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Annual Income (In Lacs)

Basics of Tax Saving

As per the provisions of the Income Tax Act, 1961, various tax exemptions and deductions are allowed to a taxpayer. These deductions can be claimed by the taxpayer at the time of filing of the Income Tax Return. For computation of net income in the Income Tax Return, the deductions are subtracted from the gross income and the tax payable is calculated on the net income at the applicable tax rate. An informed and active tax planner will understand how these deductions are computed, make his/her investment plans and align those plans to serve the purpose of tax-saving.These investments can be referred to as ‘Tax Saving Investments.’

What are Tax saving Plans?

Tax-saving plans are products wherein the investor can claim benefits for the amount invested as per the tax laws. Under the Sections 80C and 80D of the Indian Income Tax Act, an individual can claim a deduction on the premium payment made or the investment done. These investments can consist of funds such as Equity Linked Saving Scheme, Life Insurance Plans, Public Provident Funds, Fixed Deposits, and Bonds. To reduce the income tax burden of taxpayers in the country, Indian tax laws allow specific ways to save tax, and making tax saving investments and claiming deductions for the same are among the most popular ways.

Why Should You Invest In Tax Saving Plans

All individuals work hard to earn their money - whether they are salaried professionals, freelancers, self-employed businessmen etc. On the income so earned, they are required to pay taxes if this income exceeds a prescribed threshold limit. Tax planning can help reduce the burden of taxes that falls on an individual and maximize their savings. There are many financial instruments that serve the purpose of saving taxes. The mark of a good tax saving investment is that it provides not just tax saving, but also safety, returns and liquidity. An ideal financial instrument will help you save taxes at the same time as it reaps benefits in the form of decent returns and the flexibility to withdraw funds. By investing in tax saving plans, individuals also inculcate a habit of saving over time.

Best Tax Saving Investments Under Section 80C

Section 80C of the Income Tax Act 1961 allows you a tax deduction of up to Rs 1.5 lakhs on various investments.

Most of the investments such as NPS, PPF, Sukanya Samriddhi Yojana, Equity Linked Savings Scheme, (ELSS), Unit Linked Insurance Plans (ULIP) are covered under section 80C.

You may wonder which investment to choose from out of all these options. This will depend on factors such as

  • The goal you want to achieve
  • Risk-taking ability
  • Personal preference etc.

Here is a table of some of the best tax saving investment plans, covered under 80C that can help you make your decision.

Note that the returns mentioned can change as they are based on past performances.

National Pension Scheme 12-14% Till you retire
Public Provident Fund 7-8% 15 years
Sukanya Samriddhi Yojana 8.5% N/A
Bank FD 5-7% 5 years
Unit Linked Insurance Plans (ULIP) Returns are different for different insurance providers 5 years
Equity Linked Savings Scheme (ELSS) 15-18% 3-5 years

Tax Saving Plans

iSelect Guaranteed Future


5 plan options to choose from to protect your loved ones

Pay premiums for 5,7, or 10 years as per your financial goals

Payor Premium Protection Cover to secure your family’s future

Tax benefits may be available as per prevailing Tax Laws

TERM Insurance PLAN

TERM Insurance PLAN

Life Cover till 99 years of age

Option to Block the premium rate and increase cover by upto 100% at the blocked rate

Option to avail monthly income post attaining 60 years of age

Option to receive total premiums paid in case of no claim

Tax Benefits as per applicable laws


Unit Linked Insurance Plan

8 funds and 4 portfolio strategies to invest

Loyalty additions and wealth booster

Return of Mortality Charge is available on Maturity under all three cover Options

Flexibility of switching between the fund options to take benefits of market movements or change in risk preference

Guaranteed Savings Plan

Guaranteed Savings Plan

Guaranteed maturity value

Guaranteed bonus additions for long-term investors

Option to protect your goal from your early death

Customise the premium payment and policy term as per your goal

Save tax on investment and tax-free maturity value

Guaranteed Income4Life Plan

Guaranteed Income4Life

Option to receive guaranteed income till the age of 99

Guaranteed loyalty additions of more than 10 times the annual premium

Option of single or regular premium payments

Enhanced income pay out for higher premiums

Premium protection option to safeguard the goal in case of your early demise

Health First Plan

Health First Plan

Cover against minor conditions of Cancer or Heart Ailments

Adequate cover to take care of high treatment costs

Increasing cover to keep up with the rising medical & living costs

Income security to your family in the case of a major claim

Option to receive all premiums back in case of no claims within the policy period

How You Can Save Tax under the provisions of Income Tax Act of 1961?

The Income Tax Act, 1961 carries provisions for multiple ways in which tax savings can be done. These include, but are not limited to the following:

Section 80C, 80CCC and 80CCD(1) allow an aggregate deduction upto Rs 1.5 lakh in a year. These sections cover a wide variety of investment options, ranging from a simple life insurance plan to a hybrid ULIP, to pension plans among others. You can save taxes by investing your money in one or more of these financial instruments.

If you have a home loan to be repaid, you are also allowed to claim a deduction of the interest paid for the same under Section 24. This is over and above the deduction for repayment of the principal amount of home loan that is allowed under Section 80C and is thus a part of the previous point.

Under Section 80E, you are allowed a deduction to the extent of the interest paid on an education loan.

Section 80G provides for tax deduction on the amounts paid by you as donations to charities, social organisations, relief funds etc.

The idea is simple: if your money goes towards a good cause or towards investment for your future, you are rewarded with tax benefits.

Tax Saving Investment Options Under Section 80C,80CCC & 80CCD

As mentioned before, the combined deduction allowed under these three sections is limited to Rs. 1.5 lakh. These sections cover the following tax saving options:

Unit Linked Insurance Plan (ULIP)

ULIPs are a combination of insurance and investment. This means that the premium paid towards the policy goes partly towards insurance and the rest is invested in equity, debt, or money market instruments, as per the choice of the investor. ULIPs come with strings attached - in the form of a lock-in period of 5 years. ULIPs are covered under Section 80C, so the same rules apply for the tax-saving: the deductions up to a limit of Rs 1.5 lakh are allowed from the taxable income for the premium amount paid towards ULIPs. This means that as long as the total amount does not exceed Rs 1.5 lakh, you can also top-up your investments in ULIPs and the additional premium paid will also be eligible for deduction.

Moreover, the payouts under a ULIP, including the death benefits received as well as any partial withdrawals made from the policy are exempt from taxation under Section 10(10D) of the Income Tax Act subject to conditions provided therein. Thus ULIPs are exempt from Long Term Capital Gain (LTCG) as well as Short term Capital Gain (STCG) tax.

ELSS (Equity-Linked Saving Scheme)

An ELSS is a tax-saving, open-ended mutual fund scheme that invests at least 80% of its assets in equity. Equity-Linked Saving Scheme funds also have a lock-in period of 3 years.. ELSS is a good option for investors who wish to quench their risk appetite by investing in the market, but at the same time reap tax benefits. The main incentive in an ELSS fund is the possibility of a high return due to heavy investment in equity.

ELSS also falls under the ambit of Section 80C and can, therefore, help secure a deduction of up to Rs 1.5 lakh from taxable income. By its very nature, tax-saving is a defining property of ELSSs. Depending upon the tax slab of your income, ELSS can help you save maximum upto Rs 46,800*/-in taxes.

National Pension Scheme (NPS)

National Pension Scheme (NPS) is a government-sponsored pension scheme that acts as a combination of an investment and a pension plan. The idea is to encourage people to invest regularly in a plan during the earning year, such that the habit of saving can be inculcated. In the end, i.e., upon retirement, part of the corpus built is available immediately and the rest of it is converted into an annuity plan that provides monthly pension payouts to the investor. NPS also comes with its own bag of tax benefits. One, the employee’s own contribution is eligible for a tax deduction under Section 80CCD(1) of the Income Tax Act. The maximum deduction that can be claimed is 10% of the salary (basic plus DA). If the investor is self-employed, deductions can be claimed for contributions up to 20% of the gross income.

*Tax saving of Rs.46,800/- is calculated at the highest tax slab of 31.2% (including 4% Cess) for an individual assessee on life insurance premium of Rs.1.5 lakh, who is having taxable income upto Rs.50 lakhs.

The aggregate amount of deductions under section 80C, section 80CCC and 80CCD (1) shall not, in any case, exceed ₹1,50,000.

In addition to this, a deduction for investment up to Rs. 50,000 in NPS is also provided under section 80CCD(1B) of the Income Tax Act, 1961 for both salaried and self-employed individuals, however no deduction under this sub-section shall be allowed in respect of the amount on which a deduction has been already claimed and allowed under 80CCD(1).Further, employer’s contribution to NPS account of the individual employee is deductible from his total income under section 80CCD (2) upto 10% of salary (Basic Salary +DA). As per Union budget 2020, amount of employer contribution to PF, NPS and superannuation fund in aggregate has been proposed to cap upto Rs. 7.5 lakh.

Public Provident Fund (PPF)

PPF is a traditional investment vehicle meant for the purpose of tax saving. A PPF is a long-term investment option that helps build a retirement corpus for an individual. It can be opened with the post office or most banks. The minimum duration for a PPF account is 15 years. This means that deposits cannot be withdrawn before that. The risk in PPF investment is the least, as it is backed by the Indian government. PPF is specially opted for by investors with the motive of tax saving.

The tax-saving under PPF extends to both the returns as well as the interest earned on the deposits. PPF falls under the Exempt-Exempt-Exempt category. Not only are all the deposits made by the investor deductible under Section 80C of the Income Tax Act, but the deposits and the interest accumulated in the account are also tax-exempt in the hands of the receiver at the time of withdrawal. Thus, PPF accounts are the best way to inculcate a saving discipline, earn a decent rate of interest, protect from risks and market fluctuations, all the while reaping multiple tax benefits.

Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana is a small savings scheme, backed and promoted by the government under which the parents can open a savings account in post office or banks in the name of their girl child. This scheme is a part of the larger Beti Padhao, Beti Bachao campaign. It functions like other post office schemes, with the interest rates being declared every quarter. The aim of the scheme is to encourage parents to save for the education of their girl child from an early age. The interest rates under the scheme have been consistently upwards of 8%.

This scheme also offers tax benefits in the form of the EEE status (Exempt-Exempt-Exempt), wherein first, the investments made into the scheme are eligible for deductions under Section 80C up to the maximum amount of Rs 1.5 lakhs. Second, the interest earned on the investments is compounded annually and is exempt from tax. Finally, the proceeds received upon maturity or withdrawal are also exempt from income tax.

National Savings Certificate (NSC)

National Savings Certificate is another fixed-income investment scheme backed by the government. NSC is akin to a savings bond. It encourages the investor to invest in it and earn interest at minimum risk. The maturity period of NSC is fixed at either 5 years or 10 years. NSCs are also covered under Section 80C of the Income Tax Act. This implies that investments in NSC up to a maximum amount of Rs 1.5 lakh can be claimed as deduction while computing income tax.

The interest earned under NSC is computed and compounded annually. This means the investor gets a tax exemption on the interest amount as well. Therefore in the following years, a deduction can be claimed for both the amount of investment as well as the interest earned.

Senior Citizen Saving Scheme

Senior Citizens Savings Scheme (SCSS) is another government-backed savings instrument. This is meant for Indian citizens above the age of 60 years. Aimed at providing some financial comfort to senior citizens after retirement, the scheme offers quarterly interest payments.

The investments made towards SCSS can be claimed as a deduction under section 80C of the Income Tax Act. The Interest under SCSS is taxable and bank/post offices will deduct tax @ 10% under section 194A if annual interest exceeds Rs. 50,000. However, where the person has income below minimum threshold limit and provides form 15H, interest can be received without TDS deduction.

5-Year Bank Fixed Deposit

As per the Section 194A of the Income Tax Act of 1961, the interest that is earned from investing in fixed deposits floated by NBFCs and banks is taxable in case it crosses Rs. 5,000/Rs. 10,000 depending on the type of financial institution. Often, tax is deducted at source for the same. However, banks also provide a specific FD called the 5-Year Tax-Saving Fixed Deposit which is designed for the purpose of saving tax in the year. Section 80C of the Income Tax Act provides that investment in this kind of fixed deposit is deductible from the total income, up to a maximum of Rs 1.5 lakhs. The catch is that you have to stay locked-in the FD for a period of 5 years. Besides the interest earned on the FD is taxable.


Life insurance is a simple financial instrument that promises financial security to the beneficiary of the policyholder in exchange for a premium. It helps to provide for the dependents and family of the policyholder in the event of the untimely death of the latter. The premium paid under a life insurance plan is also eligible for a deduction under Section 80C, up to a maximum limit of Rs 1.5 lakh. The amount received on maturity or eventuality is also exempt from tax in the hands of the beneficiary, according to Section 10(10D) of the same Act subject to conditions provided therein.

Pension Plans

As the name explains, pension plans cater to the pensionary needs of the senior citizens after retirement. Such plans act as a financial safeguard for individuals post-retirement. Several pension plans are available in the market, each designed to cater to varied retirement goals that one may have.

A consistent thread across most pension plans is that the investment is eligible for a tax deduction, such that an individual can plan for retirement without having to pay taxes on the amount. Section 80C and 80CCC give specific details about the tax benefits of various kinds of pension plans.

How to Plan on Saving Taxes using Investments?

You work hard to earn your money, so naturally, you would not want to invest your hard-earned money without even giving a thought to it.

To make sure your money stays protected as well as productive, proper tax planning should be done so that you get the best from your investment and get good tax savings as well.

Follow these steps to plan the tax-saving investments.

1. Avoid last-minute decisions, plan your tax-saving investment at the start of the financial year.

2. The earlier you start, the more time you allow your tax-saving investment to grow and help fulfil your goals.

3. Decide on the goal which you want to achieve through your investment.

4. Make a note of your current expenses that are eligible for tax deductions. The payments applicable under section 80C include

a) Children’s school fees
b) EPF contribution
c) Loan payment
d) Premium payment for life insurance

5. After assessing the current deductions, take into account the risks involved and the risk that you can take.

6. After considering both the goal and the risk you can take, choose the investment. For example, if you want that your funds remain safe for retirement you can opt for NPS or a savings plan.

Smart Income Tax Saving for Young Unmarried Tax-Payers

As a youngster in your 20s and early 30s, and unmarried, there’s a great need to save on your taxes. Thankfully, there are several tax-saving options for salaried employees, which include –

1) Term Insurance Cover with a sum assured equal to 15 to 20 times of your annual income, that not just saves you taxes but also secures the future of your loved ones.

2) Public Provident Fund, an instrument that provides EEE or triple exemption benefits.

3) You can also save taxes by allocating a part of your annual income to Market-linked Investment Options like Unit Linked Insurance Plans or Equity Linked Savings Schemes (ELSS).

4) Invest in a pension fund like National Pension Scheme to save Rs. 50,000 or more.

5) Save up to Rs.1 lakh under Section 80D with Health insurance cover for parents & yourself.

6) Invest in a house property for an additional tax saving on interest amount up to Rs.2 lakh.

Smart Income Tax Saving for Single Income Couples

If you are married, have a child and only one of the partners is earning, your investment preferences must change to suit your financial goals and family needs. Saving tax with these goal-oriented instruments is easy –

1) Save up to Rs. 1.5 lakh under Section 80C by buying a term insurance and secures the future of your loved ones.

2) Public Provident Fund, an instrument that provides EEE or triple exemption benefits.

3) You can also save taxes by allocating a part of your annual income to Market-linked Investment Options like Unit Linked Insurance Plans or Equity Linked Savings Schemes (ELSS).

4) Invest in a pension fund like National Pension Scheme to save Rs. 50,000 or more.

5) You can also claim deduction under 80C for your child’s tuition fee.

6) Invest in a house property for an additional tax saving on interest amount up to Rs.2 lakh.

7) Use education loan to fund the children’s higher education, which allows deduction on the interest on education loan under section 80E.

Smart Income Tax Saving for Double Income Couples

If you are married and both you and your spouse earn, you can jointly claim deductions with the right investments –

1) Save up to Rs.3 lakh under Section 80C through investments in term insurance plans.

2) Public Provident Fund, an instrument that provides EEE or triple exemption benefits.

3) You can also save taxes by allocating a part of your annual income to Market-linked Investment Options like Unit Linked Insurance Plans or Equity Linked Savings Schemes (ELSS).

4) Invest in a pension fund like National Pension Scheme to save Rs. 50,000 or more.

Tax Saving for Retired Individuals

Nearing retirement, it is crucial that we shift our focus towards ensuring financial stability and especially towards maximizing savings. In the absence of a fixed source of income, such as salary, it is our savings that play an essential role in helping us gain financial independence post-retirement.

1) Opt for annuity schemes, which not only provide regular income but also help save on taxes, like the Senior Citizen Saving Scheme.

2) Special annuity products by insurance companies also help provide a regular income post-retirement.

3) Unit Linked Insurance Plans also make a good tool for retirement fund creation and offer tax benefits Section 80C, with tax-free proceeds on maturity.

Tax Saving for Family Business Owners

Family-run businesses and enterprises are liable to pay income tax on their revenues generated, which can be a considerable sum. They must therefore take benefit of deductions and exemptions available to minimise their tax liability as a company.

1) Form an HUF to reduce the overall tax outgo of the company.

2) Premiums up to Rs 25,000 paid towards medical/ health insurance can be claimed for tax deductions under Section 80D.

3) Donating money also gives you tax benefits.

What is the Maximum Tax Saving That You Can Avail?

The Income Tax Act has various sections and sub-sections that allow taxpayers to save on their overall tax outgo every year, however, there are some very popular sections that most taxpayers tend to use – including Section 80C, 80D, 80CCD (1B), and 24 (b).

However, each of these sections has a maximum investment limit set by the government and the amount of tax you save under each ultimately depends on your income bracket.

Following table lists the limits under these sections for investments and expenses that a taxpayer can voluntarily incur:

Deductions Max Amount (Rs.)
Standard deduction 50,000
Section 80C* 150,000
Section 80D 25,000
Section 80CCD(1B) NPS 50,000
Section 24(b) 200,000
Total 4,75,000

*The total deduction amount in aggregate under sections 80C, 80CCC and 80CCD (1) cannot exceed Rs 1.5 lakh

Tax Saving Investment Options under Section 80D, 80DD & 80DDB

Health Insurance

It is crucial to have health insurance in your financial portfolio because medical emergencies have the ability to impair your financial stability. But the benefits of a health insurance policy are not just limited to this purpose. Under Section 80D of the Income Tax Act, 1961, a deduction of up to Rs 25,000 is allowed in a year in terms of the premium paid towards a health insurance policy of self, spouse, children.

Deduction on preventive healthcare check-ups

Preventive healthcare check-ups refer to the pre-emptive measures taken to keep diseases and ailments at bay.

The deduction upto Rs 5,000 allowed for preventive health check-ups for self, spouse, children or parents which is a part of the overall deduction one can claim under Sec 80D.

Deductions on Health Insurance Premium Paid For Parents

An individual can claim a deduction of up to Rs 25,000 for the insurance of self, spouse, and dependent children. Additionally, a deduction is allowed on parents insurance too. If parents are below 60 years of age, such deduction is capped at Rs 25,000, whereas in the case of parents aged 60 or more, the cap is at Rs 50,000.

Deduction for Rehabilitation of Handicapped Dependent Relative

Section 80DD covers expenditure on medical treatment, rehabilitation, and training of disabled dependent. The section provides for a deduction upto Rs 75,000 for a disability that is classified in 40%-80% range. If such dependant is a person with severe disability, deduction amount can be claimed upto Rs. 125,000.

Deduction for Medical Expenditure on Self or Dependent Relative for the treatment of specified disease under Section 80DDB

This is to be seen separately for each case.

In case of individuals and HUFs below age 60 The deduction allowed is capped at Rs 40,000, the amount being the expenses incurred towards the treatment of specified medical diseases or ailments for the individual or any of his/her dependents. For a HUF, such a deduction is available with respect to medical expenses incurred towards these prescribed ailments for any of the HUF members.

In case of senior citizens and super senior citizens A deduction of up to Rs 1 lakh can be claimed. Earlier the figures were different for senior and super senior citizens.

In the case of reimbursement claims Reimbursement of claims by an insurer or employer reduces the deduction claim by that much amount. Proper prescriptions and proofs should be furnished.

Investment Guide for Maximum Tax Saving

The goal of tax planning is to maximise tax savings. Since there are multiple investment options for the same tax-saving provision, it is important to build the investment portfolio in a way that makes use of all the available tax exemptions.

This includes, first of all, making complete use of Section 80C. From among the investment routes listed above, invest in one or multiple instruments and schemes to be able to claim a deduction of Rs 1.5 lakh, which is the maximum amount allowed under the combination of Sections 80C, 80CCD(1), 80CCC.

Under Section 80D, claim deductions upto Rs. 25,000 for your contribution towards health insurance of self, spouse, children. An additional Rs 25,000 can be claimed as a deduction for insurance for parents. This amount can be up to Rs 50,000 for senior citizens parents. Apart from the Rs 25,000 deduction from this, an additional Rs 40,000 deduction is allowed towards treatment of diseases listed under rule 11DD.

Your borrower’s profile can help claim deductions too. Interest payments made on home loan and on a loan for higher education in a year can be claimed under Section 80EE and 80E respectively.

Payments Applicable for Tax Saving Deduction under Section 80C

Indian Income Tax Act allows taxpayers to deduct many expenses and investments from their taxable income. Some of the most prominent of these tax-saving deductions are as follows:

1. Children’s School Fees

As the education fees are rising every year, you are provided relief on the front of tax.

The fee that you pay for your child’s education is applicable for the deduction. You can avail of tax-deduction of up to Rs 1.5 lakh towards payment of child’s tuition fees.

The deduction can be availed for up to two children.

2. Life Insurance Premium Payments

This is the payment that helps in tax-saving the most. Life insurance not only provides you coverage for your life but also helps you save taxes.

You are allowed a deduction of up to Rs 1.5 lakh on the premium that you pay towards your Life insurance policy.

Note that to avail of this deduction, the yearly premium must be less than 10% of the sum assured.

3. Repayment of Home Loan

Section 80C also allows deductions on the loan taken by you for purchasing or constructing your home.

Deduction of up to Rs 1.5 lakh is available on the repayment of the principal amount of your home loan.

4. Registration Charges

When you buy a house, the cost will include many other charges over the price of the property. For example, the charges of registration, stamp duty charges and brokerage.

You can claim a deduction for these expenses under section 80C.

Income Tax Liability

1) Are You Liable to Pay Income Tax?

In India, a slab system is followed to determine the tax rate. Gradually appreciating rates define the main character of tax slabs. As your taxable income grows the rate of tax keeps on increasing.

The lowest tax slab has a ceiling of Rs 2.5 lakhs where the rate of tax is zero. Also, up to 100% tax rebate is available if your income is below Rs 5 lakh.

Under the old regime, the ceiling of the lowest tax slab also depends upon your age. For example, in case you are above 80 years of age, the ceiling extends to Rs 5 lakhs, and between 60-80 years it is Rs 3 lakhs.

2) The Minimum Threshold for Income Tax

The minimum threshold is the least amount on which Income tax will be applicable. The government introduced a new tax regime u/s 115 BAC for the year 2021-22. The government has also given a choice to individuals and HUF to choose between existing or new tax slab rates as per their preference.

The minimum threshold is different for both regimes. Here is a table depicting the threshold limit.

A. Minimum tax rates under the old regime

AGE Minimum threshold
Below 60 years Below Rs 2.5 lakh
60-79 years Below Rs 3 lakh
80 years & above Below Rs 5 lakh

B. The minimum threshold under the new regime

AGE Minimum threshold
Below 60 years Below Rs 2.5 lakh
60-79 years
Above 80 years

3) Tax Liability After Minimum Threshold

After your income crosses the minimum threshold, you are eligible to pay income tax. Tax liability will differ according to the slabs you fall in.

i) Individual Below 60 Years

If you are an individual or an HUF below the age of 60 years, the following tax rates will apply to your income:

Income (In Rs) Tax Rate
2.5 - 5 lakhs 5%
5 - 10 lakhs 20%
Above 10 lakhs 30%

ii) Between 60 and 80 Years

If you fall between the ages of 60 to 80 then your income up to Rs 3 lakh is exempt from tax.

Income (In Rs) Tax Rate
3-5 lakh 5%
5-10 lakh 20%
Above 10 lakhs 30%

iii) Individual 80 or above Years

If you fall in the category of the super senior citizen, that is, above 80 years of age, the following slabs will be applicable:

Income (In Rs) Tax Rate
5-10 lakh 20%
Above 10 lakhs 30%

iv) Tax Liability After Minimum Threshold under the New Tax Regime

The following rates will apply to individual and HUF taxpayers under the new regime of the direct income tax (Applicable from the AY 2020-21):

Income Tax Slab Tax Rate
Up to Rs 2.5 Lakhs NIL
Rs 2.5 lakhs – Rs 5.00 Lakhs 5%*
Rs. 5.00 lakhs- Rs 7.5 Lakhs 10%
Rs 7.5 lakhs – Rs 10.00 Lakhs 15%
Rs 10.00 lakhs – Rs. 12.50 Lakhs 20%
Rs. 12.5 lakhs- Rs. 15.00 Lakhs 25%
Above Rs. 15 Lakhs 30%

* Tax rebate u/s 87a is available

How to Save Tax with Tax Saving Schemes?

All individuals need to pay tax on the income, including the income from investments. To reduce the incidence of Income Tax on Investment returns, you can invest in tax saving schemes.

If you wish to build wealth over time, you need to ensure that your savings can stay safe from inflation and taxes. While you will need to invest your savings regularly to beat inflation, you can invest in income tax investments under 80C to save your money from tax as well.

There are various other provisions in the Income Tax Act 1961 as well, which provide for more deductions.

You can claim these deductions and save tax on your investments.

1. Income Tax Investments Under Section 80C

Income tax investments under section 80C are some of the most popular options to save income tax. This section allows you to invest and claim deductions up to Rs 2 lakhs with the following options:

A. Deduction of up to Rs. 1.5 Lakhs

  • Term life insurance
  • Retirement Investments:

    • Public Provident Fund (PPF)
    • New Pension Plan
    • Employee Provident Fund
  • Market-linked investments with EEE benefits:

    • Unit Linked Insurance Plans (ULIPs),
    • Equity Linked Savings Schemes (ELSS)
    • Money back plans and Endowment life insurance plans
  • Children’s investment plans:

  • Pension Investments:

    • Life insurance annuity plans
    • Senior Citizen Saving Scheme
  • Other Investment Plans:

B. EEE Benefits

Quality of taxation on investment options is indicated with EEE, EET, or ETT status. Here ‘E’ stands for exempt while ‘T’ would mean taxable.

Every investment goes through the following three stages of tax exemption:

  • Investment stage
  • Interest accrual
  • Maturity proceeds

If the investment qualifies for exemption in all three stages, it is the best quality of tax saving investment. A few examples of such investments are life insurance plans like ULIPs, endowment and money back plans.

Most other tax-saving investments are EET. That is, the investment and interest accrued are exempt from tax. However, the gains will become taxable at the time of maturity.

2. Deduction of up to Rs 2 lakhs under Section 80C

Under the following investments and expenses, you may increase your deduction limit under 80C to Rs 2 lakhs:

  • Home loan repayment after the age of 60
  • Additional self-contribution of up to Rs 50,000 to NPS over the deduction limit of 10% for salaried or 20% for self-employed

Additional deduction in NPS is available to both self-employed and salaried investors. This deduction is available only for your contribution to the Tier-I retirement account.

3. You can claim a deduction of Rs 75,000 u/s 80D

Health insurance plans can help you reduce your tax liability with a deduction under section 80D. The deduction is available for the following expenses and limits

Health Insurance Cover & Expense made for Deduction for the premium paid Deduction for expenditure Max deduction limit
For self, spouse and dependent children where the maximum age is below 60 25,000 5000 25,000
For self and spouse where the maximum age exceeds 60

(Children covered only up to the age of 25)
50,000 50,000 50,000
For parents or parent in-laws who are below the age of 60 25,000 5000 25,000
For parents or parent in-laws who are 60 or above 50,000 50,000 50,000

Thus, you can pay for the health insurance premium of your family and your parents of parents of your spouse. Your maximum deduction will vary as follows:

  • When maximum age does not exceed 60 for both plans: Rs 50,000
  • When maximum age exceeds 60 for one of the plans: Rs. 75,000
  • When maximum age exceeds 60 for both the plans: Rs 1,00,000

Remember, for the members above the age of 60, you can claim the medical expenses as well for the deduction under this section.

4. Deduction of Up To 2 Lakh U/S 24(B)

If you own a house property and repaying the home loan on it, you can claim a deduction u/s 24(b). This deduction is available if you are following the old regime of income tax slabs.

With this deduction, you can reduce your income from house property up to Rs 2 lakhs in the financial year. However, if the house is self-occupied the deduction helps you reduce your taxable income as well.

FAQs Related to Tax Saving Plans

FD interest or fixed deposit interest income gets taxed as per the income slab rates of individual taxpayer. Banks or post offices deduct tax or TDS when the aggregate interest income on all fixed deposits exceeds Rs 40,000 per financial year. The limit is Rs 50,000 in case of senior citizens.

First of all, your gross total income is taken into account and all applicable deductions/exemptions are deducted out of it, the resultant amount is the net income, upon which the Income Tax is calculated, on the basis of income tax slabs that are announced each year in the Union Budget.

How much tax you can save depends on your financial portfolio and profile. The most common avenue for tax-saving is Section 80C, which allows you deductions up to Rs 1.5 lakh in your taxable income. The implication is that you can save up to Rs 46,800*in taxes in a year, depending upon the income tax slab you belong to. Similarly, other avenues like interest on loans, health insurance etc also provide deductions capped at a certain amount.

*Tax saving of Rs.46,800/- is calculated at the highest tax slab of 31.2% (including 4% Cess) for an individual assessee on life insurance premium of Rs.1.5 lakh, who is having taxable income upto Rs.50 lakhs.

You can choose from many investments that are tax-exempt: not an exhaustive list, but includes Equity Linked Saving Scheme (ELSS), Public Provident Fund (PPF), life insurance plans, Unit Linked Insurance Plans (ULIPs), Sukanya Samriddhi Yojana, Senior citizens Savings scheme, National Pension Scheme (NPS), tax-saving bank FDs.

First of all, make investment of Rs 1.5 lakh in investments instruments covered under Sections 80C to reduce your taxable income. Claim deductions for the interests paid on home loan and/or education loan if any. Get a health insurance policy and claim for other medical expenditure like preventive medical healthcare check-up, expenditure on rehabilitation of handicapped dependent relative, among others. Mainly, the idea should be finding out which tax saving avenues fit well with your larger financial goals and invest in them!

The maximum limit of investment that will reap the benefits of deduction from taxable income under Section 80C is Rs 1.5 lakh.

There is no limit to the number of tax-exempt investments one can have in a financial portfolio. However, it is important to note that there is a limit to how useful any instrument can be for the purpose. This is because the amount of deduction that can be claimed for specific instruments is capped at a maximum value. At the same time, keep your financial portfolio balanced so that it also provides safety, returns and liquidity.

First of all, make use of the Rs 1.5 lakh deduction allowed under Section 80C. This can be done by making investments in life insurance premium, Equity Linked Saving Scheme (ELSS), Public Provident Fund (PPF), Unit Linked Insurance Plans (ULIPs), Sukanya Samriddhi Yojana, Senior citizens Savings scheme, National Pension Scheme (NPS), among others.

Second, make use of the deductions available in respect of health insurance and other medical expenses. Under Section 80D of the Income Tax Act, 1961, a deduction of up to Rs 25,000 is allowed in a year in terms of the premium paid towards a health insurance policy of Self and your family i.e., Spouse and children. This can include preventive healthcare check-ups too upto Rs 5000/-. Under section 80D you can also claim additional deduction upto Rs. 25000/- (Rs. 50000 in case of senior Citizen) for health insurance of your parents.

Apart from Section 80C, various deductions and exemptions has been provided under the provision of Income Tax Act, 1961 like deduction under section 80D can be claimed for the payment of health insurance, deduction upto Rs 50,000 on home loan interest under Section 80EE. Any donations you make to charitable institutions are also allowed as deduction under Section 80G, subject to condition prescribed therein.

You can easily lower your tax on income by investing in tax-saving investment plans. A few great tax saving options are ULIP and life insurance plans, NPS tier-I account, PPF, Senior Citizen Saving Scheme, etc.

This way, you can reduce the amount of your taxable income. Besides, you can claim deductions on your taxable income on account of expenses such as repayment of home loan principal, child’s education fee, expenses during home purchase etc.

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