For many salaried employees in India, income tax can represent a significant financial burden. However, the Income Tax Act provides numerous avenues to save on taxes.

The Income Tax Department offers guidelines and resources for tax-saving strategies, making it easier for taxpayers to navigate their options.

This guide will explore these options, emphasising how integrating these savings into estate planning can not only reduce your tax liability today but also enhance your financial legacy.

Understanding Your Taxable Income

Before diving into tax-saving strategies, it’s essential to understand what constitutes taxable income under the Income Tax Act.

Taxable income includes your salary, bonuses, interest from savings accounts, and other sources of income, minus deductions and exemptions you are eligible for.

Different age groups and tax regimes have specific thresholds for paying income tax, which determine your tax obligations.

Key Tax-Saving Strategies

1. Utilise Section 80C

• Investment in PPF, EPF, and NPS: Contributions to the Public Provident Fund (PPF), Employee Provident Fund (EPF), and National Pension System (NPS) can be claimed as tax deductions under Section 80C, up to a limit of Rs 1.5 lakh annually.
• Home Loan Repayment: The principal portion of your home loan repayment is eligible for deduction under the same section.
• Life Insurance Premiums and ELSS: Premiums paid for life insurance and investments in Equity-Linked Savings Schemes (ELSS) also qualify for deductions.

2. Save on Rent with House Rent Allowance (HRA)

If you receive HRA as part of your salary and pay rent for housing, you can claim a significant deduction depending on your salary structure, the HRA received, the actual rent paid, and your city of residence.

The tax benefits of claiming HRA include potential deductions under the Income Tax Act, which can reduce your taxable income based on the rent paid and your salary structure.

3. Deductions Under Section 80D

Health Insurance Premiums: Premiums paid for health insurance for yourself, your spouse, children, and parents can yield deductions up to Rs 25,000, which increases to Rs 50,000 for senior citizens.

These deductions contribute to significant tax savings by reducing your taxable income.

4. Claim Deductions for Education Loans

Interest paid on loans taken for higher education (for self, spouse, children, or a student for whom the taxpayer is a legal guardian) is eligible for a tax deduction under Section 80E.

5. Advanced Tax Planning with National Pension System (NPS)

Contributions to NPS entitle you to an additional deduction of up to Rs 50,000 under Section 80CCD(1B), over and above the Rs 1.5 lakh limit under Section 80C. This allows individuals to claim tax deductions specifically under Section 80CCD(1B), providing further tax benefits.

Integrating Estate Planning

Long-Term Financial Security

Estate planning is not just for the wealthy; it’s a crucial step for anyone who wants to secure their family’s financial future. By incorporating instruments like PPF, NPS, and life insurance into your estate plan, you not only save on taxes but also ensure that your loved ones are financially supported in the event of your untimely demise.

Health Insurance: By securing comprehensive health insurance and factoring these policies into your estate planning, you protect your estate’s value by mitigating the costs of unforeseen medical expenses.

Trusts and Wills

Setting up a Trust or drafting a Will as part of your estate planning can help manage and distribute your assets according to your wishes, potentially saving your heirs from complicated legal processes and reducing their tax burden.

Tax Planning For The Future

Regular Reviews

• Tax laws change frequently, and so do personal circumstances. Regular reviews of your tax-saving strategies and estate plan with a qualified tax advisor or an estate planning attorney are essential to adapt to new laws and personal situations.

Using Technology

• Leveraging financial technology can help track investments, taxes, and estate planning documents, ensuring easy management and accessibility.

The Bottom Line: How Yellow Can Help

Effective tax planning involves more than just saving money; it's about creating a comprehensive strategy that supports your financial goals today and secures your family's future tomorrow.

By integrating tax-saving strategies with thoughtful estate planning, you can ensure that your financial legacy is preserved and protected.

This approach not only provides immediate financial benefits but also sets a solid foundation for managing and transferring wealth efficiently and according to your wishes.

At Yellow, we can help you with all aspects of estate planning, including Wills, Trusts, Powers of Attorney, Gift Deeds, Legal Heir and Succession Certificates, and Living Wills. We also offer post-demise and asset transfer services. Our team of legal experts has more than 50 years of combined experience.

Note: This article is for educational purposes only. Please consult an advisor before taking any action on finances or investments.

We hope you found this article insightful. At Yellow, we understand that managing your finances effectively is the first step towards securing your future. As India's leading digital Will-making and estate planning platform, our mission is to empower you with the necessary tools and resources to make informed decisions that safeguard your assets and your loved ones' future.

Interested in seeing how estate planning can fit into your financial strategy? Yellow offers a seamless and affordable way to create your Will, set up Trusts, and ensure smooth asset transfer, all with expert guidance.