How to save income tax on salary in India? : Here is the answer. All salaried class people eagerly look forward to tax savings. And why not? For myriad reasons like post-retirement plans, higher education of their children, marriage of their children and most importantly to deal with age related health issues, everyone wants to have enough savings. Hence the salaried class is always interested in exploring different investing avenues. While investing, people have various concerns in their mind regarding the safety and liquidity of their investments. Another major concern these days is about the returns from investment. It is important to ensure that the investment option you choose offers you enough tax benefits. Otherwise the scope of making money over the long run becomes very limited. Taxes are bound to eat away most of your earnings.

10 best ways of saving income tax on salary in India

Here are the 10 best ways of saving income tax on salary in India discussed below:

1. Employee’s Provident Fund (EPF)

According to the Employees Provident Fund and Miscellaneous Provisions Act, 1952, under the EPF scheme, both the employee and the employer are mandated to contribute a certain amount towards this fund. Employee’s share is deducted from his salary directly.

The employee receives a lump sum amount along with interest upon retirement. Under section 80C of the Income Tax Act, employee’s contributions are eligible for tax benefits.

2. Sukanya Samridhi Yojana (SSY)

If you are blessed with a daughter, it is an opportune moment to start saving for her higher education and marriage. SSY (launched as a part of The Government of India’s ‘Beti Bachao, Beti Padhao’ campaign) offers an interest rate of 8.5% p.a. and also provides income tax benefits (under section 80C on your annual deposits).

During any given financial year, you can deposit a maximum of Rs. 1.5 lakhs.

3. Public Provident Fund (PPF)

Another very popular tax saving scheme is the PPF that was initiated by National Savings Institute (Ministry of Finance) in 1968. The Government fixes the interest rates on this scheme quarterly.

The returns earned by individuals under this scheme are completely exempt from tax.

4. Equity Linked Saving Scheme (ELSS)

Love taking risks? Or Do you believe in the traditional ideology of ‘higher the risk, higher the return’? Then this is an excellent tax saving option for you.

Your funds are invested in equities and this scheme facilitates wealth accumulation at a faster rate during boom periods in stock markets. As per section 80C, you can save tax on investment upto Rs. 1.5 lakhs annually.

5. National Savings Certificate (NSC)

If you do not like taking risks, then NSC is a very safe investment option for you. This scheme helps you save taxes with investments upto Rs. 1.5 lakhs.

6. LIC Life Insurance Premium

If you have purchased a life insurance (for yourself, your wife or your dependent children), then you have a golden opportunity to reap benefits out of it.

If the premium amount paid on life insurance is less than 10% of the sum assured, then you can save taxes on the entire amount paid as premium.

7. Tuition Fee Payments of Children

As parents, if you have paid tuition fees for your children in schools or colleges, then save their receipts as all of it is eligible for tax deduction.

8. Senior Citizens Savings Scheme

With a maturity period of 5 years, this scheme offers an interest rate of 8.6% annually (current rate) to individuals over 60 years of age or retired individuals over 55 years. The returns earned from “SCSS” enable you to save taxes.

9. National Pension Scheme

Do you wish to start planning for your retirement as soon as possible? Then this is the right scheme for you. All you need to do is to invest a certain portion in this scheme at regular intervals over the course of your employment.

After retirement, you will be receiving monthly pension which enjoys tax benefits.

10. Voluntarily Retirement Scheme (VRS)

If you are a public sector company employee or work under Central/State Government Authority, then this tax saving scheme is for you.

If the employee is interested in taking voluntary retirement, then amount received (upto Rs. 5 lakhs) will be tax exempt.

I hope you find this article helpful. Thank you!

Abbreviation of LIC: Life Insurance Corporation

Abbreviation of SCSS: Senior Citizen Savings Scheme

Author: Manasvi Nagpal