You must have heard this proverb in your life that “Money saved is money earned”. Then, why not save some of your money from income tax payable. Hence here, at WealthDrift, we will discuss the different ways by which you can save income tax on salary in India.
Before we start telling you the ways to save income tax on salary, let’s know the Income Tax Slab defined by the Income Tax dept. of India first.
Income tax slab for individuals below 60 years of age is as below –
| Income Slab (INR) | Existing (Old) Tax Regime (Rate) | New Tax Regime (Rate) |
| Up to 2.5 lakh | Nil | Nil |
| 2.5 to 5 lakh | 5% | 5% |
| 5 to 7.5 lakh | 20% | 10% |
| 7.5 to 10 lakh | 20% | 15% |
| 10 to 12.5 lakh | 30% | 20% |
| 12.5 to 15 lakh | 30% | 25% |
| Above 15 lakh | 30% | 30% |
Note – a) Health and education cess @ 4% of the total tax payable is also levied additionally.
b) Extra Surcharge (%) applicable on Income tax if total income exceeds –
- More than INR 50 Lakh, Surcharge @10%
- More than INR 1 Crore, Surcharge @15%
- More than INR 2 Crore, Surcharge @25%
- More than INR 5 Crore, Surcharge @37%
Some features of tax regimes –
- New Regime is favorable for those who are not usually interested in tax investment instruments. However, Old Regime is for vice-versa.
- You will have the option to choose between both tax regimes every year.
- You will see that tax rates are lower in New Tax Regime, however, tax exemptions & deductions such as Standard deduction of INR 50,000, House Rent Allowance (HRA), Deductions under section 80 of IT, Leave Travel Allowance (LTA), etc. will not be applicable in this regime.
The best suggestion will be to identify your investment habits during the year and calculate the tax accordingly in both regimes to know which would be the better choice for you.
Typical salary particulars
| Particulars | Value (INR) |
| Basic Salary | 3,00,000/- |
| House Rent Allowance | 1,20,000/- |
| Ex gratia | 1,90,000/- |
| Performance Pay (Bonus) | 90,000/- |
| Gross Income (INR) | 7,00,000/- |
Ways to save income tax on salary
1. Claim HRA Exemption
Individuals who live in rented houses/apartments can claim this exemption to lower their tax outgo. There could be two cases –
a) When your employer pays you HRA (Section 10 (13A))
a.1) Living in a rented house – You can claim a tax deduction of the least of the following amounts –
- Actual received HRA
- 50% of (Basic + Dearness Allowance), if living in metro cities (Mumbai, Delhi, Chennai, or Kolkata) and 40% for non-metro cities.
- Actual paid rent minus 10% of (Basic + Dearness Allowance)
For e.g.
HRA received – INR 1,20,000/-
Say, living in Delhi NCR, then 50% of 3,00,000/- = INR 1,50,000/-
Say, paying rent INR 8,000 per month, then 8000 * 12 – 0.1 *3,00,000 = 96000 – 30000 = INR 66,000/-
So, HRA exemption would be INR 66,000/-
You can also read our article on buy vs rent a house to know which is the better choice for you. Click here to read
a.2) Living with parents – In that case, you can pay rent to your parents and ensure proper rent agreement with your parents, otherwise, your full HRA amount shall be taxable. This tip holds well when your parents’ income does not fall in the tax bracket as the rent amount paid would become your parents’ income.
b) When your employer does not pay you HRA (Section 80GG)
Required conditions to avail this exemption –
- You must be salaried or self-employed
- You, your spouse, or your minor child should not own any house where you are currently living, have employment, carry on business or profession or, perform duties of the office.
The least of following amount can be claimed as HRA deduction –
- Rent paid minus 10% of total income
- INR 5,000 a month
- 25% of total income.
For e.g. –
- Say, rent paid INR 8,000/- per month, total income = INR 6 Lacs, then 8000 * 12 – 0.10 * 600000 = INR 36,000/-
- INR 5000 * 12 = INR 60,000/-
- 0.25 * 6,00,000 = INR 1,50,000/-
So, HRA exemption would be INR 36,000/-
2. Get standard deductions from salary under section 16
The income tax act provides INR 50,000/- as a standard tax deduction from your salary. However, this is applicable only when you choose the existing tax regime for a particular financial year.
3. Claim tax deductions if you have running Home Loan (Section 24, 80C, 80EE & 80EEA)
Section 80C – You can claim tax deductions of up to INR 1.5 Lakh under this section on the borrowed principal amount.
Section 24 (b) – Under this section, you can claim tax exemption on interest amount up to INR 2 Lakh. Applicable when you are paying a home loan that was taken for acquiring the property, repairing, construction or renovation.
Additionally, if you choose to let out your newly acquired/constructed property on rent, then the entire interest amount is exempt from tax calculations.
Important Information – Do you know if you have only one house and you are living in it then income from that property is considered nil.
Section 80 EE – Applicable for first-time buyers. In this, you can avail tax deduction up to INR 50,000 upon loan interest amount under this section over and above the limit provided under Section 24. However, loans should be sanctioned between April 1, 2016, and March 31, 2017.
Maximum Property Value – INR 50 Lakh; Maximum Loan Value – INR 35 Lakh
Section 80EEA – Applicable for first-time buyers who are purchasing affordable houses of value up to INR 45 Lakh. Hence, you can claim a tax deduction of up to INR 1.5 lakh under this section. However, loans should be sanctioned between April 1, 2019, and March 31, 2021.
Another tip – If you are living in your first home for which you took your first home loan and now considering buying a second home on loan, then you can get tax deductions on second home loan interest with no limit.
4. Claim Tax Rebate under Sec 80C
This is one of the most common way to save income tax on salary in India. You can claim total tax exemptions of up to INR 1.50 Lacs under this section.
4.1 Provident Fund (PF) – Also known as Employees Provident Fund (EPF), which is mandatory 12% of basic salary and dearness allowance in India, the existing interest rate on EPF amount is 8.50%. Upon maturity, returns are exempted from tax.
You can claim your entire EPF contributions for tax exemption under section 80C.
4.2 Voluntary Provident Fund (VPF) – You can also get tax exemption by investing the amount in VPF.Like, EPF investment you can also claim its entire contributions for tax exemption under section 80C and enjoy tax-exempted interest amount. You can invest a maximum of up to 100% of your basic salary in VPF.
4.3 Public Provident Fund (PPF) – PPF is a long-term government established savings scheme with a lock-in period of 15 years, which is available at most banks and post offices in India. The current interest rate on the PPF account is 7.1% p.a. and additionally, interest earned is tax-free.
You claim also take benefit of whole PPF amount under section 80C for tax exemption.
4.4 National Savings Certificate (NSC) – NSC has a lock-in period of 5 years. The current interest rate is 6.8% p.a. It is available at post offices near you. Only interest earned in the final year is taxed.
You can take full tax rebate on invested amount in NSCs under section 80C.
4.5 Life Insurance Premium – You can also take a rebate on premiums paid for life insurance to insure yourself, spouse, dependent children, and any member of Hindu Undivided Family (HUF) under section 80C. However, insurance cover must be at least 10 times the paid annual premium.
If insurance policy issued –
- On or before 31.03.2012 – Tax deductions up to 20% of sum assured.
- After 01.04.2012 – Tax deductions up to 10% of the sum assured.
4.6 Unit Linked Insurance Plan (ULIP) – ULIP is a combination of insurance and investment under a single plan. Offered by insurance companies, tax deductions are just likewise above Life Insurance Premium.
4.7 Fixed Deposit (FD) – Tax saving FDs offer a tax deduction under section 80C of the Income Tax Act. They offer interest ranges from 6% to 8% and have a lock-in period of 5 years. However, interest earned on FDs is taxable.
4.8 Infrastructure Bonds – You can claim tax deductions up to INR 20,000/- on the invested amount under section 80C. These bonds have a long maturity period of 10 to 15 years. These bonds provide interest rates up to 8.5% to 9%. Returns below INR 2,500/- are non-taxable, however, returns above INR 2,500/- are taxable under this head of income.
4.9 Equity Linked Savings Scheme (ELSS) – Mutual funds that have min. of 80% portion of their assets in equity and have a lock-in period of 3 years. The returns are taxable @10% if returns exceed INR 1 Lakh exemption limit.
You can claim whole ELSS invested amount under section 80C.
4.10 Tuition Fees – You can avail tax deductions on your child’s tuition fees under Section 80C. However, this benefit is available for max 2 nos. of children per individual and education course must be full-time in Indian School, college or university.
4.11 Sukanya Samriddhi Account – Parents who have a girl child below 10 years can avail of this deduction under section 80C. This account has a tenure of 21 years or until the girl marries after turning 18 years. The current interest rate on this account is 8.5% p.a. Interest earned is also tax-free.
Important note – All mentioned investments/deductions/exemptions mentioned under section 80C above are all subject to a maximum cap of INR 1.5 Lakh in total.
5. Invest in National Pension System (NPS) (Section 80CCD 1B)
NPS is a retirement benefit plan which is regulated by the Pension Regulatory Fund Authority of India. If you subscribe to the NPS, your amount will be invested in equity and debt instruments (Equity Component 50% to 75%). In this, the value of the investment on maturity will depend upon the performance of these asset classes. However, interest earned through NPS is fully taxable.
You can avail an additional benefit of the amount of INR 50,000 on investments in NPS, which is over and above the limit of section 80C of INR 1.5 Lakh.
You can read our article “Best Asset Allocation (Stock-Bond-Cash) for your portfolio” to know more about asset classes for NPS investment.
6. Take tax benefit on Leave Travel Allowance (LTA) (Section 10(5))
Salaried individuals can avail tax exemption for shortest distance trip taken with a spouse, children, dependent siblings, and parents within India under LTA. However, two journeys in a block of 4 years can be claimed under this section.
You have to submit the bills of actual incurred expenses of your travel to your employer to claim this exemption. But, travel should be the shortest route within India only and only expenses of Air travel economy/AC-1 train can be availed.
7. Keep your some money in savings account (Section 80TTA / 80TTB) –
Section 80TTA – Interest on savings accounts is tax-free up to INR 10,000/- per year under this section for individuals of age less than 60 years.
Section 80TTB – This section is applicable for senior citizens (age more than 60 years) and tax exemption up to INR 50,000/- is provided on interest on both FDs and savings accounts.
8. Take food/meal coupons from your employer
If your employer is not providing any food/meal coupons such as Sodexo, Zeta, etc. then you can ask your employer to provide food coupons as part of your salary.
You can avail tax benefit of INR 50 per day for 26 working days in a month for up to 2 meals a day i.e. Tax deductions of INR 2600/- per month.
9. Buy a Medical Health Insurance (Section 80D)
You can also claim the medical insurance premium paid towards Health insurance of self, spouse, dependent children, parents –
Various tax deductions under this section are as follows –
a) INR 25,000/- for self, spouse, dependent children (Non-Senior citizens). Additional, INR 25,000/- for parents (Non-senior citizens) or INR 50,000/- for senior citizen parents.
b) INR 50,000/- for senior citizens. Additionally, INR 50,000 for senior citizen parents.
Expenses made up to INR 5000/- for self or family and INR 7,000/- for parents on preventive health care is also eligible for tax deduction under section 80D.
10. Claim tax exemption if you have a disabled dependent (Section 80DD and 80U)
You can claim tax exemption on expenses borne to maintain livelihood, medical treatment, training, and rehabilitation of a dependant who is a person with a disability.
- Tax deduction of INR 75,000/- in case of 40 to 80% disability.
- Tax deduction of INR 1,25,000/- in case of more than 80% disability.
Section 80DD – Provide deductions for family members and the kin of the taxpayer with a disability.
Section 80U – This provides deductions to the individual taxpayer with a disability himself.
11. Claim tax exemption on medical treatment of specified disease (Section 80DDB)
You can take tax benefits for expenses incurred towards treating specific diseases such as Dementia, Aphasia, Parkinsons, Cancer, Aids, Renal Failure, Haematological diseases, Thalassaemia, etc.
Tax deductions up to INR 40000 for self, family, parents, dependent relatives and INR 1 lakh in case of a dependent senior citizen can be claimed on medical bills under section 80DDB.
12. Increase agricultural income (Section 10(1))
All kinds of income from agricultural land are exempted from tax. Income such as rent from land, revenue from land, the amount made through agricultural products, and the income generated through farm building are fully tax-exempted under section 10(1).
13. Claim tax exemptions in case of donations (Section 80G, 80GGA, 80GGC)
If you have made donations, then you are eligible for the below deductions under various sections of the Income Tax Act.
Section 80G – Deduction in respect of donations to specified funds or charitable institutions, etc.
Limit – INR 2,000/- donations made in form of cash. However, for wire and bank transfers, you can enjoy complete or partial tax exemptions. Such exemptions are limited to a maximum of 10% of the Gross Total Income.
Section 80GGA – Deduction in respect of donations for scientific research or rural development with no upper limit on donations.
Section 80GGC – Deduction in respect of all contributions/donations to any political parties that range from 50% – 100% of the contribution amount. Here also, such exemptions are limited to a maximum of 10% of the Gross Total Income.
14. Save tax on interest paid on loan for Electric Vehicle (Section 80EEB)
You can avail tax benefit of up to INR 1.5 Lakh on the interest paid on a loan taken between 01.04.2019 to 31.03.2023 for the purchase of an electric 2, 3, or 4 wheeler vehicle.
15. Claim tax deduction on interest of Education Loan (Section 80E)
You can claim tax benefit on the amount you spend repaying the interest of your education loan. Also, there is no upper limit on the interest amount for the deduction.
However, Education loan taken for higher studies for self, spouse, or children is only applicable for the deduction.
16. Save taxes by gifting money to your parents and major children
Let’s say you have a 4 lakh surplus amount to invest and you fall into the 30% tax-slab bracket but already exhausted all tax-exemption limits provided by Income Tax Act. Then, in this case, you can gift INR 4 lakh amount to your parents and/or major children (age more than 18 years) and get that amount invested in tax-exempt instruments such as ULIP, ELSS mutual funds, PPF, etc. under their name. The amount they received as gifts and also, the returns earned on gifted money will become their income.
If they have a lower income tax slab then this will become a beneficial option for you to save tax, otherwise, if you would have invested that amount of INR 4 lakh at your end, income earned would be taxable @30%.
This is one of ways to save income tax on salary that is rarely known by people.
17. Save tax declaring your losses in the income tax return
If you have incurred losses in shares, mutual funds, gold ETFs, the real estate then you can set off these losses against any future profits for the next 8 years to save tax on future profit income. This way to save income tax on salary is often overlooked by people while filing the ITR.
18. Target for taking rebate under section 87A
If you are a resident of India and earn less than INR 5 Lakh (after deductions) then you get a tax rebate of INR 12,500/- under section 87A. Say e.g., your total tax payable is INR 12,000/- then you can claim of rebate of INR 12,000/- and the total tax payable will be Nil. But, if your tax liability is INR 15,000/-, then you cannot claim any rebate. That means, you get a tax rebate only and only if your tax payable is less than or equal to INR 12,500/-.
So readers, these were the ways by which you can minimize your income tax on salary. If you liked our article “How to save income tax on salary in India?” then feel free to share it with your family, friends, and peers. Do share your thoughts on the article in the comment section below.
