Best Ways to Save Income Tax for FY 2024-25

Effective tax planning is essential for reducing tax liabilities and enhancing income. The Income Tax Act outlines various deductions for investments, savings, and expenses incurred during a financial year. In this article, we will look into key methods for tax savings. Investing in products that elevate our standard of living is common, but these can also bring about financial challenges. To lessen this impact, the government offers exemptions on income tax relating to the direct taxes on one's total income.

Section 80C of The Income Tax Act

Before delving into the best tax-saving investment options, it's crucial to comprehend a key aspect of the Income Tax Act, specifically Section 80C. This section largely governs tax-saving investment schemes. Under Section 80C, investments made by an individual are eligible for tax exemptions up to a limit of Rs. 1,50,000. This includes various investment options like

However, limited investment choices offer tax benefits beyond this threshold. Let's examine the most effective tax-saving investments under Section 80C.

Tax Benefits of Home Loans Under Sections 80C, 24(b), and 80EEA

Purchasing a home loan can bring significant tax benefits, especially under Sections 80C, 24(b), and 80EEA of the Income Tax Act. Government initiatives like PMAY (Pradhan Mantri Awas Yojana) and DDR (Delhi Development Authority) Housing Scheme aim to make affordable housing in India. These sections provide ways to reduce your tax liability through deductions on home loans.

Section 80C: This section allows for deductions on the principal repayment of a home loan. The total annual amount paid towards the principal is eligible for a deduction up to Rs 1.5 lakh under Section 80C.
Section 24(b): This provision offers tax exemption on the interest portion of a home loan, up to Rs 2 lakh per annum. Additionally, if the property purchased with the loan is rented, the entire interest amount can be exempted from your annual income tax.
Section 80EEA: This is particularly beneficial for first-time homeowners. Subject to certain conditions, it provides an additional tax reduction on your annual tax liability.

Moreover, those who buy property to construct a house can also benefit from Section 24(b), provided the construction is completed within five years from the end of the financial year in which the loan was taken.

Purchasing Health Insurance Policy for Tax Benefits

When you buy a health insurance policy, you can avail of tax deductions under Section 80D of the Income Tax Act. This section allows individuals to claim deductions on their annual taxable income for the amount spent on health insurance premiums. The exemption limit under Section 80D varies based on the insured person's age.

Key points about Section 80D deductions:

Tax Deduction on Premiums: You can claim a deduction for the money spent on health insurance premiums for yourself, your spouse, children, and parents.
Age-Based Exemption Limits: The exemption amount under Section 80D is determined by the age of the person insured. Higher deductions are typically available for senior citizens.

Investing in Government Schemes for Tax Benefits

Investing in government-backed schemes not only offers high returns but also provides tax benefits. Under Section 80C of the Income Tax Act, individuals can claim tax waivers for investments up to Rs 1.5 lakh in such schemes against their total annual income. Here are some government schemes where you can park your money for tax exemptions:

Senior Citizen Savings Scheme (SCSS): Designed for senior citizens, offering attractive interest rates and tax benefits.
Sukanya Samriddhi Yojana (SSY): Aimed at encouraging savings for the girl child's education and marriage expenses.
National Pension Scheme (NPS): A pension-cum-investment scheme that offers tax benefits and aims to provide retirement income.
Public Provident Fund (PPF): A popular long-term investment option with tax-free returns.
National Pension Scheme (NPS): Besides being a retirement-focused scheme, it also provides additional tax benefits under Section 80CCD(1B).

Purchasing Life Insurance for Tax Benefits

Life insurance plans are not just a crucial part of financial planning but also offer notable tax benefits under the Income Tax Act. Here's how you can benefit from these plans: Premium Payments (Section 80C): You can claim tax deductions on the premiums paid for life insurance under Section 80C, up to a maximum of Rs 1.5 lakh annually. However, the premium must be less than 10% of the total sum assured for policies issued after April 1, 2012. For policies issued before this date, the premium should not exceed 20% of the sum assured to be eligible for Section 80C benefits.

Maturity or Death Benefit (Section 10(10D)): The amount received on maturity or the death of the insured is tax-exempt under Section 10(10D).
Section 80CCC: This section covers the acquisition or renewal of life insurance coverage, including annuity payments made through monthly salary. Tax exemptions under this section can also be claimed up to Rs 1.5 lakh.
Section 80CCD(1): Exemptions under this section are applicable for certain pension funds recognized under section 23AAB, with a limit of Rs 1.5 lakh.

By investing in life insurance, individuals can ensure financial security for their families and enjoy substantial tax savings.

Tax-Saving Investment Options Under Section 80C

Section 80C of the Income Tax Act provides various tax-saving investment options for individuals and Hindu Undivided Families (HUFs) in India. These investments and expenses can be claimed for deductions up to Rs. 1.5 lakh in a financial year. Here's a breakdown of these investment options, along with their returns and lock-in periods:

Investment Option	Returns	Lock-in Period
5-Year Bank Fixed Deposit	6% to 7%	5 years
Public Provident Fund (PPF)	7% to 8%	15 years
National Savings Certificate	7% to 8%	5 years
National Pension System (NPS)	12% to 14%	Till Retirement
ELSS Funds	15% to 18%	3 years
Unit Linked Insurance Plan (ULIP)	Varies with Plan	5 years
Sukanya Samriddhi Yojana (SSY)	7.60%	N/A
Senior Citizen Saving Scheme (SCSS)	7.40%	5 years

This table presents a comprehensive view of the various investment options under Section 80C of the Income Tax Act.

Tax Saving Options Beyond Section 80C

In addition to the deductions under Section 80C, the Income Tax Act provides various other sections under which you can claim deductions to save on income tax. Here's an overview of some key tax-saving options beyond Section 80C:

Health Insurance Premiums (Section 80D)

Claim up to Rs. 50,000 for medical insurance premiums (Rs 25,000 for self, spouse, and children, and an additional Rs 25,000 for dependent parents below 60 years).
For senior citizens, the maximum claim can be up to Rs 1,00,000 per annum. If they aren’t covered by health insurance, medical expenses can also be claimed up to Rs 50,000.

Home Loan Interest (Section 24 and Section 80EE)

Deduction on interest paid on a home loan under Section 24 up to Rs 2 lakh.
Additional deduction of up to Rs 50,000 on home loan interest over the Section 24 limit under Section 80EE.
Further, Section 80EEA provides eligibility for an additional interest deduction of Rs 1.5 lakh on purchasing a new house under the affordable housing scheme (extended till 31st March 2022).

Principal Repayment on Home Loan (Section 80C)

The principal portion of the home loan can be claimed under Section 80C up to Rs 1.5 lakh, and the interest portion can be claimed as a deduction from income from the house property.

Donations (Section 80G)

Donations to notified institutions or funds can be deducted under Section 80G.

Education Loan Interest (Section 80E)

Interest paid on education loans is allowed as a deduction under Section 80E.
These additional sections provide ample opportunities for taxpayers to reduce their taxable income through various expenses and investments.

How to plan your tax-saving investments for the year?

Planning your tax-saving investments early in the financial year is key to optimizing your financial strategy.

Why Start Early?

Beginning at the start of the financial year instead of waiting for the last quarter helps avoid rushed decisions. Early planning allows your investments to compound, contributing to long-term financial goals. Tax-saving should be viewed as a bonus rather than the primary objective. Begin by evaluating existing tax-saving expenditures such as insurance premiums, children’s tuition fees, Employee Provident Fund (EPF) contributions, home loan repayments, etc.

Calculate the Remaining Investment Amount:

Subtract these expenses from the maximum limit of Rs 1.5 lakh under Section 80C. This calculation will help determine how much more needs to be invested to utilize the full deduction benefit. Remember, additional investments may not be necessary if your expenses already cover this limit.

Select Investments Based on Personal Goals and Risk Profile:

Choose tax-saving instruments that align with your financial goals and risk tolerance. Popular options include Equity-Linked Savings Schemes (ELSS), Public Provident Funds (PPF), National Pension System (NPS), and fixed deposits.

Plan to Utilize the 80C Limit Effectively:

Aim to start investing in the first quarter of the financial year. This approach allows you to spread out your investments over the year, easing financial pressure at the year-end and enabling more informed decision-making. Following these steps can effectively plan and maximize your tax savings. For comprehensive guidance, explore our detailed Section 80C guide, which covers an extensive range of tax-saving investments and expenses. Remember, a well-planned approach is crucial for a balanced and fruitful financial year.

Latest Update on the Pay Later Option for Income Tax Filing

The Income Tax e-filing portal has recently rolled out a 'Pay Later' option, allowing you to complete your tax filing process before making any tax payments. You can pay taxes after you are done filing. For additional information, please refer to our guide – Pay later option for the Income tax return filing.

Conclusion

In India, tax-saving investments are integral for enhancing your financial portfolio and lessening the tax burden. However, the key lies in carefully evaluating your financial requirements, understanding your risk appetite, and considering your investment timelines before choosing the most appropriate tax-saving options. Tailoring these investments to align with your unique financial situation is crucial. By making well-informed decisions, you can secure a more stable financial future and effectively reduce your tax liabilities. This strategic approach to tax-saving investments is vital to achieving immediate and long-term financial health.