Top 10 Tax Saving Options for Salaried in 2024

Tax saving is an art where you not only save your hard-earned money in the present but also for the future and also help yourself secure your future financially. However, acing this art is quite a task but worthy of your time and effort. In this article, we will be discussing ten such investment options which will not only help you save your taxes but also help you accumulate significant wealth for your future. The article will talk about the features of these tax-saving options for salaried individuals and also guide you about how to invest in them.

Top 10 Tax Savings Options For Salaried Employees

There are so many schemes launched by the Indian Government which is available for all Indians. 

Public Tax Saving Schemes

Employees’ Provident Fund (EPF)

Employees’ Provident Fund or EPF is usual for all salaried employees where especially in the organised sector. This is a savings scheme launched under the government’s supervision which aims for providing a lump sum corpus to the employee at the time of retirement or when the employee leaves the organisation. This is a saving scheme where both the employee and employer have to make contributions to the fund.

As per recent updates of the EPF scheme, both employee and employer have to contribute 12% each of the primary salaries of the Basic employee plus dearness allowance.

The employee is entitled to receive the entire amount accumulated in the fund upon retirement. EPF is popular amongst employees as they can claim up to 1.5 lakhs of the deduction for the contribution made to the fund, under section 80C. However, if the employee partially withdraws any amount from the fund for any emergency, then that amount will be taxable. However, if the full amount is withdrawn at the time of retirement, then it will be tax-free.

Public Provident Fund (PPF)

Public Provident Fund or PPF is similar to EPF as both are provident fund savings schemes, and the difference between the two is that EPF is for the employees of the organisations while PPF is for all citizens of the country. Here you can invest any amount from Rs. 500 to Rs. 1.5 lakhs in a year and also get a tax deduction for the same up to 1.5 lakhs under section 80C of the Income Tax Act.

Now, another benefit of PPF is that the interest amount that you earn over the PPF fund is also tax-free. When you withdraw the amount after maturity of 15 years, then if you withdraw the entire amount, no taxes will be levied as well.

Equity Linked Savings Scheme (ELSS)

As the name suggests, this investment option invests mainly in the equity and equity-related instruments of listed companies. You can invest in ELSS schemes through your brokerage house, or you can also directly invest using mutual fund applications and AMC’s website and applications. There is a lock-in period of three years in every ELSS scheme when the money invested cannot be redeemed.

You can invest a lump sum amount or even do a SIP for regular investments. For this investment option also, you can avail of a deduction of up to Rs. 1.5 lakhs under section 80C of the Income Tax Act. This means, if you invest Rs. 200000 in a financial year, then you can avail of a maximum of up to Rs. 1.5 lakhs only while the remaining Rs. 50000 will not be available for deduction from your income.

Now, suppose, you invest Rs. 60000 in a year, in that case, you can get a total deduction of Rs. 60000. However, here is a twist, the total deduction available under section 80C is Rs. 1.5 lakhs. So, if you invest in EPF, PPF, and ELSS equally suppose, Rs. 50000 each, then you can avail the total deduction of Rs. 1.5 lakhs, while if you exhaust the entire amount of Rs. 1.5 lakhs for investing in one of the instruments, then if you invest in another, you cannot avail of any deduction in that scenario. This applies to all the investment options available under section 80C of the IT Act.

National Pension Scheme (NPS)

While government employees still receive a pension but private sector employees do not, so for fair retirement planning for all, the centre has come up with a pension scheme which is known as National Pension Scheme. It is a market-linked saving scheme, where you have to choose a Pension Fund Manager (PFM) and also has to provide your preferences regarding assets in which you want to invest while registering for the scheme.

You can choose from different PFM who will handle your funds. Then you need to choose from the asset classes which are equity, government bonds, corporate debt and Alternative investment funds. Amongst these four asset classes, you can choose multiple investment options, you can also set auto investment or go for active one where you will be involved in the decision-making.

This investment scheme also helps you get tax benefits under section 80CCD (1) which allows a deduction of a maximum amount of Rs. 1.5 lakhs for self-contribution in this scheme. Then under section 80 CCD (1B), you can get an additional deduction of up to Rs. 50000 for self-contribution in this NPS scheme as well.

Tax Saving FD

Another tax-saving option for salaried people is Tax Saving Fixed Deposits. It is one of the most commonly used investment options for tax savings in India.

These tax-saving fixed deposits have a lock-in period of five years and offer guaranteed returns like other FDs and risk-free investment options. These tax-saving FDs offer tax benefits in the form of deductions from total income up to Rs. 1.5 lakhs under section 80C of the IT Act. So, with these Tax saving FDs, you are not only getting tax benefits, but also capital protection and guaranteed returns.

ULIP

Unit Linked Insurance Policy is another great option for salaried people to save their taxes while investing for the future and securing it. ULIPs are insurance plans which are linked to the market and thus serve the purpose of both insurance and investments.

The premium you pay for ULIP is completely exempted from income tax up to a limit of Rs. 1.5 lakhs in a financial year under section 80C of the Income Tax Act, 1961. The amount you receive on maturity is also tax-free under section 10 (10D) of the same act. Even partial withdrawals after five years are tax-free.

House Rent Allowance (HRA)

While the above-mentioned tax saving options are primarily investment schemes, here is HRA which is an allowance provided to salaried employees, on which they receive certain exemptions. A part of HRA can be claimed as an exemption from your gross salary and the amount will be the least of the following three –

• The actual amount of rent you paid in the assessment year minus 10% of the basic salary
• The amount of HRA you have received from the organisation you are working with
• In the case of metropolitan cities, it would be 50% of the basic salary.

Now, the lowest amount of these three will be deducted from your gross salary as an exemption. This exemption comes under section 10 (13A) of the Income Tax Act of India.

Leave Travel Concession (LTC )

This is an allowance which is given to the employees for travelling when on leave from the office. Suppose, you are going on a holiday, then you can use this allowance. Against this allowance, you can get tax exemptions as well. There are different rules which have been specified by the IT Department of the country to avail the exemption for the LTA. As per recent updates, you can claim exemption only under the following circumstances –

• When you travel to a domestic travel destination. This allowance cannot be considered for exemption in case of international trips.
• This allowance is available for the employee alone and also for his or her family which includes spouse, up to 2 children (born after 1st October 1998) or any number of children born before this date, dependent parents, and siblings.
• A taxpayer can claim leave travel concession for any two journeys in a block of 4 calendar years. If the taxpayer has not availed the exemption for leave travel concession in a particular block, he can claim the exemption of the first journey in the calendar year immediately succeeding the end of the block of four calendar years. Hence, a maximum of one journey can be carried forward and that too only for the first journey in the following calendar year unless the period is extended. In case leave travel allowance is encashed without performing the journey, the entire amount received by the employee would be taxable.

The exemption on LTA is available on the actual cost of travelling by air, rail or bus. You need to understand that this exemption cannot be claimed for your hotel accommodation, food, local conveyance, or sightseeing. So, if you are travelling by flight, and the ticket of your family cost a total of Rs. 25000 and you have a yearly LTA of Rs. 35000, then the exemption you can avail is only Rs. 25000 while the remaining Rs. 10000 will be included in your taxable income.

Home Loan

Another best ways to save taxes and building assets for life is taking home loan. On home loan, an individual can claim tax exemption up to Rs. 1.5 lakhs under section 80 C on the repayment of the principal amount of the loan. While another Rs. 2 lakhs can be exempted for the interest payment of the home loan under section 24(B). These benefits can be available for the entire repayment tenure of the home loan.

Health Insurance Premium

Lastly, the best income tax saving tip that anyone can give you is that you can save taxes using the premium you pay for your health insurance. This is covered under section 80D of the Income Tax Act, of 1961. If you paid health insurance premiums for yourself/ spouse/ children in a financial year, then you can get a deduction of up to Rs. 25000 under section 80D while for the senior citizen, this limit is Rs. 50000. In case you pay a health insurance premium for your dependent parents who are senior citizen, in that case, you can avail a deduction of up to Rs. 50000 in a financial year for the premium paid in that year.

So, if you are wondering how to save tax on salary and also for investment options, which will not only help you save for the future but also help you save your taxes in the present, then the ten options/ schemes mentioned above can be considered as the most popular ones amongst all.