How To Save Tax in India: The Art of Tax Planning

Ever wondered how to save maximum tax on your hard-earned income instead of paying huge taxes?

Do you know that many Indians overpay tax just because they are unaware of the deduction benefits available?

If you are someone who is looking to save tax on his/her income. We have got your Back! Let’s understand various deductions available irrespective of whether you are a salaried employee or have income from any other source.

Let us one by one understand the deductions available under each section of Income-tax Act:

Description	One of the most common and easy provision available. The main objective of this section is to help individuals plan their investments and promote savings by providing tax benefits at the same time.
Investment Options	Public Provident Fund (PPF): A secure, long-term investment with a 15-year lock-in.Employees’ Provident Fund (EPF): Contributions deducted from your salary.National Savings Certificate (NSC): Fixed-income savings bonds issued by the government.Equity-Linked Savings Scheme (ELSS): Tax-saving mutual funds with high returns and a 3-year lock-in period.Life Insurance Premiums: Premiums for policies covering self, spouse, or children.Principal Repayment of Home Loan: For a loan taken for a residential property.Sukanya Samriddhi Yojana: For a girl child’s financial security.5-Year Fixed Deposits: Tax-saving FDs in scheduled banks.Senior Citizens Savings Scheme (SCSS): For individuals aged 60 and above.Tuition Fees: Paid for up to 2 children.ULIP: Investment and Insurance. Lock-in period of 5 years.
Deduction Limit	Rs. 150,000

Particulars	Deduction Limit
Individuals Aged Below 60 (self/spouse/children)	Rs. 25,000
Senior Citizens- Individuals above age 60	Rs. 50,000

An additional deduction of Rs. 50,000 will be available in case the individual pays premium of parents who are senior citizens.

Sections	Description
80E	Deduction on interest paid for loans taken for education.
80EE	Deduction on interest paid for home loan up to 50,000 subject to certain conditions.
80EEB	Deduction on interest paid for vehicle loan taken to purchase an electric vehicle.
80G	Available only in case of donation made to notified institutions or Funds
80TTA	Deduction available up to ₹10,000 on interest earned from savings accounts in banks.
80TTB (For senior Citizens)	Deduction of up to ₹50,000 on interest income from deposits like FDs, RDs, and savings accounts for senior citizens.

Ankit, a 30-year-old professional earning ₹10,00,000 annually, wants to save on taxes. He plans to use deductions under Sections 80C, 80D, and 80TTA.

Section 80C Deductions:

• ₹30,000 for life insurance
• ₹50,000 for EPF
• ₹40,000 for home loan principal repayment

Total 80C Deduction: ₹1,20,000

Section 80D Deductions:

• ₹25,000 for health insurance

Section 80TTA Deduction:

• Ankit earned ₹10,000 as interest from his savings account. Under Section 80TTA, he can claim a ₹10,000 deduction on this interest income.

Total Deductions: ₹1,20,000 (80C) + ₹25,000 (80D) + ₹10,000 (80TTA) = ₹1,55,000

After these deductions, Ankit’s taxable income is reduced to ₹8,45,000.

Let’s calculate Ankit’s tax with and without the deductions using the tax slabs:

Without Deductions:

Gross Income: ₹10,00,000

Tax Calculation:

• First ₹2,50,000: NIL
• Next ₹2,50,000 (₹2,50,001 to ₹5,00,000): 5% of ₹2,50,000 = ₹12,500
• Next ₹5,00,000 (₹5,00,001 to ₹10,00,000): 20% of ₹5,00,000 = ₹1,00,000

Total Tax Without Deductions: ₹12,500 + ₹1,00,000 = ₹1,12,500

With Deductions:

Gross Income: ₹10,00,000
Total Deductions (80C + 80D + 80TTA): ₹1,55,000
Taxable Income After Deductions: ₹10,00,000 – ₹1,55,000 = ₹8,45,000

Tax Calculation:

• First ₹2,50,000: NIL
• Next ₹2,50,000 (₹2,50,001 to ₹5,00,000): 5% of ₹2,50,000 = ₹12,500
• Next ₹3,45,000 (₹5,00,001 to ₹8,45,000): 20% of ₹3,45,000 = ₹69,000

Total Tax With Deductions: ₹12,500 + ₹69,000 = ₹81,500

Summary:

• Tax Without Deductions: ₹1,12,500
• Tax With Deductions: ₹81,500
• Tax Savings from Deductions: ₹31,000

By utilizing tax-saving deductions, Ankit saves ₹31,000 on his taxes!

The deductions mentioned above, are available only under the old tax regime, which encourages saving and investing through various incentives.

However, the new tax regime offers concessional tax rates but does not allow these deductions.

Evaluate both regimes and choose the one that is more beneficial for you!

With so many tax-saving options, you can mix and match based on your goals. Whether you want to play it safe, grow your wealth, or save for retirement, there’s something for everyone. Start smart, Save tax!