payment
Only donations made via cheque, demand draft, or digital transfer are eligible. Cash donations exceeding Rs. 2,000 do not qualify for deductions.

Who Can Claim
Any taxpayer—be it an individual, Hindu Undivided Family (HUF), or a company—can avail of deductions under this section.

Documents Required

• PAN card
• Identity proof
• Address proof
• Donation receipt or proof of payment

Education Loan Interest – Section 80E

If you’ve taken a loan for higher education, the interest paid can be claimed as a deduction under Section 80E. This deduction is available for a maximum of 8 years or until the interest is fully repaid, whichever comes first.

Eligibility
This benefit can be claimed by individuals who have taken an education loan for themselves, their spouse, children, or a legally dependent student.

Deduction Limit
There is no cap on the amount that can be claimed under this section. The full interest paid during the year is deductible from your taxable income for up to 8 years.

Here are some tips to save a higher tax amount:

• You should avoid purchasing gold as it is taxed at a higher tax rate.
• You should have a valid PAN card, or TDS will be deducted at a higher rate.
• You should invest regularly in tax-saving instruments to reduce taxable income.
• Ensure that you claim all the eligible tax deductions from your employer or when filing ITR.

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Tax saving is an important factor included in an effective financial plan as the Income Tax Department allows individuals and entities to reduce their taxable income by investing in specific tax-saving investment instruments. Now that you know how to save tax in India through various tax-saving instruments, you can ensure you save a higher tax amount and increase your savings.