Tax season in India can be overwhelming, so if you are searching for the answer to the question, “how to save tax?” Then there is good news! You can unlock significant tax savings by planning and applying proper deductions.
Hence, whether you’re a salaried employee or a business owner, several deductions and exemptions are tucked away in India’s Income Tax Act. Exploring these options can help you keep more of your hard-earned money.
Ready to reduce your taxes? This blog will reveal insider tips and strategies to help you maximise tax-saving opportunities. You’ll learn how to navigate deductions, claim exemptions, and make informed financial decisions that lighten your tax burden.
What Is Income Tax?
Before we discuss how to save tax on salary or business income, let’s first understand income tax.
Income Tax in India is a direct tax levied on the income generated by individuals, businesses, and other entities within a financial year. The government uses this revenue for public services, infrastructure, and economic development.
The Income Tax Act of 1961 forms the legal foundation for calculating, collecting, and administering Income Tax in India. Income from sources like salary, business profits, house property, capital gains, and other investments are all subject to taxation based on predetermined tax slabs.
How To Minimise Income Tax In India?
Consider the following points if you want to explore tax-saving options to minimise your taxes for the 2023–24 financial year. Keep in mind that these details might undergo alterations due to annual updates.
Here’s a table summarising how you can save taxes in India:
Investment Name | Investment Details | Deduction Limit |
Unit Linked Insurance Plan (ULIP) | Premiums paid to qualify for deduction under Section 80C. | INR 1,50,000 |
Equity-Linked Savings Scheme (ELSS) | Mutual funds primarily invest in equity with a 3-year lock-in. | INR 1,50,000 |
Public Provident Fund (PPF) | Long-term savings scheme backed by the government with a 15-year lock-in. | INR 1,50,000 |
National Savings Certificate (NSC) | Fixed-income investment with a 5-year lock-in. | INR 1,50,000 |
Life Insurance Premium | Premiums paid towards life insurance policies qualify for the deduction. | INR 1,50,000 |
Employee Provident Fund (EPF) | Contributions employees make are eligible for deduction. | INR 1,50,000 |
Sukanya Samriddhi Yojana (SSY) | Savings scheme for girls’ and children’s education and marriage expenses. | INR 1,50,000 |
Senior Citizens Savings Scheme (SCSS) | Scheme for senior citizens offering regular income and tax benefits. | INR 1,50,000 |
Tax-Saving Fixed Deposit (FD) | Fixed deposits with a 5-year lock-in qualify for the deduction. | INR 1,50,000 |
Home Loan Principal Repayment | Principal repayment on home loans qualifies for the deduction. | INR 1,50,000 |
Tuition Fees | Fees paid for children’s education qualify for the deduction. | INR 1,50,000 |
National Pension Scheme (NPS) | Contributions to NPS are eligible for deduction under Section 80C. An additional deduction of 50k can be availed u/s 80CCD (1B) for NPS or Atal pension contribution | INR 1,50,000 + INR 50,000 |
Interest On Loan for Education | Interest on education loans is deductible under Section 80E. | No limit |
Health Insurance Premium | Premiums paid for health insurance are deductible under Section 80D. | Up to INR 50,000 for parents. |
Expenses Disabled Dependent | Expenses for treating a disabled dependent qualify for the deduction. | Up to INR 1,25,000. |
Expenses for Specific Diseases | Medical expenses for specified diseases are deductible. | As per conditions. |
Charity Donations | Donations to specified relief funds and charitable organisations are deductible. | As per conditions. |
Donations to Political Parties | Contributions to political parties qualify for the deduction. | 100% deduction. |
Tax Savings for Business Owners | Various business expenses are deductible. | As per business expenses. |
Now that you have understood the techniques to save taxes in India, let’s now dive into the details of each:
1. Provisions Under Section 80C
Section 80C of the Income Tax Act is one of the best tax-saving schemes. It allows you to invest up to Rs. 1,50,000 in specified tax-saving instruments. This provision not only helps reduce taxable income but also encourages individuals to save for their future.
Here is a list of financial products covered under section 80C:
Unit Linked Insurance Plans (ULIPs)
ULIPs offer tax benefits under Section 80C of the Income Tax Act 1961. The premiums paid towards ULIPs qualify for deduction from taxable income, capped at INR 1.5 lakh per financial year. This makes ULIPs an attractive investment avenue for individuals looking to optimise their tax liabilities while securing life insurance coverage with market-linked returns.
Equity-Linked Savings Scheme (ELSS)
ELSS, a mutual fund, primarily invests in equity and equity-related instruments. Notably, it boasts the shortest lock-in period of three years among all Section 80C options. This feature offers flexibility, enabling you to access your investments relatively sooner than other tax-saving instruments, making ELSS a preferred choice for those seeking potential capital appreciation and tax benefits.
Public Provident Fund (PPF)
PPF is a long-term savings scheme backed by the government, featuring a lock-in period of 15 years. The interest earned on PPF deposits remains tax-free, enhancing the attractiveness of this instrument for risk-averse investors seeking stable returns over an extended horizon while enjoying tax benefits under Section 80C. Hence, this can be one of India’s safest tax-saving schemes.
National Savings Certificate (NSC)
The post office offers NSC as a fixed-income investment scheme with a lock-in period of five years. Investors looking for a secure, government-backed investment avenue find NSC appealing, especially considering its eligibility for tax benefits under Section 80C, thus aiding in tax optimisation while ensuring capital protection.
Life Insurance Premium
Another answer to “how to save income tax on salary” is taking a life insurance policy. Premiums paid towards life insurance policies qualify for deduction under Section 80C. This provision helps individuals to secure financial protection for their families while reducing their tax liabilities. Life insurance thus serves a dual purpose of providing peace of mind and optimising tax planning for individuals seeking comprehensive financial security.
Employee Provident Fund (EPF)
Another answer to “how to save tax on salary” is the EPF. Contributions made to EPF by employees are eligible for deduction under Section 80C. EPF is a cornerstone of retirement planning for salaried individuals, offering tax benefits and long-term wealth accumulation. This provision encourages individuals to prioritise retirement savings while enjoying tax advantages, thereby fostering financial security in their later years.
Sukanya Samriddhi Yojana (SSY)
SSY is one of the best government-backed income tax-saving schemes to promote savings for a girl child’s education and marriage expenses. The scheme offers attractive interest rates and tax benefits under Section 80C, making it an ideal choice for parents seeking to secure their daughters’ future while optimising their tax outflows.
Senior Citizens Savings Scheme (SCSS)
SCSS caters to senior citizens, offering regular income and tax benefits. This scheme provides a reliable avenue for retirees to generate steady returns while enjoying tax advantages under Section 80C. SCSS thus plays a crucial role in ensuring financial independence and stability during an individual’s twilight years.
Tax-Saving Fixed Deposit (FD)
Tax-saving fixed deposits, with a five-year lock-in period, qualify for deduction under Section 80C. FDs are a popular investment choice for individuals seeking fixed returns and tax benefits. The lock-in period ensures capital stability while enabling investors to reduce their tax liabilities, making FDs a preferred option for risk-averse investors.
Home Loan Principal Repayment
The principal amount repaid on a home loan is eligible for deduction under Section 80C. This provision ensures individuals to invest in homeownership while reducing their tax burden. Home loan borrowers can leverage this benefit to enhance their overall tax planning strategy, effectively maximising savings and achieving homeownership goals.
Tuition Fees
Tuition fees can be tax saving options in India. Fees paid for the education of two children are eligible for deduction under Section 80C. This provision aims to ease parents’ financial burden while encouraging education investments. By availing of this tax benefit, parents can prioritise their children’s educational needs while helping with their tax planning, ensuring their family’s holistic development and financial well-being.
2. Tax Deduction On Home Loan
Taking out a home loan is also a tax saving option in India. You can claim deductions under sections 80C and 24 of the Income Tax Act. By leveraging section 80C, you can reduce taxable income by up to Rs. 1.5 lakhs on the principal amount. Additionally, section 24 allows a deduction of Rs. 2 lakhs on the interest paid. Strategically structuring your home loan with these provisions can significantly lower your tax liability while fulfilling your dream of homeownership.
3. Earnings From Interest On Savings Accounts
Interest earned on savings accounts is generally tax-exempt up to Rs. 10,000. This exemption applies collectively to all savings accounts held by an individual. However, senior citizens enjoy a higher exemption limit of Rs. 50,000 under section 80TTB. By taking advantage of these provisions, individuals can maximise their savings without worrying about tax implications.
4. Lower Transaction Fees
If you are an investor in shares equity or mutual funds, you can benefit from tax exemptions on long-term capital gains (LTCG). Gains up to Rs. 1 lakh are exempt from income tax if the shares or mutual funds are held for over a year. This provision incentivises long-term investment in the stock market, fostering wealth creation and financial stability and providing an answer to “how to save income tax in India.”
5. Wedding Gifts
Wedding gifts from direct relatives are exempt from taxation under the Income Tax Act. Additionally, gifts from friends or unrelated individuals up to Rs. 50,000 are tax-exempt.
However, gifts exceeding this threshold are subject to taxation per the applicable tax slab. These provisions allow individuals to celebrate weddings without the burden of tax implications on gifts received.
6. Hindu Undivided Family (HUF) And Extra Income
Hindu Undivided Families (HUFs) are recognised as separate tax entities with distinct tax exemptions for each member. Additionally, HUFs enjoy a basic tax exemption of Rs. 2.50 lakh, irrespective of their residency status.
This provision enables HUFs to manage their finances efficiently while optimising tax savings. By leveraging their unique tax status, HUFs can enhance their wealth management strategies and ensure the financial well-being of their members. Can this answer your question about how to save tax in India?
7. Inheritance
Inheritance in India is entirely tax-free, as no inheritance tax is levied on the money received through wills or as legal heirs. This provision allows individuals to inherit assets and wealth without additional taxation. It encourages intergenerational wealth transfer and ensures the preservation of family assets for future generations.
8. Contributions To The National Pension Scheme (NPS)
Contributions to the National Pension Scheme (NPS) are eligible for tax benefits under section 80C of the Income Tax Act. You can invest up to Rs. 1,50,000 in NPS and claim deductions from their taxable income. An exclusive window of Rs. 50,000 is available for additional tax-free investments in NPS, allowing individuals to secure their retirement while enjoying tax savings. This INR 50,000 is over the INR 1,50,000 deduction. NPS is an effective retirement planning tool, combining tax efficiency with long-term wealth creation. It can be an excellent tax-saving investment for salaried and business people.
9. Interest on Loan for Education
Section 80E of the Income Tax Act provides an income tax saving option on the interest paid on education loans. Unlike other deductions, there is no upper limit on the amount of interest that can be claimed under this section. This provision encourages individuals to pursue higher education by easing the financial burden of student loans. Taxpayers can leverage this deduction to reduce their tax liability while investing in their or their dependents’ education. It promotes human capital development and empowers individuals to achieve their academic aspirations without financial constraints. Please note this deduction is only valid for loans taken for higher education.
10. Health Insurance Premium
Another way to claim deductions is on health insurance premiums. The premiums paid for yourself, your spouse, your children, and your parents are income-tax-saving options under section 80D of the Income Tax Act.
The maximum deduction allowed is Rs. 25,000 for self, spouse, and dependent children, with an additional deduction of Rs. 25,000 for parents below 60. For parents aged 60 years and above, the deduction limit is Rs. 50,000.
This provision incentivises individuals to secure comprehensive health coverage for themselves and their families while enjoying tax savings.
11. Expenses For Disabled Dependent
Under section 80DD of the Income Tax Act, you can claim deductions for expenses incurred in treating a disabled dependent. It can be another answer to “how to save tax.”
The deduction limit varies based on the extent of disability, with a maximum deduction of Rs. 75,000 for 40% disability and Rs. 1,25,000 for 80% or above disability.
This provision aims to support families with disabled dependents by providing financial relief for their medical expenses. It ensures equitable treatment and financial assistance for individuals caring for disabled family members.
12. Expenses For Specific Diseases
Section 80DDB of the Income Tax Act allows taxpayers to claim deductions for expenses incurred in treating specific diseases or ailments. The deduction is subject to certain conditions and limits prescribed under the Act. Under this provision, taxpayers can avail themselves of deductions for medical expenses incurred for themselves, their family members, or Hindu Undivided Families (HUFs). It encourages individuals to seek timely medical treatment for specified illnesses while mitigating the financial burden through tax benefits.
13. Charity Donations
Donations made to specified relief funds and charitable organisations are eligible for deductions under section 80G of the Income Tax Act. However, not all donations qualify for tax deductions, and only contributions to designated funds are eligible.
Taxpayers can avail themselves of deductions while supporting charitable causes and social initiatives. It encourages philanthropy and community engagement while providing tax relief to donors.
14. Donations To Political Parties
Contributions made to political parties qualify for tax deductions under sections 80GGC and 80GGB of the Income Tax Act. Unlike other donations, there is no upper limit on deductions for political party contributions.
Individuals and companies can claim a 100% deduction on the donated amount, promoting political participation and funding transparency. It incentivises civic engagement and political activism while providing tax benefits to donors.
15. Tax Savings For Business Owners
Business owners can optimise tax savings by claiming different expenses as part of their business costs. These expenses are deductible under the Income Tax Act, reducing the business’s taxable income.
By leveraging this provision, business owners can minimise tax liability while managing operational expenses effectively. It encourages entrepreneurship and investment in business activities while ensuring compliance with tax regulations.
How Do You Save Taxes On Cryptocurrency In India?
Are you searching for ways to save tax on crypto? Then there is bad news. There aren’t any concrete methods to save or avoid crypto taxes in India. If you are investing in cryptocurrency, please be assured that any gains you make from selling cryptocurrencies will be liable to a 30% capital gains tax and a 4% health and education cess.
Moreover, if you are engaged in crypto mining, staking, airdrops, or receiving salaries in cryptocurrency, you will also have to add the FMVs of the cryptos while filing your income tax.
Although there aren’t any solid ways to avoid tax on cryptocurrency in India, some transactions don’t attract crypto taxes in India. These transactions are:
- HODLing Cryptocurrency
- Moving Cryptocurrency between wallets
- Receiving Cryptocurrency as gifts
To plan your taxes smartly, you can use KoinX to generate your crypto tax report.
How Can KoinX Help?
If you are looking for a platform that helps you with your crypto taxes but also helps you file your income tax returns, then KoinX is what you are looking for. Established in 2022, this platform enables you to integrate your account from over 180 exchanges, blockchains and wallets.
KoinX helps you enjoy many benefits apart from crypto tax calculation and reporting. At KoinX, you can:
- View all your investments under a single screen.
- Evaluate your crypto taxes based on the nature of the transaction and your national jurisdiction.
- Filter out the spam tokens which have negligible monetary value.
- Remove your inactive DEX or CEX accounts, which are no longer needed.
- File your ITR with the help of expert tax accountants.
KoinX is much more than a crypto tax reporting platform. Sign up today to make your crypto tax life more manageable.
Conclusion
It’s time to take action! Don’t let taxes drain your hard-earned money. Start implementing these tax saving options in India today. Invest wisely, take advantage of deductions, and explore available tax-saving instruments. Remember, even small actions toward tax planning go a long way.
If you need clarification about how to save tax, consult a financial advisor from KoinX to create a personalised tax-saving strategy that works best for you. Being proactive can reduce your tax burden and maximise your savings.
