In India, taxes are a significant expense for many individuals, especially for those who are employed. However, there are several ways for employees to save on taxes by taking advantage of the tax benefits and deductions that the Indian Income Tax Act provides. By investing in tax-saving instruments and utilizing deductions and credits, employees can lower their tax liability and keep more of their hard-earned money. Here are a few ways on How to Save Tax for Salaried Employees.
15 Ways on How to Save Tax for Salaried Employees:
1. Take advantage of deductions under Section 80C:
As an employee, one way to save on taxes is to take advantage of deductions under Section 80C of the Income Tax Act. This section allows individuals to claim deductions for certain investments and expenses, up to a maximum of Rs. 1.5 lakhs in a financial year.
Some of the common investments and expenses that are eligible for deductions under Section 80C include:
- Contributions to the Public Provident Fund (PPF)
- Contributions to the Employee Provident Fund (EPF)
- Premiums paid for life insurance policies
- Contributions to the National Pension System (NPS)
- Tuition fees for children’s education
- Repayment of the principal component of a housing loan
- Equity-linked savings schemes (ELSS)
- Sukanya Samriddhi Account deposits
It’s important to note that the deductions under Section 80C are available for the financial year in which the payment is made and not when the benefit is received.
It’s also good to note that various investments and expenses have different lock-in periods, meaning you cannot withdraw the invested amount before a certain period, for example, PPF has a lock-in period of 15 years. So, it’s advisable to plan your investments and expenses under Section 80C in advance and in a way that aligns with your financial goals.
2. Contribute to a National Pension System (NPS):
The NPS is a government-backed pension scheme that allows individuals to save for their retirement. Contributions made to the NPS are eligible for tax deductions under Section 80C of the Income Tax Act, up to a maximum of Rs. 1.5 lakhs in a financial year.
In addition, an additional tax benefit of Rs. 50,000 can be availed under Section 80CCD (1B) if you are a salaried individual. This means that an individual can claim a total tax benefit of up to Rs 2 lakhs under Section 80C and Section 80CCD(1B) if he/she contributes to NPS.
3. Deductions for housing loan interest:
Under Section 24 of the Income Tax Act, individuals who have taken a housing loan to purchase, construct, or repair a residential property are eligible for tax deductions on the interest paid on the loan. The maximum amount of deduction that can be claimed is Rs. 2,00,000 for self-occupied property and there is no limit for let out property.
To claim the deduction, you will need to provide the lender with a copy of the loan agreement, along with proof of payment of the interest, such as bank statements or cancelled cheques. You will also need to provide proof of ownership of the property, such as a copy of the sale agreement or property registration certificate.
4. Deductions for medical expenses:
Under Section 80D of the Income Tax Act allows individuals to claim deductions for medical expenses incurred for themselves, their spouse, their children, and their parents. The deductions can be claimed for medical insurance premium payments, and also for expenses incurred on preventive health check-ups.
To claim a deduction under Section 80D, you will need to submit proof of the medical expenses, such as bills and receipts, and the insurance policy or health check-up package details.
The maximum deduction that can be claimed for self, spouse and children is Rs 25,000 and for parents, it is Rs 50,000 if the individual is below 60 years old and for senior citizen, the maximum deduction is Rs 75,000.
5. Take advantage of deductions for donations:
Under Section 80G of the Income Tax Act allows individuals to claim a deduction for donations made to certain approved charitable organizations, trusts, and funds. The deductions can be either 100% or 50% of the amount donated, depending on the organization and the specific donation.
To claim a deduction under Section 80G, you will need to obtain a receipt from the organization that shows the donation was made and the PAN number of the organization. The donation should be made in cash or cheque, and the amount should be less than 10% of the taxable income for the year.
6. Tax exemptions for perks:
Certain perks provided by the employer, such as conveyance, medical, and leave travel concessions, are tax-exempt up to a certain limit.
7. Claim HRA exemptions:
If you live in a rented house and your employer pays for a part of your rent, you can claim an exemption on House Rent Allowance (HRA) under Section 10(13A) of the Income Tax Act.
8. Keep good records:
It’s important to keep good records of all of your investments, expenses, and other documentation related to tax savings. This will make it much easier to take advantage of deductions and exemptions and will also make it easier to prepare your tax return.
Review your tax return carefully before you file it. Make sure that all of your deductions and exemptions are included and that you are taking advantage of all of the tax-saving opportunities that are available to you.
It’s important to plan ahead when it comes to saving tax. This means that you should be thinking about your tax situation well in advance of the end of the financial year. This will give you plenty of time to take advantage of deductions and exemptions and to make any necessary changes to your tax situation.
In conclusion, there are many ways for employees in India to save taxes. By taking advantage of deductions under Section 80C, contributing to a National Pension System (NPS), taking advantage of deductions for housing loan interest, medical expenses, and donations, taking advantage of tax exemptions for perks, claiming HRA exemptions, keeping good records, reviewing your tax return, and planning ahead, you can significantly reduce your tax liability and keep more of your hard-earned money in your pocket. It’s important to consult with a tax advisor to get the most out of your tax savings and ensure compliance with the Indian tax laws.