Income Tax refers to the fragment of an individual’s income collected annually by the government authorities. In India, a big portion of an individual’s earnings is deducted as income tax. It generally imposes a significant burden on saved income rather than consumed income. This makes it difficult for several families to save some money for the future.
Owing to this reason, saving income tax is a highly hectic yet necessary part of the financial planning of the salaried class. It is critical to understand the Income Tax Slabs, the tax liabilities and the meaning of each salary breakup component to figure out how to save income tax on salary.
10 Smart Ways to Save Income Tax for Salaried Employees
Every one of us wants to save our taxes legally. However, if you find it difficult to pay a huge part of your income from salary in taxes, it is mainly because you haven’t done proper tax planning.
Here are some of the smart ways to save tax for salaried employees:
1. Conveyance Allowance
The conveyance allowance organises the salary deduction to exempt transport money. Many companies offer to compensate for their employees’ transportation expenses, provided that such expenses are subjected to official duties.
Employees’ Car Allowance Income Liability can be used for either private or official purposes or even both.
2. Medical Bills
Employees often get various medical compensation as a slice of their CTC (cost-to-company). It can simply be done by submitting doctor’s appointment expenses, prescriptions, medical bills, test and diagnostic bills, etc. The tax benefits can be fully claimed by on-time submission to the employer.
3. Rent Payment
Rent payments can be easily accommodated with the help of HRAs, or House Rent Allowances. Every individual taxpayer who stays in a rented apartment or house can claim a house rent allowance to reduce the amount of tax payable. Such allowances can either be completely or partially exempted from taxes.
4. Food Coupons
Many employers have offered food or meal coupons for deduction from the employee’s salary in recent times. These coupons generally have no limitations on taxes.
5. Leave Travel Allowance
LTA (Leave Travel Allowance) allows you to save money on various trips or fare expenses within India. To claim it, the employee must travel to any place inside India throughout their leave. It depends on the employer to decide whether or not the LTA should be included in the payment structure.
6. Section 80CCD, Section 80CCC & Section 80C Deduction
It is important for all taxpayers in India to know what the deductions are taking place under Section 80, Section 80CCC, and Section 80CCD. Suppose the citizens of India invest their money in either of the mentioned instruments under these three sections. In that case, they will be eligible to claim certain deductions on savings, expenses and investments.
The most favored instruments include pension plans, life insurance policies, 5-year Tax Saving Fixed Deposits, Public Provident Fund or PPF Accounts, NSC (National Savings Certificate), EPF (Employees’ Provident Fund) contributions, school fees, etc.
7. Medical Insurance
Under Section 80D, individual taxpayers can purchase secure medical or health insurance for themselves and their families and claim tax deductions. The amount will undergo annual changes. Additional premium payments can also be claimed for purchasing medical insurance for senior citizens, saving the individuals from extra tax.
8. Shares and Mutual Fund
Under the Income Tax Act Section 80CCG, citizens of India who earn an annual income below Rs12 lakhs can claim an additional deduction for saving taxes. For this, they have to invest their money in shares of some specific companies and particular mutual funds.
9. Sale of Equity Shares
For the sole purpose of encouraging the citizens of India to invest their money in equity shares and mutual funds, the government has incorporated some exempted taxes. This tax can be claimed only if the people can gain long-term share-holdings of more than one year via the sale of equity shares.
Under the Income Tax Act Section 80G, citizens of India can also claim tax deductions by spending some of their income on various social or charity donations. These organizations are listed by the Ministry of Finance. Taxpayers can even contribute to the NRF or National Relief Fund and save their money on taxes.
How to Save Tax on Salary other than 80C?
The following are the recommended ways of saving income tax other than 80C:
1. Interest Income Generated from Savings Account Deposits:
Under 80TTA, one can claim the entire interest income produced from savings account deposits. These taxable deductions are limited up to an annual income of Rs 10,000. In the case of different savings accounts in multiple separate banks, the entire cumulative interest will be considered. This will be taxed under the income from other sources. If this interest income exceeds Rs 10,000, that excess amount would have its tax rates considered on the aggregated annual income.
2. Interest Income Paid for Education Loans:
Under Section 80E, the interest income spent on education loans is non-taxable. Loans like these could be unguaranteed, depending on the required amount of funds. It is important to note that such statements can be granted only for the loan repayment for the first 8 years. If there’s any income spent beyond this time for meeting various interest burdens, that income will be taxable.
3. Assured Sum on Maturity of Life Insurance Plans:
Under Section 10(10D), the total sum assured on the maturity of life insurance plans of an insured individual can be claimed towards tax rebate. If such tax exemptions on untimely deaths are guaranteed after 1st April 2012, the entire premium value charges will be less than the total assured sum. However, if the policy is guaranteed before 1st April 2012, the premium charges will be 20% less than the entire assured sum eligible under the 10(10D) Section.
4. Interest Payments on Home Loans:
Under Section 24(b), the interest payments towards home loans can be removed from tax calculations. If the house is purchased for residential purposes, a maximum sum of ₹2 lakh can be claimed as a tax rebate at an interest rate only if the construction is finished with a loan tenure of 5 years. If an individual chooses to give their purchased property on rent, there would be no tax payments on the home loan interests.
5. Interest Payments on Home Loans for First Time Home Buyers:
Under Section 80 EEA, the individuals purchasing a home for the first time can claim an extra interest benefit up to ₹50,000 only if their property value is less than ₹45 Lakhs. Unlike Section 80C, this helps save tax of up to ₹2.5 lakh. However, to be eligible for the tax rebate on the entire spent income, no existing property should be registered under the individual’s name when applying for a home loan.
Frequently Asked Questions
1. How can a salaried person save tax?
A salaried person can save tax with the help of certain professional tax deductions and exemptions. These can be incorporated in various ways, including conveyance allowance, rent payment, food coupons, leave travel allowance (LTA), medical insurance, shares & mutual funds, sale of equity shares, donations, etc.
It can also be done through deductions mentioned under sections 80 C, 800CCC, and 80CCD.
2. How can I save tax on my salary under 15 lakhs?
The best salary structure to save tax in India 2020-2021 includes the following taxable income range:
|Between 0-2.5 Lakhs||The tax rate before and after the budget 2020 is exempted|
|Between 2.5-5 lakhs||The tax rate is 5% before and after the budget 2020|
|Between 7.5-10 lakhs||The tax rate was 20% before and after budget 2020 implementation; it became 15%|
How to save tax for salary above 10 Lakhs?
|Between 10-12.5 Lakhs||The tax rate was 30% before and after budget 2020 implementation; it became 20%|
|Between 12.5-15 lakhs||The tax rate was 30% before and after budget 2020 implementation; it became 25%|
3. How much tax is deducted from Salary in India?
The Income Tax in India is calculated through the application of Income Tax Slabs. The taxable income of an individual is figured out only after applying some deductions. Next, taxes will be applied on the resultant income based on the slab rate. According to the 2019-2020 Union Budget, a complete tax rebate can be suggested for an income up to Rs 5 lakhs.
4. How much tax is deducted from the salary bonus in India?
It is important to note that none of the allowances or deductions made under Section 80C, 80D, etc., allows such deductions of bonus in India. The advantages of fundamental exemption limitations and income tax slabs are inapplicable to income. An employee income tax rate of 31.2% is applicable on the fully received income amount.