How to Save Big: 10 Effective Strategies to Reduce Taxable Income

As and when the tax season approaches (mostly from Jan to March), many of us start looking for ways to maximize our savings and reduce taxable income while minimizing our tax liabilities. Every financial decision can have a direct impact on your tax liability, and navigating tax-saving opportunities requires knowledge and strategy. From investments in government-backed schemes to deductions on essential expenses, there are smart strategies that can significantly reduce taxable income and lower your overall tax burden.

In this guide, we’ll explore 10 effective ways to reduce your taxable income in India, helping you make the most of the tax-saving tools available and keep more money in your pocket. Whether you’re a salaried professional or self-employed, these tips will give you a head start on efficient tax planning.

HERE ARE 9 TAX STRATEGIES TO SAVE YOUR TAXABLE INCOME THIS YEAR:

1. UTILISE SECTION 80C DEDUCTIONS:

Section 80C offers the most popular tax-saving options in India, allowing deductions up to ₹1.5 lakh annually. There are several investment avenues under this section, such as:

By utilising this deduction fully, individuals can reduce their taxable income by ₹1.5 lakh annually, leading to substantial tax savings.

2. OPT FOR TAX-FREE BONDS

Tax-free bonds:- It is issued by government-backed entities are an excellent choice for earning stable returns without additional tax liability on the interest earned. These bonds are ideal for investors looking for low-risk, tax-efficient income. Other tax-smart investment options include

Sovereign Gold Bonds (SGBs), which provide regular interest payments subject to Tax and exempt capital gains if held until maturity.

Unit Linked Insurance Plans (ULIPs), Maturity proceeds are tax-free under Section 10(10D), provided the annual premium does not exceed ₹2.5 lakh.

3. BOOST RETIREMENT SAVINGS WITH NATIONAL PENSION SCHEME (NPS)

The National Pension System (NPS) is a highly tax-efficient way to save for retirement. In addition to the standard ₹5 lakh deduction under Section 80C, NPS offers an extra ₹50,000 deduction under Section 80CCD(1B), allowing for greater tax savings. Furthermore, if your employer contributes to NPS on your behalf, those contributions—up to 10% of your basic salary + D.A, (in Central Government or State Government Employer: Up to 14% of their salary (basic + DA))—are also deductible under Section 80CCD (2).

4. STRATEGIZING CAPITAL GAINS FOR LOWER TAX IMPACT

Strategic planning of capital gains can significantly reduce your tax liability. By reinvesting gains from property sales into residential real estate, you can defer taxes under Sections 54 and 54F of the Income Tax Act. Alternatively, for a secure and stable option, investing in 54EC bonds offers a tax exemption on capital gains, provided the investment is made within 6 months of the sale.

Also under Section 54F of the Income Tax Act, exemption can be claimed on long-term capital gains (LTCG) arising from the sale of shares if the proceeds are invested in a residential property.

5. HARVEST LOSSES

Tax harvesting is a strategy used to minimize capital gains tax by selling assets strategically to offset gains with losses. It involves realizing capital gains or losses to make the most of tax exemptions or reduce tax liability.

How It Works:

1. Sell Profitable Investments: Realize gains within the tax-free limit (e.g., ₹1 lakh per year for equity in India).
2. Offset Gains with Losses: Sell underperforming investments to book losses, which can be used to offset taxable gains.
3. Reinvest Strategically: Reinvest in the same or similar assets to maintain portfolio balance.

Examples:

1. Equity Investments:
   • You earn a ₹2 lakh long-term capital gain on stocks.
   • Sell a loss-making equity investment worth ₹50,000 loss.
   • Net taxable gain = ₹2 lakh – ₹50,000 = ₹70,000 (below the ₹1 lakh exemption limit, so no tax is payable).
2. Mutual Funds:
   • Gain from one fund = ₹80,000.
   • Loss from another fund = ₹40,000.
   • Net taxable gain = ₹80,000 – ₹40,000 = ₹40,000 (no tax if under the exemption limit).

By harvesting gains and losses effectively, you can reduce your tax burden while optimizing your investment returns.

6. MAKING CHARITABLE & POLITICAL DONATIONS (SECTION 80G AND 80GGC)

Donations to registered charities and relief funds are eligible for deductions under Section 80G, allowing tax benefits on giving back to society. While cash donations above ₹2,000 aren’t deductible, online payments are, making it easier to maximize deductions. Timing your donations toward the end of the financial year can also help reduce taxable income effectively.

Section 80GGC of the Income Tax Act allows individuals to claim a deduction for contributions made to political parties or electoral trusts. This deduction encourages transparency and participation in democratic processes. There is no upper limit on the amount eligible for deduction under Section 80GGC.

7. CLAIMING HOUSE RENT ALLOWANCES (HRA)

If you’re a salaried employee receiving House Rent Allowance (HRA), you can claim a tax deduction for the rent paid, subject to certain conditions. The deduction depends on your salary, city of residence, and rent amount. Proper documentation, such as rent receipts and rental agreements, is essential, especially when renting from family members.

How is HRA Calculated?

The HRA exemption is calculated as the lowest of the following three amounts:

1. The actual HRA received by the employee.
2. 40% of salary if residing in a non-metro city or 50% of salary if residing in a metro city (Mumbai, Delhi, Kolkata, or Chennai).
3. The actual rent paid minus 10% of salary.

8. AVAILING TAX BENEFITS ON HOME LOAN

Homeowners can enjoy significant tax benefits on both principal and interest payments for their home loans:

• Section 24(b): Deduction of up to ₹2 lakh on interest paid for self-occupied properties.
• Section 80C: Principal repayments qualify for deductions up to ₹1.5 lakh annually.

For under-construction properties, you can claim pre-construction interest in five equal installments starting from the year you begin residing in the home.

Additionally, if you have a joint home loan, each co-owner can claim separate deductions, potentially doubling the tax benefits. This makes joint ownership a smart choice for maximizing tax savings.

9. OPTING FOR STANDARD DEDUCTIONS FOR SALARIED INDIVIDUALS AND PENSIONERS

Salaried individuals and pensioners can enjoy a flat standard deduction of ₹50,000 under the old tax regime, helping to reduce their taxable income without needing any investments or additional paperwork.

This deduction is automatically applied, making it simple and hassle-free   for employees and retirees. It’s a great way to lower your tax liability while streamlining tax calculations.

10. Leverage Section 80E for Education Loan

Section 80E of the Income Tax Act provides a valuable tax benefit for those paying interest on education loans. Whether the loan is for you, your spouse, children, or legal wards, you can claim a deduction on the interest paid. This benefit is available for up to 8 years or until the interest is fully repaid, whichever comes first, with no upper limit on the deductible amount. However, the loan must be taken from a recognized financial institution or a charitable trust. This deduction helps reduce your taxable income while easing the burden of higher education expenses.

Reduce taxable income in India requires a proactive approach, leveraging available deductions, exemptions, and smart investment strategies. By taking advantage of tools like Section 80C, NPS contributions, home loan deductions, tax-loss harvesting, and HRA benefits, you can significantly lower your tax burden while achieving your financial goals. Each of these methods offers unique benefits, and with a carefully tailored tax plan, you can keep more of your earnings and secure your financial future.

For expert assistance with tax planning and filing, contact 766 515 4000 or visit apkireturn.