Meet Aditya, A 35-year-old IT professional who resides in Hyderabad and earns a whopping ₹18 lakh every year. However, he feels the tax pinch and is quite uneasy because he pays so much in taxes.
Merge debts, reduce stress, save more!
A while back, he spoke with a financial advisor who added the words “smart” and “tax-saving such as the right tax regime, deduction claims, and right investing.” By the end of the last fiscal year, Aditya reduced his tax outgo by a whopping ₹3.5 lakh! Want to know how? Let us lay it simply in steps that anyone can follow.
Understanding the Basics: Old vs. New Tax Regime
Old and new tax regimes are the options on offer by the government, and it is critical to choosing the right regime to start on the right track towards tax savings.
- Old Tax Regime: Invest and take-home deductions on several things, which better suits an individual making investments or under loans.
- New Tax Regime: It offers lower tax rates but has fewer deductions.
For Aditya, the old regime worked better because he could use several deductions to reduce his taxable income.
Key Deductions to Save Tax
Here’s a closer look at some common tax-saving options under the old regime:
- Section 80C – Investments Matter
- Invest up to ₹1.5 lakh in the following options: PPF, ELSS, or NPS.
- Example: Aditya invests in ELSS Rs 50000 and Rs 1 lakh in PPF. Both help save him tax and add wealth to his fortune.
- Section 24(b) – Home Loan Interest
- Claim up to ₹2 lakh for home loan interest. A sum equal to 30% of the annual value will be deducted.
- Example: Aditya pays loan interest of ₹3 lakh annually. He can claim up to ₹2 lakh under tax deduction saving an additional ₹30,000.
- Section 80D – Health Insurance
- Allow deduction of up to ₹25,000 for health insurance premiums for self and family and allow deduction of additional ₹50,000 if senior citizen parents are covered.
- Example: Aditya spends ₹20,000 on his health policy and ₹30,000 on his parents’ policy. He now claims ₹50,000 as deduction thus bringing his taxable income even further down.
Using House Rent Allowance (HRA)
Using House Rent Allowance (HRA) Aditya rents out a place in the city of Hyderabad, where he pays ₹20,000 as rent per month. A part of this lesser amount will be tax-free for him, thanks to HRA. The formula for HRA is:
Exemption = Minimum of:
- Actual HRA received.
- Rent paid – 10% of salary.
- 50% of salary (for metro cities) or 40% (non-metro).
For Aditya, the exempted amount is ₹1.8 lakh annually.
How Aditya Saved Taxes
| Tax-Saving Strategy | Amount Saved (₹) |
| Section 80C Investments | 1,50,000 |
| Home Loan Interest (Sec 24b) | 2,00,000 |
| Health Insurance (Sec 80D) | 50,000 |
| HRA Exemption | 1,80,000 |
Total Taxable Income: ₹12.2 lakh (after deductions)
Tax Saved: ₹3.5 lakh
Additional Deductions
- Section 80E – Education Loan: Interest paid on education loans taken for higher education studies can be claimed under this section.
- Section 80G – Charitable Donations: Donations made to Charities: Donations made to registered charities can be claimed between 50% to 100% of the donation amount.
- Section 80CCD(1B) – NPS: Additional deduction of ₹50,000 can be claimed for investments in an NPS account.
A Quick Checklist for Saving Taxes
| Step | Action | Maximum Savings (₹) |
| Choose Tax Regime | Pick old/new based on deductions | Depends on your income |
| Invest in 80C Instruments | PPF, ELSS, NPS | 1,50,000 |
| Claim Home Loan Interest | Under Section 24(b) | 2,00,000 |
| Pay Health Insurance Premiums | Under Section 80D | 75,000 |
| Utilize HRA | Claim rent exemptions | Depends on rent and salary |
Conclusion: Plan and Save Smartly
As seen in the Aditya story, this is how one can really save something substantial in tax through excellent understanding of deductions and exemptions. For someone earning an annual income of ₹18 lakhs, these would be some saving tips. Invest in PPF or avail of interest on a home loan, or avail of an HRA-the key thing is early planning and sticking to your financial goals. Tax is not compliance but it’s something that builds wealth in the future.