How To Save Income Tax: 5 Tax-Saving Methods You Must Know

Each one of us aims to build a substantial savings corpus to be able to lead a financially stable life. However, while savings is key for a successful financial plan, it’s not enough. Tax planning is another crucial aspect which can have a great impact on your financial plan. Without an effective tax plan, you may end up paying a heft amount as income tax, reducing your savings and leaving you with less money to plan your future.

Here are 5 ways you can use to reduce your taxable income and could create more wealth to secure your future.

1) Investing In Tax-Saving Instruments Covered Under Section 80C

Section 80C of the Income Tax Act offers tax benefits when you invest in certain tax-saving instruments. Some of the tax-saving instruments covered under Section 80C are:

• 5-Year tax-saving fixed deposit

• Children’s tuition fees

• Equity Linked Savings Scheme

• Home loan’s principal amount

• Life Insurance policy premium

• National Pension Scheme

• National Savings Certificate

• Public Provident Fund

• Sukanya Samriddhi Yojana

You must note that the maximum amount that you can claim as a tax deduction under Section 80C is ₹1.5 Lakh.

2) Purchasing Health Insurance For Yourself And Your Dependants

Premiums paid towards health insurance for self, spouse, and dependant children are eligible for a deduction of up to ₹25,000 from your taxable income under Section 80D. Moreover, the premiums paid for senior citizen parents’ health insurance plans are eligible for an additional deduction of ₹30,000 from your taxable income. This includes the expenses of up to ₹5,000 that may be incurred on preventive health check-ups.

3) Making Charitable Donations

Under Section 80G of the Income Tax Act, you can claim a tax deduction on donations made to particular relief funds and charity organisations. However, not every donation qualifies for a tax deduction under this section. You can claim these tax deductions only if you make the donation through a cheque, demand draft, or cash (donations exceeding ₹2,000 will be eligible only if they are made through a mode other than cash). Contributions in kind like food, clothing, medicines, etc., do not qualify for income tax deductions.

4) Donating Money To A Political Party

Section 80GGC of the Income Tax Act provides tax waivers on all donations made to political parties or contributions to electoral trusts. Any amount that you donate to your preferred political party is exempted from any income tax as long as the organisation is registered under Section 29A of the Representation of People Act, 1951. However, such donations must be made through wired or bank transfers since cash deposits cannot be claimed for tax exemptions.

5) Claiming Tax Deduction On House Rent Allowance

If you live in a rented premises and receive House Rent Allowance (HRA) as part of your salary, you can claim a tax deduction under Section 10(13A) of the Income Tax Act. You will be allowed to claim the least of the following three as an income tax exemption:

• Actual HRA received 

• The actual rent paid is more than 10% of salary (Salary= Basic Salary+ Dearness Allowance)

• 50% of the salary if you live in a metro city and 40% of the salary if you live in a non-metro city

Learn more about the HRA Tax Exemption.

However, if you do not receive HRA as part of your salary component or do not own a residential house, you can claim a deduction of house rent expenses from your taxable income under Section 80GG. In such cases, the least of the following three will be allowed as a tax deduction:

• ₹60,000 per annum (₹5,000 per month)

• Rent paid minus 10% of the total income

• 25% of total annual income

Also Read: New Income Tax Slabs For 2023-2024 Explained