Tax Planning Tips: 5 Simple Ways to Reduce Your Tax Liability This Year

Tax season is a time that most people dread, but what if you could turn it into a win for your finances? Learning how to reduce your tax liability might sound daunting, but with the right strategies, you can significantly cut down the amount you owe. It’s not about evasion; it’s about smart planning and knowing the benefits the tax system offers. Whether you’re a salaried professional, a business owner, or an investor, there are simple ways to legally optimize your tax outgo.

In fact, many people end up overpaying simply because they don’t make use of available deductions or benefits. Let’s look at these tax planning tips- practical tips you can easily implement to keep more of your hard-earned money:

Simple Ways to Reduce Your Tax Liability

1. Maximize Your Section 80C Deductions

The Indian Income Tax Act provides a host of deductions under Section 80C, which allows you to reduce your taxable income by up to ₹1.5 lakh. If you’re not already making full use of this, you’re leaving money on the table. Investments in instruments like Public Provident Fund (PPF), National Savings Certificate (NSC), and tax-saving Fixed Deposits are some of the most common options.

Don’t forget that your Employee Provident Fund (EPF) contributions also fall under this section. If you’re a parent, the tuition fees you pay for your children’s education can also be claimed here. By strategically planning your investments and expenses, you can easily claim the full benefit of ₹1.5 lakh, potentially saving yourself up to ₹46,800 in taxes, depending on your income bracket.

Read More: Top Tax-Saving Investments Under Section 80C

2. Take Advantage of Home Loan Benefits

Owning a home comes with more than just the benefit of property ownership—it can also save you taxes. Under Section 24(b), you can claim a deduction of up to ₹2 lakh on the interest paid on your home loan for a self-occupied property. This is on top of the benefits available under Section 80C for the principal repayment.

For those renting out their property, the interest paid on the loan is fully deductible against the rental income. Additionally, first-time homebuyers can claim an extra deduction of ₹50,000 under Section 80EE, provided the loan amount is under ₹35 lakh and the property value doesn’t exceed ₹50 lakh. These deductions can bring down your taxable income considerably, making home ownership a financially sound decision.

3. Invest in the National Pension Scheme (NPS)

Looking to save for your retirement while also reducing your tax burden? The National Pension Scheme (NPS) is a great option. Under Section 80CCD(1B), you can claim an additional deduction of ₹50,000 over and above the ₹1.5 lakh limit under 80C, specifically for contributions made towards NPS. This is a government-backed retirement savings scheme that not only secures your future but also provides an excellent tax-saving opportunity.

Statistically, as of 2024, over 6.1 crore Indians have subscribed to NPS, and this number is growing each year due to the dual benefits it offers. Contributions towards NPS are invested in diversified portfolios, allowing your money to grow over time, while you enjoy immediate tax benefits.

Read More: What is the National Pension Scheme [NPS]? All the Details of NPS You Need

4. Claim Medical Insurance Premiums Under Section 80D

Health insurance not only provides a financial safety net during medical emergencies but also offers tax-saving opportunities. Under Section 80D, you can claim a deduction of up to ₹25,000 for premiums paid towards health insurance for yourself, your spouse, and your children. If you also cover your parents, you can claim an additional ₹25,000 for them. If your parents are senior citizens, this limit goes up to ₹50,000.

Therefore, by covering both your immediate family and your senior citizen parents, you can claim up to ₹75,000 in deductions, which can significantly reduce your tax liability. According to a 2023 IRDAI report, only around 37% of Indians have health insurance, which means many are missing out on both financial security and tax benefits.

5. Utilize HRA and Rent Paid Deductions

If you’re a salaried individual who lives in rented accommodation, House Rent Allowance (HRA) can be a big tax saver. HRA is partially or fully exempt from taxes under Section 10(13A), depending on factors like your salary, the rent you pay, and where you live.

For those not receiving HRA from their employer but still paying rent, Section 80GG allows you to claim a deduction of up to ₹60,000 annually, provided you meet certain conditions. For instance, Mr. Amit, a software engineer, wasn’t aware of the deduction he could claim for the rent he paid. After consulting a tax expert, he realized he could save around ₹20,000 annually just by claiming HRA exemptions.

Read More: How to Save More on Your Taxes with House Rent Allowance [HRA] in 2024

Summary

Tax planning doesn’t have to be complicated, and these strategies are perfect examples of how small steps can lead to big savings. By using deductions under Section 80C, home loan benefits, investing in NPS, claiming medical insurance premiums, and utilizing rent-related deductions, you can significantly reduce your tax liability this year.

It’s about being aware of the opportunities available to you and making the most of them. Keep in mind that tax-saving investments not only help you reduce your taxes but also secure your financial future. With the right planning, you’ll find that reducing your tax burden is easier than you think—without compromising on your savings or goals.

These tips are brought to you by HappyWise Financial Services.

If you need any assistance with organizing your finances or want to discuss your investment options, feel free to connect through Email or Whatsapp.

Disclaimer: Some part/s may be generated/modified using GenerativeAI