Let me start this article with disclaimer, this is not on how to steal taxes or hide your income or route the money via unauthorised channels. Your illegal actions will be subject to legal actions.

This article is only to let you know the ways to file your taxes and get the benefits of government allowed schemes and maximise your tax savings in a legal way.

Ok, let’s start with the basics:

Why Tax Saving is Important?

Tax savings play a crucial role in your personal finance. By planning your taxes wisely, you can reduce your tax liability, which means more of your income stays with you. This extra money can be invested, saved, or used to meet personal goals. 

Moreover, India’s tax laws provide many opportunities for deductions and exemptions, making it possible for people to save significantly on taxes while following legal routes.

Importance of Filing ITR Correctly

Filing your Income Tax Return (ITR) is a legal requirement if your income crosses certain limits. However, it’s more than just a formality but still important because:

It shows transparency in your earnings.

It helps in building a financial record, which is important for availing loans, visas, and other services.

Filing on time and correctly can help you avoid penalties, legal issues, and ensure quicker refunds if applicable.

First Understanding Your Taxable Income

What is Taxable Income?

Taxable income is the portion of your total earnings that is subject to tax. It includes all types of income such as:

Salary: If you are a salaried individual, your monthly salary counts as taxable income.

Business Profits: If you run a business, the profit you earn is taxable.

Rental Income: If you rent out a house or property, the rent you earn is part of your taxable income.

Interest or Dividends: Money earned from savings accounts, fixed deposits, or stock dividends is also taxable.

To calculate your taxable income, you subtract any deductions or exemptions from your total earnings. For example, if your total income is ₹10 lakhs and you have deductions worth ₹2 lakhs, your taxable income is ₹8 lakhs.

To understand your taxable income and income tax better, read this article. Here tax definitions and slabs are defined clearly.

Common Deductions in India to Maximize Tax Savings

Section 80C: Maximize Deductions

Section 80C is the most common deduction and approximately every person who are liable to file ITR is well aware with it. This 80C deduction allows taxpayers like you to claim a deduction of up to ₹1.5 lakhs by investing in certain financial products. Here are some of the most common and beneficial investments under 80C:

PPF (Public Provident Fund): A long-term savings option with a lock-in period of 15 years, offering tax-free interest.

EPF (Employees’ Provident Fund): For salaried employees, your contributions to the EPF qualify for 80C deductions.

ELSS (Equity Linked Savings Scheme): A tax-saving mutual fund with a 3-year lock-in period, allowing you to save taxes while growing your money through equity investments.

Tax-Saving Fixed Deposits: These have a 5-year lock-in period and give you tax benefits under 80C.

Maximizing 80C is one of the most straightforward ways to save on taxes. It’s ideal to plan these investments at the start of the financial year to avoid last-minute rushes and make informed decisions.

Although there are some more components, which are less known. Like a Home Loan principal. Whenever you pay an EMI for your home loan, there are 2 components you’re paying together, part payment of your principal amount and interest on your loan.

Principal component is eligible for 80C deductions, you can find the amount in tHome Loan provisional certificate.

Read this to know more about the home loan and best practice.

Section 80D: Health Insurance Premium

Under Section 80D, you can claim a deduction on the premiums paid for health insurance:

Up to ₹25,000 for yourself, your spouse, and dependent children.

An additional ₹50,000 if you’re insuring your senior citizen parents.

This not only saves tax but ensures you and your family are financially protected in case of medical emergencies.

Please keep in mind that insurance provided from your employers will not be considered here even if your employer is deducting something for it.

Section 24(b): Home Loan Interest

If you’ve taken a home loan, the interest paid on it can be deducted under Section 24(b), up to ₹2 lakhs per year. This deduction applies to properties that are self-occupied. It’s an excellent way to save taxes, especially for homeowners paying significant EMIs.

HRA (House Rent Allowance)

If you are a salaried employee living in rented accommodation, you can claim an exemption on the House Rent Allowance (HRA) that you receive as part of your salary. The exemption is calculated based on:

• • Your salary
  • The rent you pay
  • The city you live in (metro cities offer higher exemptions, keep in mind metro cities as per income tax department could be different from your perspective. Like Bengaluru is not considered as metro city.)

You can claim the lowest of the following:

• • Actual HRA received
  • 50% of your salary (in metro cities) or 40% (in non-metro cities)
  • Rent paid minus 10% of salary

This is a significant exemption for salaried individuals living in rental properties. You can contact your for HR for better, detailed and personalised calculation for you.

OutFinance Special Tax Saving Tips for Individuals

For Salaried Employees

Salaried employees can maximize their tax savings by using a combination of deductions and exemptions:

• • Optimize Salary Structure: Request your employer to structure your salary to include components like HRA, conveyance allowance, and food coupons.
  • Claim Standard Deduction: Salaried employees automatically get a standard deduction of ₹50,000.
  • Make Use of 80C and 80D: Use the full limit of ₹1.5 lakhs under Section 80C, and buy health insurance for further savings under Section 80D.

For Business Professionals and Freelancers

Business owners and freelancers can save taxes by claiming business expenses like:

• • Rent for office space
  • Travel expenses for work
  • Purchase of equipment (computers, software, etc.)

Make sure to keep accurate records and receipts of all your business-related expenses.

For Senior Citizens

Senior citizens enjoy additional benefits:

• • 80D Health Insurance Deductions: Up to ₹50,000 for medical insurance.
  • 80TTB Interest Deductions: Senior citizens can claim up to ₹50,000 in deductions for interest earned on savings accounts and fixed deposits.

Additionally, senior citizens do not pay tax on income up to ₹3 lakhs, and for those above 80 years, the limit goes up to ₹5 lakhs.

Choosing the Right Tax Regime (Old vs New Regime)

Difference Between the Old and New Regimes

• • Old Regime: Higher tax rates but offers many exemptions and deductions (like HRA, 80C, 80D, etc.).
  • New Regime: Lower tax rates but with very few deductions and exemptions.

Here’s a comparison of tax rates for the two regimes:

Income	Old Regime (with deductions)	New Regime (without deductions)
Up to ₹2.5 lakhs	Nil	Nil
₹2.5 lakhs – ₹5 lakhs	5%	5%
₹5 lakhs – ₹7.5 lakhs	20%	10%
₹7.5 lakhs – ₹10 lakhs	20%	15%
₹10 lakhs – ₹12.5 lakhs	30%	20%
₹12.5 lakhs – ₹15 lakhs	30%	25%
Above ₹15 lakhs	30%	30%

Which Regime to Choose?

• • If you have significant deductions and exemptions to claim (HRA, 80C, 80D, or Home Loan), the old regime may offer better tax savings.
  • If you have minimal deductions or don’t want the hassle of calculating exemptions, the new regime might be simpler and more beneficial.

Plan Your Investments for Tax Savings

Investing in ELSS (Equity Linked Savings Scheme)

ELSS is a tax-saving mutual fund that not only offers tax benefits under Section 80C but also allows your money to grow through equity investments. It has a lock-in period of 3 years, making it one of the shortest among tax-saving investments.

National Pension System (NPS)

NPS is another tax-saving option that provides long-term retirement benefits. Contributions to NPS are eligible for deduction under Section 80CCD(1B), up to ₹50,000. 

This is over and above the ₹1.5 lakhs limit under 80C, making it an excellent way to save for the future while reducing your tax liability. And most probably this section can’t be replaced by any other savings.

Other Tax-Saving Investments

• • Tax-Free Bonds: These are government-backed bonds that offer tax-free interest.
  • Sukanya Samriddhi Yojana: A savings scheme for the girl child that offers tax benefits under 80C. Honestly, it’s not very beneficial because 1.5L is the limit only in 80C and it is not adding any benefit in this.

Best Practices to File ITR in India

My best advice to you will be to hire a professional or CA. They’ll advice you the best and provide you the solution as well in case of any issues. We’ll discuss on the ITR filing later in some other article, but for now here is the glimpse:

Start Early

Filing your ITR at the beginning of the filing window allows you to avoid the last-minute rush. Early filing ensures:

• • You have time to gather and organize all necessary documents.
  • Quicker processing and refunds if applicable.

Organize Your Documents

Before you start filing, ensure you have:

• • Form 16: Issued by your employer, summarizing your salary and taxes deducted.
  • Form 26AS: A summary of all taxes paid on your income, including TDS.
  • Bank statements, investment proofs, loan certificates, and rent receipts.

Choose the Correct ITR Form

Choosing the right ITR form is essential for smooth filing. Here’s a basic guide:

• • ITR-1 (Sahaj): For salaried individuals earning up to ₹50 lakhs.
  • ITR-4 (Sugam): For freelancers, professionals, and small businesses.

Using the wrong form can delay your ITR processing or lead to its rejection.

E-filing vs. Physical Filing

• • E-filing is the preferred method as it’s quicker, easier, and can be done from the comfort of your home. The Income Tax Department’s official website allows you to file your ITR easily. 

Alternatively, you can use third-party platforms like ClearTax or TaxBuddy, which simplify the process further.

Benefits of E-filing:

1. 1. 1. Immediate acknowledgment of filing.
      2. Faster processing and refunds.
      3. Secure and less prone to errors.

• • Physical Filing is rarely used nowadays, but some individuals, particularly senior citizens or those without internet access, may still opt for this method. However, e-filing is generally recommended.

Don’t Forget to Verify Your ITR

Once you have filed your ITR, it’s crucial to verify it, as an unverified ITR is not processed by the Income Tax Department.

Ways to Verify ITR:

• • Aadhaar OTP: Link your Aadhaar number to your PAN and verify using an OTP sent to your registered mobile number.
  • Net Banking: Log in to your net banking account and use the e-verification option provided by your bank.
  • Digital Signature: If you have a digital signature, you can use it to verify your ITR.

Verifying your ITR ensures that the filing process is complete, and your return is sent for processing. If you don’t verify it within 120 days of filing, your return will be considered invalid.

Common Mistakes to Avoid While Filing ITR

Here are some common mistakes people make while filing their ITR, and how to avoid them:

• • Incorrect Personal Details: Make sure your PAN, name, and bank account details are entered correctly. Errors in these fields can delay refunds or lead to rejected filings.
  • Wrong Income Declaration: Ensure that all your income sources are declared, including interest from savings accounts, fixed deposits, or any freelance work. Undeclared income can attract penalties and scrutiny.
  • Mismatch with Form 26AS: Form 26AS is your tax credit statement, which shows the taxes paid or deducted on your behalf. Ensure the figures in your ITR match those in Form 26AS to avoid discrepancies.
  • Skipping Deductions or Exemptions: Don’t forget to claim all eligible deductions and exemptions under Sections 80C, 80D, HRA, etc. Many taxpayers miss out on valuable deductions, resulting in higher taxes.

How to Claim Refunds Efficiently in India

What is an Income Tax Refund?

If you’ve paid more taxes than you owe, you’re entitled to a refund. This could happen due to higher TDS deductions by your employer, or if you’ve made tax-saving investments after taxes were already deducted from your income.

How to Claim a Refund:

• • Filing your ITR is the first step to claiming a refund. When you file your return, your tax liability is calculated, and any excess tax paid is reflected as a refund.
  • Ensure that your bank account details (including IFSC code) are correctly updated in your ITR to receive the refund.

Tracking Your Refund:

After filing your ITR, you can check the status of your refund on the Income Tax Department’s website or through your account on the e-filing portal. Refunds are generally processed within a few weeks after your return is verified.

Penalties for Not Filing or Late Filing

What Are the Penalties?

Under Section 234F of the Income Tax Act, if you fail to file your ITR by the due date, you may face penalties:

• • A penalty of ₹5,000 if you file after the due date but before December 31.
  • A penalty of ₹10,000 if you file after December 31 (for income above ₹5 lakhs).
  • If your income is below ₹5 lakhs, the penalty is capped at ₹1,000.

Additionally, interest can be charged under Sections 234A, 234B, and 234C for late payment or delayed filing of taxes.

Consequences of Incorrect Filing:

• • Filing incorrect returns can lead to notices from the Income Tax Department.
  • In case of under-reporting of income, penalties can go up to 200% of the tax evaded.
  • Always ensure that your income is declared correctly and that your deductions and exemptions are genuine.

Benefits of Filing ITR on Time

Importance of Timely ITR Filing

Filing your ITR on time comes with several advantages:

• • Avoid Penalties and Interest: Timely filing helps you avoid late fees and interest charges.
  • Loan Approvals: ITR is often required when applying for loans, especially home loans. It serves as proof of income and financial discipline.
  • Claiming Refunds: Filing on time ensures that your refunds are processed quickly, putting money back in your account sooner.

Other Advantages of Filing ITR:

• • Visa Applications: Many countries ask for proof of income for visa approvals, and your ITR serves as an official document showing your financial standing.
  • Income Proof for Investments: If you plan on making large investments or entering into financial contracts, having a record of your ITR adds credibility.

Conclusion

Maximizing tax savings and filing your ITR correctly requires careful planning and understanding of the available deductions, exemptions, and tax-saving investments. By taking advantage of Section 80C, 80D, HRA, and other deductions, you can significantly reduce your tax burden. 

It’s also crucial to choose the right tax regime, depending on your financial situation.

Filing your ITR on time, organizing your documents, and avoiding common mistakes will help ensure a smooth and hassle-free experience. Filing your returns is not just a legal obligation but also a step towards better financial management and planning.

Make tax-saving and ITR filing a priority each year, and you’ll not only save on taxes but also maintain a good financial record that will benefit you in the long run.