14 Simple Ways to Save Income Tax

Introduction: 

A Tax paying citizen is equated with being a nation-loving person. And rightly so. Taxes help build a better nation. But being a salaried person, you will be quite familiar with the dismal feeling income tax filing date brings. A huge chunk of your salary goes into paying income tax, effectively reducing your earnings. And that’s why saving Income Tax on your salary is as much of an achievement as earning salary itself is. If you are always wondering how to reduce tax on salary, read the entire article to find out simple solutions.

The Income Tax Act of India allows various deductions as options for tax savings for the salaried person. And if you are a salaried person, you must keep yourself updated on these so that you can plan your taxes well. These deductions can be claimed back at the time of filing the income tax return effectively reducing the taxes you have to pay.

Improve organizational integrity with Buzzworks customized HR system. Request a callback now!

Section 80C, Section 80CCC, Section 80CCD, Section 80E, Section 80D, etc. are your best friends in your quest to save income tax. Investing in components mentioned in these sections will allow you to claim the deductions while filing income tax. 5 years tax saving policy, Employee Provident Fund (EPF), Life Insurance Policy (LIC), government-owned Provident Fund accounts (PPF), National Savings Certificate (NSC), pension schemes, and many others like these fall under the tax-saving components as part of the tax savings benefit. 

Another point to be taken into consideration is that there are different tax slabs for different salary ranges. The Government of India has formulated the tax slabs as per your income. So, the more you earn the higher tax slab you will fall into. 

How to save tax on salary?

We have listed down the ways that can help you reduce the income tax you pay on your salary to the barest minimum. When your salary is divided into these subparts you can claim the deductions as per the different sections as stated by the government. 

• House Rent Allowance: Employees paying rent or living in rented houses can claim a House Rent Allowance deduction to save income tax. This is deducted at source by the employer and the full amount cannot be claimed but it can be claimed as per the following conditions, whichever is the lowest:

• Actual HRA minus 10% of the basic salary plus DA

• If the employee is living in tier 1 cities, then it would be 50% of the basic salary plus DA

• If the employee is not living in a tier 1 city then the HRA can be claimed as 40% of the basic salary plus DA

• Actual HRA provided by the employer.

• Home Loan: help in saving income tax under 3 sections leading to huge savings. These deductions can be claimed on both: the payment of the principal amount and the interest paid on home loans. Depending upon the cases, either Rs 200,000 can be claimed as the maximum amount under home loan deduction, or in some cases, there is no maximum limit, and the entire amount can be claimed.

• Education Loan: If any of your dependents (children, spouse) are studying in college then you can save income tax by opting for an education loan for higher studies. There is no maximum limit to claiming these deductions and they can be availed by individual taxpayers. This is one of the best options to reduce tax on salary.

• Leave Travel Allowance: Employees can claim LTA i.e. Leave Travel Allowance to save income tax. LTA is tax-free and can be availed twice in 4 years. All the employee has to do is take leave from the office and travel within India. 

• Mutual Funds: Who doesn’t invest in mutual funds these days? But investing in mutual funds like ELSS equity-linked savings scheme can also help you save income tax. You can claim a deduction up to Rs 1,50,000 under section 80C of The Income Tax Act.

• Donations: Deductions can be claimed on monetary donations to the National Relief Fund or for social or charitable purposes to government-recognized Not-For-Profit organizations. Section 80G of the Income Tax Act. Donations made in cash can be claimed to a limit of Rs. 10,000. Or donations exceeding Rs 10,000, payments have to be made through cheque. The Ministry of Finance has listed the names of the organizations. Donations made in kind cannot be claimed. 

• Long Term Capital Gains: A long-term capital asset is any asset that the taxpayer has owned for 3 or more years. Upon selling any of these assets, the taxpayer can save income tax by investing in specific components. 

• Employee Provident Fund (EPF): Employee Provident Fund, better known as PF or EPF is a government-established savings scheme for employees of the organized sector. Under this scheme, the employer, as well as the employee, contribute equally (which is 12% of the basic salary) every month as part of the employee’s pension and provident fund. Upon maturity, the amount is exempted from tax under Section 80C of the Income Tax Act. 

• Gratuity: Gratuity is exempted from tax. It is a benefit provided by the employer after completing 5 years in an organization. However, it is only received either at the time of retirement or upon resigning from the organization.

• Meal Coupons: Employees can save income tax through meal coupons. These are tax-free up to Rs 50 per meal or Rs 2,600 per month.

• Reimbursement on Submission of Bills: Employees can avail certain benefits like car maintenance that can save income tax on the submission of bills. For employees owning cars of 1600 CC or less, employers can reimburse up to Rs 1,800 monthly. In the case of bigger cars, the reimbursement can be up to Rs 2,400 monthly. An employee can also avail of Rs 900 as a driver’s salary monthly as part of a tax-free allowance.

• Medical Insurance: Section 80D provides that medical insurance taken for spouse, parents, or dependent children can be claimed for deduction as per the following:

• Rs 25,000 against insurance premium paid for spouse, parents, and dependent children

• Rs 50,000 can be claimed in case the parent are senior citizens

• Internet and Phone Expenses: To save income tax, tax benefits can be claimed on internet and phone expenses that are either pre-paid by the employers or are paid upon submission of bills. 

• Deductions: There are various methods to lower your income tax slab. These include deductions at source by the employer like TDS (Tax Deducted at Source). The employer gives the information of the deducted tax through Form 16, also known as the TDS certificate, for which you can claim the amount while filing the income tax return. 

Conclusion: 

Saving income tax can be a smooth process if you can take out the time to understand the various methods to segregate and invest your hard-earned money. In case this seems difficult or incomprehensible, you can reach out to a Chartered Accountant in your city for better guidance.