Master money management and save big on taxes

On February 1, 2025, Union Finance Minister Nirmala Sitharaman presented the Union Budget 2025. Under the new tax regime, no income tax is payable on income up to ₹12 lakhs. This limit extends to ₹12.75 lakhs for salaried taxpayers with a basic standard deduction of ₹75,000. While this is a welcome change, individuals under the old tax regime still face substantial tax liabilities.

Take the example of Ms. Shreya, a marketing professional earning ₹15,00,000 annually. She ends up paying ₹2,73,000 in taxes. To reduce taxes and retain more earnings, strategic tax planning is necessary. This is where money management comes into play. With thoughtful financial planning today, you can lower your taxable income tomorrow.

Let’s explore some money management tips to achieve this goal.

What is money management?
 

Money management means planning, organising, and controlling your income and expenses. It encompasses budgeting, saving, investing, and managing debt.

Smart money management goes a step further than tracking expenses. It lets you make strategic decisions to grow your wealth and minimise unnecessary spending—like taxes. This doesn't mean avoiding taxes altogether (which is illegal). Instead, it means ethically optimising your finances to reduce your tax burden.

A well-executed money management plan considers various factors. It considers income, expenses, risk tolerance, and tax laws. The core principle is to allocate your funds to tax-saving instruments strategically. This, in turn, lowers your tax burden. Here’s why it matters –

• Every rupee saved in taxes can be reinvested to grow your wealth
• Strategic investments ensure you meet long-term goals, such as buying a house, funding your child’s education, or retiring comfortably
• Proper tax planning reduces financial stress and gives you more control over your finances

This is where money management skills become indispensable. Let’s explore practical strategies to get started.

Key strategies for effective tax planning
 

Making informed investment decisions is essential for smart money management. Here are some instruments to help you reduce your tax burden while building wealth –

1. Leverage tax-saving instruments
 

The Income Tax Act of 1961 offers several tax-saving opportunities through specified investments. Popular options include –

a. Public Provident Fund (PPF)

A PPF is ideal for long-term, tax-efficient investing. Contributions are eligible for deductions up to ₹1,50,000 under Section 80C. Moreover, both the interest earned and maturity proceeds are tax-free. With a 15-year lock-in period and a minimum deposit of ₹500, it's a secure option for steady wealth creation.

b. Equity-Linked Savings Schemes (ELSS)

ELSS mutual funds are a higher-risk, higher-return investment option. They offer tax benefits of up to ₹1,50,000 annually under Section 80C. The short lock-in period of three years provides liquidity along with long-term wealth creation. However, a degree of risk is involved since returns are market-linked.

c. National Pension Scheme (NPS)

The NPS helps you secure your retirement while enjoying tax benefits –

i. Deduction up to ₹1.5 lakh under Section 80CCD(1)

ii. Additional deduction of ₹50,000 under Section 80CCD(1B) 

This scheme promotes disciplined retirement planning while reducing taxable income.

d. National Savings Certificate (NSC)

NSC offers a secure, government-backed investment option with a five-year lock-in period. Investments up to ₹1,50,000 qualify for Section 80C deductions, and interest is compounded annually. NSC balances security and moderate returns.

e. Tax-saving fixed deposits (FDs) 

A tax-saving FD is a deposit with a five-year lock-in period. The amount invested is eligible for deductions under Section 80C, up to ₹1,50,000 annually. However, interest earned is taxable, and partial withdrawals aren't permitted. 

2. Save taxes with life insurance
 

Life insurance is a smart way to secure your family’s future while saving on taxes. Premiums paid are eligible for deductions up to ₹1.5 lakh under Section 80C. This includes premiums for term plans, endowment policies, or Unit Linked Insurance Plans (ULIPs). In addition, payouts are tax-free under Section 10(10D) if the premium doesn't exceed 10% of the sum assured.

3. Claim deductions on home loans
 

Home loans are a smart money management tool that offers tax benefits. You can claim deductions up to ₹1.5 lakh on principal repayment under Section 80C and up to ₹2 lakhs on interest paid under Section 24(b). You can also enjoy an extra ₹50,000 deduction under Section 80EE.

4. Invest in health insurance
 

Health insurance offers dual benefits—financial protection against medical emergencies and tax savings under Section 80D. You can claim deductions up to ₹25,000 for individuals below 60 years of age and ₹50,000 for senior citizens. If you cover parents who are senior citizens, an additional ₹50,000 is deductible. This makes the total deduction available under this section ₹1 lakh.

Note – The tax-saving strategies discussed above are applicable only under the old tax regime.

Let’s understand how these tax-saving options save tax. Assume Ms.Shreya invests in the above investments and purchases health insurance for herself and her parents.

How to manage money with banking solutions for long-term wealth
 

Several financial products can help follow money management rules with minimal tax impact –

1. High-yield savings accounts
 

A savings account isn't just for day-to-day transactions. It can also be a powerful wealth-building tool. The IDFC FIRST Bank Savings Account offers attractive interest rates and monthly interest credits. These benefits can make your money grow faster due to compounding.

It’s also ideal for creating an emergency fund. It ensures you have quick access to funds during unforeseen situations. Plus, interest earned on savings accounts is tax-exempt. The limit is up to ₹10,000 for individuals (under Section 80TTA) and up to ₹50,000 for senior citizens (under Section 80TTB).

2. FDs and recurring deposits (RDs)
 

Fixed deposits, including tax-saving FDs, provide assured returns and stability to your portfolio. RDs, on the other hand, can complement your tax-saving strategy. They can help you develop disciplined saving, an important money management skill.

Start early for maximum tax benefits
 

The earlier you start, the greater the benefits of money management. Here’s why –

1. Power of compounding
 

Starting investments early allows you to benefit from compounding. Here, your returns generate further returns. This is true for long-term investments like PPF or ELSS.

2. Time to build a diversified portfolio
 

Early starters can experiment with various investment avenues to find the right mix that balances risk and reward. These options can include equities, debt, and mutual funds.

3. Reduced last-minute stress
 

Procrastinating on tax planning often leads to hasty decisions. They may not align with your financial goals in the long term. Hence, start early and choose instruments that maximise your wealth and tax savings.

Reduce your tax burden for tomorrow
 

Money management is more than reducing taxes. Understanding how to manage money can secure your financial future. It lets you retain more of your income while building wealth. Start planning today to determine your financial freedom for tomorrow.

The IDFC FIRST Bank Savings Account makes it easier to manage your funds. Its attractive interest rates and features encourage disciplined saving to accumulate wealth. Visit IDFC FIRST Bank and explore FDs and investment products to take control of your financial journey.