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 2024-25 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 Slabs for FY 2024-25 - New Tax Regime

Budget 2024 revised the new regime tax slab rates for FY 2024-25, which are the same for all age groups.

Income Tax Slabs for FY 2024-25 - Old Tax Regime

The old tax regime for FY 2024-25 remains unchanged, and the income tax slabs are as follows for individuals under 60 years of age.

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 tax saving investments to save direct taxes levied on your total salary.

Note that after 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 as per their opted regime, before investing in tax saving instruments.

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 2024. It allows you to claim a full tax refund if your annual income is up to ₹7 lakhs and a standard deduction of up to ₹75,000; 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 ways to reduce taxable income under both the regimes to make an informed decision.

2. Avail a Home Loan and Enjoy Tax Benefits | Old and New Tax Regime

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, while Section 80C, 80EEA, and 24(b) diminish monetary liability through reduced tax burden.

You can avail home loan benefits under the following sections:

3. Tax Saving Options Under 80C | Old Tax Regime

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 tax saving schemes in India 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:

4. Buy a Health Insurance Policy | Old Tax Regime

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.

Health insurance 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.

5. Opt for Life Insurance Plans | Old and New Tax Regime

Life insurance is one of the crucial income tax saving options, 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.

Also, 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 channeled to the stock market also does not attract any Long-term Capital Gains (LTCG) tax.

6. Exemptions on Rented Premises | Old Tax Regime

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 | Old Tax Regime

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 | Old Tax Regime

All donations made to political parties or contributions 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 must be made through wired or banks transfers; cash deposits are not allowed.

Know more about:

• Income Tax Benefits for Senior Citizens
• Income Tax Slab for Senior Citizens

9. Tax Saving Options Other than 80C | Old Tax Regime

All these above methods will give an inclusive idea about how to reduce tax on salary. Apart from 80C tax saving options, several other tax saving instruments can be considered such as: