Tax savings in India can appear to be complicated at first, but there are practical ways to reduce your tax burden, regardless of your income bracket. It is important to have clear and easy-to-follow tips and strategies to maximize your savings.
So, together, let’s find the answer to the question “how to save tax in India”, its benefits, and how you can fully utilize tax deductions available to you. Understanding different ways to save tax can significantly improve your financial health.
Understanding Your Tax Liability
When planning your taxes, it’s essential to have an in-depth understanding of the current tax slabs under both the old and new regimes in India.
For the financial year 2023-24, you have two options:
- You can stick with the old tax regime and claim various deductions and exemptions,
- Opt for the new tax regime, which offers different tax rates but foregoes most deductions and exemptions.
Under the old tax regime, incomes up to ₹2.5 lakh are not taxed. Beyond that, the rates are tiered: 5% for ₹2.5 lakh to ₹5 lakh, 20% up to ₹10 lakh, and 30% for income above ₹10 lakh. The new regime, meanwhile, offers different rates for different slabs without certain deductions—no tax up to ₹3 lahks, then 5% up to ₹6 lahks, and so on, reaching 30% for income over ₹15 lakhs. Deciding between the two requires a look at your income and which deductions you can claim, as the right choice could significantly lower your tax liability.
Best Options For Saving Taxes
Investment in Tax Saving Options:
The Income Tax Act’s Section 80C provides a deduction limit of ₹1.5 lakh, which can significantly reduce your taxable income. Here’s how you can use this section to your advantage:
- Employee Provident Fund (EPF): This is a retirement benefit scheme that contributes 12% of your basic salary towards your retirement. It also compounds interest, adding to your savings.
- Public Provident Fund (PPF): A 15-year scheme backed by the government, PPF allows for partial withdrawals after the 7th year, making it a flexible option for long-term savings.
- Equity Linked Savings Scheme (ELSS): With the potential for high returns linked to market performance, ELSS comes with a shorter lock-in period of 3 years compared to other tax-saving investments.
- Sukanya Samriddhi Account: Specifically for the parents of a girl child, this scheme not only helps save tax but also offers one of the highest interest rates among small savings schemes.
- Tax Saving Fixed Deposit: A secure investment with a fixed interest rate over a 5-year lock-in period. Unlike regular FDs, the interest earned is tax-deductible, making it a reliable tax-saving instrument.
- National Saving Certificate (NSC): NSC is a fixed-income investment scheme that you can open with any post office. It’s a low-risk investment that allows you to accumulate savings while saving on taxes.
- National Pension Scheme (NPS): NPS is a government scheme offering retirement benefits with two account types, Tier I and II. NPS has the added advantage of an extra deduction of up to ₹50,000 under Section 80CCD.
- Making Voluntary Donations: Donations to various relief funds and recognized NGOs are tax-exempt under Section 80G.
Taking a Home Loan:
The EMI you pay on a home loan can serve a dual purpose- helping you with tax savings as well as acquiring your home. The principal amount repaid qualifies for deduction under Section 80C, while the interest portion can get you a deduction under Section 24.
Restructuring of Salary
You can ask your employer to restructure your salary to include allowances like HRA, conveyance, medical treatment, etc, for saving tax. Also, you can claim tax exemptions on your Leave Travel Allowance (LTA) twice in four years.
As you look ahead, remember that the groundwork for tax saving begins at the start of the fiscal year, not at its close. It’s a continuous journey that, with the proper knowledge and resources, can lead to substantial savings. With Canara HSBC Life Insurance, you can understand how to save tax on your salary. They can also provide you with clarity on your potential savings. Start early, stay informed, and consider all the tax-saving instruments at your disposal
