Taxes can eat into your annual earnings. To counter this, tax planning is a legitimate way of reducing your tax liabilities in any given financial year. It helps you utilise the tax exemptions, deductions, and benefits offered by the authorities in the best possible way to minimise your liability.

Advantages of tax planning:
1. To minimise litigation
2. To reduce tax liabilities
3. To ensure economic stability
4. To leverage productivity

How to save taxes?
Taxpayers are provided with several options to reduce their tax liabilities. Various sections of the Indian income tax law offer tax deductions and exemptions, of which, Section 80C is the most popular tax-saving avenue. For e.g., Deposits in Public ProvidentFund, Five Year Bank Deposits, National Savings Certificate, Investment in ELSS schemes.

Tax saving options under Section 80C

Section 80C, one of the most prevalent sections in the Income Tax Act, 1961, provides provisions to save up to Rs46,800 (assuming the highest slab of income tax i.e. @30% plus education cess 4%) on tax liabilities each year. One of the best tax-saving avenues under Section 80C is investing in an equity-linked savings scheme, more commonly known as ELSS. Such tax planning mutual funds offer the dual benefit of potential capital appreciation and tax-saving. Apart from ELSS funds, you can choose to invest in government schemes such as National Savings Certificate (NSC), Public Provident Funds (PPF), tax-saving FDs, etc. Cumulative investments under these securities can offer deductions up to Rs1.5 lakh.

Tax saving options under Section 80D

Under this section, taxpayers are offered deductions on the premium paid towards health insurance policies. Under Section 80D, a taxpayer can claim the following amounts as deductions:
1. Avail up to Rs25,000 on the premium paid towards health insurance for self, children, or spouse
2. Avail up to Rs50,000 if your parents are also covered under your health insurance plan
3. If either of your parents belongs to the senior citizen bracket, then a maximum deduction of Rs75,000 is allowed

Tax saving options under Section 80E
Section 80E offers tax deductions on the interest paid for an education loan. These deductions can be claimed for eight years starting from the date of repayment. There is no upper limit on the deductible amount. This means that an assessee can claim the entire amount paid as interest from the taxable income.

Claiming HRA Exemption
Under HRA, taxpayers can avail exemption on the cost incurred to stay in a rented accommodation. The taxpayer is mandated to furnish the rent receipts provided by the landlord. The deduction available is the least of the following amounts:
1. Actual HRA received; or
2. 50% of basic salary+DA (dearness allowance) for taxpayers living in metro cities; & 40% of (basic salary + DA) for taxpayers residing in non-metro cities; or
3. Total rent paid less 10% of basic salary + DA

Other Exemptions and Deductions
Apart from the deductions and the exemptions mentioned above, you can save taxes in several different ways. Donations towards charities and qualified organisations are also eligible for tax exemptions.
Under the new tax regime announced with the Union Budget 2020, individuals can opt to pay taxes at reduced rates and redefined income tax slabs by forgoing the various deductions and exemptions.

Old vs New Tax Regime