The Indian Income Tax system provides various exemptions and legal loopholes to minimise the tax burden on taxpayers. By utilising these legal provisions strategically, one can considerably lower their tax outgo. Keep reading and find out 20 effective ways to maximise tax savings.

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Helpful Ways To Save Income Tax

Here are some of the most effective ways that can help you save up on your income tax.

• Invest Under Section 80C

Section 80C of the Income Tax Act permits deductions up to Rs. 1.5 lakh for investments/payments made towards approved instruments like PPF, NSC, life insurance premiums, NPS, home loan repayment, etc. Ensuring to fully use the Rs. 1.5 lakh ceiling by consistently investing can lower taxable income.

• Claim Home Loan Interest Deduction

Under Section 24, an additional deduction of up to Rs. 2 lakh is available on the interest paid on a home loan taken for a self-occupied property. The combined advantage of Rs. 3.5 lakh per year under Sections 80C and 24 can significantly reduce taxes.

• Invest in ELSS Funds

Equity Linked Savings Schemes offer tax deductions under Section 80C while potentially providing returns through equity markets in the long run. The lock-in period is only three years.

• Contribute to NPS

Apart from the Rs. 1.5 lakh deduction under Section 80C, an additional deduction of up to Rs. 50,000 can be claimed for contributions made to the National Pension Scheme under Section 80CCD(1B).

• Claim Medical Insurance Premium Deduction

Deduction of up to Rs. 25,000 is available for paying own and family's medical insurance premium under Section 80D. An extra Rs. 25,000 deduction for senior citizens' parents.

• Claim Interest from Savings Account

Interest income of up to Rs. 10,000 from a savings bank account is tax-exempt in a year under Section 80TTA. Senior citizens can claim an exemption of up to Rs. 50,000 under Section 80TTB.

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• Claim LTCG Exemption on Shares/MFs

Long-term capital gains (LTCG) up to Rs. 1 lakh arising from equity shares and mutual funds are exempt from tax if held for over one year.

• Claim Housing Rent Deduction

Under Section 80GG, a deduction of up to Rs. 60,000 per year can be claimed for rent paid by taxpayers staying on rent.

• Claim Donation Deductions

Deductions up to 50%/100% of the donation amount are available under Section 80G on donations made to approved charitable institutions.

• Claim Interest Income Deduction

Interest earned from the Post Office Savings Account is fully tax-exempt under Section 10(15)(i).

• Claim Health Check-up Exemption

Preventive health check-up expenses of up to Rs. 5,000 qualify for a deduction from total income under Section 80D.

• Refresh Parents' Health Cover

Deduct premium paid towards preventive health checkups of elderly parents up to Rs. 50,000 under Section 80D.

• Claim Education Loan Interest Exemption

A full deduction is available on interest paid on loans taken for your or a family member's higher education under Section 80E.

• Claim Life Insurance Exemption

The sum received on maturity or claim settlement of life insurance policies is fully tax-exempt in India under Section 10(10D).

• Adjust Additional Tax Paid via TDS

Opt for Tax Deduction at Source from income sources for delayed tax payment. Extra tax withheld can be adjusted against final tax liability at year-end.

• Claim HRA Exemption

Working professionals living on rent can claim an exemption for House Rent Allowance received as part of their CTC to reduce tax liability under Section 10(13A).

• Review Long-Term Capital Assets

Check if any existing long-term investments made 3+ years ago now qualify as long-term capital assets for indexation benefit and lower long-term capital gains tax.

• Monitor TDS and Rectify Errors

Track TDS certificates received from employers/banks and rectify any mismatch before filing returns. Claim unaccounted TDS as a refund.

• Exempt Agriculture Income

Income arising from agriculture and animal husbandry is fully exempt from tax in India under Section 10(1).

• Stay Below Income Threshold

Individuals/HUF with total taxable income up to Rs. 2.5 lakh pay no tax as per the new tax regime.

• Plan Investments in Advance

Carefully evaluate all deduction limits and plan tax-saving investments between April and March to maximise deductions and lower tax outgo.

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• File Returns Through E-Filing

Income Tax e-filing is mandatory if taxable income exceeds Rs. 2.5 lakhs or as prescribed. File returns via the Income Tax portal before the due date to avoid penalties. The Income Tax Department also processes e-filed returns quickly.

Conclusion

In conclusion, planning investments and expenditures wisely to utilise available tax exemptions is an effective way to minimise tax outgo legally.

With some advance calculation and annual tax planning, one can considerably lower their tax liability. It is advisable to consult a tax expert to identify the best suitable tax saving options based on one's financial situation.

For further queries, readers can visit the Income Tax Department’s official portal.