How to save Tax in India with the help of Tax Planning ?

Invest in Tax-Saving Instruments

Investing in tax-saving instruments is a smart strategy to reduce your taxable income while growing your wealth.
These instruments, recognized under various sections of the Income Tax Act, offer tax deductions and incentives, making them an essential part of financial planning in India.

1

Key Feature

  • 1

    Equity-Linked Savings Scheme (ELSS)

    ELSS funds are equity-based mutual funds with a 3-year lock-in, offering high returns and tax deductions up to ₹1.5 lakh under Section 80C.

  • 2

    Public Provident Fund (PPF)

    PPF is a 15-year savings scheme with a fixed interest rate, offering tax benefits under Section 80C. Interest earned and maturity are tax-free.

  • 3

    National Pension System (NPS)

    NPS is a government-backed pension scheme offering tax benefits under Section 80C and an extra ₹50,000 deduction under Section 80CCD(1B).

Claim Deductions for expenses

Claiming deductions for various expenses helps reduce your taxable income, leading to lower tax liability. By leveraging eligible deductions under different sections of the Income Tax Act, you can maximize your savings while covering essential costs.

Claim Deductions for expenses

Key Feature

  • Health Insurance Premiums (Section 80D)

    Health Insurance Premiums (Section 80D)

    Deduct up to ₹25,000 for premiums paid for self, spouse, and children, and ₹50,000 for senior citizen parents.

  • Education Loan Interest (Section 80E)

    Education Loan Interest (Section 80E)

    Deduct the entire interest paid on an education loan for higher studies, with no upper limit, for up to 8 years.

  • Home Loan Principal and Interest (Sections 80C & 24)

    Home Loan Principal and Interest (Sections 80C & 24)

    Claim deductions up to ₹1.5 lakh for the principal under Section 80C, and up to ₹2 lakh for interest under Section 24(b) for a self-occupied property.

Opt for Tax-Exempt Allowances

Tax-exempt allowances are specific components of your salary that are not subject to tax, helping you reduce your overall tax liability. By structuring your compensation to include these allowances, you can maximize take-home pay while complying with tax regulations.

Opt for Tax-Exempt Allowances

Key Feature

  • 1

    House Rent Allowance (HRA)

    HRA can be partially or fully exempt from tax, depending on your salary, rent paid, and location of residence.

  • Leave Travel Allowance (LTA)

    Leave Travel Allowance (LTA)

    PPF is a 15-year savings scheme with a fixed interest rate, offering tax benefits under Section 80C. Interest earned and maturity are tax-free.

  • Children’s Education Allowance

    Children’s Education Allowance

    Receive tax exemption up to ₹100 per month per child (up to two children) for education expenses, and an additional exemption for hostel expenses.

Split income with family members

Splitting income with family members is a tax-saving strategy that involves legally transferring income or assets to lower-income family members to reduce overall tax liability.
By utilizing this method, you can take advantage of varying tax slabs within the family.

Split income with family members

Key Feature

  • Gifting Money to Spouse

    Gifting Money to Spouse

    Transfer funds to your spouse, who can invest in tax-saving instruments or assets, with income generated from these investments being taxable in their hands.

  • Creating Fixed Deposits in a Minor Child’s Name

    Creating Fixed Deposits in a Minor Child’s Name

    Interest income up to ₹1,500 per child (for up to two children) can be claimed as a tax exemption under Section 10(32).

  • Investing in a Parent’s Name

    Investing in a Parent’s Name

    If your parents are in a lower tax bracket or are senior citizens, you can gift them money to invest, reducing tax on the interest or dividend income.

Steps for Tax Planning & Savings

01

Assess Your Income and Tax Liability

Evaluate your total income and calculate your tax liability based on current slabs.

02

Maximize Section 80C Deductions

Invest in ELSS, PPF, and insurance to claim ₹1.5 lakh deductions under Section 80C and reduce taxable income.

03

Utilize Additional Deductions

Use deductions under Sections 80D, 24(b), and 80E to lower your tax liability.

04

Tax-Exempt & Income Splitting

Use HRA, LTA, and split income to leverage lower tax brackets.

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Frequently Asked Questions

  • What is tax planning, and why is it important?Arrow

    Tax planning involves strategies to minimize tax liabilities while maximizing savings and investments. It’s essential for optimizing your financial growth and ensuring you keep more of your income.

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