Best Tax-Saving Options for Salaried Individuals

Giving away your hard-earned money as tax, can sometimes be frustrating. It is our duty toward the country and we have to abide by it. However, there are ways to lighten our tax burden. From smart investments to insurance benefits and home loans, there are many ways to reduce taxable income efficiently.

Knowing the best strategies not only helps in tax planning for salaried employees but also supports long-term financial security. Let’s explore the smartest ways to save on taxes while building a stronger financial future.

Types of Tax Saving Options for Salaried Employees

Salaried individuals have a wide range of tax-saving options at their disposal. Let’s break down some popular choices that are easy to understand and even easier to implement:

Employees’ Provident Fund (EPF):

EPF is a retirement-oriented savings scheme where a portion of your salary gets automatically deducted every month. Contributions up to ₹1.5 lakh a year are eligible for tax deduction under Section 80C. Plus, the accumulated amount and interest earned are tax-free at the time of withdrawal after retirement.

Public Provident Fund (PPF):

PPF is another safe, long-term investment backed by the government. It offers tax benefits under Section 80C and comes with a lock-in period of 15 years. Both the invested amount and maturity proceeds are tax-free, making it a reliable choice for salaried individuals. 

Life Insurance Premium

Premiums paid towards a life insurance policy qualify for deductions under Section 80C. Whether it's a term plan or endowment plan, the tax benefits combined with life coverage make life insurance a smart part of your tax-saving portfolio. You can also read more about life insurance benefits.

ELSS (Equity Linked Savings Scheme):

If you want higher returns while saving taxes, ELSS mutual funds can be a great pick. They have a 3-year lock-in period—the shortest among all tax-saving instruments—and qualify for deductions under Section 80C.

National Pension System (NPS)

NPS encourages retirement savings and offers tax benefits under Sections 80C and 80CCD(1B). You can claim an additional ₹50,000 deduction under Section 80CCD(1B) beyond the ₹1.5 lakh limit, making it an attractive option for serious tax planners.

Tax Saving Fixed Deposit (FD)

Five-year tax-saving FDs offered by banks allow you to claim deductions up to ₹1.5 lakh under Section 80C. The interest earned is taxable, but the guaranteed returns and low risk make it a safe bet for conservative investors.

House Rent Allowance (HRA)

If you live in a rented house, you can claim HRA exemption under Section 10(13A) to lower your taxable income. The exemption amount depends on your salary, HRA received, and the rent you pay.

Leave Travel Concession (LTC)

LTC allows you to claim tax exemptions for travel expenses incurred on domestic trips. It’s a great way to take a vacation while saving on taxes, but make sure to retain all proofs and adhere to the guidelines.

Gratuity

Gratuity received upon leaving a job after completing at least five years of continuous service is tax-free up to ₹20 lakh. It acts as a wonderful retirement benefit for salaried individuals.

Retirement Benefits (Gratuity)

Employers often offer retirement benefits like superannuation funds or gratuity schemes. Contributions made toward these benefits enjoy various tax exemptions and help build a secure post-retirement life.

Health Insurance Premium

Premiums paid for health insurance plans for yourself, your family, and your parents qualify for tax deductions under Section 80D. Depending on your age and the policyholder’s age, you can claim deductions up to ₹1 lakh annually.

Frequently Asked Questions

1. Can I claim both HRA and home loan tax benefits?

Yes, you can claim both, provided you meet the conditions. If you're staying in a rented accommodation and paying rent while also servicing a home loan for a different property, you can enjoy benefits on both fronts.

2. Is NPS a better option than PPF?

Both serve different purposes. NPS offers a mix of equity and debt exposure, helping you build a retirement corpus with market-linked returns, while PPF is a safer, government-backed investment with assured returns. Depending on your risk appetite and retirement goals, you can choose or even invest in both.

3. Do I need to submit proof for all tax-saving investments?

Yes, submitting proofs for investments is necessary to claim deductions while filing your income tax returns. Without valid documents, you may lose out on eligible tax benefits.

4. Can I claim both 80C and 80CCD?

Absolutely! Section 80C covers a wide range of investments like PPF, EPF, ELSS, and life insurance premiums. In addition to that, under Section 80CCD(1B), you can claim an extra deduction of ₹50,000 specifically for NPS contributions.

5. Which tax regime is better?

The choice between the old and new tax regime depends on your income, deductions, and financial goals. If you claim significant deductions under 80C, 80D, HRA, and home loan benefits, the old regime might be better. If you prefer lower tax rates without claiming deductions, the new regime can be simpler.

For detailed comparison and understanding, check out save tax for salary above 12 lakh.