Best Income Tax Saving Options in India
If you are an earning individual in India, you have to pay taxes in case your annual income falls under a tax slab. Both salaried and self-employed individuals have to bear the liability of paying taxes if they earn above a certain limit. Paying taxes is necessary as it is one of the major sources of revenue for the government. However, there are several provisions under different sections of the Income Tax Act that allow you to save taxes. We will learn about such popular tax saving options that you can use to lessen your tax burden.
Popular Tax Saving Schemes in India
The tax laws of India offer us a number of ways by which we can save taxes by investing in different schemes. The tax saving investment options can be availed easily by most individuals.
Tax Exemptions Under Different Income Tax Sections
To start with, there are three most important sections under the Income Tax Act that allows you to claim tax deductions by making investments in the following ways:
How to Save Income Tax Under Section 80C
You can claim tax exemptions under Section 80C of the Income Tax Act by making an investment of Rs 1.5 lakh. Further, you can claim an additional deduction of Rs 50,000 under Section 80CCD (1b) by investing in the National Pension Scheme (NPS), which is also considered as the best tax saving plan by many low-risk appetite investors.
Section 80C is the most popular tax saving provision. It gives individuals and Hindu Undivided Families (HUF) a number of tax saving investment options where the taxpaying entity can claim a deduction of up to Rs 1.5 lakh annually. Here is the list of different tax saving investment schemes that you can avail and enjoy tax benefits every year.
Tax Saving Options for Salaried 2020-21
| Investment Scheme | Lock-in Period | Annual Returns | Tax Deductions | Other Information |
| Insurance Plans | Minimum 3 years | Vary from plan to plan | Up to Rs 1.5 lakh | Tax deduction is allowed both on policy premium and maturity amount |
| Equity Linked Savings Schemes (ELSS) | Minimum 3 years | Variable | Up to Rs 1.5 lakh | Only capital gains are eligible for tax deductions. Dividends are taxable |
| Unit Linked Insurance Plan (ULIP) | Minimum 5 years | Variable | Up to Rs 1.5 lakh | Tax deduction is allowed both on policy premium and maturity amount |
| National Pension Scheme (NPS) | Until retirement | 9-12% | Up to Rs 1.5 lakh | Additional deduction of Rs 50,000 |
| Public Provident Fund (PPF) | 15 years | 7.1% (latest) | Up to Rs 1.5 lakh | Contributions, interest earned, and maturity, all are allowed for tax deductions |
| Sukanya Samriddhi Yojana | 21 years | 7.6% (latest) | Up to Rs 1.5 lakh | Investments, interest earned, withdrawal amount, and maturity amount, all are eligible for tax deductions |
| National Savings Certificate (NSC) | 5 years | 6.8% | Up to Rs 1.5 lakh | No TDS applicable on the payout. Tax on payouts are applicable as per the investor’s tax slab |
| Senior Citizen Saving Scheme (SCSS) | 5 years | 7.4% | Up to Rs 1.5 lakh | Deduction is applicable for TDS |
| Bank Fixed Deposits | Minimum 5 years | Vary from bank to bank, usually between 5.5-7.75% | Up to Rs 1.5 lakh | N/A |
How to Save Tax Under Section 80D
The section 80D of the Income Tax Act allows you to claim a tax deduction of up to Rs 1 lakh for premiums paid in medical insurance. Individuals can also claim deductions for expenditures incurred in preemptive health check-ups, medical expenditure on the health of a senior citizen not having any medical insurance policy coverage, contributions made to any Central Government health scheme.
Different limits of tax deductions under different cases:
| Case | Total Premium Paid | Deductions Allowed | |
| Self, children, family | Parents | ||
| If the individual, family, and parents are below 60 years of age | Rs 25,000 | Rs 25,00 | Up to Rs 50,000 |
| If the individual and family are below 60 years but the parents are above 60 years | Rs 25,000 | Rs 50,000 | Up to Rs 75,000 |
| If the individual, family, and parents, all are above 60 years of age | Rs 50,000 | Rs 50,000 | Up to Rs 1 lakh |
| HUF members | Rs 25,000 | Rs 25,000 | Up to Rs 25,000 |
| NRIs | Rs 25,000 | Rs 25,000 | Up to Rs 25,000 |
How to Save Tax Under Section 80EE
The section 80EE of the Income Tax Act allows individuals to claim a tax deduction of up to Rs 50,000 on the payment of home loan interest. The house property buyers during FY 2016-17 are eligible for tax exemptions under this section. Section 80EE came into force from the FY 2013-14 and offered tax benefits until FY 2014-15. The government of India reintroduced the section with some modifications in the favour of the taxpayer. The newly introduced Section 80EE allows tax deduction of up to Rs 50,000 every year until the complete repayment of the home loan. Taxpayers should know that there are certain conditions to be eligible for income tax saving under this scheme.
Conditions Under Section 80EE
- The house property value should not be more than Rs 50 lakhs
- The loan amount should be more than Rs 35 lakhs
- The loan must be sanctioned by the lender between 1st April 2016 and 31st March 2017
- The house property buyers should not be owning any other house property when the loan is sanctioned
Other Tax Saving Options Under Income Tax Act
Tax Saving Under Section 80G
The section 80G of the Income Tax Act allows individuals to claim tax deduction for making donations. The taxpayer can claim a deduction of 50% and 100% based on the nature of donation made.
Tax Saving Under Section 24
The section 24 of the Income Tax Act allows tax deductions of up to Rs 2 lakhs for the interest paid on home loan.
Tax Exemption in HRA
A salaried individual who receives HRA as a part of their salary can claim HRA exemption for payment of rent.
How investment instruments can I have to enjoy tax-benefits?
There is no limit on the number of tax saving investment instruments you can avail to invest in and enjoy different amounts of tax deduction.
How much can I save under Section 80C?
You can claim tax deductions of up to Rs 1.5 lakh with tax saving investments options eligible under Section 80C. You can further claim an additional tax deduction of Rs 50,000 for investments made in NPS.
Should I buy multiple life insurance policies to save taxes?
The main goal from life insurance or health insurance policies should not be saving taxes. It is recommended to buy a single policy plan which is comprehensive.
How much tax deduction is allowed in Section 80D?
An individual can claim a tax deduction of up to Rs 1 lakh under Section 80D for payments made in insurance policy premiums of self, family, and parents.