10 Best Tax Saving Instruments in 2023

Ancient practices such as tithing or the offering of first fruits may be regarded as the precursor of the income tax.  However, they lacked precision and were not based on the concept of a net increase.  As civilization progressed, taxes were based on other factors like wealth, social position and ownership of the means of production.

The modern concept of income tax is based on a pre-supposition of a money-economy, accurate accounting and a general understanding of receipts, expenses and profits and an orderly society with reliable records.  Hence, income tax can be defined as a tax imposed on individuals, commonly known as tax-payers, in respect of the income or profits earned by them.

10 Best Tax Saving Instruments in India

1. National Pension Scheme (NPS) Under Section 80CCD (1B)
2. Interest Component of Home Loan Under Section 24
3. Interest Repayment for First-Time Home Owners Under Section 80EE
4. Premiums Paid on Health Insurance Under Section 80D
5. Interest Earned From Savings Bank Account Under Section 80TTA
6. Medical Expenses for Disabled Dependent Under Section 80DD
7. Treatment of Specified Diseases Under Section 80DDB
8. Amount Paid as Rent With No Hra Payment Under Section 80GG
9. Repayment of Education Loan Under Section 80E
10. Donations Made to Charitable Institutions Under Section 80CCC

10 Best Tax Saving Instruments in India

In India, most taxpayers know about and take advantage of the INR 1.5 lakh deduction that is available under Section 80C.  However, there are many other tax-saving opportunities that can help if further reducing taxes paid.

National Pension Scheme (NPS) Under Section 80CCD (1B)

Over and above the benefit that can be claimed by Section 80C, additional tax can be saved by investing up to INR 50,000 in NPS.  This investment can increase the total deduction to be claimed to INR 2 lakh

Interest Component of Home Loan Under Section 24

The interest component of a home loan can be claimed as a tax deduction under Section 24 of the Income Tax Act.  A maximum amount of INR 2 lakh can be claimed on the interest payment on a home loan for a self-occupied property. If the residential property is not self-occupied and rented or deemed to be rented, the entire interest amount can be claimed as a tax deduction as there is no maximum limit has been prescribed. If the residential property is not self-occupied due to reasons of employment, business or profession, a maximum tax deduction amount of INR 2 lakh can be claimed under section 24.

Interest Repayment for First-Time Home Owners Under Section 80EE

This is applicable for first-time homeowners who do not have any other residential property on the date their home loan is sanctioned from a financial institution.  Such homeowners can claim a tax deduction of up to INR 50000 under Section 80EE.  This tax deductible amount is over and above the INR 2 lakh available under Section 24.  Rules applying to claim this amount as a tax deduction specify that the total value of the residential property must be less than INR 50 lakh and the loan value should not exceed INR 35 lakh.  This section was initially introduced in 2013-14 and was available for only two years before being re-introduced in 2016-17.  This particular tax benefit is applicable till the loan amount is repaid with the annual limit capped at INR 50000.

Premiums Paid on Health Insurance Under Section 80D

The tax incentive for Section 80D allows for tax deductions the total amount that is paid as the premium amount for health insurance as well as the expenses that are incurred towards healthcare.  Depending on the people and their age, who are included under the insurance coverage the limit to claim tax deductions can range from INR 25000, INR 50000, INR 75000 or INR 1 lakh.

Interest Earned From Savings Bank Account Under Section 80TTA

Section 80TTA allows all individual taxpayers and HUF to claim tax deductions on the interest earned from savings bank accounts in banks or banking companies, savings accounts in post offices or savings accounts in cooperative societies involved in the banking business.  The maximum amount that can be claimed from all savings accounts is INR 10000.  Interest earned above this limit is considered as ‘Income from Other Sources’ and is taxable.  For senior citizens who are taxpayers, Section 80TTB is applicable which was introduced on April 1, 2018, and carries a lower tax implication on the interest income. Under Section 80TTB, up to INR 50000 can be claimed as a deduction.

Medical Expenses for Disabled Dependent Under Section 80DD

This tax deduction has been offered to help taxpayers take care of dependent disabled family members.  These dependents are defined as spouses, children, parents or siblings. Disabilities covered under this policy include blindness, low vision, locomotor disability, hearing impairment, mental retardation, mental illness, autism and cerebral palsy. The following medical expenses can be claimed as tax deductions –

• Expenses incurred towards medical treatment, nursing, training, rehabilitation of a dependent with a disability
• Amount paid as premium for an insurance policy designed for such cases and satisfying the conditions mentioned in the law

The amount that can be claimed varies on the degree of the disability of the dependent.  Up to INR 75000 can be claimed as a tax deduction annually if the dependent suffers at least 40% of any specified disability.  A severe disability of 80% or more in a dependent allows the taxpayer to claim up to INR 1.25 lakh.  A medical certificate from qualified institutions must be submitted by taxpayers to claim such tax deductions.

Treatment of Specified Diseases Under Section 80DDB

A taxpayer suffering from diseases like cancer, neurological diseases like dementia, motor neuron diseases, Parkinson’s or AIDS entailing expensive treatment costs can avail of tax deductions under Section 80DDB.  The amount that can be claimed as a deduction is INR 40000 or the actual amount, whichever is lower.  For senior citizens who are taxpayers or dependents, this limit is increased to INR 1 lakh.

Amount Paid as Rent With No HRA Payment Under Section 80GG

An individual taxpayer who does not receive HRA as a salary component or is self-employed can claim tax deductions towards rent up to INR 60000 annually under Section 80GG.  The conditions for availing such tax deductions do not include taxpayers who own a house but live in rented accommodations within the same city or living in rented accommodations in another city and claiming deductions under Section 24 for repayment of home loan interest.

Repayment of Education Loan Under Section 80E

Students availing of education loans to pursue higher education are eligible to claim tax benefits on the repayment of the interest component under Section 80E. This deduction is available on taking an education loan from financial institutions and not from relatives or other family members. The tax deductions can be claimed from the year the repayment of the loan begins for seven consecutive years or until the interest is paid in full, whichever is earlier. There is no limit to the deduction claimed on the interest amount repayment.

Donations Made to Charitable Institutions Under Section 80CCC

Donations made to approved charitable institutions are eligible for tax deduction claims with appropriate supporting documents like a stamped receipt from the trust or institution, complete address, name of the trust and the PAN card number of the trust or institution. A tax deduction of 50% or 100% can be claimed depending on the charitable institution to which the donation is made. However, the total donation amount should not exceed a maximum of 10% of the adjusted gross total income of the taxpayer. The four ways in which donations can be categorized to claim the deduction are –

• Donations to the National Defence Fund set up by the central government can be claimed as a 100% deduction without any qualifying limit
• Donations to Jawaharlal Nehru Memorial Fund or the Prime Minister’s Drought Relief Fund can be claimed as a 50% deduction without any qualifying limit
• Donations with 100% deduction subject to 10% of adjusted gross total income such as Government or any approved local authority, institution or association to be utilized for the purpose of promoting family planning
• Donations with a 50% deduction subject to 10% of adjusted gross total income such as any institution which satisfies conditions mentioned in Section 80G(5)

Conclusion

These tax saving instruments can be a huge help for taxpayers to save on income tax and reduce income liability.  This income, can then, be utilized towards investment and growing savings.

FAQ

Which is the best tax-saving instrument in India?

The following are the best Tax-Saving Instruments you can use

• Equity Linked Savings Scheme (ELSS)
• Public Provident Funds (PPF)
• Senior Citizen Savings Scheme (SCSS)
• Sukanya Samriddhi Yojna (SSY)
• Tax Saver Fixed Deposit (FD)
• National Pension Scheme (NPS)
• National Savings Certificates (NSC)
• Unit Linked Insurance Plans (ULIP)

How to save tax for 12 LPA?

Tax Deductions under Section 80(C) can help you to reduce your taxes. You can invest in PPF, EPF, ELSS, NSC and others to save taxes.

How can I save tax smartly?

Under Section 80C you can save your tax and these are the scheme which comes in 80C

• Equity-Linked Savings Scheme: Equity Linked Savings Schemes are a type of mutual fund with a lock-in period of three year
• Senior Citizen Savings Scheme
• National Pension System
• Term Life insurance premium
• Public Provident Fund
• National Savings Certificates
• Tax-saving FDs
• Home loan repayment

How much income is tax-free?

If your income is below ₹2.5 lakhs, you do not have to file Income Tax Returns (ITR).