Tax saving is important for everybody as it minimises the amount of tax payable thus increasing one’s savings. As a salaried employee, you can save taxes under sections 80C, 80CCC, and 80CCD. Let us now read about the various deductions available and how you can save on taxes. 

15 Money-Saving Tips for Taxation

1. House Rent Allowance

Exemption under this section is allowed for those employees who pay rent for their accommodation. The exemption is limited to a minimum of the following:

  • Actual HRA provided by the employer.
  • Actual Rent paid minus 10% of the salary.
  • 50% of basic salary plus DA in case of metro cities and 40% of the basic salary plus DA in other cities. 

The following documents are required: 

  • Rent receipt
  • PAN, name, and address of the landlord
  • If you are paying online, the bank statement and rental agreement are required. 

2. LTA or Leave travel allowance

You can claim an exemption under this section if you incur travel expenses for dependents (Spouse, kid, and dependent parents). You can avail it 2 times in 4 years. This exemption can be claimed only for domestic travel within India and cannot be claimed when you travel by your own vehicle. 

The exemption is restricted to a minimum of: 

  • For Rail 1: 1st class rail fare or the amount spent whichever is lower
  • For Air:  Economy class airfare or the amount spent whichever is lower.
  • For Road: Any public transport ticket of the amount spent whichever is lower. 

The following documents are required:

  • Travel tickets or e-tickets
  • Boarding passes

Deductions under Section 80C, Section 80CCC and Section 80CCD

If you have invested your money in the instruments coming under Section 80C, Section 80CCC and Section 80CCD, then you can claim certain deductions. Here are some best ways to save tax up to Rs. 1.5 lakhs 

3. Public Provident Fund

This saving scheme is a long-term investment option provided by the government. It can be availed at most banks and post offices in India. This scheme has a lock-in period of 15 years and a rate of interest of 7.10% p.a. The interest rate changes every quarter, and the interest earned on this scheme is tax-free. 

Also read : https://www.creditmantri.com/article-what-is-the-public-provident-fund-ppf-scheme/

4. Tax saving fixed deposits

A tax saving fixed deposit is a kind of FD in which the individual can avail of a tax deduction of up to Rs. 1.5 lakhs under Section 80C of the Indian Income Tax Act, 1961. Tax-saving FDs come with a lock-in period of 5 years, and the interest ranges between 5.5% to 7.75%. The interest earned is taxable. 

5. National Saving Certificate (NSC)

The National Savings Certificate Scheme is a government-backed tax saving scheme. The principal invested in NSC is eligible for tax savings under Section 80C of the Income Tax Act up to Rs. 1.5 lakhs annually. The scheme has a lock-in-period of 5 years. The current interest rate offered is 7.7% and this will keep changing. 

6. National Pension System (NPS)

  • Section 80CCD (1): Investments in NPS are eligible for tax deductions under Section 80CCD (1). Indian citizens between the ages of 18 to 60 years can claim tax benefits by investing in NPS. Even NRIs can avail this benefit. The maximum deduction that salaried professionals can enjoy under this section is 10% of their salary (This includes basic salary plus DA). Self-employed individuals can avail upto 20% of their gross total income. Also, the maximum benefit that you can avail of every year under this section is Rs. 1.5 lakhs. 

Also read: National Pension System and its Benefits

  • Section 80CCD (1b):
    Investors can get a bonus deduction of Rs. 50,000 on investments in NPS under Section 80CCD (1b). This is over and above the Rs. 1.5 lakhs available under Section 80CCD (1). So, summing it up, you can avail a total tax deduction of Rs. 2 lakhs if you deposit in NPS every year. 

7. Employee’s Provident Fund (EPF)

The EPF is a saving scheme where the employer and the employee make equal contributions towards an employee’s provident fund and pension. This is 12% of the basic salary. The interest rate on the EPF scheme is about 8.65%, which is decided by the government. The returns obtained from EPF upon maturity are exempted from tax. Also, tax exemption can be claimed on EPF contributions under Section 80C of the Income Tax Act. 

Also, know the differences between EPF and PPF 

8. Equity-Linked Saving Scheme (ELSS) Funds

These are tax saving mutual funds in India, integrating the benefits of equity investments with tax deductions under Section 80C.  It invests at least 80% of the investment in equities.ELSS funds invest in diverse equities from various quarters, thereby reducing concentration risks. 

ELSS  has the scope to give high returns and tax savings, thus making it a great option for long-term investors. ELSS has the smallest lock-in period of 3 years and the highest returns among all tax-saving options. It offers an exemption of above Rs. 1 lakh under Section 80C. You will have to pay an LTCG tax of 10% on the gains from your ELSS investments exceeding Rs. 1 lakh in a financial year. However, you can also escape LTCG tax if you handle the investment scheme smartly.

9. Senior Citizen Saving Scheme (SCSS)

Individuals above the age of 60 years are eligible to invest in the senior citizens scheme. The rate of interest is 8.2% which is taxable and the tenure of the scheme is 5 years. Contributions made towards SCSS qualify for an income tax deduction of up to Rs.1.5 lakh under Section 80C of the Indian Tax Act, 1961. 

10. LIC Premiums

Insurance policies including endowment policies, term insurances, and ULIP provide tax deductions of up to Rs. 1.5 lakhs if the insurance covers 10 times the annual premium. 

11. Sukanya Samriddhi Yojana

The Sukanya Samriddhi Yojana is a scheme launched by the government to promote saving for the girl child’s future. It is a fixed-income investment deposit scheme in which you can deposit money regularly and earn interest on it.  The lock-in period of this scheme is 21 years and the interest rate is 8% per annum compounded annually. Investments made in this scheme qualify for a tax deduction of up to Rs. 1.5 lakhs under Section 80C. Also, interest earned and maturity amount are exempted from tax. 

12. Home Loan

If you have taken a home loan, the part of the EMI that goes towards repaying the principal amount is eligible for tax deductions under Section 80C. The amount you pay as interest qualifies for tax deductions under another Section 80EE. Under the 80EE section, first-time home buyers can deduct the interest paid on a home loan up to Rs. 50,000 from their taxable income. This deduction limit is over and above the limit provided under Section 80C and Section 24 of the Income Tax Act, 1961. To qualify for this deduction, you have to fulfil the conditions specified below:

  • You should not own any other residential property on the loan sanction date. 
  • The value of the house should be lower than Rs. 50 lakhs. 
  • The loan must not be availed for any commercial property. 
  • The loan amount needs to be lower than Rs. 35 lakhs. 
  • The deduction is available only on the interest part of the loan. 
  • You don’t have to necessarily stay in that property to qualify

13. Tuition fees

A tax deduction of up to Rs. 1.5 lakhs can be claimed by the taxpayer on tuition fee payment for children. 

14. Medical Insurance

A salaried individual can avail of a tax deduction of Rs. 25,000 against medical insurance taken to cover the spouse and dependent children and parents. Individuals can claim up to Rs. 50,000 against medical insurance that is taken to cover their parents who are senior citizens. 

15. Donations

Tax deductions can also be claimed on the amount contributed towards donations. 50% of the amount donated to NGOs can be claimed and 10% of the adjusted total income. NGOs must provide an 80G certificate so that the taxpayer can avail of tax deduction under Section 80G of the Income Tax Act. Individuals can also claim tax deductions for donations made towards political parties, provided they fulfil specific conditions under Section 80GGC. 

Other tax-saving options include 

  • Education loans: You can avail a tax deduction against the interest on education. The interest must be paid out of the income chargeable to tax for the financial year.  

  • Shares and Mutual Funds: Tax can be claimed on money invested in shares and mutual funds under  Section 80CCG. 

  • Long term capital gains: Taxpayers can save money on tax through long-term capital gains. However, this amount should have been received by selling any long-term capital asset (any asset that the taxpayer has owned for 3 years) and then investing it in specific instruments.

  • Sale of Equity Shares: The Indian Government has exempted tax on long term gains earned from the sale of equity shares. The tax is exempted only if people hold shares for more than a year.

  • Gratuity: The retirement benefit provided by the employer to the employee if they complete 5 years of service in the organisation. The gratuity amount is paid when you get relieved from the services of a company or when you retire. It is exempted from tax. 

  • Car leased by the employer: An individual can save money on tax by availing themselves of the car lease policy offered by the employer. 
  • Internet or phone-related expenses: Cash reimbursed on the internet or phone-related expenses helps the employee in saving money on tax. 
  • Meal coupons: Meal coupons provided by the employers to the salaried employees are exempted from tax up to Rs. 2,600.
  • Leave encashment: Encashment of leaves enables employees to claim tax deductions. 
  • Salary received in advance: Salary obtained in advance or arrears is exempted from tax under Section 89(1).
  • Compensation received on voluntary retirement: Compensation received by the employee on choosing to retire voluntarily is exempted from tax under Section 10 (10C). However, the compensation should fulfil the required criteria under Rule 2BA. Also, the compensation obtained should be less than Rs. 5 lakhs. 

Disclaimer: The interest rates, lock-in period, tax exemption limit, and conditions for availing exemption are as of 26/04/2024 and are subject to change. 

Conclusion

Choosing the most suitable tax-saving instrument is crucial. Consider aspects like lock-in period, the associated risk factor, interest rates, and your liquidity needs before choosing a tax-saving instrument. For instance, banking products yield less than equity-based options like ELSS, but they are more secure. So, in this case, when you choose a tax-saving instrument, you have to consider your comfort level with risk. So, choose carefully. By making well-thought-out investments in tax-saving products, you can lower your tax liability and also secure your financial future with plenty of tax savings.