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.

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.