November 13, 2024
At the very end of the financial year 2024, all those salaried employees of India worry to save as much as they can towards tax savings. With this tax saving options, they want to save as much as they can from their earnings.
Planning ahead for taxes will not only reduce your liability but also ensure that you’re making the most of available deductions and allowances. It would appear that there are many provisions directed at salaried workers, ranging from allowances, deductions to exemptions to strategic investments that, properly planned for, could be as overwhelming as a mountain of paperwork. Through an understanding and use of these benefits, the process becomes less complicated and allows a more sound financial approach that will maximize take-home pay and enhance financial well-being. This brief guide explores a few key tax-saving strategies to get underway on this path.
Before we take a look at the tax-saving options, let us first explore how your salary structure affects your taxable income. The salary pay head will contain some of the components including the Basic Salary, House Rent Allowance, Special Allowances, and Bonuses. These would form part of your income as it relates to Taxable Income after deductions and exemptions.
Income Tax Department of India provides many provisions under various sections of the Income Tax Act which reduce your total taxable income and in turn reduces your overall tax liability.
From the various tax-saving options available for the salaried individual, there are many good ones. Let’s look at the most effective ones:
Under Section 80C, salaried employees can claim relief for deduction up to ₹1.5 lakh of the investments in a particular financial year into some specific instruments. These include:
| Investment Option | Eligibility | Tax Deduction Limit |
|---|---|---|
| Public Provident Fund (PPF) | Anyone | ₹1.5 lakh |
| Employee Provident Fund (EPF) | Salaried employees | ₹1.5 lakh |
| National Savings Certificates (NSC) | Individuals | ₹1.5 lakh |
| Tax-saving Fixed Deposit (FD) | Individuals | ₹1.5 lakh |
| National Pension Scheme (NPS) | Anyone | ₹1.5 lakh (Additional ₹50,000 for NPS contributions) |
| ELSS (Equity Linked Savings Schemes) | Anyone | ₹1.5 lakh |
These deductions decrease your taxable income, which lowers your tax liability. The most common instruments under 80C are EPF, PPF, ELSS, and tax saving FDs. The tax benefits for salaried employees are great when you plan ahead and make the most of investments under this section.
A very useful deduction for people who live in rented accommodation and take home salaries is HRA. The exemption is calculated on the least of the following, which form a constituent part of your salary:
Keep all the rent receipts and lease agreements so that you can keep a tab on expenses for exhausting this.
Under Section 80D, you can claim deductions for premiums paid on health insurance policies for yourself, your family, and your parents. The deductions are as follows:
| Coverage Type | Deduction Limit |
|---|---|
| Self and family (below 60 years) | ₹25,000 |
| Senior Citizens (above 60 years) | ₹50,000 |
| Parents (below 60 years) | ₹25,000 |
| Parents (senior citizens) | ₹50,000 |
By investing in health insurance, you not only secure the health of your loved ones but also avail of significant tax-saving benefits.
Use the home loan interest deduction under Section 24(b). Here, one can get up to ₹2 lakh annually as deduction on the interest paid on a home loan. Loans taken for the purchase/construction of a house are eligible for the same.
There are several routes through which you can save taxes if you’re an employee. Here are a few practical techniques that have been proven helpful:
You can also save an additional ₹50,000 by way of contribution under Section 80CCD(1B) over and above the general ₹1.5 lakh cover of Section 80C. Now, not only will salaried employees save for their retirement while reducing their current tax liability, but also have a way of saving on taxes while availing an LTA benefit.
If your employer allows you to avail of Leave Travel Allowance (LTA), then you can claim an exemption on the expenses of traveling within India. LTA is eligible under two journeys in a block of four years. It can be used for tax relief and operates well together with other techniques applied for reducing taxes paid out. So, ensure you do travel within India, and proper receipts are maintained.
Your salary should be structured in such a manner that it brings maximum tax benefits. The common constituents that you may include in your salary structure for minimizing taxes are:
These reduce your taxable income, and hence, you pay taxes only on that part of your income that is over those exemptions and deductions offered to you.
Earning employees who do not want to invest but want to save on taxes can try the following:
Tax-free allowances such as Transport Allowance, Special Allowance, and Child Education Allowance reduce your taxable income. These allowances are not taxed, thereby reducing the amount going to the government in the form of taxes.
Another good way to reduce tax liability is the increase in House Rent Allowance (HRA) if you stay in a rented house. HRA exemption provides relief against reducing the taxable salary, and if the rent expenses are high, this may prove to be a suitable approach in saving on tax.
More allowances, like Food Coupons or Medical Reimbursements, come under your reengineering of salary and that can cut down the tax payable to a significant level. Amounts allowed on these are tax-free, as long as they are within the limits decided.
Effective tax planning for salaried employees demands that you keep an awareness of deductions, exemptions, and tax savings strategies designed for you. Actionable steps for tax planning are:
Saving tax for salaried persons does not need to be so arduous. Having understood what is exempt, what’s deductible and what are these tax saving instruments which are workable, it can reduce the tax burden manifold, and hence the savings also.
We at Rudra Consultancy can provide the most elaborate services in tax planning and advisory to the individual and businesses. Our expert team will assist you in navigating through the complex tax system and ensure you make the most of your deductions, so you may create a customized tax-saving plan.
Contact us today for all personalized tax-saving strategies and expert advice to get your finances optimized!
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