If you’re earning anywhere between ₹6 lakh and ₹12 lakh per year, chances are you’re looking for smart and legal ways to reduce your income tax burden. The good news is that there are several tax-saving options available for salaried individuals, freelancers, and business owners in this income bracket.
In this guide, we’ll break down the most effective and practical ways to save tax under ₹12 lakh income in India. You don’t need to be a finance expert to understand these tips, just a little planning and timely investment can make a big difference.
1. Understand Your Tax Regime: Old vs New
Before you start planning your deductions, the first step is to choose the right tax regime.
- Old Regime: Allows you to claim various deductions like 80C, HRA, home loan interest, etc.
- New Regime: Offers lower tax rates but no deductions for most exemptions.
Tip: If you claim many deductions (like 80C, 80D, HRA), the old regime might save you more money. But if you don’t have many deductions to claim, the new regime could work better.
Use a tax calculator before deciding which regime is better for your situation.
2. Claim Deduction Under Section 80C (Up to ₹1.5 Lakh)
This is the most popular and easiest way to save tax.
Eligible Investments and Expenses:
- EPF (Employees’ Provident Fund)
- PPF (Public Provident Fund)
- Life Insurance Premium
- ELSS (Equity Linked Saving Scheme)
- Home Loan Principal Repayment
- Children’s Tuition Fees
- 5-Year Fixed Deposits (with banks or post office)
By investing or spending in these areas, you can reduce your taxable income by ₹1.5 lakh.
3. Health Insurance Deduction Under Section 80D
Medical costs can be high, and health insurance not only protects you financially but also saves taxes.
You can claim:
- ₹25,000 for yourself, spouse, and children
- Additional ₹25,000 or ₹50,000 if you pay for your parents’ health insurance, depending on their age (below or above 60)
So you can save up to ₹75,000 under this section alone.
4. House Rent Allowance (HRA)
If you live in a rented house and receive HRA as part of your salary, you can claim HRA exemption under the old regime.
Documents Needed:
- Rent receipts
- PAN of the landlord (if annual rent exceeds ₹1 lakh)
Even if your employer doesn’t provide HRA, you may still claim rent paid under Section 80GG.
5. Home Loan Interest – Section 24(b)
If you have a home loan, you can claim deduction of up to ₹2 lakh on interest paid in a financial year under Section 24(b).
This is in addition to the 80C deduction for the principal repayment.
6. National Pension System (NPS) – Extra ₹50,000
Under Section 80CCD(1B), you can claim an additional ₹50,000 if you invest in NPS. This is over and above the ₹1.5 lakh limit of Section 80C.
NPS is a good option if you’re planning for retirement and want to lock in some long-term savings.
7. Tax-Free Allowances and Reimbursements
Use your salary structure smartly. Some components of your salary are non-taxable if claimed properly.
Examples:
- Mobile/Internet Reimbursement
- Meal Coupons
- Transport Allowance
- LTA (Leave Travel Allowance) – for travel within India
Make sure to submit bills and use these components fully.
8. Education Loan Interest – Section 80E
If you’re repaying an education loan (for yourself or your children), the interest paid is fully deductible for up to 8 years.
There’s no upper limit for the amount you can claim under Section 80E.
9. Standard Deduction for Salaried and Pensioners
A standard deduction of ₹50,000 is available for all salaried individuals and pensioners. This is automatically applied, so you don’t have to do anything.
10. Invest in Tax-Saving Fixed Deposits or Sukanya Samriddhi Yojana
- 5-Year Tax-Saving FD: Qualifies under 80C
- Sukanya Samriddhi Yojana: For girl child, provides excellent interest rate and tax exemption
These are good low-risk options if you prefer guaranteed returns.
Sample Tax Saving Plan (For ₹12 Lakh Annual Income)
| Tax Saving Option | Amount Invested (₹) | Deduction (₹) |
| EPF + ELSS + PPF (80C) | ₹1,50,000 | ₹1,50,000 |
| Health Insurance (80D) | ₹30,000 | ₹30,000 |
| NPS (80CCD(1B)) | ₹50,000 | ₹50,000 |
| Home Loan Interest (24b) | ₹2,00,000 | ₹2,00,000 |
| Standard Deduction | — | ₹50,000 |
| Total Deduction | ₹4,80,000 |
This reduces your taxable income from ₹12 lakh to ₹7.2 lakh and helps you fall in a lower tax slab.
Final Thoughts
Tax planning isn’t just about saving money. It’s about building habits that secure your financial future. By investing in the right instruments and claiming eligible deductions, you can legally reduce your tax liability and use that money to grow your wealth.
You don’t need to wait until March to plan. Start early in the financial year so that you don’t end up making rushed decisions at the last minute.
Frequently Asked Questions
Q. Is it better to use the old regime or new regime?
It depends on your deductions. If you can claim more than ₹2.5 lakh in deductions, the old regime is likely better.
Q. What if I forget to claim deductions?
You might end up paying more tax than necessary. It’s best to plan and submit investment proofs in time to your employer.
Q. Can I switch tax regimes every year?
Yes, salaried individuals can choose between old and new regimes every financial year.
If this post helped you understand tax saving in a better way, do share it with your friends, colleagues, and family members. Smart tax planning starts with awareness.
