Strategies to Save Tax in a Legitimate Way

Many taxpayers look for options in order to reduce their tax liability. There are various options that can help them lower their tax.

In this article, we will discuss a few strategies that can help taxpayers reduce their tax amount.

Every person wants to reduce their tax liability. There are options that can help them lower their tax amount. However, in order to know how much tax a person must pay, he/she should first understand the tax slabs. Furthermore, there are two income tax regimes, and a taxpayer can choose to pay tax as per the regime he/she selects. While the old tax regime has high tax rates, a person can opt for exemptions and deductions while filing taxes. However, by choosing the new income tax slab, a person can pay tax at lower rates, but he/she will have to forgo most of the exemptions and deductions. Once a person knows the tax slab he/she falls under, he/she can look for options to lower the tax amount.

Options that Can Reduce Tax Amount

Investments

There are various investment options that can help in reducing tax liability. Here are some of them-

Mutual Funds
Tax-Saver FDs
National Savings Certificates

Insurance

One of the best ways to reduce income tax is by purchasing insurance policies. Some of the options are-

Life Insurance
Health Insurance
ULIPs

Loans

Home loans are another option that can help in lowering tax liability.

Tax-Saving Strategies

Use the Section 80C Limit of up to Rs. 1.5 Lakh

Under Section 80C, there are various options that can help a taxpayer lower their tax amount. Here are some of them-

Life Insurance Premiums

Premiums for insurance policies such as term insurance, ULIPs, etc. are eligible for tax deductions up to Rs. 1.5 Lakh.

Tax-Saver FDs

By investing in tax-saver FDs, a taxpayer can claim a tax deduction up to Rs. 1.5 Lakh.

National Savings Certificate (NSC)

An NSC has a tenure of 5 years. The interest generated is calculated towards the Rs. 1.5 Lakh tax deduction limit.

Senior Citizens Savings Scheme

Senior citizens savings scheme has a tenure of 5 years. The contribution made towards this scheme is eligible for a tax deduction of up to Rs. 1.5 Lakh.

Purchase Health Insurance

In case a person buys health insurance, then he/she can avail a tax deduction of up to Rs. 25,000 on the premium paid under Section 80.

Avail a Tax Deduction on a Home Loan

The interest payable on a home loan can be claimed as a tax deduction up to Rs. 2 Lakhs under Section 24. Furthermore, if the homeowner gives the house on rent, then there isn’t any upper limit. Also, under Section 80C, the taxpayer can claim a deduction up to Rs. 1.5 Lakh. Home loans availed for renovation and reconstruction are also eligible for a tax deduction.

Contribute to Charity

A person can avail tax deductions by making charitable donations. There isn’t any upper limit. However, there are rules that restrict the tax deduction amount that can be claimed on charitable donations. In case of most donations to NGOs, the limit is 50% of the amount that is donated.

Avail a Tax Deduction on Rent Paid

A person can claim a tax deduction on the House Rent Allowance (HRA) he/she gets. There is no upper limit, but there are rules that restrict the maximum HRA deduction amount.