How much tax can you save in 2023-24 with your investments?

It is that time of the year again. The last quarter is about to begin, and you are dreading the tax season. Pretty soon, you’ll start receiving e-mails asking you to share details of your investments. You’ll be spending the next few months working on figuring out ways to minimise your tax liabilities. 

The process of filing taxes can be a bit of a hassle. You need to be aware of the constant tweaks to the taxation regimes. Plus, there is a lots of fine print to go through and understand, and a ton of calculations that need to be made. But all this is in service of becoming tax savvy at the end of the day. You need to ensure that your finances are completely optimised. 

So, to make sure your tax filing journey is easier, we have compiled a list of deductions that are allowed by the Income Tax Act. You will get the necessary information required to answer the title of this article: exactly how much can you save this year with your investment portfolio!

Let’s begin with a small aside:

A Short Note on Income Tax Regimes in India

There are two tax regimes in India: The Old Tax Regime and the New Tax Regime. The deductions mentioned in this article will not be available under the New Tax Regime, but that is not to say that you should go for the Old Tax Regime. Both have their advantages, based on what investments you currently have and what your current income is. So, make sure that you weigh the pros and cons of both and then choose the one that works best for you. Pay close attention to the details given below if you have chosen to go with the Old Tax Regime. 

Tax Savings and the Income Tax Act

As a taxpayer, you may earn income from various sources throughout your life. According to the Income Tax Act of 1961, your earnings or profits in a given fiscal year are subject to taxation.

Regardless of whether you are a salaried employee, an entrepreneur, a rental property owner, or an investor, you are obligated to pay taxes to the government.

To assist you in this matter, Sections 80C and 80D of the Income Tax Act outline the avenues through which you can reduce your tax liability. If you find yourself perplexed about how to structure your finances for maximum tax advantages, here are some best investment plans for Section 80C deductions tailored to your risk tolerance:

• High-risk tolerance: If you are an assertive investor seeking high returns along with tax benefits under Section 80C, you might want to contemplate investing up to ₹1.5 lakhs per year in Equity Linked Saving Schemes (ELSS) or Unit Linked Insurance Plans. ELSS is a tax-saving mutual fund that holds the potential for substantial double-digit returns. Essentially, this strategy enables you to obtain immediate tax advantages and get solid returns over the long haul.
• Moderate-risk tolerance: If you possess a moderate appetite for risk, consider allocating a portion of your funds to ELSS and the remainder to the Public Provident Fund (PPF) and/or Guaranteed Income Plans. This approach secures the requisite tax benefits under Section 80C while helping you strike a balance between risk and returns.
• Low-risk tolerance: For those who are risk-averse, directing your investments toward guaranteed income plans, tax-saving fixed deposits, or the PPF is a prudent choice. In this scenario, you can avail of the same tax deduction of ₹1.5 lakhs under Section 80C without exposing yourself to significant risk.

By making these investments, you can potentially save up to ₹46,800 on taxes annually.

Additional Advantages Beyond Section 80C

If you seek deductions exceeding the limits prescribed by Section 80C, you have the option to invest in a retirement investment plan like the National Pension Scheme or the Atal Pension Yojana. Section 80CCD (1B) of the Income Tax Act provides deductions of up to ₹50,000 for contributions made to these schemes. As a taxpayer, you can save up to ₹15,600 under this section.

Furthermore, you can claim tax benefits for premiums paid towards health insurance and term insurance plans covering yourself, your spouse, children, and parents. These benefits fall under Section 80D of the Income Tax Act. Annually, you have the potential to save up to ₹15,600 through these health insurance payments.

Collectively, these options offer the potential to accumulate savings of up to ₹78,000 per year. This represents a substantial sum of money. Here is how you can get these benefits:

Investment	Tax applicable	Tax Saved	4% Cess Saved	Total Savings
Section 80C (ELSS, Term Life Insurance, NPS, PPF, etc.)	₹150,000	₹45,000	₹1,800	₹46,800
NPS under Section 80CCD (1B)	₹50,000	₹15,000	₹600	₹15,600
Health insurance for self, family, and parents under Section 80D	₹50,000	₹15,000	₹600	₹15,600
Total tax savings				₹78,000

 

All Deductions Allowed Under Section 80

Now, the sections outlined above are the most common ways to reduce your tax liabilities. There are other deductions that are more specialised and can only be availed of if they apply to you. Here is a short summary of the same, including the ones we have already discussed:

Section	Description	Eligibility and Conditions	Maximum Deduction
Section 80C	Deductions for various investments and expenses	Available to all taxpayers	₹1,50,000
Section 80CCD	Deductions for National Pension System (NPS)	Available to all taxpayers	₹2,00,000 (₹1,50,000 + ₹50,000)
Section 80D	Deductions for medical insurance premiums	Available to individuals and HUFs	₹1,00,000 (₹25,000 or ₹50,000 for individuals; ₹25,000 or ₹50,000 for parents)
Section 80E	Deductions for interest on education loans	Available to individuals and HUFs	Actual interest paid
Section 80EE	Deductions for interest on home loans for first-time homebuyers	Available to individuals	₹50,000
Section 80G	Deductions for donations to charitable organizations	Available to all taxpayers	100% or 50% with or without restriction
Section 80GG	Deductions for rent paid when HRA is not received	Available to individuals and HUFs	₹60,000 or actual rent paid minus 10% of total income or 25% of annual salary, whichever is least
Section 80TTA	Deductions for interest on savings bank accounts	Available to individuals and HUFs	₹10,000
Section 80DD	Deductions for maintenance of disabled dependents	Available to individuals and HUFs	₹75,000 (40% to 80% disability) or ₹1,25,000 (80% or more disability)
Section 80DDB	Deductions for medical expenses on specific ailments	Available to individuals and HUFs	Actual expenses or ₹40,000 (less for senior citizens)
Section 80U	Deductions for individuals with disabilities	Available to individuals and HUFs	₹75,000 (40% to 80% disability) or ₹1,25,000 (80% or more disability)
Section 80GGC	Deductions for donations to political parties	Available to individuals	Up to 10% of gross income

Please note that the maximum deductions mentioned in the table are subject to specific conditions and may vary based on individual circumstances. It is advisable to consult a tax specialist/financial expert to find out what deductions you are eligible for. Use this knowledge to maximise your tax-savings!

Conclusion

To sum up, you can save up to ₹78,000 a year in taxes with a well-diversified financial portfolio that has tax-efficient investments, life insurance, health insurance, and NPS contributions. Of course, this is the upper limit applicable for those in the highest tax slab defined in the old regime. But, as you continue to grow and diversify, this information will come in handy and help you maximise your financial potential by minimising your tax liabilities. That is what good tax planning is all about. 
Hopefully, you are now better equipped to review and plan your finances for the upcoming tax season. Happy tax planning!

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