Income tax is inevitable if you earn anything over ₹ 5,00,000 annually. Every year eight crore people in India have to race to their CAs to file their income taxes. That’s roughly five per cent of the entire population, whose contribution is used to develop a nation of 140 crore people. While you let that settle in, you will be pleased to know that there are actual legal ways you can save income taxes.
So, to answer your question on how to save tax in 2023, here are twenty ways you can do so. But first, let’s look at why you would want to save income tax in 2023. We at IndiaFirst Life believe in bringing awareness on how to make the best financial & life security decisions for you & your loved ones. And with the right information, you too can grow wealth and create savings for a better future.
What To Expect In 2024
Just like any other year 2024 comes with its own set of challenges. But, most importantly, with the advent of new technologies life gets easier and more complicated at the same time. To stay on top of the current times you need to know about income tax saving tips to make the most of your income this year.
Be it a trip you have been waiting for or buying a car you like, with IndiaFirst Life Insurance plans you can create goals and invest accordingly to reach your goals. We offer various investment options on tax saving instruments that will help you save tax while you enjoy growing your savings and wealth.
Our tax saving 2024 tips can help you save some parts of your tax liabilities. But, how does tax saving work? Let’s find out in a brief study about the income tax act and how it allows individuals and businesses to save tax legally.
Tax-Saving And The Income Tax Act
The income tax (IT) act of 1961 was introduced as the sole governance of the administration, collection, and recovery of income taxes in India. Income tax constitutes a tax paid by citizens whose annual income is beyond a certain amount as fixed by the government.
As your income increases, your tax liability does as well. So, to help citizens lower their tax burdens, the income tax act has several sections dedicated to helping you reduce your tax. Most popularly, section 80 (C) of the income tax act is dedicated to helping you reduce your income tax by investing your money in different expenses and investments.
You should know that using these tax saving ideas will help you get some deductions on your tax liabilities rather than a complete write-off. If you’re wondering how to save tax without investment, it will also be discussed further. So with that information, let’s learn 20 ways how to save tax on salary and other income.
20 Tips To Save Income Tax Legally In India In 2024
1. Future Investments Under Section 80C
The income tax act has a specific section known as section 80C that allows people to invest money into tax saving instruments to facilitate personal savings and future security. Tax-paying individuals can get a deduction of up to ₹1,50,000 per year on investments made into tax saving instruments. These investments don’t need to be market-linked; you can invest in PPF, IndiaFirst Life Insurance policies, EPF, and government schemes such as SSY and NSC to avail deductions under section 80C.
2. Provident Fund Amount is Exempt
As per section 80C of the income tax act, any interest earned on your provident fund account is tax-free. However, as per the new guidelines presented in the 2021 budget, the interest on PF accounts is tax-free up to 2.5 lakhs. The interest has also been made subject to TDS deductions. The employer’s contribution to your PF account is tax-exempt for salaried employees, including the interest earned on the same.
3. Travel Expenses (For Business Owners)
Business owners and self-employed individuals can also reduce their income tax burden by classifying travelling expenses under business expenses. The higher business expenses led by the travel expenses can reduce the profit margin of the company, reducing the income tax burden of the company. However, there are certain guidelines on the accepted deductions for travel expenses, so make sure you learn about them before claiming them under your income tax deductions.
4. NRE Accounts
A Non-Resident External (NRE) account can be operated by an Indian citizen currently not staying in the country. This account can be used to park their foreign earnings in both accumulated and fixed deposits. The interest that these accounts earn is tax-free for the account holder. As per section 10 (4) of the income tax act, the money deposited in these accounts is not earned in India, which makes the interest earned on these accounts tax-free.
5. Agricultural Income
If you are involved in agriculture, one of the best things is that it makes your income free from income tax. The IT act, as per section 10(1), specifies that income earned by a taxpayer from agriculture is tax-free. However, if the taxpayer has other sources of earning, it will be taxed at a higher rate because the agricultural income is considered tax-free. To learn more about what counts as agricultural income, you can refer to section 2 (1A) of the IT act.
6. Inheritance
In India, there is no inheritance tax, which makes any wealth you inherit from your family completely tax-free. This includes money you receive through a will or by your position as a legal heir. No matter if you inherit movable or immovable assets, they remain tax-free. However, as per the IT act, if you choose to sell the assets you inherit, tax is applied to the sale value of the assets.
7. Education Loan
Education loans have great tax savers benefits as the interest of your education loan can be deducted from your taxable income with no upper limit. As per section 80E of the income tax act, the interest you pay on your education loan is completely tax-free. The maximum amount you can deduct is the amount of interest paid through EMI annually. Before you claim the tax benefits, you must get a specific certificate from your bank that clarifies the principal amount and the interest payable annually.
8. Donations to Political Parties
If you are looking to reduce your business tax burdens, this tip is great for you. Donations you make to political parties, no matter how many, are completely 100% tax deductible for both individuals and business owners. According to section 80GGC, you can make contributions or donations to political parties and claim that as your tax deduction for your taxable income. This provision was introduced to facilitate the contribution of Indian companies towards the political system of the country.
9. Amount Spent in Treating Specific Diseases
Even though there are upper limits in this case, it is still a way for you to deduct your taxable income. Any individual or HUFs can claim this benefit as per section 80DDB of the IT act. For treatment costs of specified ailments of ₹ 60,000, individuals can claim ₹ 40,000 as tax-deductible from their annual taxable income. If you are claiming this benefit, you will need to submit a supporting medical certificate to prove your treatment along with your tax returns to the department.
10. Gains From Equity Mutual Funds Shares
Any income you generate from equity mutual funds or shares can be used to deduct your taxable income with an upper limit of ₹ 1,00,000 if the assets are sold after being held for over a year. For long-term capital gains, the tax exemption limits are ₹ 2,50,000 for Indian citizens above the age of 60. This exemption statute also works for non-resident Indian citizens, who enjoy the same exemption limit as senior citizens regardless of their age.
11. Interest Amount Earned on Savings Account
This exemption can be claimed by individuals with a cap of ₹ 10,000 of interest earned annually. The cap is a limit for the interest earned across all the savings accounts of an individual. The limit is not set on a per-account basis. As per section 80TTB of the IT act, the cap is set for taxpayers on interest earnings on savings accounts. The limit is set differently for senior citizens with a cap of ₹ 50,000 tax exemption on their interest earnings from savings accounts.
12. Health Insurance Premium Health insurance is a necessary expense, and the IT act allows you to deduct your spending on health insurance from your taxable income. As per section 80D of the act, individuals and HUFs are allowed to deduct up to ₹ 25,000 on their self, spouse, or dependent children’s medical insurance. If you choose, you can also avail of an additional ₹ 25,000 deduction on your income by paying for the medical insurance of your dependent parents. If your parents are over 60, you can deduct up to ₹ 50,000 additionally for paying their health insurance premiums.
13. Donations Given to Charitable Organizations
When you donate to a worthy cause, it can be deducted from your taxable income. Section 80G of the IT act allows for 100% charitable donations to be tax deductible when made to prescribed funds. Not all charitable donations are tax-exempt; donations made to specified funds such as the National Defence Fund and the Prime Minister’s National Relief Fund are examples of funds that are considered tax-exempt.
14. HUF Extra Tax Exemption
Hindu Undivided Families (HUFs) are separate tax entities in the eyes of the law. According to the IT act, beyond the taxable income of every individual in the family, HUFs as a family get an additional tax exemption of ₹ 2,50,000 annually regardless of their residency status. You can declare yourself a HUF just with yourself, your spouse, and your children and avail of the additional tax benefits.
15. Home Loan Tax Deduction
Home loans can be expensive. To make it easier, the IT act allows you to get deductions of up to ₹ 1,50,000 on the principal amount of your loan and ₹ 2,00,000 on the interest of your loan annually. You have to speak to your bank regarding availing of this feature before drawing up the terms of your home loan. Discuss section 24 deductions & section 80C with your bank to structure the best tax-saving home loan for yourself.
16. Life Insurance Policy Maturity Amount or Bonus
The maturity amount or bonus you receive on the maturity of your policy is tax-exempt if the premium of your life insurance is less than 10% of the sum assured. Certain insurance policies offer still offer an exception to the 10% of the sum assured rule, so check with your insurance provider to learn more about that feature. Even if your premium value is less than 10% of the sum assured, you still have to pay TDS on the sum assured and any bonuses you receive.
17. Scholarship Amount
Scholarships awarded to students to aid educational expenses are free from income tax. It is mentioned under section 10(16) of the IT act. You are not bound to disclose the scholarship amount in your ITR, but if you choose, you can voluntarily file them under the exempt income schedule in your ITR.
18. National Pension Scheme Contributions
Section 80C allows for contributions of up to ₹ 1,50,000 annually into your NPS account. However, these deductions are the general limit of section 80C. You can avail of an additional ₹ 50,000 deduction on your taxable income by voluntary contribution to NPS annually.
19. Amount Spent to Treat Disabled Dependent
According to Section 80DD of the IT act, you are allowed to get a full deduction of up to ₹ 1,25,000 on your total income. The deductions are based on the percentage of disability, and they are independent of the dependent’s or taxpayer’s age and expenditure. As per the IT act, taxpayers are allowed to get up to ₹ 75,000 deductions for 40% disability of their dependent and the complete amount for 80% disability of their dependent.
20. Wedding Gifts
Wedding gifts, whatever they may be, are exempt from income tax if they are received from direct relatives. If you are gifting to your friends, the cap for wedding gifts is ₹ 50,000, beyond which the gift becomes taxable according to the relevant slab.
How to Save Tax?
Tax saving is not a secret. You can easily save tax using some of the ways mentioned above.
You can take help from your CA or from people more experienced than you to find out the best tax-saving plans. However, tax saving differs based on your income source. If you are a salaried individual, your tax-saving options will differ from an entrepreneur. So, let’s study the tax-saving options available for each income type.
How to Save Tax on Salary
If you are wondering how to save income tax on your salary, you probably have the most options available. From getting benefits under section 80C to structuring your home loan or education loan with your bank, there are various ways you can easily and legally save taxes. You can also claim tax deductions from insurance premiums and health insurance. Plus, there are several donations you can make to claim tax benefits helping you keep your income tax levels in check.
Tax Saving for Entrepreneurs
As an entrepreneur, you can save small business taxes by including your travel expenses under business expenditures. While there are conditions that your travelling needs to fulfil but you can avail of a considerable deduction in your taxes using this method. You can also donate to political parties to save income tax, as the donations are entirely tax-exempt.
Investing money in tax saving instruments
Regardless of your income type, the best answer to how to save tax is to invest your money in tax saving funds. It includes the National Pension Fund, where you can invest up to ₹ 2,00,000 completely tax deductible. Other than that, you have various government schemes where you can invest and get tax benefits accordingly. These methods allow you to save tax while helping you generate wealth for your retirement.
Claiming Tax Benefits from the deducted amount
Certain expenses are deemed necessary and can be used to reduce your tax burdens. The IT act has guidelines to specify the expenses that can be considered under this category. So, read up on them and discuss them with your CA to learn more about how you can claim tax benefits from the deducted amounts.
Saving Taxes Under Sec 80C,80D,80EE
Section 80C
| Section 80D
| Section 80EE
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PPF investments
| Medical insurance premium for self and dependents
| Deductions on interest of your home loan
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EPF Investments
| Rehabilitation costs of handicapped dependent
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Insurance premiums
| Deductions on payment made towards treatment of certain medical conditions of self and dependents
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Deductions on the principal amount of your home loan
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Deductions on the stamp duty paid on purchase of property
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ULIP investment
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Deductions on tax saving FD investment
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Deductions on investments made in government schemes like NSC, SSY, SCSS, and NPS
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Key Takeaways
To summarize, tax saving is possible, and it is legal. If you are interested in learning more about tax saving or about investment options that can help you save tax, check out IndiaFirst Life’s insurance plans. We offer guaranteed returns on your investments for retirement and term plans. Check out our IndiaFirst ULIP Plans & Retirement Plans for the best tax saving options while growing your wealth. Or you can connect with our experts who will guide you to the right insurance plans that meet your needs appropriately. Wishing you happy tax savings in 2024.
Disclaimer: Income Tax benefits will be made available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. IndiaFirst Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in documents/mail. To know the tax benefits available to you, please consult your own tax consultant.
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