How To Save Tax In India [2020]


Well what I feel is even if we manage to make money in stock market still you will end up paying 50% of your wealth back to the government. Not so cool right! Literally it hurts because we work straight for 9 hours and still end up paying 50% back to the government seriously? Now in this blog I am going to talk about How to save tax in India by investing into mutual funds and get tax exempt from the government and you can really save upto 1.5 lakh in your taxable income.

To understand this first you need to get idea about what is taxable income and a normal income. Lets take a example to understand this.

How to Calculate Tax

  • Suppose you earn Rs 5,00,000 in the financial year of 2019-2020.
  • The thing is according to our tax slabs we don’t need to pay any Tax if you earn upto Rs 5,00,000 in that Financial Year on Taxable Income. Mark my word here I am talking about Taxable Income not your salary.
  • People in India don’t have any idea about what is gross salary and taxable income.
  • You need to understand the difference between the word Exempt , Deduction , Rebate.
  • Rebate has been increased from Rs 2,500 to Rs 12,500.

Income – Rs 5,00,000

Deduction – 80 C – Rs 1,50,000

Taxable Income = Rs 5,00,000 – 1,50,000 which is around 3,50,000. Now this Rs 3,50,000 is your Taxable income and should be applied to Tax slab rates given by the government.

Now usually what people do India is they will not exempt [remove amount from the taxable income] the 2,50,000 given from the government and they will simply put 5% on 3,50,000 which is around Rs 17,500 which is totally wrong.

How To Save Tax - Tax slab rates
How To Save Tax – Tax slab rates

Now what we should do here is remove the Rs 2,50,000 from Rs 3,50,000 which around Rs 1,00,000 then apply 5% since we were over Rs 2,50,000. That should be around Rs 5000.

Since our Taxable income is less than Rs 5,00,000 [ gross salary ] so you won’t be liable to pay any taxes. This is the reason why people around tell us ” Are abhi toh payment hi kitni hai ki tax dega”. But one thing they forget is tax planning should be done at very small age .

Now suppose your income goes beyond 5,00,000 so you need Deduction to reduce your Taxable Income. If you still don’t understand then don’t worry I have a got video for you to make you better understand. I went through several videos spending many hours on Youtube to understand Gross Income and Taxable Income and found this video for you guys. Please go through it once because then only you may get idea of Deductions and the scheme I am going to tell you about.

How to Save Tax – Deduction 80C

Now if you went through the video or my example now you may have idea why Deduction are important. If you see on the brighter side they actually help you to reduce your taxable income + you are investing it somewhere. The government say if you saving for yourself then ok we won’t deduct tax from it. But there is certain limit to it which around 1.5 lac per financial year.

What it means?

Under 80C you can only take tax exemption up to 1.5 lac from your gross income. The condition here is you have to invest it somewhere for you. There are various scheme under 80C in which you can invest more than 1.5 lac only the catch here is the maximum amount you can remove from your gross salary is 1.5 lac.

How to Save tax - 80 C
How to Save tax – 80 C
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There are lot of tax saving scheme but overall you can save up to 1.5 lac combining all the components in 80 C. Like suppose you invest 50,000 in PPF(public provident Fund) ,1,00,000 in NPS(National Pension System) and Principle Home loan is getting cut from your salary which is around Rs 50,000 then also you can only redeem upto 1.5 lac. Remember that!

Tax Saving ELSS

Now if you see the 80 C components there is Tax saving Fd , Tax saving NPS , Tax saving ELSS , Tax saving on home loan etc. In this blog I will tell you about tax saving ELSS which is my favourite to be honest. It will answer your question of how to save tax by investing in mutual fund?

Why I like ELSS comparing to other schemes because if you look at the components of 80 C they have very big lock- in period. Once you start investing the amount you cannot withdraw it as you wish. This in turn makes a liquidity crisis for millennials which is not good. Since everyone wants to invest in mutual fund and earn good amount of return here is your deal.

Government wants you invest for yourself and they are giving tax exempt too – to reduce your taxable income then why not? Why to pay your hard earned money back to the government. You can save up and get a good return on your retirement. Moreover you can remove it in just 3 year lock in period. Cool right!.

PPF Vs ELSS. Which is better?

How to Save Tax - ELSS vs PPF
How to Save Tax – ELSS vs PPF
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These are some key takeaway from both ELSS and PPF. I just wanna say if you are young just go an invest in ELSS upto 1.5 lac in a year. As simple as that because you don’t have family to look around or not much responsibilities. Even you can’t add up that much amount you can just start by investing Rs 2000 per month.

Common we spend this much amount on our so called fun-activities – maybe partying, spending on our dates blah blah.If you are old and wanna start investing better don’t go with the ELSS scheme. I will suggest you go for safe investment like PPF because mutual fund are slightly risky comparing to PPF

How to Save tax – The tax saving mutual Fund?

The real question how to choose a mutual fund ? You can go to moneycontrol and check out some good ELSS scheme and you should know about stock market + Fundamentals of the company. You can go through my blog and read about it. I don’t want to make this blog long because it was just to inform you about ELSS scheme because already i have discussed a lot about company fundamentals in my blogs. If you wanna see how to do it check this video out.

Since mutual fund investing is nothing but some fund houses will pool money from you and they will appoint a fund manager and he will invest your money in the stock market directly on behalf of you. Simple! Now you have to decide which one to pick from various mutual fund.

In the next blog we will cover Tax saving Fd , Tax saving NPS etc – various other components of 80C. We will also see how to save tax beyond 1.5 lakh or how to save tax other 80 C.


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