How to Save Tax Legally

Published on april 5, 2025

Save tax legally

Saving tax legally is not just about reducing your financial burden—it's about making smarter financial decisions that align with government policies. Every salaried employee in India has access to several provisions under the Income Tax Act that help reduce taxable income while promoting savings and investment.

1. Understand the Basics of Income Tax

India follows a slab system for income tax. As your income increases, so does the percentage of tax you pay. Knowing your tax bracket is the first step in planning savings efficiently. For the financial year 2024–25, salaried employees can choose between the old and new tax regimes.

2. Section 80C – Your Primary Tax-Saving Tool

One of the most commonly used sections for tax saving is Section 80C. It allows deductions up to ₹1.5 lakh annually on eligible investments and expenditures. Some of the popular instruments under this section include:

3. Use the National Pension Scheme (NPS) – Section 80CCD(1B)

Over and above the 80C limit, you can claim an additional ₹50,000 by investing in the National Pension Scheme. It not only reduces your taxable income but also helps build a retirement corpus.

4. Claim HRA – House Rent Allowance

If you live in a rented house, HRA can be a significant tax saver. To claim HRA:

The exemption amount depends on factors like your salary, HRA received, rent paid, and location of residence.

5. Deduction on Home Loan Interest – Section 24(b)

If you’ve taken a home loan, you can claim a deduction up to ₹2 lakh on the interest paid per financial year under Section 24(b). This is separate from the ₹1.5 lakh you can claim under 80C for principal repayment.

6. Health Insurance – Section 80D

Premiums paid towards medical insurance for yourself, your spouse, children, or parents are eligible for deductions:

This not only provides financial security but also helps reduce taxes.

7. Education Loan – Section 80E

The interest paid on an education loan is fully deductible for up to 8 years under Section 80E. There's no cap on the amount, but it must be for higher education and taken from a recognized financial institution.

8. Leave Travel Allowance (LTA)

LTA can be claimed for travel expenses incurred during domestic holidays. It covers only travel (not food or stay), and is applicable for 2 journeys in a block of 4 years.

9. Standard Deduction

Salaried employees get a flat ₹50,000 deduction from their taxable salary income every year without the need to show any proof.

10. Donations – Section 80G

Donations made to specified funds and charitable institutions are eligible for deduction under Section 80G. Ensure you get a receipt and that the organization is eligible under this section.

11. Choose Between Old and New Regimes

Under the new regime, many exemptions like 80C, HRA, etc., are not available, but tax slabs are lower. It may be better for individuals with fewer deductions. Use a tax calculator or consult a CA to decide what's best for you.

12. Reimbursements and Perks

Use tax-free perks like meal coupons, mobile bill reimbursements, and fuel reimbursements. Many employers offer these as part of the CTC structure.

Conclusion

Tax planning doesn’t mean tax evasion. It’s about using legitimate provisions of the law to your advantage. The Income Tax Act is filled with benefits that promote savings, health care, home ownership, and education. By being proactive and informed, salaried employees can significantly reduce their tax liability while also achieving financial goals.

Always consult a qualified financial advisor or chartered accountant to make the most of the applicable deductions and avoid any compliance issues.