Table of Contents
Income tax is a crucial component of the financial landscape in India. From salaried employees to self-employed individuals, everyone needs to pay taxes. But did you know that various tax-saving schemes can help you reduce your tax liability? However, exploring how to save tax in India unveils a range of schemes to save tax in India. Acquiring a comprehensive understanding of these schemes not only aids in reducing tax liability but also offers a pathway to financial security and peace of mind. Understanding these tax deduction schemes can provide financial security and peace of mind.
The direct tax collected by the government of India in FY 2023-24 is ₹18.38 lakh crore, about 17.30% higher as compared to previous financial year. In order to save your tax, several tax-saving options are available for individuals in India to reduce their tax liability. Some of the best ways to save tax in India include investing in tax-saving mutual funds, the National Pension System (NPS), the Public Provident Fund (PPF), and the Equity-Linked Savings Scheme (ELSS). These options provide tax benefits under Section 80C of the Income Tax Act and help individuals save money while also helping them achieve their financial goals.
This article will discuss the best tax-saving schemes in India in 2024 and how to save tax in India in 2024. We’ll examine the various tax-saving options available to taxpayers and explain how each scheme works. Whether you’re a first-time taxpayer or a seasoned pro, this blog will provide valuable insights to help you save money on your taxes.
So, let’s dive in and discover how to keep more of your hard-earned money in your pocket!
Understanding Income Tax
It’s important to understand how tax deduction works in India and the tax-saving options in India.
Check out below how to save tax in India, from the income tax calculation to various tax deductions and exemptions.
1. Calculation of Income Tax
Income tax is calculated based on the money you earn during the financial year. The income tax rate is progressive, meaning the more you earn, the more tax you pay. The taxable income includes salary, capital gains, house property income, profits and gains from business or profession, and other sources of income. Based on your taxable income, the applicable income tax rate is determined.
2. Various Deductions and Exemptions
In India, numerous deductions and exemptions are available to reduce the tax burden. For instance, various tax saving schemes, such as the Public Provident Fund (PPF) and the Equity-Linked Savings Scheme (ELSS), help individuals save tax.
There are also deductions on how to save income tax on investments in health insurance, life insurance, pension schemes, and other approved investments. Tax-free incomes, such as LTA (Leave Travel Allowance), HRA (House Rent Allowance), and other allowances, are exempt from income tax.
Salary Range and Corresponding Income Tax in India
It is important to understand how to save tax on salary range and income tax in India. To help with this, we will explain the tax-saving schemes, slabs and rates for 2023-24 and provide examples and income tax calculations.
Below are the two tables showing the Indian income tax slabs and rates for 2023-24 and examples of income tax calculations based on different income levels.
| Income Tax Slabs and Rates for FY 2023-24 |
| 1. Up to Rs 2.5 lakhs: Exempt from taxation (For individuals below 60 years and non-senior citizens) |
| 2. Rs 2.5 lakhs to Rs 5 lakhs: Exempt from taxation |
| 3. Rs 5 lakhs to Rs 10 lakhs: tax slab is 20% of income |
| 4. Rs 10 lakhs to Rs 20 lakhs: tax slab is 30% of income |
| 5. Above Rs 20 lakhs: tax slab is 40% of income |
| Income Tax Calculations and Examples |
| Example 1: Income of Rs 7.5 lakhs |
| 1. Up to Rs 5 lakhs: Exempt from taxation |
| 2. Rs 5 lakhs to Rs 7.5 lakhs: 20% of Rs 2.5 lakhs = Rs 50,000 |
| Total Income Tax Amount: Rs 50,000 |
| Example 2: Income of Rs 25 lakhs |
| 1. Up to Rs 5 lakhs: Exempt from taxation |
| 2. Rs 5 lakhs to Rs 10 lakhs: 20% of Rs 5 lakhs = Rs 1 lakh |
| 3. Rs 10 lakhs to Rs 20 lakhs: 30% of Rs 10 lakhs = Rs 3 lakhs |
| 4. Rs 20 lakhs to Rs 25 lakhs: 40% of Rs 5 lakhs = Rs 2 lakhs |
| Total Income Tax Amount: Rs 6 lakhs |
Income tax calculations and examples depend on the income earned in a financial year. It is important to note that these income tax slabs and rates only apply for the financial year 2023-24.
There are also various income tax rebates and ways to save tax in India, which can help reduce the tax burden. It is always advisable to consult a qualified tax professional for the best advice and guidance.
How to Save Tax in India: Tax Saving Options
Tax is unavoidable for most of us, but with the right knowledge and planning, you can make the most of your tax liabilities and save more money come tax time.
Below are discussed in detail 15 tax-saving options on how to save tax in India –
1. Employee Provident Fund (EPF)
The Employee Provident Fund (EPF) is a mandatory employee savings scheme. It is managed by the Employees’ Provident Fund Organisation (EPFO) under the Ministry of Labour and Employment. Employees contribute 12% of their basic salary and dearness allowance towards the scheme. A portion of your salary gets deducted monthly towards EPF.
You can claim it as a tax deduction up to a maximum of Rs 1.5 lakh in a financial year. The scheme offers employees a retirement corpus, a pension, and insurance benefits.
The EPFO has an online portal for accessing account details, submitting claims, and tracking status. The scheme also provides partial withdrawal options for emergencies like marriage, education, or medical treatment.
The EPF account is portable and can be transferred from one employer to another. Government-determined interest rates on contributions are frequently higher than bank savings rates. The scheme is tax-exempt at the time of contribution, interest accrual, and withdrawal. The EPFO also offers employees the option of voluntary contribution, known as the Voluntary Provident Fund (VPF).
2. Public Provident Fund (PPF)
The Public Provident Fund (PPF) is a long-term, government-backed savings scheme. It has a tenure of 15 years and offers an attractive interest rate, currently set at 7.1% per annum. The scheme can be opened at any post office or authorised bank branch.
One can invest a minimum of 500 rupees and a maximum of 1.5 lakh rupees in a financial year. The deposits made under PPF are eligible for tax deductions under Section 80C of the Income Tax Act.
Individuals can open PPF accounts, including minors, but only one account can be opened in their name. The scheme also offers the option of partial withdrawals after the fifth year of account opening. However, the withdrawals are subject to certain conditions.
PPF also provides for loans against the balance in the account after the completion of the third year. The scheme has no risk or market fluctuation, making it a safe investment option for risk-averse investors. After 15 years, the account can be extended for five years, with or without making new contributions. The interest earned on the account is also tax-free.
3. National Pension System (NPS)
The NPS is a government-backed retirement savings scheme for salaried individuals and self-employed professionals. It is a government-sponsored pension scheme. It was introduced in 2004 for government employees and extended to all citizens in 2009. NPS aims to provide retirement income security to individuals.
The Pension Fund Regulatory and Development Authority (PFRDA) regulates it. NPS has two types of accounts: Tier-I and Tier-II. Tier-I is mandatory and has a lock-in period until age 60, while Tier-II is optional and has no lock-in period. NPS offers various investment options, such as equity, corporate bonds, government securities, and alternative investments.
A percentage of your salary (up to 10%) is invested in NPS. The contribution to NPS is eligible for a tax deduction of up to Rs 1.5 lakh under Section 80C and an additional deduction of Rs 50,000 under Section 80CCD.
The maturity amount of NPS is taxable, but individuals can withdraw 60% of the corpus at the age of 60 and use the remaining 40% to purchase an annuity. NPS is popular due to its low-cost structure, flexibility, and transparency.
Also Read: Mastering Tax Planning: Why Tax Planning Matters More Than Ever in Today’s Economy
4. Equity-Linked Saving Scheme (ELSS)
Equity-Linked Saving Scheme (ELSS) is a popular tax-saving investment option. ELSS is a type of mutual fund that invests primarily in equity shares. This comes with a three-year lock-in period. The scheme provides tax benefits under Section 80C of the Income Tax Act. The amount invested in ELSS can be claimed as a tax deduction under Section 80C, up to a maximum of Rs 1.5 lakh in a financial year. ELSS is a high-risk investment option that aims to generate long-term capital gains for investors.
Experienced fund managers who strive to produce higher returns than the benchmark index are in charge of it. ELSS funds have a diversified portfolio and invest across different sectors and market capitalizations to reduce risk.
Investors can invest in ELSS through a lump-sum or systematic investment plan (SIP). ELSS is a good investment option for individuals with a high-risk appetite and looking for tax-saving options.
5. Tax-Saving Fixed Deposits (FDs)
Tax-saving fixed deposits (FDs) are popular investment options in India. These FDs have a lock-in period of five years and offer tax benefits up to Rs 1.5 lakh under Section 80C of the Income Tax Act. The interest earned on these FDs is also taxable. The rate of interest offered varies among banks and ranges between 5% and 7%.
These FDs can be opened with a minimum investment of Rs 100 and can go up to Rs 1.5 lakh. The premature withdrawal of investment is not allowed unless under certain circumstances. The interest rate is fixed and does not change during the tenure. The investment in tax-saving FDs is safe and secure as the government backs it. Overall, tax-saving fixed deposits are a good investment option for individuals who want to save taxes and earn a fixed income.
6. National Savings Certificate (NSC)
The National Savings Certificate (NSC) is a government-backed savings instrument in India. It is available at all post offices and selected banks. NSC has a fixed interest rate that is revised quarterly. The current interest rate is 6.8% per year. It has a lock-in period of five years, and the minimum investment amount is Rs 100. The interest earned on NSC is taxable, but it qualifies for tax benefits under Section 80C of the Income Tax Act.
The amount invested in these certificates can be claimed as a tax deduction under Section 80C up to a maximum of Rs 1.5 lakh in a financial year.
Both an individual and a group of people can purchase NSC. It can also be used as collateral for loans. The investment amount and accumulated interest are paid out to the investor on maturity. In the case of premature withdrawal, the interest earned until that point is paid out. NSC is a safe investment option with guaranteed returns suitable for risk-averse investors.
7. Senior Citizen Savings Scheme (SCSS)
The Senior Citizen Savings Scheme (SCSS) in India is a government-backed savings scheme for senior citizens. The scheme offers an interest rate of 7.4%, subject to change. A maximum of Rs 15 lakh can be invested in this scheme. It has a maturity period of 5 years, with the option to extend for another three years.
The scheme is available at designated post offices and public-sector banks. The minimum age to invest in this scheme is 60 years old, while those who have retired can invest at 55. The interest earned on this scheme is taxable and is paid out quarterly.
In the case of premature withdrawal, the interest rate will be reduced by 1.5%. The SCSS scheme is a good option for senior citizens looking to invest their savings for a fixed time with the assurance of government backing and a decent interest rate.
8. Unit Linked Insurance Plans (ULIPs)
Unit-Linked Insurance Plans (ULIPs) are investment products combining life insurance and investment. ULIPs are investment-cumulative insurance plans that offer both life insurance and market-linked returns. ULIPs in India have become popular due to their flexibility and tax benefits.
These policies offer investors the ability to choose from a variety of investment funds. ULIPs allow policyholders to switch funds based on risk appetite and investment goals. The amount invested in ULIPs is eligible for a tax deduction of up to Rs 1.5 lakh in a financial year under Section 80C of the Income Tax Act.
ULIPs provide life insurance, a benefit paid to the beneficiary upon the policyholder’s death. ULIPs in India allow investors to invest in equity, debt, or a combination. The policyholder pays the premium, and the insurer invests the premium in the chosen fund. ULIPs have a lock-in period of five years, and the maturity value is tax-free.
The charges associated with ULIPs in India are premium allocation, policy administration, mortality, fund management, and surrender charges. ULIPs must be compared among insurers to ensure the policyholder understands the charges and benefits.
9. Sukanya Samriddhi Yojana (SSY)
Sukanya Samriddhi Yojana is a savings scheme for girl children. The parents or legal guardians of a girl under ten may open the account. The scheme has a tenure of 21 years, or until the girl child gets married after age 18. The current interest rate is 7.6% per year.
The minimum deposit amount is Rs 250, and the maximum is Rs 1.5 lakh per annum. The account can be opened at any post office or authorised bank. The account can be transferred anywhere in India.
The amount deposited in the account is eligible for tax benefits under Section 80C of the Income Tax Act. One can close the account after the girl child attains the age of 21 or after her marriage of 18 years. Partial withdrawals of up to 50% of the balance can be made after the girl turns 18. The scheme encourages parents to save for their girl child’s education and marriage expenses.
10. Life Insurance Premiums
Life insurance premiums vary depending on the type of policy and the insurer. Premiums can be paid monthly, quarterly, semi-annually, or annually. Age, gender, health, occupation, and lifestyle choices are just a few variables that affect the premium amount. The premiums paid towards life insurance premiums are eligible for a tax deduction under Section 80C, up to a maximum of Rs 1.5 lakh in a financial year.
The younger and healthier the policyholder, the lower the premium. Smokers and those with pre-existing medical conditions may have to pay higher premiums.
Additionally, policies with higher coverage amounts will have higher premiums. It is important to compare different policies and premiums before choosing a life insurance plan. Some insurers may offer discounts or waive premiums for certain groups, such as women or non-smokers. Policyholders can also opt for riders or add-ons to enhance their coverage. It is crucial to understand the terms and conditions of the policy and the premium payment schedule to avoid any lapses in coverage.
11. Health Insurance Premiums
Various factors affect health insurance premiums. Age, medical history, family history, and lifestyle habits are some major factors affecting the premium amount. Health insurance premiums are eligible for a tax deduction under Section 80D, up to a maximum of Rs 1.5 lakh in a financial year. Premiums also vary depending on the type of plan and the coverage offered.
Reading the policy document thoroughly before purchasing a health insurance plan is essential. The premium can be paid monthly, quarterly, or yearly. Non-payment of premiums can lead to policy termination. The premium can be reduced by opting for a higher deductible or co-pay.
It is crucial to compare different plans and their premiums before deciding. Health insurance premiums in India are subject to change, and the insured must be aware of any changes made by the insurance company. In conclusion, understanding the factors that affect the premium amount and being aware of the policy terms and conditions are essential for making an informed decision when purchasing health insurance.
12. Donations to Charitable Institutions
Donating to charitable institutions is a tax-saving option in India. Individuals and companies can claim tax deductions for donations from approved charitable organisations. The amount donated is eligible for deductions up to Rs 2 lakh under Section 80G of the Income Tax Act. The deduction amount varies from 50% to 100% of the donated amount, depending on the charitable organisation type.
Donations can be made in cash, by check, or through online transfers. Donors should ensure they receive a receipt from the charitable organisation as proof of the donation. Charitable institutions must be registered with the Income Tax Department to be eligible for tax deductions.
Donations can be made to various institutions, such as religious trusts, educational institutions, and hospitals. Donating to charity not only helps reduce tax liability but also supports the development of society. It is a noble gesture that benefits both the donor and the receiver.
13. Home Loan Repayment
Home loan repayment is an effective tax-saving option in India. It can help individuals reduce their tax liability significantly. Under Section 80C of the Income Tax Act, individuals can claim a deduction of up to Rs 1.5 lakh on the principal repayment of their home loan. Additionally, under Section 24 of the Act, individuals can claim a deduction of up to Rs 2 lakh on the interest paid on their home loan in a financial year under Section 80EEA.
To claim these deductions, individuals must ensure that the home loan is in their name and that they are the primary borrower. Moreover, they must also ensure that the property they have taken the loan is completed and ready for possession. Home loan repayment offers the dual benefit of owning a house and saving taxes. Therefore, it is an attractive option for individuals looking to invest in property while reducing their tax burden.
14. Tuition Fees for Children
Parents can avail of tax-saving benefits by paying tuition fees for their children. The fees must be paid to schools, colleges, or universities for full-time education. The maximum amount that can be claimed as a deduction is Rs 1.5 lakh under Section 80C of the Income Tax Act.
The deduction is available for up to two children, including adopted children. The parent requesting the tax benefit should pay the fees, which must be for the current academic year. The benefit is available for both salaried and self-employed individuals.
It is important to note that the deduction cannot be claimed for other educational expenses, such as hostel fees, transportation, or examination fees. It is also important to keep the receipts and bills for the fees paid as proof for claiming the deduction during tax filing. By utilising this tax-saving option, parents can not only support their children’s education but also save on their income tax.
15. Medical Expenses for Parents
Medical expenses incurred for treating parents are eligible for a tax deduction of up to Rs 50,000 in a financial year under Section 80D. Taxpayers can claim up to INR 50,000 per year for medical expenses incurred by their parents, who are senior citizens. The expenses can be claimed for parents’ medical bills, hospitalisation fees, and preventive health check-ups.
Taxpayers can claim this deduction for both parents, including stepparents and parents-in-law. The deduction is available under Section 80D of the Income Tax Act, 1961. Taxpayers must ensure they have proof of payment for the medical expenses and are not reimbursed by any insurance policy. This deduction can help taxpayers reduce their tax liability and provide relief from taking care of their parent’s medical expenses.
Saving Your Hard-earned Money
It can be said that how to save tax in India in 2024 is an important activity for individuals, especially in India. There are several methods available to help reduce the tax burden on individuals. From investing in ELSS mutual funds to PPF accounts, ULIPs, and National Savings Certificates, there are various methods on how to save tax in India other than 80C that can be used to save tax in India.
These best tax schemes in India for 2024 provide various effective ways to save tax beyond Section 80C. One can benefit from income tax exemption and salary tax savings by investing in tax-saving schemes such as the Equity-Linked Savings Scheme (ELSS) or the Public Provident Fund (PPF). Evaluating the options available is essential, and choosing the one that suits your financial goals and risk appetite.
By making informed decisions and taking advantage of tax-saving schemes, you can maximize your savings and get the most out of your money. Start planning today and enjoy the benefits of these salary-tax-saving options in the coming year.
Want to explore helpful techniques to save and grow your hard earned money? Dive in to our guide on Save Money.
Frequently Asked Questions (FAQ’s)
The best way to save tax in India is to take advantage of various tax-saving options available. Common tax-saving options include investing in
1. Public Provident Fund (PPF)
2. National Pension System (NPS)
3. Equity Linked Savings Scheme (ELSS)
4. Employees’ Provident Fund (EPF)
Yes, you can claim tax deductions on education loans. Under Section 80E of the Income Tax Act, you can claim tax deductions on the interest you pay on a loan up to a maximum of INR 2 lakhs per year.
To claim tax benefits on a home loan, you can avail of tax deductions on the interest paid and principal repayment under Section 80C of the Income Tax Act. The deductions are limited to INR 1.5 lakhs for interest and principal repayment in a financial year.
The difference between a tax deduction and a tax exemption is that tax deductions are deductions from the gross income, and tax exemptions are deductions from the taxable income. Tax deductions reduce the income subject to tax, while tax exemptions reduce the amount of tax payable.
Investing in tax-saving schemes can reduce your taxable income and save on tax. There are many options available such as:
1. National Pension System (NPS)
2. Public Provident Fund (PPF)
3. Equity Linked Savings Scheme (ELSS)
4. Employees’ Provident Fund (EPF)
Investing in these schemes can help you save money on taxes and plan for your future.
Other Related Reads
To read more related articles, click here.
Got a question on this topic?