Popular Ways to Save Income Tax: Keep What You Earn
Tax planning is not about evading taxes; it's about optimizing your finances. The Indian government provides legal methods to reduce your taxable income. If you earn ₹15 Lakhs but pay tax like you earn ₹10 Lakhs—that is smart planning.
Important Note
The methods discussed below (Section 80C, 80D, HRA, etc.) apply primarily to the Old Tax Regime . If you opt for the New Tax Regime, most of these deductions are NOT available.
1. Section 80C: The Big Umbrella (Max ₹1.5 Lakh)
This is the most popular section. You can reduce your taxable income by up to ₹1.5 Lakhs by investing in specified instruments.
Think of 80C as a bucket with a hole at the top. You can pour money from many sources, but the bucket only holds ₹1.5 Lakhs. Anything extra you pour spills over and doesn't save tax.
| Instrument | Returns | Lock-in | Risk Profile |
|---|---|---|---|
| ELSS (Mutual Funds) | 12-15% (Market Linked) | 3 Years (Lowest) | High |
| PPF (Public Provident Fund) | ~7.1% (Fixed) | 15 Years | Zero (Govt Backed) |
| EPF (Employee PF) | ~8.15% (Fixed) | Till Retirement | Zero |
| Life Insurance (LIC) | 4-6% (Low) | Policy Term | Low |
| 5-Year Tax Saver FD | 6-7% | 5 Years | Zero |
*Note: Principal repayment of your Home Loan and Tuition Fees for children also count under 80C.
2. Beyond 80C: Other Powerful Sections
Most people stop at 80C. That's a mistake. The Income Tax Act has several other sections that allow you to save well beyond the ₹1.5 Lakh limit.
Section 80D: Health Insurance
Deduction for medical insurance premiums paid.
- Self & Family: Up to ₹25,000.
- Parents (Below 60): Extra ₹25,000.
- Parents (Senior Citizens): Extra ₹50,000.
- Preventive Checkup: ₹5,000 (included in above limits).
Max Benefit: ₹75,000 (If you and parents are seniors, ₹1 Lakh).
Section 80CCD(1B): NPS
This is an exclusive extra deduction over and above the ₹1.5L of 80C.
- Investment: National Pension System (NPS Tier 1).
- Limit: Up to ₹50,000.
- Logic: Government wants to encourage long-term retirement planning.
Total Benefit: ₹50,000 Extra.
3. Section 24(b): The Home Loan Advantage
Buying a home on loan is one of the biggest tax savers in India.
- Principal Amount: Covered under 80C (Limit ₹1.5L).
- Interest Amount: Covered under Section 24(b). You can claim deduction up to ₹2 Lakhs per year for a self-occupied property.
If you have let out the property (rented it), there is no upper limit on the interest deduction (though loss set-off is capped at ₹2 Lakhs).
4. HRA (House Rent Allowance)
If you are a salaried employee living in a rented house, you can claim HRA exemption under Section 10(13A). The exempt amount is the lowest of these three:
- Actual HRA received from employer.
- Actual Rent paid minus 10% of Basic Salary.
- 50% of Basic Salary (Metro cities) or 40% (Non-Metro).
Tip: If you live with your parents, you can pay rent to them (transfer money to their account) and claim HRA. However, they must show this as "Rental Income" in their ITR.
5. Section 80E: Education Loan
If you took a loan for higher education (Self, Spouse, or Children), the entire interest component is deductible for 8 years. There is no upper cap on the amount!
The Strategy: How to Pay Zero Tax on ₹10 Lakhs?
Using the Old Regime effectively, a person earning ₹10-12 Lakhs can bring their taxable income down significantly.
- Gross Salary: ₹10,00,000
- - Standard Deduction: ₹50,000
- - Section 80C (EPF+PPF): ₹1,50,000
- - Section 80D (Health): ₹25,000
- - Section 80CCD(1B) (NPS): ₹50,000
- - Section 24(b) (Home Loan Interest): ₹2,00,000
- Net Taxable Income: ₹5,25,000
*Tax on ₹5.25L is very minimal (5% above 5L). With a little more planning (like HRA), this could be zero.
Frequently Asked Questions
Can I claim both HRA and Home Loan Interest deduction? ▼
Yes, absolutely. If you live in a rented house (claim HRA) and have a home loan for a property in another city (or it is rented out), you can claim both Section 24(b) and HRA exemptions simultaneously.
Is ELSS better than PPF for 80C? ▼
It depends on your risk appetite. PPF is risk-free with fixed returns (~7.1%) and a 15-year lock-in. ELSS is equity-linked (market risk) but offers higher potential returns (12-15%) with the shortest lock-in period of just 3 years.
Do these deductions apply to the New Tax Regime? ▼
No. Most deductions like 80C, 80D, HRA, and Home Loan Interest (for self-occupied property) are NOT available under the New Tax Regime. The New Regime offers lower tax rates in exchange for giving up these deductions.