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Income Tax Savings: Tips and Tricks for FY-2023

January 11, 20230

Income Tax Savings

There are many ways to save on income tax in India, and it’s important to find the option that works best for you.

Here are some of the best ways to save on income tax in India:

income tax in IndiaUse tax deductions and exemptions: There are several deductions and exemptions available to individuals in India, such as deductions for home loan interest, education loans, and charitable donations. Make sure to take advantage of these deductions to reduce your income tax burden.

Invest in tax-saving investments: There are several tax-saving investments available in India, such as Public Provident Fund (PPF), National Savings Certificate (NSC), and Equity-Linked Savings Scheme (ELSS). These investments offer tax benefits and can help you save on your income tax.

Claim tax credits: If you are eligible for certain tax credits, such as the tax credit for electric vehicles, you can claim these credits to reduce your tax liability.

Opt for the new tax regime: The new tax regime, introduced in the 2020 budget, offers lower tax rates for individuals who opt for it and forego certain exemptions and deductions. If you have a lower tax liability, this option may be suitable for you.

Use tax-saving tools: There are several tax-saving tools available in India, such as tax calculators and tax-saving checklists, which can help you find the best ways to save on income tax.

By taking advantage of these options, you can effectively save on your income tax in India and reduce your tax burden.

Let’s understand each topic in-depth,

  • Use tax deductions and exemptions:

Use tax deductions

One of the most effective ways to save on income tax in India is by taking advantage of tax deductions and exemptions. These deductions and exemptions are designed to reduce your tax burden and help you save money on your tax bill.

There are several deductions and exemptions available to individuals in India, including deductions for home loan interest, education loans, and charitable donations. For example, if you have taken a home loan to purchase a property, you can claim a deduction on the interest paid on the loan. Similarly, if you have taken an education loan to fund your studies, you can claim a deduction on the interest paid on the loan. Additionally, if you have made charitable donations, you can claim a deduction on the amount donated.

To claim these deductions, you need to ensure that you have all the necessary documents and paperwork in order. This includes proof of payment, such as receipts and bank statements, and any other documents required by the tax authorities.

In addition to these deductions, there are also several exemptions available to individuals in India. These exemptions include exemptions on income from certain sources, such as rent, dividends, and capital gains. By claiming these exemptions, you can reduce your tax liability and save money on your tax bill.

By taking advantage of deductions and exemptions, you can effectively save on your income tax in India and reduce your tax burden. It’s important to familiarize yourself with the various deductions and exemptions available and ensure that you are claiming them appropriately to maximize your tax savings.

  • Invest in tax-saving investments:

tax-saving investments

Investing in tax-saving investments is a smart way to save on income tax in India. These investments not only offer the opportunity to grow your wealth but also provide tax benefits that can help reduce your tax burden.

One popular tax-saving investment option in India is the Public Provident Fund (PPF). With a PPF, you can invest a minimum of INR 500 and a maximum of INR 1.5 lakh per year, and enjoy tax benefits under Section 80C of the Income Tax Act. The invested amount, as well as the interest earned, is exempt from tax.

Another option is the National Savings Certificate (NSC), which offers a fixed rate of return and can be purchased from any post office. The invested amount and the interest earned are tax-exempt under Section 80C.

Equity-Linked Savings Scheme (ELSS) is another popular tax-saving investment option in India. ELSS is a mutual fund that invests in equities and offers tax benefits under Section 80C. These funds have a lock-in period of three years but have the potential for higher returns compared to other tax-saving investments.

By investing in these tax-saving investments, you can not only save on your income tax but also grow your wealth over time. It’s important to do your research and choose the option that best fits your financial goals and risk tolerance.

  • Claim tax credits:

Claim tax credits

If you are eligible for certain tax credits in India, you can claim these credits to reduce your tax liability and save on income tax. Tax credits are credits against your tax liability and are often used to encourage certain behaviors or actions.

One example of a tax credit in India is the tax credit for electric vehicles. If you own an electric vehicle, you may be eligible for a tax credit of up to INR 1.5 lakh. This tax credit is intended to encourage the use of electric vehicles and reduce emissions.

To claim a tax credit, you will need to file your tax return and include the credit in your calculations. Make sure to keep all necessary documentation, such as receipts and proof of ownership, to support your claim.

There are several other tax credits available in India, including credits for research and development, energy-efficient home improvements, and charitable donations. It’s important to research which credits you may be eligible for and claim them to reduce your tax liability.

By claiming tax credits, you can effectively save on income tax and reduce your tax burden. It’s important to stay up to date on the latest credits available and take advantage of them to save on your taxes.

  • opt for the new tax regime:

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If you’re looking to save on your income tax in India, you may want to consider opting for the new tax regime introduced in the 2020 budget. This regime offers lower tax rates for individuals who choose to forego certain exemptions and deductions.

Under the new tax regime, you can choose to pay tax at the lower rates of 5%, 10%, 15%, 20%, and 25% depending on your income level. However, to take advantage of these lower rates, you will have to forego deductions such as those for home loan interest, education loans, and charitable donations.

While the new tax regime may not be suitable for everyone, it can be a good option for those who have a lower tax liability. By opting for the new tax regime and paying tax at lower rates, you can save money on your income tax.

However, it’s important to carefully consider your options before deciding which tax regime to opt for. If you have a higher tax liability, you may be better off claiming deductions and exemptions to reduce your tax burden. You should also consider your long-term financial goals and tax planning strategy before making a decision.

Overall, the new tax regime is a useful option for those looking to save on income tax in India. By carefully considering your options and choosing the regime that works best for you, you can effectively save money on your tax bill.

  • Use tax-saving tools:

saving tools

Tax-saving tools are a great way to save on income tax in India and reduce your tax burden. These tools can help you find the best ways to save on income tax and ensure that you are taking advantage of all available deductions and exemptions.

One of the most useful tax-saving tools is the tax calculator. A tax calculator allows you to input your income and other relevant information to determine your tax liability. You can use a tax calculator to see how different deductions and exemptions will impact your tax liability and to find the best ways to save on income tax.

Another useful tax-saving tool is the tax-saving checklist. A tax-saving checklist is a list of deductions and exemptions that you may be eligible for, along with information on how to claim them. By using a tax-saving checklist, you can ensure that you are taking advantage of all available deductions and exemptions, and maximizing your tax savings.

In addition to tax calculators and checklists, there are also other tax-saving tools available, such as tax planning software and online tax resources. These tools can help you find the best ways to save on income tax and reduce your tax burden.

Overall, tax-saving tools are a valuable resource for individuals looking to save on income tax in India. By taking advantage of these tools, you can effectively save on your income tax and reduce your tax burden.

There are other certain ways to save the income tax if you need any help regarding the taxing and want to invest in any products mentioned above contact us at Birju Acharya.

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