Income tax is paid by an individual, a HUF or any taxpayer other than companies on the income he receives. This tax money is utilised by the government to provide roads, infrastructure, medical facilities, protection etc to the citizens of the country.
Income tax is generally paid as a % percentage of your income, based on the size of your income. There are certain legal ways of saving tax under the Income Tax Act, 1961 via tax saving mutual funds, NPS, life and medical insurance, Home loans etc…
Whether you are an individual or a HUF if you earned income in this country you have to pay tax. Avoiding tax is illegal, however, saving tax using instruments provided by the government is legal and is also called as financial literacy or financial intelligence.
Best ways and options to save tax
When we talk about tax saving in India, there multiple options available to do that, some of the most common sections like 80C, 80CC, 80CCC, 80CCD, 80DD, 80DDB, 80CCG, 80G. To start with the basics you should look at saving tax using the above-listed options. There are more exemptions available where you can save tax however the ones listed below are for starters and are 1st step towards financial planning.
List of Tax Savings instruments with exemptions limits
| Section | Investments | Exemption Limit |
| 80C | Investments allowed in ELSS Mutual Funds, PPF, FDs etc | Max up to INR 150,000 |
| 80D | Medical Insurance Premium for self and dependent parents | Max up to INR 25,000 for self & INR 50,000 for Parents |
| 80CCC | Premium towards any annuity plan or any other life insurance premium for receiving pension | Max up to INR 1,50,000 |
| 80CCD | Contribution towards gornment notified national pension schemes | Max up to INR 50,000 |
| 80DD | Money spend towards treament of family members with 40% disability | Max upto INR 75,000 |
| 80DDB | Money spent towards treatment of family members for critical illness allowed under this section | INR 1,00,000 |
| 80G | Donations made to NGOs and government relief funds & Charitable trust | 50% of donation amount |
| 80E | Interest on education loan | Full amount |
| 80EEB | Interest on electric vehicle loan | 1,50,000 |
| 10(13A) | House Rent Allowance (HRA) | As per salary structure |
Let’s understand some of the important tax-saving instruments in India.
ELSS
ELSS meaning equity-linked saving schemes are mutual funds that are covered under 80C exemption. ELSS has a 3-year lock-in meaning you invest let’s say INR 10,000 today, you would not be able to withdraw this money for 3 years from the date of investment.
This encourages individuals to invest in Equity Linked Schemes and is one of the best return giving tax-saving exemption option
Medical and Life insurance premium
It is so important that everyone should have medical and life insurance for protection from unknown unwanted events in life.
To promote this good practise, the government gives a tax exemption on the premium paid towards both.
PPF
Public provident fund is similar to a fixed deposit. Investors get an interest on the money they deposit. This money is locked in for 5 years and the government uses this money for development and other progressive affairs.
This is one of the most common and famous tax saving instrument in India
If you want to know more about any specific tax saving investment instrument, please comment and let us know and we will write about that as soon as possible.
Hope this article is helpful to you