Every salaried professional in India wants to reduce tax liability without breaking any rules. Thankfully, the Income Tax Act provides many legal ways to save tax. But most people either don’t know these provisions or use only a few common options like Section 80C. As a result, they end up paying more tax than required.
This guide explains how salaried employees can save tax legally in India using deductions, exemptions, and smart financial habits. The language is simple, easy to understand, and suitable for Indian readers. Whether you are earning ₹3 lakh or ₹30 lakh per year, these tips can help you plan better. We also cover benefits, drawbacks, steps to save tax, and FAQs so you can make confident decisions and increase your take-home salary without violating any laws.
Quick Overview of Major Tax-Saving Options for Salaried Professionals
| Tax-Saving Option | Section | Maximum Benefit | Type |
| PF, PPF, ELSS, LIC, Tuition Fees | 80C | ₹1,50,000 | Deduction |
| NPS Contribution | 80CCD(1B) | ₹50,000 | Deduction |
| Health Insurance | 80D | ₹25,000–₹50,000 | Deduction |
| Home Loan Interest | 24(b) | ₹2,00,000 | Deduction |
| HRA | Rule 2A | Varies | Exemption |
| Standard Deduction | – | ₹50,000 | Reduction in income |
| Education Loan Interest | 80E | No limit | Deduction |
| Donations to Charities | 80G | 50–100% | Deduction |
- What Does “Saving Tax Legally” Mean?
Saving tax legally means using the tax benefits, exemptions, and deductions allowed by the Government of India under the Income Tax Act. You are not hiding income or doing anything unethical. You are simply reducing your taxable income through:
- Investments
- Insurance
- Loans
- Rent (HRA)
- Medical expenses
- Retirement contributions
These methods are fully legal and encouraged by the government to help you save money and build financial security.
- Major Tax-Saving Options for Salaried Employees
2.1 Section 80C – The Most Common Tax Saver
Section 80C allows a deduction of up to ₹1.5 lakh per year.
Eligible Investments/Payments Include:
- EPF (Employee Provident Fund) – automatically deducted from salary
- PPF (Public Provident Fund)
- ELSS Mutual Funds
- Life Insurance Premiums
- National Savings Certificate (NSC)
- Sukanya Samriddhi Yojana
- Children’s tuition fees
- Home loan principal repayment
Why It’s Good:
- Helps save tax and build long-term wealth
- Flexible investment options
Drawback:
- Many people invest only for tax-saving, not according to financial goals.
2.2 HRA (House Rent Allowance)
If you live in a rented house and receive HRA as part of salary, you can claim exemption.
You can claim the lowest of:
- Actual HRA received
- 50% of salary (metro cities) / 40% (non-metro)
- Rent paid minus 10% of salary
Tip: Even if you live with parents, you can claim HRA by paying them rent and taking rent receipts.
2.3 Standard Deduction – ₹50,000 For All Employees
Every salaried individual automatically gets a ₹50,000 deduction from annual taxable income. No documents required.
2.4 Section 80D – Health Insurance Premium
You can claim deductions on health insurance premiums:
| Category | Maximum Deduction |
| Self + Family (below 60) | ₹25,000 |
| Parents (below 60) | ₹25,000 |
| Parents (60+) | ₹50,000 |
Also covers preventive health check-up (up to ₹5,000).
2.5 Section 24(b) – Home Loan Interest
If you have a home loan, you can claim up to ₹2,00,000 as deduction for self-occupied property.
For rented property, entire interest paid is deductible.
2.6 NPS – Additional ₹50,000 Deduction
Under Section 80CCD(1B), you can save an extra ₹50,000 by investing in the National Pension System.
This deduction is over and above 80C.
2.7 LTA (Leave Travel Allowance)
You can claim tax exemption on travel expenses within India for two trips in four years.
Note: Hotel expenses are not covered.
2.8 Section 80G – Donations
Donating to government-approved trusts reduces taxable income. You may get 50% or 100% deduction depending on the organization.
2.9 Section 80E – Education Loan Interest
Interest on education loans (self, spouse, or children) gets full deduction for up to 8 years.
- Benefits of Saving Tax Legally
| Benefit | How It Helps |
| More In-Hand Salary | Less tax means more monthly take-home income. |
| Long-Term Wealth Creation | PF, PPF, ELSS help build wealth. |
| Financial Security | Health insurance, life insurance protect family. |
| Encourages Smart Spending | Helps you invest instead of spending unnecessarily. |
| Reduces Financial Stress | Lower tax burden = peace of mind. |
- Drawbacks of Tax-Saving Methods
| Drawback | Explanation |
| Forced Investments | Some people invest only to save tax, not for goals. |
| Lock-In Period | PPF, ELSS, Sukanya Yojana have lock-in periods. |
| Documentation Needed | HRA, LTA, insurance require proofs. |
| Mis-selling Risks | Agents may sell wrong insurance for tax benefit. |
- Step-by-Step Guide to Save Tax Legally
Step 1: Calculate Your Taxable Income
Check your salary slip and Form 16. Identify:
- Basic salary
- HRA
- Special allowance
- Other income (FD interest, freelance income)
Step 2: Use Standard Deduction Automatically
₹50,000 is deducted automatically—no action needed.
Step 3: Max Out Section 80C
Choose any combination:
- EPF (mandatory)
- ELSS for high returns
- PPF for safe long-term savings
- Life insurance (term plan recommended)
Aim to reach ₹1,50,000 limit.
Step 4: Claim HRA Exemption
Submit rent receipts and rent agreement (if required).
Step 5: Invest in NPS (Optional)
If you want extra tax savings, invest ₹500–₹4,000 monthly in NPS.
Step 6: Get Health Insurance Under 80D
Buy medical insurance for self & parents for additional deduction.
Step 7: Plan LTA in Advance
Travel within India and keep all bills.
Step 8: Check Additional Deductions
- Home loan benefits
- Donations under 80G
- Education loan interest under 80E
- Old Tax Regime vs New Tax Regime – Which Saves More Tax?
| Feature | Old Regime | New Regime |
| Deductions | Many | Very few |
| HRA, 80C, 80D | Available | Not available |
| Tax Slabs | Higher rates | Lower rates |
| Best For | People who invest | People without investments |
Tip:
If you claim many deductions (HRA + 80C + 80D), old regime is better.
If you don’t invest much, new regime may give more take-home salary.
Frequently Asked Questions (FAQs)
Q1. What is the easiest way to save tax for a salaried person?
Start with 80C, HRA, and standard deduction. These provide maximum benefit with minimal effort.
Q2. Can I claim both HRA and home loan benefits?
Yes, if:
- Your own house is in another city, or
- You live in a rented home for work
Q3. Is tax-saving investment compulsory?
No, it is optional. But investing wisely helps you build wealth and reduce tax.
Q4. Which is the best tax-saving product?
For most people:
- ELSS for high returns
- PF/PPF for safety
- Term insurance for protection
- NPS for retirement
Q5. Can I claim tax benefits without proofs?
Your employer needs proofs. If you miss deadlines, you can still claim deductions while filing ITR.
Q6. Is NPS better than PPF for tax-saving?
NPS gives extra ₹50,000 deduction and market-linked returns, but has long lock-in till retirement.
Q7. Can I save tax without investing?
Yes, through:
- HRA
- LTA
- Standard deduction
- Home loan interest
Conclusion
Saving tax legally is all about knowing the right deductions and exemptions and using them wisely. Most salaried professionals in India can significantly reduce their tax burden by planning early, choosing smart investments, and maintaining proper documents. Whether through 80C, HRA, health insurance, NPS, or home loan deductions, you can increase your take-home salary while building long-term financial security.
Start planning today. A small effort now can save you thousands of rupees every year—and help you achieve your financial goals faster.
