Smart Ways to Save Tax Without Investments: A Complete Guide

Best Tips To Save Tax Without Investing

Standard deduction

Every salaried individual can claim standard deduction under both (old tax regime and new tax regime ). Under old tax regime, the individual can claim a standard deduction of up to Rs.50,000 while under the new tax regime in India, the standard deduction for salaried employees has been increased to ₹75,000. This change was introduced in the Budget 2024 to make the new tax regime more appealing to taxpayers. For family pensioners, the standard deduction has been increased to ₹25,000. This deduction can be climbed while filing income tax return.

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Contribution towards EPF

It is mandatory to contribute to the Employees Provident Fund (EPF) Scheme if you have a minimum monthly salary of INR 15,000. Since you fall in the high salary bracket, you must be contributing to the EPF scheme. In fact, even your employer contributes an equal amount to your EPF Account. While your employer’s contributions are tax-free, you can claim tax deductions on your contributions under Section 80C up to a maximum of INR 1.5 lakhs.

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House Rent Allowance (HRA)

HRA stands for House Rent Allowance. HRA features as a salary component for many employees. If you are a salaried employee and live in a rented home, you can claim an HRA exemption from your taxable salary. HRA exemption would reduce your taxable salary and bring down your tax liability. Under Section 10 (13A) of the Income Tax Act, the exemption allowed for HRA is calculated as follows

Lowest of –

• Actual HRA paid by the employer
• Actual rent paid 10% of the salary (basic salary + dearness allowance + commission received)
• 50% of the basic salary if you live in a metro city else 40% of the basic salary

For instance,

If your salary is INR 10 lakhs annually where the HRA component is INR 2 lakhs, and you pay a monthly rent of INR 20, 000, the HRA exemption available to you would be calculated as follows

Even if HRA is not a part of your salary structure, you can still get a tax deduction under Section 80GG if you pay rent on your house. In such cases, the eligible amount of deduction available is as follows

Lowest of

• Rent paid 10% of the adjusted total income (income before claiming deduction under Section 80GG)
• INR 5000 per month
• 25% of the adjusted total income

For instance, in the same example given above, if HRA is not part of your salary component, here is how the HRA exemption would be computed

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Tax Benefits of Home Loans: Interest & Principal Deductions

While HRA exemptions are available on a rented home, what if you own a home? Would you lose the tax-saving advantage?

No, you wouldn’t. An owned house also allows you tax saving advantages in two ways. Let’s understand what these ways are

Interest paid on your home loan

If you own a home and have taken a home loan on the same, the interest paid for the home loan is allowed as a tax deduction under Section 24. You can claim a deduction of up to INR 2 lakhs on the interest paid on your home loan in one financial year. Even if you have taken a loan for the repairs or renovations of your home, the interest paid on the loan would also be allowed as a tax-free expense up to INR 30, 000 within the INR 2 lakh limit.

Principal repayments of your home loan

Besides the tax deduction available on interests, the principal component of your home loan also qualifies for tax deduction. The principal repayment of the home loan is allowed as a tax-free expense under Section 80C of the Income Tax Act. The maximum limit up to which you can claim a deduction is limited to INR 1.5 lakhs.

So, owning a home is also rewarding. You can save tax on your home loan.

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Tuition Fee for Children

Do you have children? If you do, then you can claim a tax deduction on the fee paid for their education. Section 80C allows the tuition fee paid for up to 2 dependent children as a tax-free expense. You can reduce your salary with that expense to reduce your tax liability.

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Leave Travel Allowance

Salaried employees also enjoy tax-free Leave Travel Allowances granted by their employers as a part of their salary. Leave Travel Allowance allows you to take two journeys in a block of four financial years. The expenses incurred on the journey can be claimed as tax-free expenses through LTA. Proofs of the expenses would, however, be required to be submitted to claim tax exemption. Moreover, if two journeys are not taken in one block, the balance can be forwarded to the next 4-year block and used by you. The maximum leave travel allowance available would be the cost of return tickets booked for train or air. In the case of train ticket bookings, the cost of an air-conditioned first-class train ticket is allowed. In the case of air bookings, return fare of economy seats booked in a national carrier. The travel fare covered is for the shortest possible route.

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Tax-free perquisites provided as a part of the salary

There are various salary allowances, reimbursements and perquisites which are tax-free. Try and make them a part of your salary to reduce the taxable salary. Some common examples include the following

• Food coupons up to INR 50 per meal
• Reimbursement of telephone expenses
• Children's education allowance of INR 100 per month per child for a maximum of 2 children
• Hostel expense allowance of INR 300 per month per child for a maximum of 2 children

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Health Insurance

Premium paid for a health insurance plan for yourself and your family qualifies as a tax-free expense under Section 80D. If you pay premiums for a health plan for yourself and your family, you get a tax deduction of up to INR 25,000. If you are a senior citizen, the limit stands increased to INR 50,000. Moreover, if you pay a premium for a separate health insurance plan for your senior citizen parents, you get an additional tax deduction of up to INR 50,000. Here is the maximum deduction you can claim under Section 80D under different instances –

So, you can claim a maximum deduction of INR 1 lakh by paying health insurance premiums.

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Savings Account Interest

If you hold a bank or post office savings account and interest earned on the same is tax-free up to INR 10 000 in a financial year under Section 80TTA.

Further, if you are a senior citizen, you can claim benefits under Section 80TTB for all kinds of interests, whether earned on FD or savings account, etc.

But, an important point to be noted here is that A senior citizen can only take benefit under Section 80TTB, and an individual (not being a senior citizen) and HUF can only claim benefit under Section 80TTA.

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Sections 80DD, 80DDB and 80U

These sections are useful if you have incurred expenses in treating dependent family members with disabilities or for specified ailments. Under Section 80DD, maintenance costs and treatment expenses of a disabled dependent are allowed as a deduction. The deduction limit is INR 75 000 in case of disabled dependents and INR 1.25 lakhs in case of severely disabled dependents. This is a flat amount allowed as a deduction, irrespective of the actual expenses incurred.

Section 80DDB, on the other hand, lists down special ailments. If you have spent money on treating the listed ailments, you can claim a tax deduction. Common examples of specified ailments include neurological diseases, cancer, AIDS, etc. The deduction allowed is the expenses incurred on treatments up to a maximum of INR 40 000 if the age is below 60 years else INR 1 lakh.

If you are disabled and employed, you can claim a deduction of INR 75 000 under Section 80U. Moreover, the limit increases to INR 1.25 lakhs if you have a severe disability.

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Education loan for self or children

Education loans also give you tax saving benefits besides allowing you or your children to pursue higher education. If you have availed an education loan for your higher education or for your children’s higher education you become eligible to claim a tax relief on it. Under Section 80E of the Income Tax Act, the interest paid on an education loan is allowed as a tax deduction.

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Donations

If you have a high salary, charity should feature in your to-do lists. Besides giving you happiness, charitable donations also let you save tax. Under Section 80G, donations made to recognized charitable institutions allow you tax deductions. 50% or 100% of the donated amount qualifies for tax deduction, depending on the donation you select.

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Set off capital loss against capital gains

If you have invested, your investments might give you returns that would attract short-term or long-term capital gains tax. While you have to pay this tax, there is a way to lower it. In some cases, you might incur negative returns on your investments. Negative returns are called capital loss. This loss can be set off against the capital gains that you make in a financial year. Moreover, if you don’t have enough capital gains in a financial year, you can even carry forward your capital loss for up to 8 financial years and use it to set off your capital gains. As your capital gains are set off, your tax liability would reduce.

So, let’s see how you can reduce your taxable income when your salary is INR 25 lakhs annually, and you don’t invest

So, even if you earn a high salary, there are ways to reduce your tax liability without resorting to investments. So, if you have maximized the full potential of tax-free investments, using the above-mentioned ways of saving the maximum possible tax.

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