Want to Save Tax in India? Here Are 32 Legal Ways to Save Money

Given a choice, most people don’t want to pay tax.

In a country of 130 crore people, only 1.46 crore people pay direct taxes.

Even with such low coverage, the government offers you various tax incentives.

What Do Tax Incentives Exist?

If the taxes we pay are an essential source of revenue to the Government, why are they willing to give it up?

There are many benefits to offering tax incentives:

1. Citizens save money and do not become a liability to the government
2. The excess cash in the hands of consumers boost economic activities 

In this guide, I will explore all your options to save taxes in India.

How to Save Tax Legally in India?

Step #1: Choose a Tax Slab

Starting in 2020, we have two tax slabs.

Slab #1: Simplified Tax Regime

Finance Minister Nirmala Sitharaman, introduced the new tax regime in the 2020 Finance Bill.

The new regime is for people who are willing to give up 70 deductions, including the popular 80C tax benefit.

Income Tax Slab

Income Tax Slab	Tax Rate
Up to Rs 2.5 lakh	NIL
Rs 2.5 lakh to Rs 5 lakh	5%
Rs 5 lakh to Rs 7.5 lakh	10%
Rs 7.5 lakh to Rs 10 lakh	15%
Rs 10 lakh to Rs 12.5 lakh	20%
Rs 12.5 lakh to Rs 15 lakh	25%
Rs 15 lakh and above	30%

Important: For people in the “Rs 2.5 lakh to Rs 5 lakh” tax slab, you get Rs 12,500 tax rebate under section 87A. Essentially, that makes income up to Rs 5 Lakhs tax-free in India.

Income that continues to be exempt in the new regime:

1. Interest on post office savings account balance: Maximum exemption is Rs 3,500 for individual accounts and Rs 7,000 for joint accounts
2. Gratuity: The maximum exemption is Rs 20 Lakhs for non-government employees. No cap for government employees and gratuity received due to the death of an employee
3. Life insurance maturity amount
4. EPF interest up to 9.5%
5. PPF interest and maturity amount
6. Sukanya Samriddhi Yojana interest and payments
7. NPS account lump sum payout
8. Gifts from employer up to Rs 5,000 per year
9. Food coupons up to Rs 100 for two meals per day

Pro Tip: If you claim HRA, standard deduction (Rs 50,000), 80C ( Rs 1,50,000), and NPS (Rs 50,000), then the new tax regime is not recommended for you.

Slab #2: Older Tax Regime

For individuals below 60 years and HUF:

Income Tax Slab	Tax Rate
Up to Rs 2.5 lakh	Nil
Rs 2.5 lakh to Rs 5 lakh	5% of income > Rs 2.5 Lakh
Rs 5 lakh to Rs 10 lakh	Rs 12,500 + 20% of income > Rs 5 Lakh
Rs 10 lakh and above	Rs 1,12,500 + 30% of income > Rs 10 Lakh

For individuals between 60 and 80 years of age

Income Tax Slab	Tax Rate
Up to Rs 5 lakh	Nil
Rs 3 lakh to Rs 5 lakh	5% of income > Rs 3 Lakh
Rs 5 lakh to Rs 10 lakh	Rs 10,000 + 20% of income > Rs 5 Lakh
Rs 10 lakh and above	Rs 1,10,000 + 30% of income > Rs 10 Lakh

For individuals who are 80 years old or above

Income Tax Slab	Tax Rate
Up to Rs 5 lakh	Nil
Rs 5 lakh to Rs 10 lakh	20% of income > Rs 5 Lakh
Rs 10 lakh and above	Rs 1,00,000 + 30% of income > Rs 10 Lakh

Pro Tip: If you typically max out the tax incentives, choose the older tax regime.

Step #2: Make Investments That Qualify for Tax Exemptions

If you opted for the new tax regime, I recommended availing the following options:

1. EPF/PPF. No incentive, but still one of the best options for your fixed-income investments
2. Sukanya Samriddhi Yojana if you have a girl child. No incentive, but provides high interest-rate

If you decide to opt for the older regime, you have a plethora of options.

Here’s a quick and simple plan:

1. Standard deductions – applies automatically (Rs 50,000)
2. Max out 80C using EPF and PPF (Rs 1.5 Lakhs)
3. Claim HRA
4. Max out NPS (Rs 50,000)
5. Claim interest on your savings bank account (Up to Rs 10,000)
6. Claim health insurance for you and your parents (Up to Rs 1 Lakh)

Tax Incentives Under The Old Tax Regime:

There are various sections under which you can claim exemptions.

#1: Section 80C

Section 80C contains the most popular tax-saving options. The maximum exemption across all 80C Investments is Rs 1,50,000.

You can invest in any of the following:

Section #1: High-Priority 80C Deductions

This section contains the list of deductions you should consider first. Depending upon your life stage, you might already be maxing out your 80C.

Option #1: Home Loan Repayment

If you have a home loan, the principal repayment is covered under 80C. The benefit is available to both HUF (Hindu Undivided Family) and Individual taxpayers.

Points to Note:

1. The tax benefit applies only to completed properties with completion certificate
2. If you plan to sell the house within five years, you should not claim this tax benefit

Section 24 covers the interest part of the home loan repayment. This is discussed later on in this guide.

Note: Let’s say you sold the property within five years of claiming exemption. Your aggregate exemption for the past years will be considered as income for the sale year. You’ll need to pay tax on this income.

Option #2: Tuition Fees

Tuition fees, for up to 2 children, are eligible for a tax deduction.

Points to Note:

1. Both parents can claim for two children each, separately. In the case of re-marriage and both parents have separate kids, a total of 4 children can be covered under one household
2. Date of payment matters. If fees are paid on March 2020, for a course that starts in June 2020, the deduction is eligible for FY 2019-2020
3. The deduction is not applicable for part-time courses
4. Private tuition and coaching classes fees are not covered
5. Donations, hostel fee, transportation fee, term fee, etc. are not covered
6. The institution must be in India. It can, however, be affiliated to foreign universities

Option #3: Provident Fund – EPF and VPF

Employee Provident Fund (EPF) and Voluntary Provident Fund (VPF) are automatically deducted from the salary.

Pro Tip: If you have not opted for VPF, reach out to your employer. VPF enjoys the same benefits as EPF.

Option #4: Life Insurance Premium

A life insurance policy taken in the name of self, spouse, or children qualify for tax exemption.

In the case of HUF, it applies to all members of HUF.

Pro Tip: Buy term insurance policies instead of money-back policies. Remember that insurance is an expense, not an investment.

Points to Note:

1. The maximum allowed deduction is 10% of the sum assured. If the sum assured is Rs 1 Lakh, the maximum deduction allowed is Rs 10,000
2. If you plan to surrender the policy in two years, do not claim this exemption

Warning: Let’s say you surrender the policy within two years. The tax exemptions you claimed in the previous years for the policy will be treated as income. You’ll have to pay tax on this income.

Option #5: Stamp Duty and Registration Charges

If you buy a property during the financial year, the stamp duty and registration charges paid can be claimed under section 80C.

The benefit is available to individuals and HUF.

Points to Note:

1. The property must be in the name of the taxpayer
2. The taxpayer should pay the fees. If the fees are paid by someone else, you cannot claim exception
3. For joint ownership, the fees can be claimed based on their share in the property. E.g., if the husband owns 40%, then the husband can claim only 40% of the charges
4. Payment of expense and possession of house must happen in the same financial year

Section #2: Low Priority 80C Deductions

The following section contains additional options under 80C exemptions. Invest only after ensuring that you don’t max out 80C using options under section #1.

Option #6: Public Provident Fund (PPF)

PPF is one of the best fixed-income investment options. PPF enjoys EEE (Exempt-Exempt-Exempt) benefit:

1. Investment provides tax exemptions
2. Interest accrued is tax-free
3. Withdrawal is tax-free

Pro Tip: If you are an existing customer, you can create a PPF account online through HDFC Bank’s Net Banking interface.

Option #7: Sukanya Samriddhi Yojana

The Indian government launched the Sukanya Samriddhi Yojana to promote the welfare of girl children. Similar to PPF, Sukanya Samriddhi Yojana enjoys an EEE status.

Points to Note:

1. The account can be opened for up to two children. Exception if you have twins or triplets
2. You can open the account only for a girl child
3. The account can be opened anytime after birth and before the child becomes 10 years old
4. Account matures when the child reaches 21 years of age
5. 50% withdrawal allowed after 18 years for higher education purposes

Pro Tip: Due to the high-interest rate and tax benefits, this is a recommended investment option for your children.

Option #8: ELSS Mutual Funds

Equity Linked Savings Scheme (ELSS) are mutual funds with a 3-year lock-in. If you decide to invest in ELSS funds, your money will be invested in the equity market (minimum 65%).

Only ELSS mutual funds qualify for tax exemption across all the mutual fund categories.

Of all the tax-saving investments, ELSS has the shortest lock-in period.

If your asset allocation calls for a higher equity allocation, consider ELSS funds.

Not sure whether you should invest in ELSS funds or not? Check out this guide to make a decision.

Pro Tip: With ELSS funds, you can do tax rotation thanks for the short lock-in period. Once the lock-in is complete, you can withdraw the money and re-invest it to claim tax benefits. Every three years, you can keep rotating your tax-saving investments.

Option #9: National Savings Certificate (NSC)

You can invest in NSC through the post office only. NSC is yet another fixed-income product.

The interest earned on NSC is treated as income. However, since it’s not paid out, but re-invested into NSC, it can be claimed for 80C exemption.

Points to Note:

1. There is no max limit for deposit. However, 80C limit applies for claiming tax exemption
2. NSC interest is taxable if you exceed the 80C limit

Option #10: 5-Year Bank Fixed Deposits (FDs)

To promote cash available with banks and increase FD rates, the government introduced tax breaks on bank FDs. If you invest in a 5-year FD, you can claim up to Rs 1.5 lakhs under 80C.

5-Year FD tax benefit is available to both individuals and HUF.

Points to Note:

1. Premature withdrawal is not allowed
2. Interest earned is taxable every year
3. TDS (Tax Deducted at Source) at 10% is applicable on the interest
4. Loan against FD is not available

Option #11: Senior Citizen Savings Scheme (SCSS)

If you are a senior citizen, you can open an SCSS from any of the Post Offices in India.

Points to Note:

1. Interest is taxable and is paid out quarterly
2. Premature withdrawals are allowed after one year
3. The default duration is five years
4. A penalty of 1.5% and 1% is charged if withdrawal is made after one year and after two years respectively
5. The maximum deposit amount is Rs 15 Lakhs

Option #12: Unit Linked Insurance Plan (ULIP)

ULIP is an investment product designed to provide security (through insurance), and returns (through equity).

Investments made through ULIP plans are covered under 80C.

Pro Tip: I do not recommend investing in ULIP products. Most ULIP products are promoted because they provide high incentives to salespeople. Do not mix investment and insurance.

Option #13: NPS Tier-II Account Contribution by Central Government Employee

Any contributions made by central government employees to Tier II NPS accounts will be eligible for 80C deductions.

Points to Note:

1. Only central government employees are eligible
2. Lock-in period is three years

Option #14: 5-Year Post Office Time Deposit (POTD)

Similar to a 5-year bank FD, a 5-year POTD also offers you 80C tax benefits.

Points to note:

1. No maximum limit. However, deduction claims are capped at 80C limit
2. Interest is taxable
3. 10% TDS applies for interest payable annually

#2: Section 80CCD (1b) – NPS (National Pension Scheme)

Section 80CCD (1), (2), and (3) are covered under the maximum limit of 80C. However, there is an additional section – 80CCD (1b).

80CCD (1b) provides an additional benefit of Rs 50,000 through investment in NPS.

You can invest in NPS (National Pension Scheme) up to the maximum allowed limit of Rs 50,000.

What is NPS?

NPS or National Pension Scheme is a voluntary defined contribution pension system for Indians.

Features of NPS:

• 60% of the corpus can be withdrawn tax-free when you retire
• 40% should be invested in any of the annuity plans
• The interest received from annuity plans is taxable
• Lowest fees of 0.005%. Even the cheapest index fund would charge upwards of 0.15%

Pro Tip: You can open an NPS account online. I used Karvy eNPS to open an NPS account.

What are the investment options available under NPS?

There are two options:

NPS Option #1: Active Choice: Individual Funds

“Active Choice” is for investors who want more control. You can choose the allocation across various asset classes. Maximum allocation to equity is capped at 75%.

NPS Option #2: Auto Choice: Lifecycle Fund

A lifecycle fund is suited for investors who want a more hands-free experience.

You can choose one from any of the three options:

1. LC75 (75% equity)
2. LC50 (50% equity)
3. LC25 (25% equity)

The fund will automatically adjust your equity allocation based on your age.

If you want to learn more about allocation, here’s a detailed guide [PDF].

Pro Tip: If you are a beginner investor, choose the “Auto Choice: Lifecycle Fund” option.

#3: Section 80D – Medical Insurance

Section 80D covers medical insurance premium paid for self, spouse, kids, or parents.

Coverage	Age	Max Amount
Self, Spouse, and Kids	< 60	Rs 25,000
Self, Spouse, and Kids	>= 60	Rs 50,000
Parents	< 60	Rs 25,000
Parents	>= 60	Rs 50,000

If you have dependents who are super senior citizens (>= 80 years), you can claim up to Rs 50,000 for their expenses even if they are uninsured.

Preventive health check of up to Rs 5,000 is allowed for self and family members. Rs 5,000 is included in the 80D limits.

Pro Tip: Irrespective of tax benefits, it’s prudent to have a large health cover for you and your family. Make sure you have a cover of at least Rs 10 lakhs; The higher, the better.

#4: Section 80E – Education Loan

Are you currently repaying an educational loan? If yes, you qualify for a tax break.

Any amount paid as interest for your education loan can be claimed under section 80E. There is no limit to the maximum claim amount.

Points to Note:

1. Loans taken from an institution outside India are not valid. Popular lenders like Prodigy loans are not eligible for tax benefits
2. The maximum validity is eight years from the date of starting repayment or till the loan is paid, whichever is earlier
3. The principal amount does not qualify for deductions
4. Loans taken for self, spouse, or kids are eligible

#5: Section 24 – Interest Paid on Home Loans

You can claim tax benefit of up to Rs 2 Lakhs for interest paid on home loan for a self-occupied property.

Combined with an 80C benefit of 1.5 Lakhs, you enjoy a total of Rs 3.5 Lakhs tax break for buying a house in India.

Points to Note:

1. No claim limit for rented or deemed-to-be-rented property
2. No reversal of claim if sold after the financial year
3. The claim is not valid if you are not the co-borrower
4. You can claim interest payment for the construction phase of your house

Pro Tip: Even if you missed a few EMIs in a financial year, you could still claim the entire tax benefit. Principal repayment works based on a payment basis. However, interest repayment works on an accrual basis.

#6: Section 80G – Donations

Are you feeling philanthropic? Your donations to recognized charitable institutions are exempted from tax.

Points to Note:

1. Depending upon the institution you donate to, there can be donation limits
2. Maintain proof of donation

#7: Section 80GG – Deduction on Rent Paid (Non-HRA)

If you are self-employed or your employer does not offer you HRA, you can claim tax relief.

The maximum amount you can claim depends on the following calculation.

Max claim is the least of:

1. Rs 5,000 per month
2. Rent Paid – 10% of Total Income
3. 25% of the total income for the year

Points to Note:

1. You cannot claim HRA and 80GG together
2. Available only to individuals; not HUF
3. You, your spouse, or your minor child does not own a home at the place of your work/business
4. If you own a home elsewhere, you cannot claim any benefit of “self-occupied” property. It must be deemed to be let-out

#8: Section 80TTA – Interest from Savings Bank/Post Office Accounts

Interest income received from a savings bank account or post office savings account, up to Rs 10,000, is exempt from tax. 

If you are a senior citizen, the upper limit is Rs 50,000.

Points to Note:

1. Interest earned for FD, Time Deposits, and Term Deposits are not covered under this exemption
2. TDS will not be deducted from interest on savings account
3. Income above the maximum limit is taxable

#9: Section 80DD – Medical Treatment of a Disabled Dependent

If you have disabled dependents, you can claim tax relief up to Rs 1.25 Lakhs per annum.

Points to Note:

1. Max deduction capped at Rs 75,000 for disability > 40%
2. Max deduction capped at Rs 1.25 lakhs for disability > 80%
3. Even if you do not incur the full amount for treatment, you can claim the whole amount
4. Payments made on behalf of the disabled person to LIC or other valid insurance plans are covered

#10: Section 80DDB – Treatment of Specified Diseases

You can claim a maximum of Rs 40,000 spent on the treatment of specified diseases.

Maximum amount claimed should be the lowest of:

1. Actual amount paid
2. Rs 40,000

The following diseases and ailments are covered:

• Neurological Diseases where the disability level > 40%:
  • Dementia
  • Dystonia Musculorum Deformans
  • Motor Neuron Disease
  • Ataxia
  • Chorea
  • Hemiballismus
  • Aphasia
  • Parkinson’s Disease
• Malignant Cancers
• Full Blown Acquired Immuno-Deficiency Syndrome (AIDS)
• Chronic Renal failure
• Hematological disorders
  • Hemophilia
  • Thalassaemia

#11: Section 80U – Disability for Self

If you are a disabled person, you can claim up to Rs 1.25 lakhs tax relief.

Section 80U is similar to Section 80DD. However, 80U provides relief to disabled people, and 80DD is for the next of kin.

The following are considered as a disability:

1. Blindness
2. Low vision
3. Leprosy
4. Hearing impairment
5. Locomotor disability
6. Mental retardation
7. Mental illness

Maximum claim allowed is Rs 75,000 for >40% disability and Rs 1.25 lakhs for > 80% disability.

#12: Section 80GGC – Political Donations

Donations made to a recognized political party or an electoral trust qualifies for tax exemptions.

Points to Note:

1. There is no upper limit
2. 100% of the contribution is tax-deductible
3. Payments made in kind or as cash does not qualify for tax breaks. You need to use a banking channel

#13: Leave Travel Allowance (LTA)

If you are a salaried employee and your company offers LTA, you can avail tax benefits.

The maximum claim amount is the lesser of:

1. The actual amount incurred for travel
2. LTA portion of your annual salary

Points to Note:

1. Travel allowed within India only
2. Only travel cost is covered
3. Applicable for two journeys in a block of four years. The current block is 2018 – 2021
4. You can carry forward exemptions and use it in the immediate calendar year of the new block
5. Employers don’t need to ask for proof. However, most companies in India still ask for actual tickets or boarding passes

Important: LTA can be claimed only through your employer. You cannot claim LTA while filing your IT returns.

#14: Telephone/Internet Expenses

If your line of work requires access to the internet and mobile, your company may decide to offer telephone/internet reimbursements.

Points to Note:

1. Applicable only for prepaid connections
2. Max cap is company-specific. The typical range is Rs 1,000 to Rs 3,000 per month
3. You cannot claim the deduction directly while filing IT returns

#15: Company Leased Car

If your company offers a car lease policy, consider taking it up. Often, the EMI/monthly lease of the car is paid directly by the employer and deducted from your salary.

The monthly payment can be deducted from your taxable amount.

Points to Note:

1. To claim full tax benefits, the car must be exclusively used for official purposes
2. Your company needs to keep a record of all the trips made for official purposes

Pro Tip: Ask your employer to consider making car running and maintenance as part of your salary (reimbursable). This applies to employee-owned vehicles. Rs 1,800 per month is tax-free if the CC of the car is less than 1600. If the CC is more than 1,600, then the max limit per month is Rs 2,400.

#16: House Rent Allowance (HRA)

If your employer offers you HRA as part of your salary, you can claim a tax break.

The max deduction is the least of the following amounts:

1. Actual HRA received
2. 50% of (basic salary + dearness allowance) if you live in a metro city. The limit is 40% for non-metros
3. Actual rent paid – 10% of (basic salary + dearness allowance)

Points to Note:

1. Not applicable for self-employed individuals
2. You can claim HRA and deduction of home loan interest (Section 24) at the same time
3. Maintenance paid is not considered for HRA calculation
4. Currently, only Delhi, Mumbai, Kolkata, and Chennai are considered as metro locations

#17: Books and periodicals

Certain companies might offer you books and periodical expense reimbursement as part of your salary.

Max deduction depends on company policy.

Important: The books and periodicals need to be related to your field of work. E.g., if you are a software developer, buying the latest Chethan Bhagath novel does not qualify for a deduction

#18: Uniform Allowance

If your job requires you to wear a uniform, you might be entitled to a uniform allowance that is tax-exempt.

The allowance will depend on company policy.

Warning: The dress code is not equal to a uniform. Read the ruling on the ONGC vs. Gujarat High Court case details to learn more [PDF].

#19: Standard Deductions

There are standard deductions that apply to everyone. Standard deductions do not require any proof.

Standard Deduction #1: 50,000 Salary Deduction

The standard deduction of Rs 50,000 is allowed to all salaried employees. The standard deduction replaced the Transport Allowance and Medical Reimbursement.

Information: If you are a pensioner and your annual pension is less than the standard deduction, then the max limit for exemption is the actual pension received.

Standard Deduction #2: 30% income from house property

If you have income from rental property, standard deductions apply.

First, you need to arrive at the Net Annual Value. Standard deduction of 30% is applicable on your Net Annual Value.

Net Annual Value = (Rental income for FY) – (Municipal and other taxes paid).

You can apply the standard deduction of 30% on the Net Annual Value.

Pro Tip: If you have a home loan on the rented house, you can deduct the interest paid before arriving at the taxable rental income.

Other Income That Does Not Attract Tax in India

In the previous section, we discussed various tax incentives. 

However, it’s also essential for you to know the various incomes that are exempt from taxes.

#1: Life Insurance Amount Maturity

Generally, any amount received from a life insurance policy is tax-exempt.

However, depending upon the premium paid, you might be liable to pay tax.

For policies taken before 1 April 2012:

If for any year, the premium paid is less than 20% of the sum assured, then the entire proceeds are tax-free. 

However, if you paid more than 20%, the amount is taxable.

For policies taken after 1 April 2012:

If, for any year, the premium paid is less than 10% of the sum assured, then the life insurance proceeds are tax-free. 

However, if you paid more than 10% of the sum assured as premium, the entire amount is taxable.

For policies taken after 1 April 2013 (only for disabled people):

If the life insurance was taken for a person with a disability or a disease specified under Sections 80U and 80DDB respectively, there are additional exemptions.

Instead of the 10%, the cap for the premium paid is 15% of the sum assured.

Info: If the life insurance amount is taxable, it’s treated as income from other sources.

#2: Educational Scholarship

Any scholarship granted to meet the cost of education is exempt from tax under section 10(16).

#3: Money Received As Gift During Marriage

Any gifts you receive around the time of your marriage are tax-free.

Information: Gifts received on engagement and marriage anniversary do not fall under the exception. They follow the standard gift laws in India.

#4: Agricultural Income

Agricultural income is usually exempt from Income Tax under section 10(1) of the Income Tax Act, 1961.

However, agricultural income is used for rate calculation if the following conditions are met:

1. In the previous year, your agricultural income was more than Rs 5,000
2. Your total income, without considering agricultural income, is more than Rs 2.5 Lakhs

Tax liability calculation:

1. Total Income = Agricultural income + non-agricultural income
2. Calculate the tax on total income.
3. Enhanced agricultural income = Agricultural income + base tax slab (Rs 2.5 Lakhs)
4. Calculate tax on enhanced agricultural income.
5. Calculate Difference = (Tax computed from Step #4) – (Tax computed from Step #2).

The amount calculated as per step #5 is your tax liability. Additional deductions, cess, etc. apply to this amount.

#5: Inherited Wealth

In India, there is no inheritance tax. You can inherit assets through a will or inheritance on death.

Note: If you inherited a house from your mother, the holding period for capital gains considers when your mother bought/inherited the property.

#6: PF Withdrawals

If you withdraw money from your PF account on retirement, the amount becomes tax-free.

However, there are certain cases where income can be taxed:

1. If you withdraw the money before the completion of 5 years
2. TDS of 10% applies for premature withdrawals > Rs 50,000. If EPFO does not have your PAN on record, TDS is 30%
3. Five-year requirement implies continuous full-time employment across multiple or a single employer
4. For early withdrawal, employee’s contribution will be taxed if you had claimed 80C benefit
5. Interest on employee’s contribution will be taxed as “income from other sources” for early withdrawals
6. Employer’s contribution and interest is fully taxed under the head “salary” for premature withdrawals

#7: Commutation of pension

Some employers allow commutation of pension. Commutation means that you are willing to forgo a part of your future regular pension for a larger upfront amount.

For government employees, 100% of the commuted amount is tax-free.

For non-government employees, it’s partially exempt. The following rules apply:

1. The employee receives gratuity: Amount not exceeding the commuted value to the extent of 1/3rd of the pension is exempt
2. The employee does not receive gratuity: The commuted value of 50% of the pension is exempt

Did you know? Commutation is a form of borrowing from your future self. The trade-off is that you will have reduced pensions in the future.

#8: Leave encashment on retirement

If you encash your leaves during retirement, it can be fully or partially exempt depending on the following scenarios:

1. Central or State Government employees: Fully exempt
2. Legal heirs of deceased employee: Fully exempt
3. Non-Government employee: The least of the following:
   1. Amount notified by the Government (Rs 3,00,000)
   2. Actual leave encashment amount
   3. The average salary for the last ten months
   4. Cash equivalent of unavailed leave for 30 days for every year of service

#9: Money Received From Close Relatives

Any money you receive from your close relatives is tax-free.

For tax purposes, the following people are considered close relatives:

• Spouse
• Sister/Brother
• Your spouse’ brother/sister
• Your parent’s brother/sister
• Any lineal ascendant or descendant
• Any lineal ascendant or descendant of your spouse
• Spouse of the person mentioned above

Information: Gifts received from anyone other than your close relatives are subject to tax. If the value of the gift exceeds Rs 50,000 in a financial year, you need to consider it as “income from other sources.”

#10: Money Received From Sale of Your Used Goods

If you purchase a bike and later sell it to someone else, the proceeds of that purchase are 100% tax-free in your hands.