How to Save Income Tax in India on Salary Income?
Save Income Tax on Salary for FY 2023-24
Tax planning is important to reduce the tax burden so that it doesn’t hinder people’s wealth creation. For effective tax saving, taxpayers need to identify and make the best use of various instruments available for tax saving and wealth growth. As the CBDT facilitates the more intricate tax collection and related services, individuals should develop an idea regarding how to save tax in India subject to the income tax slab applicable.
Since FY 2023-24 has kicked in, it's time for individual taxpayers in India to begin their financial planning to maximise savings on income tax this year.
Income Tax Slab Rates in India for FY 2023-24 (AY 2024-25)
Income Tax Slabs for FY 2023-24 - New Tax Regime
For FY 2023-24, the new tax regime is the same for all age groups. The revised tax rates are:
| Income tax slabs | Rate of Taxation |
|---|---|
| Up to ₹3,00,000 | Nil |
| Between ₹3,00,001 and ₹6,00,000 | 5% of your total income that exceeds ₹3,00,000 |
| Between ₹6,00,001 and ₹9,00,000 | ₹15,000 + 10% of your total income that exceeds ₹6,00,000 |
| Between ₹9,00,001 and ₹12,00,000 | ₹45,000 + 15% of your total income that exceed ₹9,00,000 |
| Between ₹12,00,001 and ₹15,00,000 | ₹90,000 + 20% of your total income that exceeds ₹12,00,000 |
| More Than ₹15,00,000 | ₹1,50,000 + 30% of your total income that exceeds ₹15,00,000 |
Income Tax Slabs for FY 2023-24 - Old Tax Regime
The Old Tax Regime for FY 2023-24 remains unchanged, and the tax slabs are as follows for individuals under 60 years of age.
| Income Tax Slabs | Rate of Taxation |
|---|---|
| up to ₹2,50,000 | Nil |
| Between ₹2,50,000 and ₹5,00,000 | 5% of your total income that exceeds ₹2,50,000 |
| Between ₹5,00,000 and ₹10,00,000 | ₹12,500 + 20% of your total income that exceeds ₹5,00,000 |
| Above ₹10,00,000 | ₹1,12,500 + 30% of your total income that exceeds ₹10,00,000 |
An additional health and education cess at 4% of the total tax payable is levied. A surcharge of a fixed percentage of the total income also has to be paid by people earning higher than ₹50 Lakh annually. Check out the surcharge rates below, effective from April 1, 2023.
| Taxable Income | Surcharge |
|---|---|
| For those with an income above ₹50 Lakh but below ₹1 Crore | 10% |
| For those with an income of above ₹1 Crore but below ₹2 Crore | 15% |
| For those with an income of above ₹2 Crore | 25% |
Remember that before Budget 2023, the highest surcharge on income over ₹5 Crore was 37%, which has been reduced to 25%, effective from April 1, 2023, with all the other surcharge rates remaining the same.
Even though such rates might seem overwhelming, the Central Government maintains various provisions under the Income Tax Act of 1961, to ease your annual financial burden.
You can learn comprehensive details regarding how to save income tax in India in this article, which will help you save substantially through numerous waivers and exemptions.
8 Ways to Save Tax on Salary in India Legally for FY 2023-24
We tend to invest in various items which enhance our quality of life but can also lead to severe financial strain. To ease this burden substantially, the government provides help in the form of income tax waivers on direct taxes levied on your total salary.
Note that as per Union Budget 2023 some of these tax saving instruments are not available under the new tax regime, effective April 1, 2023.Taxpayers must verify which benefits are applicable to them before investing for tax saving purposes.
1. Opt for the Right Income Tax Regime
Taxpayers can choose from two tax regimes to calculate their taxes. The new income tax regime has been revised after Budget 2023. It allows you to claim a full tax refund if your annual income is up to ₹7 lakhs for FY 2023-24 and a standard deduction of up to ₹50,000; however, no HRA and other deduction benefits are available.
As for the old income tax regime, all the existing tax exemptions like HRA and deductions on interest on home loans, interest income, etc., are available. However, the no tax limit is set up to only ₹2.5 lakhs.
Therefore, it is necessary that taxpayers compare the potential tax savings offered by both the regimes to make an informed decision.
2. Avail a Home Loan and Enjoy Tax Benefits
Availing a home loan is associated with dual benefits, as it comes with diminished tax liability, along with the satisfaction of owning your own home.
Many government-mandated schemes such as PMAY (Pradhan Mantri Awas Yojana) and DDR (Delhi Development Authority) Housing scheme caters towards making housing affordable in India, while Section 80C, 80EEA, and 24(b) diminish monetary liability through reduced tax burden.
| Section | Benefit |
|---|---|
| Section 80C | Deductions of up to ₹1.5 lakhs on the total annual income spent towards repayment of the principal borrowed amount. |
| Section 24(b) | Deduction on the home loan interest for purchasing, constructing a new house, or renovating or repairing an existing home. Tax exemption on home loan interest for both rental and self-occupied property, valued up to ₹2 Lakh annually. |
| Section 80EEA | Annual tax liability on home loan interest for first timers, up to ₹50,000. |
Additionally, if you let-out the newly acquired property on rent, the entire interest component is exempt from annual income tax calculations.
Know more about:- Income Tax Slabs in India
3. Buy a Health Insurance Policy
With rising medical costs in India, coupled with deteriorating health quality owing to multiple factors, availing health insurance is becoming a necessity. Such insurance policies reduce the financial strain of individuals and their respective families at times of failing health conditions.
Tax benefits are extended by the government to stimulate individuals to avail such insurance policies, which allows them to get quality healthcare at premier medical institutions for zero or low additional charges.
Individuals can claim tax deductions on the portion of their annual taxable income spent towards premium payments under section 80D. Different amounts are exempted from such income tax calculations, depending upon the age of the insured, respectively.
| Eligibility | Deduction Under Section 80D |
|---|---|
| Health insurance for individuals, spouse, children (below 60 years) | Up to ₹25,000 |
| For individuals and parents (below 60 years) | Up to ₹50,000 (₹25,000 + ₹25,000) |
| For individuals (below 60 years) and Senior Citizen parents | Up to ₹75,000 (₹25,000 + ₹50,000) |
| For individuals and parents (both above 60 years) | Up to ₹1,00,000 (₹50,000 + ₹50,000) |
The above rates are as per the Income Tax Act, 1961 as amended from time to time.
Provision for tax benefits on the total amount spent on health check-ups is also present under Section 80D, with a maximum cap of ₹5,000. Such exemptions are included within the premium waivers amounting to ₹25,000.
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4. Tax Saving Investments and Government Schemes
Investments in the capital market and government-mandated schemes can lead to wealth accumulation through higher returns, as well as tax-saving benefits.
Numerous government-mandated schemes also offer high returns on total investments along with tax waivers. Individuals can claim up to ₹1.5 Lakhs spent on such investments as tax waivers on total annual income, under Section 80C of the Income Tax Act
Individual taxpayers can avail of tax exemptions under Section 80C by investing in the following tools:
| Scheme | Benefit | Lock-in Period |
| ELSS (Equity Linked Savings Scheme) | Tax exemption of up to ₹1.5 lakhs. | 3 years |
| National Savings Certificate (NSC) | Contribution made towards the PPF account, interest earned and maturity amount, all are tax exempted, up to a maximum of ₹1.5 lakhs. | 15 years (can be further extended for 5 years) |
| National Pension Scheme (NPS) | Up to ₹1.5 lakh under section 80C of the IT Act. Additional deduction up to ₹50,000 Under Section 80CCD (1b). If 10% of the basic salary is contributed by the employer, the amount is not taxed. | Until retirement |
| Bank Fixed Deposits | Deduction of up to ₹1.5 lakh per year | 5 years |
| Senior Citizen Saving Scheme (SCSS) - only for individuals above 60 years | Deduction of up to ₹1.5 lakhs is applicable for TDS. | 5 years (can be extended to 3 more years) |
| Sukanya Samriddhi Yojana (SSY) | Investments are tax exempted up to ₹1.5 lakhs. The interest compounded annually is also tax exempted. The maturity and withdrawal amount are also tax exempted. | 21 years |
| Unit Linked Insurance Plan (ULIP) | Tax deduction up to Rs.1, 50,000 on the policy premium. Top-ups are also eligible for tax deductions under Sections 80C and 10D. | 5 years |
Also, if total capital gains are below ₹1 lakh, no tax has to be paid on the profits earned. All investments amounting up to ₹1.5 Lakh can be claimed for tax waiver under Section 80C as well.
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5. Opt for Life Insurance Plans
Life insurance is a crucial tax saving tool, which also ensures the financial security of one’s family. However, the Union Budget 2023 proposed changes in the tax rules and exemptions for life insurance policies.
For policies issued on or after April 1, 2023, individuals can claim tax exemption on the maturity amount of life insurance policy ONLY IF the total yearly premium is up to ₹5 lakhs or if the aggregate of premiums from multiple policies is up to ₹5 lakhs.
However, taxpayers can continue to claim the tax exemption for the sum assured received on premature demise of the insured under Section 10(10D).
For insurance policies issued till 31st March 2023, the tax benefits of up to ₹1.5 Lakh spent on annual premium can be claimed under Section 80C, provided it is less than 10% of the total sum assured, if the policy is taken after April 1, 2012. In case the policy was availed before April 1, 2012, claims under Section 80C can be made if the total premium payments do not exceed 20% of the sum assured.
Purchase or renewal of life insurance cover, along with annuity payments on such policies through yearly salary is eligible for tax waivers of up to ₹1.5 Lakh under Section 80CCC as well.
Under section 80CCD(1), only certain pension funds under section 23AAB are eligible for waivers of up to ₹1.5 lakhs.
Alao, if individuals decide upon investing in Unit Linked Insurance Plans (ULIP), the insurance section enjoys tax waivers up to ₹2.5 lakh in a financial year. However, ULIPs come with a minimum lock-in period of five years, prior to which, no money can be withdrawn from the scheme.
The portion of investment channelled to the stock market also does not attract any Long-term Capital Gains (LTCG) tax.
6. Exemptions on Rented Premises
Tax exemptions under House rent allowance (HRA) are granted under Section 10(13A). Your salary break-up must include an HRA component to avail compensation against the same.
However, the total tax exemption on rent paid is calculated as the minimum value of three components, stated as:
Annual HRA received.
50% of the yearly salary if the individual is residing in a metro city (40% in case of non-metro cities).
Total annual rent – 10% of the basic salary.
In case your monthly income does not include the HRA component, you can claim tax benefits on yearly rental expenses under Section 80GG. The total deductions on income tax are calculated against the minimum value of the following conditions –
Rent payment of up to ₹5,000 per month.
25% of the gross total income.
Total rent minus 10% of basic salary.
Thus, you can learn about how to save tax in India on salary through house rent allowance by keeping in mind the above-stated points.
7. Donate to Charity
Donations made to specific organisations in cash are eligible for tax waiver under Section 80G of the income tax act. Wire and bank transfers, on the other hand, enjoy complete or partial tax exemptions, respectively.
If you are donating to an organisation facilitating scientific research or rural development, you are eligible to enjoy deductions under Section 80GGA.
Partial waivers in case of cash donations are granted, while transfers made through cheque or draft enjoy complete tax waiver.
8. Support a Political Party
All donations made to political parties or contribution to electoral trusts are eligible for tax waivers, under Section 80GGC of the Act of 1961.
The entire amount donated to your preferred political party is exempt from any income tax calculations, provided the organisation is registered under Section 29A of the Representation of People Act of 1951.
Such donations have to be made through wired or banks transfers itself; cash deposits are not allowed.
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Other Tax Saving Options in India
All these above methods will give an inclusive idea about how to save tax in India. Apart from this, several other tax saving instruments can be considered such as:
| Section | Benefits |
|---|---|
| Section 80DDB | Expenditure incurred by individuals for medical treatment of specified diseases is exempted from tax. Medical bills of up to ₹40,000 for treatment of specific diseases can be submitted to receive tax waivers. Senior and super senior citizens get extended benefit amounting to ₹1 Lakh. |
| Section 80DD | If you host a dependent family member who has a permanent disability, you can claim a tax exemption on all expenses borne for funding the livelihood of that person. Up to ₹75,000 for individuals with over 40% disability. Up to ₹1,25,000 for people who suffer from 80% or higher disability. |
| Section 80E | You can forego any tax paid on the interest towards education loans. However, such benefits are only applicable for the first eight years of loan repayment. |
| Section 80TTA | Deduction on interest earned from the bank savings account, up to ₹10,000. |
All these points will substantially reduce your total taxable income for a stipulated financial year, as well as help you know more about the various government-mandated provisions. Make sure you submit the income tax return form and Form 16 provided by your employer to get subsequent proceeds.
FAQs about Saving Income Tax in India
Can I submit an income tax return (ITR) form online?
Yes, you can fill and submit your ITR form online by visiting the official portal of the Income Tax department of India.
Do I have to pay tax on the accrued interest on my savings account?
You can claim tax waivers on interest earned on savings accounts, provided the total interest income is less than ₹10,000. Such a tax rebate is given under Section 80TTA of the Income Tax Act.
What is the income tax on ₹7 lakhs salary?
You do not have to pay any income tax under the new income tax regime as per the Union Budget 2023, if you earn up to ₹7 lakhs, as you can claim a rebate of ₹25,000 under section 87A.
What is the new income tax rule for life insurance, as per Union Budget 2023?
For policies bought after April 1, 2023, the maturity income from a life insurance policy will be taxed if the total yearly premium or aggregate of premiums from multiple policies is more than ₹5 lakhs. However, the new rule will not affect the ULIP plans.