Saving taxes legally is a goal for many individuals, especially salaried employees, who are looking to reduce their tax burden while staying compliant with the law. If you’re wondering how to save ₹1.5 lakh in taxes every year, you’re in the right place. In this article, we will explore a range of tax-saving options in India, with a focus on income tax deductions under section 80C, tax planning for salaried employees, and other legal ways to save tax.
Whether you’re looking to plan ahead or seeking income tax saving tips, we’ll walk you through the process step-by-step. By the end of this guide, you’ll have the knowledge to reduce your taxable income legally while making smart investments that yield long-term benefits.
Why It’s Important to Save Tax in India
Before diving into the specifics, it’s important to understand why tax saving is critical. The Indian government provides numerous provisions in the Income Tax Act to encourage taxpayers to save and invest, particularly for retirement, children’s education, and healthcare. By leveraging these provisions, you can not only reduce your tax liability but also build a solid financial future.
Tax saving isn’t just about reducing your tax bill — it’s also about making strategic investments that will benefit you in the long run. So, let’s take a look at the best legal ways to reduce taxable income in India.
Step-by-Step Guide to Save Income Tax Legally in India
The Indian Income Tax Act allows several options for tax saving. From section 80C deductions to investments in specific schemes, here’s how you can save ₹1.5 lakh every year.
1. Income Tax Deductions Under Section 80C
Section 80C of the Income Tax Act is one of the most widely used avenues for tax saving in India. It allows taxpayers to claim deductions of up to ₹1.5 lakh on various qualifying investments and expenses.
What is Eligible Under Section 80C?
Some of the most popular tax-saving options under Section 80C include:
Employee Provident Fund (EPF): Contributions to EPF are eligible for tax deduction. A percentage of your salary is deducted towards EPF, and this amount is eligible for tax benefits.
Public Provident Fund (PPF): A PPF account allows you to invest for the long term (15 years), and the interest earned is tax-free.
National Savings Certificate (NSC): A government-backed investment with a fixed interest rate. It’s a safe option for those who want guaranteed returns.
Tax-Saving Fixed Deposits: These fixed deposits come with a lock-in period of 5 years, and you can claim tax deductions on the amount invested.
Life Insurance Premiums: Premiums paid for life insurance policies are also eligible for deductions under 80C.
Tuition Fees: Tuition fees for your children’s education, up to a maximum of two children, are eligible for deductions.
By strategically investing in these tax-saving instruments, you can easily claim the full ₹1.5 lakh deduction every year.
2. Tax Saving Tips for Salaried Employees
Salaried employees often find it tricky to manage tax planning due to the mandatory deductions from their salary. However, there are several ways to reduce the tax burden:
Optimize Your Salary Structure
Employers typically provide a Salary Structure that includes different components such as House Rent Allowance (HRA), Special Allowance, and more. By optimizing your salary structure, you can lower the taxable income.
HRA Exemption
If you’re renting a house, you can claim a tax exemption under House Rent Allowance (HRA). The amount you can claim depends on your salary, the rent you pay, and the city you live in. This is one of the best investment for tax saving strategies for salaried employees.
Standard Deduction
Salaried employees are eligible for a standard deduction of ₹50,000, which reduces their taxable income.
Leave Travel Allowance (LTA)
LTA is provided by many employers and can be claimed for travel expenses incurred for domestic travel. It’s a great way to save on taxes while taking a vacation.
3. Best Legal Ways to Save Tax – Other Tax-Saving Investments
If you’ve already maxed out your ₹1.5 lakh under Section 80C, there are additional ways to save tax legally:
3.1. National Pension Scheme (NPS)
Under Section 80CCD(1B), you can invest an additional ₹50,000 in the National Pension Scheme (NPS). This is over and above the ₹1.5 lakh deduction under Section 80C. The NPS is a great way to save for your retirement while enjoying tax benefits.
3.2. Health Insurance Premiums (Section 80D)
You can claim deductions for premiums paid towards health insurance policies under Section 80D. The deduction limit is ₹25,000 for individuals below 60 years, and ₹50,000 for senior citizens.
3.3. Interest on Home Loan (Section 24B)
If you have a home loan, you can claim a deduction of up to ₹2 lakh annually on the interest paid on the loan under Section 24B. This is a great option for those who have invested in property.
3.4. Tax-Saving Bonds
Investing in tax-saving bonds under Section 80CCF also provides opportunities for tax saving. These bonds have a lock-in period of 5 years and can offer returns with tax benefits.
FAQs: Common Questions on How to Save ₹1.5 Lakh Income Tax Under Section 80C
1. How to save ₹1.5 lakh income tax under section 80C?
To save ₹1.5 lakh in taxes under Section 80C, you can invest in options like PPF, NSC, Tax-Saving Fixed Deposits, and Life Insurance Premiums. Each of these investments is eligible for tax deductions up to a total of ₹1.5 lakh.
2. What are the top tax-saving schemes for salaried employees?
Some of the top schemes include:
Public Provident Fund (PPF)
Employee Provident Fund (EPF)
Tax-Saving Fixed Deposits
National Pension Scheme (NPS)
These schemes help reduce taxable income and provide secure, long-term investment opportunities.
3. How to claim deductions to save on income tax?
To claim deductions, you need to ensure you have invested in eligible instruments (like PPF, insurance premiums, etc.) and submit proof of these investments to your employer or the Income Tax Department when filing returns.
4. How to invest ₹1.5 lakh for maximum tax benefit?
You can distribute the ₹1.5 lakh across different options like PPF, EPF, Tax-Saving Fixed Deposits, and Life Insurance Premiums for both tax benefits and financial security.
5. What are the best investment options for tax saving in India?
The best options depend on your financial goals, but generally, PPF, NPS, and EPF offer solid returns with tax-saving benefits. These are safe and government-backed schemes.
6. How do I save tax on income of ₹5 lakh?
If your annual income is ₹5 lakh, you can save tax by claiming deductions for investments under Section 80C, health insurance under Section 80D, and interest on home loans under Section 24B. Additionally, you can apply for a rebate under Section 87A, which offers a ₹12,500 rebate for income up to ₹5 lakh.
7. Can I save more than ₹1.5 lakh on taxes in India?
Yes, by combining Section 80C investments with NPS (Section 80CCD), Health Insurance Premiums (Section 80D), and other deductions, you can easily save more than ₹1.5 lakh.
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