The government taxes various aspects of your wealth and assets to fund the growth and development projects of the country.
Your income falls under a certain bracket of the tax slab and you’re taxed as per the corresponding rate.
For some, this is a sizeable portion and thus, they wonder how to save tax.
If you’re one of them, you’ve come to the right place because we’re going to walk you through the legal ways to save tax in India.
7 Ways to Save Taxes in India
Here are the top ways to save income tax in India.
1. Equity-linked Saving Schemes
It refers to a type of tax saving mutual fund with a 3-year lock-in period.
The investments from this fund take place in the equity market and usually provide the best interest gain when compared with other tax-saving schemes.
The investment can be made in lumpsum amounts or a structured SIP (Systematic Investment Plan).
By the way, the returns that you stand to earn from ELSS funds typically varies because the investment is market-linked.
2. Tuition Fees
Tuition fee is another source to save interest available to parents and guardians with a maximum of 2 children per individual.
A tax deduction of Rs. 1.5 lakhs can be claimed on the tuition fee paid.
As long as the student is enrolled in an Indian school, college, or university, this tax-saving option is available, irrespective of the level of education.
3. Home Loan Repayment
The next tax saving scheme is the repayment of a home loan on the part of EMI that is paid to repay the principal amount.
However, keep in mind that the amount paid as interest does not qualify for a tax deduction.
4. Employee Provident Fund (EPF)
Another option to save tax on salary is the employee provident fund.
Under this act, the employer deducts an amount equal to 12% of the basic salary and dearness allowance to be invested in provident fund schemes recognized by the government.
This is another deduction of Rs. 1.5 lakhs which is counted in the 80C section.
5. National Savings Certificate (NSC)
This is yet another scheme that has a 5-year tenure and provides a fixed interest rate of 7.7% per annum.
The interest received on the National Savings Certificate is tax-free up to a total amount of Rs. 1.5 lakhs.
6. Public Provident Fund (PPF)
One of the most common ways of tax saving is this long-term government savings scheme that comes with a fixed tenure of 15 years.
This option is available at different banks and post offices but the interest rate keeps changing every quarter.
The interest received on PPF is tax-free as well. Individuals can open a PPF account with any basic amount and up to Rs. 1.5 lakhs per financial year.
These are some of the most common measures covered under the 80C section that allows individuals to save income tax and reduce their overall tax liability with careful planning.
7. Section 80C Deductions
The most common tax saving measure is section 80C which is valuable for individuals and HUFs.
It comprises distinct expenses and investment options that are tax deductible up to Rs. 1.5 lakh limit within a financial year.
The idea behind this section is to promote long-term savings and investments by individuals by making the interest on them tax-free.
Additionally, it also provides a deduction at source equal to 10% of the total interest payable.
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How to Save Tax Other than 80C?
Now, let us look at how to save tax other than 80C. Some of the best options include:
- Claim a reduction of up to 25,000 on medical insurance premiums
- Claim a deduction on interest paid on education loans
- Save capital gain tax under section 54-54F
- Save interest on a vehicle loan for purchasing an electric vehicle
- Save tax by contributing to charity or funds under section 80G
| Section | Tax Saving Investments |
| Section 80CCC | Contributions to Pension Funds |
| Section 80CCD | Contributions to the National Pension System (NPS) |
| Section 24(b) | Interest on Home Loan |
| Section 80E | Interest on Education Loan |
| Section 80D | Health Insurance Premiums (for self, family, and parents) |
| Section 80DD | Maintenance including medical treatment of a dependent who is a person with a disability |
| Section 80DDB | Medical expenses for specified diseases |
| Section 80G | Donations to certain funds, charitable institutions, etc. |
| Section 80TTA | Interest on savings bank accounts |
These factors can assist in saving taxes by investing in indifferent opportunities and also saving taxes via loans and insurance premiums.
Conclusion
This knowledge will help individuals save tax by investing in different opportunities with varied interest rates and tenures.
It is important for individuals to be aware of their rights to make the most of the opportunities and save taxes in India.
Even though the tax is an unavoidable part of the Indian financial system, several measures can assist individuals in saving taxes while also building security for their future through investment in insurance plans, home loans, PPFs, and EPFs.
