Tax Planning: How to Save Tax legally in 8 different ways

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The Indian Income Tax Act allows for certain deductions which can be claimed to save tax at the time of filing
of Income Tax Return by all classes of Taxpayers (i.e. Salaried Individuals, Professionals, businessman etc).
These deductions which help in saving tax are only available if the taxpayer has done proper tax planning during
the year.
If an Individual has done proper Tax Planning to save tax, such deductions would be subtracted from the gross
total income and income tax would be levied on the balance income as per the income tax slabs in force.
Recommended Read: Income Tax Slab Rate
The most popular ways of Tax Planning which help a taxpayer to save tax legally are as follows:-

To promote the culture of savings and to direct the savings of the common man into the rightful resources, the
Govt allows certain deductions provided the amount saved is invested in the Instruments as specified in Section

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80C, Section 80CCC & Section 80CCD.

The maximum combined deduction allowed under these 3 sections is Rs. 1,50,000. If youve done proper tax
planning during the year, you can claim these deductions to save tax by investing under any of these sections
alone or in combination but the total deduction allowed would be limited to Rs. 1,50,000 only.
There are many instruments which are specified by the Govt through which tax planning can be done and these
investments can be claimed as a deduction to save tax. The most popular instruments for investing for the
purpose of tax planning to save tax are:PPF Accounts
5 Year Tax Saving Fixed Deposit
Equity Oriented Mutual Fund
Pension Plans
Contribution to Employee Provident Fund
Life Insurance Policy
National Savings Certificate (NSC)
All Tax Planning Options to save tax specified below are over and above the Rs. 1,00,000 deduction allowed
under Section 80C, 80CCC & Section 80CCD as specified above.

The Income Tax Act also allows for deductions to save tax if the expenditure has been made by the taxpayer for
insuring his own health or the health of his relatives. Different amount of deductions are allowed under each of
these sections which help in tax saving depending on the type of Insurance Policy which is as follows:Section 80D: Medical Insurance Premium of Self or Spouse or Children
Section 80DD: Medical Treatment of Handicapped Dependents
Section 80DDB: Treatment of Specified Diseases

If you have taken a Home Loan, you are allowed to claim deduction for repayment of principal amount of home
loan u/s 80C.
Moreover, you are also allowed to claim deduction of interest paid on home loan under section 24. The
maximum deduction allowed in some cases is Rs. 2,00,000 and in some cases there is no maximum limit of
claiming this deduction for payment of interest on home loan.
Tax planning for the purpose of saving tax by taking a Home Loan is highly advisable as the Deduction allowed
for repayment of home loan can be claimed under 3 different sections resulting in huge tax savings to the
taxpayer.
Recommended Read: Tax Benefits of Home Loan

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If a taxpayer has taken an education loan for the higher education of himself or spouse or children or the student
of whom he is the legal guardian, he can claim deduction under Section 80E and save taxes.
This deduction is only allowed for the repayment of interest and not for the repayment of principal amount of
education loan. There is no maximum limit for claiming deduction under section for the repayment of interest on
education loan. Deduction under Section 80E is only available for Individual taxpayers and not to HUF
Recommended Read: Income Tax Deduction for Education Loan

A taxpayer having annual income of less than Rs. 12 Lakhs p.a. is allowed an additional deduction under Section
80CCG for investing in Shares of specified companies and specified Mutual Funds. This Deduction is called the
Rajiv Gandhi Equity Saving Scheme.
This is a very complicated scheme and deduction is only available to first time investors and those who have
earlier invested in Shares/Mutual Funds are not eligible for to make use of this deduction for doing tax planning
to save tax.
Recommended Read: All about RGESS

If any Long Term Capital Gain is arising to a taxpayer from the sale of any Long Term Capital Asset, he can
claim exemption from paying such Capital Gain Tax if he invests the amount of gain from sale of property in
specified instruments. Any Asset is considered as a Long Term Capital Asset if that asset was held by the
taxpayer for more than 3 years.
This Exemption is considered very beneficial while doing the Tax Planning to save income tax of a taxpayer.
Recommended Read: Exemption from payment of Long Term Capital Gains Tax

If a taxpayer makes a donation for charity, social or philantrophic purpose or makes a contribution towards
National Relief Fund, then this donation can be claimed as a deduction u/s 80G of the Income Tax Act.
The Finance Ministry has pre-specified the organisations to which the taxpayer can make the donations and

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deduction allowed depends on the purpose for which the donation has been made.
In some cases, 100% of the donation made is allowed to be claimed as a deduction whereas in certain cases only
50% of the donation made is allowed to be claimed as a deduction for the purpose of saving taxes.
Donations made in kind are not allowed to be deducted. Only the deductions made through cash or cheque are
allowed to be deducted.
For deductions made through cash, only Rs. 10,000 would be allowed to be claimed as a deduction. For claiming
deductions above Rs. 10,000, the taxpayer would have to make the donation through cheque (Inserted by Budget
2012)
Recommended Read: Deductions allowed for Donations under Section 80G

To encourage the public to invest in equity shares and mutual funds, the govt has exempted income tax on the
long term gains arising from the sale of equity shares, provided that these shares were held for a period of more
than 1 year). If the shares are held for a period which is less than 1 year, tax would be levied @ 15%
Recommended Read: Computation of Capital Gains Tax
There are several other ways to save tax as well (like Section 80GG, Section 80U, Section 80GGC etc) but they
cant be applied in case of a common man to help him do his Tax Planning. For complete list of deductions
allowed under Chapter VI-A, you are kindly requested to refer this link.

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