How Can the Salaried Save More with the Same Salary?

The smartest way to save more is by investing in savings instruments that offer high interest rates and have tax-saving potential as well. Thus, your tax planning should be efficient so that you can reduce your taxable income. You should make tax-saving decisions well in advance (at the beginning of the financial year), so you can easily achieve your annual targets. By doing this, you can ensure that your taxable income is not the same as your total income.

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Want to Save Tax?

This article is for all salaried employees who would like to increase their savings to fulfill their short-term and long-term needs.

We know how important it is to build your savings when you have to pay rent, school fees, and a seemingly never-ending pile of bills. So let us lend you a hand.

How to save tax?

By investing in tax saving financial products, you can save tax substantially. As per the tax laws, the income should be counted under each head, as per the exemptions and deductions that will apply. There are various kinds of investment options for salaried individuals and pensioners. You should consider products that are relevant to your age and risk profile. All financial products should be chosen as per the liquidity and security they offer.


There are various kinds of allowances which can be selected as per your needs. Some of the popular allowances are House Rent Allowance (HRA) and Transport Allowance among other expenses.

Check below 14 instruments now to Save Tax:


The rent paid to your landlord can be exempted from income tax. You will need to produce bills from the landlord.

The HRA will be the minimum of the following three:

  • Actual HRA (received from the employer)

  • Rent paid to the landlord (10% of the basic salary)

  • 40% of the basic salary (non-metros)

  • 50% of the basic salary (for metros) 

  • Children education allowance

Rs. 100 per month per child can be deducted from the income towards child education allowance. The deduction is allowed for a maximum of up to two children in a family. 

  • Transport allowance

A deduction of Rs. 1600 is allowed per month towards transport allowance. The transport allowance is the conveyance allowance to and from your place of work. 

  • Leave travel concession (LTC)

Two trips in a block of 4 years are available to government employees. The expenditure should not exceed the economy ticket in a flight or AC 1st class fare in a train service. The traveling expenses incurred in the current financial year by the employee and his/her dependents (spouse, children, parents, and in-laws) will be exempted from income tax.

This concession is applicable for travel anywhere in India. If you undertake a flight journey, you should use state airlines i.e., Air India. The traveling bills of private airlines will not be accepted for income tax exemption.

Tax savings through retirement funds

There are various kinds of retirement funds through which you can manage great tax deduction.

  • EPF (Employees Provident Fund) – The contribution made by employees towards their EPF will be deducted from Section 80C of the Income Tax Act. The employee can claim an exemption of up to Rs. 1.5 lakh per year.

  • Gratuity – Gratuity payment is offered to employees for contributing their service to an organisation for at least 5 years. The gratuity payment for retired employees or on the death of the employer will be 100% exempted from income tax. For private employees, the exemption is up to Rs. 10 lakh.

  • Pension funds – The premium contributed to the pension fund will be deducted from the income tax under Section 80CCC. You can contribute to the pension fund without any limits. However, there will be tax exemption of up to Rs. 1.5 lakh per annum.

Health insurance premium 

The premium contributed towards the health insurance plan can also save you up to Rs. 25,000 per annum from income tax liabilities. For senior citizens, the exemption limit is up to Rs. 30,000. From the FY 2018-19, the limit has been enhanced to Rs. 50,000 per annum. You can also claim Rs. 5,000 towards preventive health check-up. The amount can be claimed even if you do not subscribe to the health insurance plan. However, you should produce the necessary documentation for verification/scrutiny.

Life insurance premium 

Life insurance policies are a necessity regardless of whether one is the sole-breadwinner or not. There are various kinds of life insurance products in the market. You can choose a policy which covers your life and also offers financial security to your dependents. The insurance cover should be at least 10 times your annual salary. The premium paid towards your life insurance policy is exempted from income tax under Section 80C. You can get an exemption of up to Rs. 1.5 lakh per annum.

A term insurance policy covers the risk with the lowest possible premium. While a  money back or endowment policy offers maturity benefits after the are offered if the policyholder survives the policy term.

If you go for a money back or endowment plan, the returns will be helpful to finance your children’s education or marriage. The proceeds can be used for house construction as well. Alternatively, you can invest the maturity proceeds in an annuity policy so that you will get a pension on a regular basis.

Unit Linked Insurance Plans- ULIPs

Unit Linked Insurance Plans (ULIPs) are alternate investment options for mutual funds. If you would like to derive market-linked returns along with income tax exemptions, ULIPs are an ideal instrument. ULIPs  offer insurance benefits as well.

Thus, it is a tax saving financial product with insurance benefits. The premium contributed to the ULIP and the gains achieved by the policy are exempted from income tax. If the policyholder dies during the term, the beneficiary will get a lump sum payout. Moreover, the future premiums are waived off.

Additionally, under a ULIP regular payouts will be provided on a monthly basis as per the terms and conditions of the plan. All of these benefits contribute to make ULIPs an ideal long-term investment option.

With the imposition of the LTCG on equity mutual funds, ULIPs have become attractive. You can choose child education plans, marriage plans and retirement plans. There are ULIPs which can be customized as per your needs.

Long-term Savings Funds 


SCSS (Senior Citizen Savings Scheme) is the most sought-after savings plan for retired employees. The terminal benefits that an employee receives post-retirement can be invested in SCSS. The account can be opened in a bank or post office. The tenure of the scheme is 5 years. The principal contributed to the SCSS is exempted from the income tax. Instead of opting for fixed deposits, senior citizens can opt for SCSS so that there will be security and higher returns as well.


The National Pension Scheme was launched to fulfill the pension needs of government employees as well as people working in unorganized sector. Employees should contribute at least 10% of their monthly salary towards NPS. The government contribution is another 10%. The amount contributed by the employee as well as the employer will be deducted from income tax computation.

The fund will be managed by three different fund managers. You can opt for the percentage of fund allocation among fund management companies as per your needs. The National Pension Scheme fund cannot be withdrawn before the retirement, unless under special circumstances such as, for the treatment of a terminal illness. 40% of the maturity payment is tax-free in the hands of the subscriber. Another 40% should be invested in an annuity plan. The remaining 20% of the maturity proceeds are taxable.


It is a long-term investment product offered by the government of India. The subscription to the Public Provident Fund is offered to every Indian citizen regardless of age and occupation. Employees can contribute to PPF to get tax exemption of up to Rs. 1.5 lakh per annum. Even though employees have subscriptions to other retirement funds, the PPF is a well trusted and efficient instrument that will fulfill your financial needs. The account provides the option to take a loan on the account from its 4th financial year. You will be able to withdraw up to 50% of the fund from the 7th financial year. The interest rate will be decided by the Government of India and it will be updated on a regular basis. The principal, interest and the maturity proceeds are exempted from the income tax.

Home loan

If you take home loan from a bank or a registered financial institution, you can get an exemption on the principal as well as the interest. The principal amount up to Rs. 1.5 lakh is exempted from tax. The interest amount up to Rs. 2 lakh per annum is exempted from the tax. If the interest paid on the home loan is more than Rs. 2 lakh, it can be carried forward for the next 8 years.


There are various kinds of tax saving financial products which can be used to fulfill your short-term and long-term financial needs. You should make the necessary changes to your financial portfolio to make the most of your returns on various heads. If you have the provision to deduct the principal under your home loan, you can avoid investment options such as PPF and ELSS. On the other hand, the PPF or ELSS share can be increased (after the closure of the home loan account) to utilize the income tax exemption to its full potential. You should reassess your savings on annual basis to save more and to get the best tax benefits.

Helpful Resources: Income Tax Computation

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
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