Even if you get into a top Tier IIT/NIT and finally get that 25L+ CTC Job. If you are not careful with your financials you might need to work till your 60s and still have nothing much left for your retirements. you will be stuck in your 9 to 5 job your whole youth life living only for the weekend.
There are many ways to get out of 9 to 5 rat race. opening business, creating passive income streams, Investments just to name a few.
But all those take time to give fruits and might not work out for all. one of the easiest steps towards financial independence is to save tax along with creating Investment assets while locking some of your income as saving to reduce reckless spending/liabilities.
Here are the most easiest way to save tax.
1. 80C ( Up to 1.5 L)
Here you can claim tax refund on upto INR 1.5L in various Investments like PF, ELSS Mutual funds, Principle on Home loan and some other government saving schemes like NPS, PPF etc.
My personal opinion here is to use this claim in PF (which is mandatory). then if you have home loan claim Principle paid back. if you don’t have home loan or there is still some amount left you can invest in ELSS Mutual Funds/ ULIPs. which have highest returns ( with market risks of course ) and lowest lock in period of 3 Years. you can go for safe investments like PPF/FD but will get lower returns. I personally don’t like not taking this risk in the 20s.
2. 80CCD (1B) ( Up to 50K )
You can claim tax refund of additional 50K under this section if you contribute 50K to your NPS tier 1 account. this investment is locked until you retire at the age of 60. meaning you can’t withdraw this amount unless some special cases like marriage/child education/house etc. in which you can withdraw up to 25% of your corpus after 3 years. If you don’t have very good use for this 50k definitely consider investing in NPS.
3. 80CCD (2) ( Up to 10% of basic salary )
You can claim tax refund of additional 10% of your basic salary (around 50% of your base salary). this contribution has to be made through your employer. so basically you tell company to deduct 10% of basic from monthly paycheck and invest in NPS. for this deducted 10% you won’t be taxed. again keep in mind NPS is essentially locked till you are 60.
4. House Rent Allowance ( HRA )
If you are renting a apartment / house for living. you can claim the rent amount ( up to 50% of basic salary ) as income tax refund. currently I am not claiming this since I am working from home in my hometown.
5. Interest deduction on Home loan
You can Claim upto 2 Lakh interest paid on a home load as income tax refund. you can even claim this along with HRA if your home and place you rent are not in the same city. so you can buy a house for your parents / as just a investment outside your work city to claim this additional 2 Lakh.
Overall only with methods I have listed here, you can save more than 2 Lakh from being deducted as tax along with investing 4 Lakh into assets that will appreciate in value. Hope this helps in your final journey towards financial freedom.
1 thought on “How to Save Income Tax in India”
Itís difficult to find well-informed people in this particular subject, but you sound like you know what youíre talking about! Thanks