How to save tax on salary in India?

We get paid so that we get into debt and then, pay taxes with whatever is left for food. Do we feed our family, or the egos of the robots running the state?

You get on cloud nine as your bank balance grows. But do you know who else is excited to see your money grow? No, not talking about your family. It’s the Income Tax Department. Be it taxes on salary or business income, nobody likes paying a part of their income to the government, not even us. We have found a legal leeway in this and sharing this with you today.

So, there are many legal ways to save taxes on your income. After all, who wouldn’t want to take home more? 

We bet that most of you would already know about Section 80C of the Income Tax Act. But today, our main focus would be to familiarise you with options other than 80C. Let’s dive in.

National Pension System (NPS)

Section: 80 CCD (1B)

NPS is an amazing option for saving taxes and planning for your retirement. Whether you’re a self-employed individual or working in a corporate, this scheme is for you if you want to save over and above 80c. 

For self-employed individuals: If you’ve used your 80C limit, you can further save tax by investing up to Rs 50,000. If you haven’t exhausted your 80C limit, first, you can invest up to 20% of your gross annual income (maximum limit 1.5 lakhs) and then additional Rs 50,000 for further tax deductions.

For salaried individuals: The process is the same as self-employed fellows if you have used your 80C limit. If you haven't exhausted your 80C limit, you can first invest up to 10% of your salary (maximum limit 1.5 lakhs) and then additional Rs 50,000 for further tax deductions.

Repayment of Education Loan

Section: 80E

Education loan is bliss for parents who wish to get their children education from top recognized universities without any liquid funds available. But who knew this could be a tax-saving tool as well? 

You can avail tax deduction on the interest component of your student loan. The good news? Anyone among you or your child can avail of the benefit, whosoever wishes to repay the loan. Also, there is no limit to claiming a deduction for interests paid.

However, you need to keep in mind that deduction is only available if you take a loan from a recognised lending institution and not your friends or relatives. Also, you won’t get the benefit on the principal amount paid.

House Rent Allowance

Section: 10 (13A) or 80GG

Do you live in a rented apartment? If you do, you can avail of exemption on payment of tax. But if you do not live in a rented apartment, you may skip this part. Also, if you have chosen to opt for a new tax regime from the financial year 2020-21, you are not eligible for this. 

Both self-employed and salaried individuals are eligible for this as long as they do not live in their own houses. 

If your employer does not pay HRA, you can opt for the same route as self-employed individuals to avail of HRA exemption. If your employer pays for HRA while computing tax calculation, HRA exemption will be the lowest of the HRA your employer pays you, actual rent paid minus 10% of basic pay, OR 50% or 40% of basic salary plus DA depending upon if you live in a metro or a non-metro city.

Interest on Savings Account

Section: 80TTA

Interest on savings accounts held in the post office, banks or cooperative societies is taxable under the head “income from other sources”, though no TDS is deducted. The maximum of Rs 10,000 can be claimed as a deduction. This does not include any interest earned from FDs. 

However, it is crucial to note you can not open as many savings accounts to claim the deduction. It includes all the interests earned from all the savings accounts combined. The deduction is available to individuals and HUFs. 

Home Loans

Section: 24 (B)

Thinking of buying a new home for your family? We have great news for you. How does it sound when we say you can save taxes on the interest component of your home loan? Exciting, no?

A home is considered an asset by Indian households. But building it comes with a lot of expenses, especially huge interest rates by lending institutions. If you’re planning to apply for a home loan, you take advantage of deduction on interest upto Rs 2,00,000. The limit is the same if you’re not able to live on the property due to one or the other reasons, say employment in a different city.

If the property on which the home loan is taken is to be rented or deemed to be rented and not self-occupied, there is no restriction on the deduction amount. You’re eligible to claim a tax deduction on the whole interest.

You need to make sure to complete the construction of the house property within 5 years of taking a loan. If not, your deduction will be reduced to Rs 30.000.

Home Loan for First-Time Buyers

Section: 80EE

The feeling of owning a property for the first time is beyond beautiful. To make your experience even more incredible, the government has provided an extra incentive. On above the Rs 2,00,000 limit under Section 24 and Rs 1,50,000 under 80C, first-time home buyers can avail of an extra tax deduction on the interest component of up to Rs 50,000.

The eligibility criteria for this are:

1. You should not own any other property till the date of sanction or application of a home loan.

2. The amount for the loan should be 35 lakh or less

3. The value of the home should be 50 lakh or less

Health Insurance Premium

Section: 80D

Getting yourself and your family members a health insurance plan is a token of love in present times. It is no longer an option in times of rising inflation. But do you know it helps in saving your taxes too?

The benefit of tax deduction is available for health insurance paid for self, children, spouse and parents. You can not claim benefits if a premium is paid for your brother, sister or in-laws.

Charity/ Donation

Section: 80G, 80 GGA

Donating money for a good cause is not only a good deed but also helps you save tax liabilities. If you are an individual, company or any other person, you can claim tax deductions on donations made to prescribed funds.

If you wish to donate beyond Rs 2,000, you’re only eligible for such deduction if you make donations through ways other than cash like cheque. Depending upon the institutions and funds, you can claim 50% or 100% of the donation. Donations with a 100 % deduction are subject to 10% of gross total income. This comes under section 80G.

If you make donations towards rural development or scientific research purposes, you can claim a deduction under 80 GGA. The deduction is not allowed to donors who have income/loss from business/profession.

Treatment of Specified Diseases

Section 80DDB

If you as a taxpayer are going through a specified disease and getting an expensive treatment, a deduction on tax liability can be claimed while filing an ITR. You can even avail of the deduction if you have dependents getting costly treatments. 

The deduction limit can be upto Rs 40,000 or the actual amount paid, whichever is less. In the case of dependents, the amount can go upto Rs 1,00,000.

However, you must have proper proof of prescriptions/treatment from qualified specialists to claim the deduction.

Section 80C

We kept this for last since almost every individual is aware of it. Investments under this section are eligible for a tax deduction of upto Rs 1,50,000. The options are:

1) Equity Linked Saving Scheme (ELSS)

2) Fixed Deposit (FD)

3) National Pension Scheme (NPS)

4) Unit Linked Insurance Plan (ULIP)

5) Sukanya Samriddhi Yojana

6) National Savings Certificate

7) Senior Citizen Saving Scheme

8) Insurance

9) Public Provident Fund (PPF)

The Bottom Line

Tax planning is crucial because it reduces your burden of tax liability. But most individuals make tax-saving their end goal. However, you should choose an investment option based on your end financial goals, risk appetite and tenure of investment. And if it comes with the benefit of saving taxes, there’s nothing better than this.

For example, you should not take a study loan because you want to save tax and claim available deductions. However, you should only take such loans when you actually need them. 

You should consult with your financial advisor for customised financial planning. Happy tax saving!