The income tax regime in India offers multiple ways for individual taxpayers to save tax. You can invest your savings in specific long-term schemes to reduce your taxable income. Certain expenses, usually necessary in family life, also help you save tax.
From the financial year 2024-25, individual taxpayers can choose between two tax regimes- the existing or old tax regime and the new concessional one. The rates of payable tax for a given tax slab differ between these two regimes.
Tax-saving investments will reduce your taxable income only under the old tax regime. However, the long-term investments which help you save tax also build long-term wealth for you. So, a majority of these investments are good for your present and future wealth. Let us Understand How to Save Tax for Business People & Salaried Employees.
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Section 80C is the most popular section of the Income Tax Act of 1961 in India. This section contains a large portfolio of investments you can use to save tax. Many of these investments can also make your investments completely tax-free even in the future.
Section 80C deductions are available from the gross total income or taxable income. If you do not have taxable income in a financial year, you cannot claim deductions under this section. In other words, section 80C investments out of a tax-exempt income will not lead to tax refunds.
Certain important family expenses also make the list of 80C eligible outflows. You can also claim deductions for emergency medical expenses under other sections such as 80D, 80DD, etc.
Here are the most popular investments under section 80C for tax saving:
Also Read - Income Tax Slab For Senior Citizen
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Less than 4% of Indians filed income tax returns in FY 2022–23! That’s a massive missed opportunity for smart tax-saving.
Source: PIB India
Section 80CCD of the Income Tax Act, 1961 has been introduced to define the tax exemptions available with your NPS contributions. You can contribute to NPS as an employee or self-employed. Your employer can also contribute to your NPS account as an alternative to EPF.
Section 80CCD consists of two subsections defining the tax treatment of self and employer contribution to your NPS account:
Section 80D is a deduction over and above section 80C. The tax saving is available on the premiums paid for securing a health insurance cover for the following:
You can claim separate deductions for both health insurance covers. In the case of senior citizens, medical expenses for the treatment of specified diseases also fall under the deduction umbrella of section 80D.
You can claim up to Rs 25,000 on health insurance premiums paid if when the age of the eldest covered member is below 60 years. In the case of senior citizen health cover (and medical expenses) the limit goes up to Rs 50,000.
Section 80D limits also include a deduction for preventive health check-ups of up to Rs 5000.
Thus, the total deduction you can claim under section 80D can go up to Rs 75,000.
Section 80E defines the conditions for deduction of interest paid on an education loan. The tax deduction is available on education loans taken for pursuing higher studies. The deduction is available only for up to eight years. So, you can aim to repay the entire loan within this period.
This deduction does not have a maximum limit. The tax deduction is only available on education loans taken for higher studies after senior secondary. Higher education should be pursued from a recognised institution.
Deduction under section 80EE is available for home loan interest payments. The tax deduction is limited to Rs 50,000 per year. This deduction is separate from the deduction for loss from house property (section 24B). Your home loan needs to meet certain conditions to qualify for this deduction:
Deduction under section 80G, in a way, rewards your charitable work. You can avail of the deduction when you contribute to any of the charitable institutions recognised under section 12A. You can claim the deduction if it meets the following conditions:
Deduction under section 80G is available to both resident and non-resident Indian taxpayers. The limit of tax deduction can be 100% or 50% depending on the institution’s registration.
Learn about - Section 80GG
If you purchase a health insurance policy for yourself, your spouse, or a dependent (this cannot include siblings), you are eligible under section 80D of the Act to claim an income tax deduction. The amount of possible tax saving will be Rs.25,000 for each financial year if the insured individuals are under the age of 60 years.
If, however, an insured individual is above the age of 60 years, this amount can go up to Rs.50,000.
You need to plan your taxes for the year. However, the majority of tax planning happens at the investment stage. While investing you can choose tax saving investments which have a EEE status:
a) Investments in the scheme avail deduction
b) Interest accrued in the scheme is exempt from tax
c) Maturity values (including any withdrawals) are exempt from tax
This way, you will not have to create a separate tax plan after the goal and investment planning. Your investments should always be driven by your financial goals and not the short-term need of saving taxes. You need to maximise your tax saving within the ambit of your goal-based investments.
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You can take care of the following while investing to maximise your tax savings for the year:
a) Always use tax-saving investments like ULIP, ELSS, PPF, NPS etc for long-term goals
b) 10-15% of your income should go to your retirement goal into investments like EPF, NPS, and PPF, all of which offer tax saving
c) Self-employed can invest up to 20% of their annual income in NPS
d) Term life and health insurance covers are a necessary addition to your emergency preparations
e) Benefit from long-term capital gains while investing in the following:
This way you will not need a separate plan for tax savings and you can maximise your tax savings with your goal-based investments.
The best tax saving methods enable an automatic reduction in tax liabilities. If you invest according to your financial plan the following investments will allow you to maximise your tax saving:
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