How to save tax in India

Taxes can be a huge financial drain if you make a sizeable income in India. Often, poor financial planning can lead to thousands or even lakhs of rupees lost to taxes. Any individual making more than Rs. 2.5 lakhs per annum needs to pay income tax. However, if you know how to save tax, you can save a considerable portion of this amount.

Understanding Income Tax Slabs

For individuals less than 60 years of age, income tax is applicable for an annual income over Rs. 2.5 lakhs. Here is a representation of income tax applicable according to the new tax regime:

However, to encourage savings and investments, the government of India provides numerous methods that double up as tax savings. Read on to find out how to save taxes in India.

How To Save Income Tax | Tax Saving Tips 2023 @ICICIdirectOfficial

10 Tips on How to Save Tax

Ideally, you should start tax planning at the beginning of a financial year. This way, you will have enough time to invest for your tax savings. Here are 10 tips on how to save tax:

Make Investments

Ask any financial planner about how we can save tax in India and their first suggestion will be to invest in instruments under Section 80C of the Income Tax Act. Individuals and Hindu Joint Families can invest in these instruments in a financial year and claim deductions for investments made of up to Rs. 1.5 lakh. These include:

Investing in these tax-saving instruments help you save taxes while also enabling you to save money in the long term.

Additional Contribution to NPS

Investing in the National Pension Scheme is eligible for deductions up to Rs. 1,50,000 under Section 80C. In addition to this, you can save Rs. 50,000 through voluntary contribution to NPS Tier I account under Section 80CCD (1B) of the Income Tax Act.

Buy Medical Insurance

If you buy medical insurance for yourself, your spouse or your children, you can claim Rs. 25,000 deduction for premiums paid under Section 80D of the Income Tax Act. If you buy medical insurance for your dependent parents, you can claim an additional Rs. 25,000. If you parents are over 60 years of age, you can claim up to Rs. 50,000.

Claim Home Loan Principal Deduction

Planning to buy a house? Ask your financial planner about how to save taxes with the help of home loans.  You can claim up to Rs. 1,50,000 on principal repayments of the loan.

Claim Deduction on Home Loan Interest Paid

Apart from principal, you can also claim a deduction on the interest paid on home loans. Under Section 24B of the Income Tax Act, you can claim up to Rs. 2,00,000 on home loan interest.

Take Advantage of an Education Loan

In case you have taken out an education loan for yourself, or one of your dependents, then it is an excellent tool to save income tax in India. Under Section 80E of the Income Tax Act, you can claim the entire interest paid on an education loan taken for higher studies. The benefit is available for 8 years or until the interest is paid off, whichever is earlier.

Claim Your Children’s Tuition Fees

Paying for your children’s education can help you save taxes in India. You can claim up to Rs. 1,50,000 for amount paid as tuition fees for up to two children enrolled full-time in an Indian school, college or university. This deduction is applicable even for individuals who have adopted children.

Buy an Electric Vehicle

In the Union Budget of 2019, the Finance Minister announced a new tax provision. If an individual takes out a loan to buy an electric vehicle, the interest paid up to Rs. 1,50,000 can be claimed as a tax deduction under Section 80EEB of the Income Tax Act. If you have any plans to upgrade your vehicle to an eco-friendly alternative, then taking a loan to make the purchase can help you save taxes!

Make a Charitable Donation

As per the Government of India rules, donations made to certain charitable organizations and NGOs are eligible for tax deductions under Section 80G of the Income Tax Act. Depending on the organization, you can deduct between 50% - 100% of the donations. When wondering about how to save taxes, you can do this good deed.

Donate to a Political Party

Just like making a charitable donation, you could also choose to donate to a political party. As an individual, you can claim deductions for the amount of donation made under Section 80GGC of the Income Tax Act.

Final Word

When pondering about how to save tax in India, you can use the above tips to make investments or claim deductions for the expenses that you have incurred. In order to save taxes, you should undertake financial planning in advance so that you can make the most of your money.

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