The term “income tax” comes to almost every taxpayer’s mind at some point. However, our first consideration is how to maximize our income tax savings. As a working-class person, when a person’s tax burden is high, he/she needs to pay a large amount of income tax every year. However, there are some regulations or tips that can help users save a lot of tax while applying or purchasing accordingly. Because taxpayers know so little about it, they often end up paying a lot of their hard-earned taxes.

If calculated properly, if an individual applies for a home loan, gets NPS benefits from the company and also gets some key components of their salary that are tax-free like allowances from the employer, they will help them save over Rs 50,000 in taxes.

How to save income tax?

1. An individual shall seek the benefits of the National Pension System from the employee under Section 80CCD(2) wherein 10% of the basic salary will be deposited in the NPS on his behalf and shall be fully tax-free. For example, if a company invests around Rs 5,000 in NPS every month, the tax will be reduced by nearly Rs 13,000.

2. In addition, taking a loan to buy a house can also help reduce taxes. Employees who are entitled to a loan from their employer on favorable terms should definitely take advantage of this opportunity to build assets and reduce their tax liability. For example, a loan of Rs 25,00,000 for 20 years with an interest rate of 7% will require him to pay an EMI of Rs 20,000 and an annual interest of Rs 1.5 lakh. This may further help reduce taxes by nearly Rs 30,000.

3. Individuals should also explore other tax allowances within the salary structure, including vacation travel allowance and book and newspaper expense reimbursement. The amount of special allowance should also be reduced to reduce the taxable portion. Like other sources of income like fixed deposits and dividends, one should avoid fixed deposits and opt for debt funds instead.

It is important to note that choosing the new tax regime may limit any deductions they can claim from their employer. They must consider opting for the old tax regime, which allowed deductions for NPS investments, health insurance premiums, interest on savings bank accounts or donations to charities.