How to Save Tax On New & Old Tax Regime in India

• Taxpayers in India can save on taxes by choosing between the new and old tax regimes based on their deductions and exemptions.
• Investing in tax-saving instruments like PPF, ELSS, NPS, and insurance plans helps reduce taxable income under Section 80C.
• Home loans offer significant tax benefits on both principal repayment and interest payment.
• You should start tax planning early in the financial year and avoid last-minute investment decisions.

Paying taxes is an essential duty of every responsible citizen. However, it's equally important to be smart about your taxes and save where you can.The Indian Income Tax Act offers several ways to reduce your tax liabilities legally. By understanding these provisions and planning your investments wisely, you can optimise your taxes and keep more of your hard-earned money. Read on to learn about various tax-saving strategies in India.

Here are some tax-saving strategies that can help you lower your tax liability:

Choose the Right Tax Regime

The Indian government introduced the new tax regime in the Union Budget 2020. Under this regime, taxpayers can avail lower tax rates but have to forgo most deductions and exemptions. The old tax regime, on the other hand, offers higher tax rates but allows you to claim various deductions.To decide which regime is better for you, you must compare your total taxable income under both options. If your deductions and exemptions are minimal, the new regime may help you save tax. But if you have significant investments in tax-saving instruments, the old regime could be more beneficial.

If you choose the old tax regime, Section 80C can help you save tax effectively. It allows you to claim deductions up to ₹1.5 lakh on various investments and expenses. Some eligible options are:

Apart from these, life insurance premiums, children's tuition fees, and principal repayment of a home loan also qualify for deduction under Section 80C.

Taking a home loan is a big financial commitment, but it also offers significant tax benefits. You can claim deductions on both the principal and interest components of your EMI.The principal repayment qualifies for deduction under Section 80C, within the overall limit of ₹1.5 lakh. The interest paid on the home loan can be claimed as a deduction under Section 24, up to ₹2 lakh per annum.

Investing in NPS for Additional Tax Savings

The National Pension System (NPS) is a voluntary retirement scheme that offers tax benefits over and above Section 80C. Under Section 80CCD(1B), you can claim an additional deduction of up to ₹50,000 for your contributions to NPS.Furthermore, if you're employed, your employer's contribution to your NPS account (up to 10% of your basic salary) is also eligible for deduction under Section 80CCD(2). This is over and above the ₹1.5 lakh limit of Section 80C.

Saving Tax on Health Insurance Premiums

With rising medical costs, having a health insurance policy is crucial. It not only provides financial protection during medical emergencies but also helps you save tax .Under Section 80D, you can claim deductions on the health insurance premiums paid for yourself, your spouse, dependent children, and parents. The deduction limit is ₹25,000 for self, spouse and children, and an additional ₹25,000 for parents. If your parents are senior citizens (above 60 years), the limit increases to ₹50,000.

Saving Tax on Life Insurance Proceeds

The premiums you pay for life insurance policies qualify for deduction under Section 80C, subject to certain conditions. Moreover, the maturity proceeds or death benefits from a life insurance policy are tax-free under Section 10(10D).If you're looking for a life insurance policy that also helps you save tax, you can consider term plans or unit-linked insurance plans (ULIPs) . Term plans offer high coverage at low premiums, while ULIPs provide a combination of insurance and investment.

Donations made to eligible charitable institutions and funds can also help you save tax. Under Section 80G, you can claim deductions for donations made to approved entities.You can follow any of the above-mentioned strategies (as applicable) to save on taxes. Also Read: 10 Tax Saving Options Other Than 80C

Paying taxes is a legal and moral obligation, but there's no harm in saving where you can. By understanding the various deductions and exemptions available under the Income Tax Act, you can reduce your tax liability significantly.Remember to start planning your investments early, keep proper records, and align your tax-saving strategies with your overall financial goals. With smart planning and informed decisions, you can save tax legally and effectively. Also Read: Most Common Tax Mistakes & How to Avoid Them