Budget 2021 update :It has been proposed to exempt the senior citizens from filing income tax returns if pension income and interest income are their only annual income source. Section 194P has been newly inserted to enforce the banks to deduct tax on senior citizens more than 75 years of age who have a pension and interest income from the bank.

All You Need to Know About Saving Income Tax

Recommended ways of saving taxes under Sec 80C & 80D

  • Make investment of Rs 1.5 lakh under Sec 80C to reduce your taxable income

  • Buy Medical Insurance & claim a deduction up to Rs. 25,000 (Rs 50,000 for Senior Citizens) for medical insurance premium under Section 80D

  • Claim deduction upto Rs 50,000 on Home Loan Interest under Section 80EE

Invest in ELSS funds
under Sec 80C deductions
  • Lowest Lockin of 3 years
  • Option to invest monthly
  • Higher Interest rates than FD/PPF

Investment options under Sec 80C

The most popular tax-saving options available to individuals and HUFs in India are under Section 80C of the Income Tax Act,Section 80C includes various investments and expenses you can claim deductions on – up to the limit of Rs. 1.5 lakh in a financial year.

For more on tax-saving investments and expenses, read our extensive Section 80C guide.

Investment 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 Chosen 5 years
Sukanya Samriddhi Yojana (SSY) 7.60% N/A
Senior Citizen Saving Scheme (SCSS) 7.40% 5 years

Other Tax Saving options beyond Sec 80C

Apart from the 80C deductions, there are various deductions under Section 80 you can use to save on income tax. Tax benefits on health insurance premiums and home loan interest are a few.

  • Buy Medical Insurance & claim a deduction up to Rs. 25,000 (Rs 50,000 for Senior Citizens) for medical insurance premium
  • Claim deduction upto Rs 50,000 on home loan interest under Section 80EE
  • A home loan would also help you in reducing your taxable income as the principal portion of home loan can be claimed under Section 80C upto Rs 1.5 lakh and the interest portion can be claimed as a deduction from income from house property

How to plan your tax-saving investments for the year

The best time to start planning your tax-saving investments is at the beginning of the financial year. Most taxpayers procrastinate till the last quarter of the year, resulting in hurried decisions. Instead, if you plan at the start of the year, your investments can compound and help you achieve long-term goals. Remember, tax-saving should be an additional perk and not a goal in itself.

Use the following pointers to plan your tax-saving for the year:

  • Check the tax-saving expenses you already have – like insurance premiums, children’s tuition fees, EPF contribution, home loan repayment etc.
  • Deduct this amount from Rs 1.5 lakh to figure out how much to invest. You needn’t invest the entire amount, if expenses are covering the limit.
  • Choose tax-saving investments based on your goals and risk profile. ELSS funds, PPF, NPS and fixed deposits are some of the popular options.

This way, you can figure out how to exhaust the 80C limit. It is best to begin investing in the first quarter of the financial year so that you can spread the investments over the year. Doing this won’t burden you at the end of the year and will also allow you to make informed investment decisions.

FAQs – Frequently Asked Questions

  • How Income Tax works in India?
    Given a choice, most of us wouldn’t want to pay tax on the income we earn. But we should. As citizens of India, we are also consumers of the country’s public infrastructure and facilities, and income tax is an important source of revenue for the government. So, it is our duty and responsibility to contribute towards building and maintaining the public infrastructure. Paying income tax and filing income tax returns on time ensure that.

  • Why are income taxpayers less in number?
    Government data for AY 2014-15 shows that only around 1.5% of Indians pay income tax. This is because India is a developing country and 93% of Indian households earn less than Rs. 2.5 lakh annually, which is the minimum threshold limit for taxable income. Furthermore, agricultural income is entirely exempt from tax even when it crosses this Rs. 2.5 lakh limit. Hence, anyone who earns a taxable income should be proud to be a part of the tax-paying population.

  • What is legal tax avoidance in India
    While the government expects you to pay income tax, it also allows you to legally save on income tax. You don’t have to pay income tax if you earn less than Rs. 2.5 lakh in a year. Income more than that is taxed as per different slabs, with the tax rates going up with increase in income. No matter how much taxable income you earn, there are certain exemptions and deductions available to all individual and HUF taxpayers that can be used to pay less income tax.

  • How to save taxes in India?

    In India, a person can legitimately save his income taxes by investing his money in the popular tax savings options.

    1.One of the options is Section 80C. One can invest and claim Rs. 1.5 lakhs in the options available like PPF, NPS, EPF, Life insurance premium, tax-saving mutual funds (ELSS), children’s tuition fees and housing loan principal repaid among others.

    2.You can claim deduction up to Rs. 2 lakh for the interest component paid by you on the home loan, if any. Just claim this under section 24 of the Income from house property head.

    3.You can avail a benefit of Rs. 25,000 for the health insurance premium paid for yourself, your spouse and your dependent children under section 80D. In addition to it, you can also insure your parent’s health and claim an additional benefit of Rs. 25,000 under the same section 80D. This deduction limit is Rs 50,000 if your parents are senior citizens. Similarly, there are many tax savings options available under different sections of the Income Tax Act.