Do you also get worried about the tax amount you have to pay on your hard-earned salary income..?? If yes, then this article is for you. Through this article, we have made an attempt to give you some tips that can help you save taxes on your salary. Simply put, we are going to discuss the best tax planning tips for salaried Individuals.
So, without further ado. Let’s get started.
We have mentioned below the best tax planning tips for a salaried individual.
Tax Planning Through Rent
Rent is a great medium to do tax planning as a salaried individual. As per Income Tax Act, an individual assessee can claim the deduction of the HRA amount. He can deduct the lower of the following amount from his gross income,
- The actual HRA was received from the employer.
- The 50% of the basic salary plus DA (if the individual assessee resides in metro cities).
- The relaxation is 40% of the basic salary plus DA (if the individual assessee resides in non-metro cities).
- The actual house rent paid by the individual assessee less than 10% of the basic salary plus DA.
But HRA is taxable in the hands of an employee if he does not live in a rented house. Therefore, in such cases, to do tax planning generally people enter into a rent agreement with their parents and pay them a reasonable amount of rent in order to avoid taxes.
(Please note if the parent’s income is above the minimum exemption limit as per the slab rate, then they have to show the house rental income while filing their return and pay taxes accordingly.)
Tax Planning Through a Home Loan
Taking a home loan is one of the most popular tips followed by many salaried individuals in lowering their tax liability. First of all, you get a deduction of the principal amount repaid of a home loan under section 80C of up to Rupees 1,50,000.
Then, you can claim a deduction of up to Rupees 2,00,000 on the interest amount paid for a home loan (if the house is self-occupied by you) and the whole interest amount can be claimed as a deduction (if the house property is let out) under section 24 of the Income Tax Act.
Also, to promote affordable housing and give a boost to individuals the government has introduced section 80EE and section 80EEA, which allow you to claim additional deductions of Rupees 50,000 and Rupees 1,50,000 on the interest amount paid for a home loan respectively, over the above deduction under section 24 if you met other conditions. To know more about such conditions under section 80EE and section 80EEA click here (please link to the respective article).
You can also opt to apply for a joint home loan with your spouse, parent, or sibling and avail the benefit of tax deductions available for interest payment or principal repayment to both the co-owners. It will help you save taxes significantly as a family.
Tax Planning Through the Contribution made to the EPF Account
The tax planning can be done through the contribution made to the Employee Provident Fund (EPF account). Generally, it is compulsory for many employers to deduct the EPF from the salary of the employees and deposit the deducted amount as well as their own contribution to the government under the EPF scheme. The employer’s contribution to the EPF account is tax-exempt, whereas the employees can take the deduction of PF amount deducted from their salary under section 80C of the Income Tax Act.
So, by virtue of the above to do tax planning you can claim the deduction of the contribution made by you to the PF account and lower your overall tax burden.
Tax Planning Through Tax-Saving Investments
Most salaried individuals opt to save taxes by investing the amount in tax-saving investments such as ELSS (Equity Linked saving Scheme), Government Infrastructure bonds, etc. Although it has a certain lock-in period of a few years, it gives a good return as well as helps you save taxes because you can claim a deduction on the amount invested. Simply put, tax-saving investments offer twin benefits of good returns and tax savings.
Tax Planning Through Deposit in PPF Account & Fixed Deposits
PPF accounts and fixed deposits are the most trusted options when it comes to saving on taxes. As a salaried individual, you can choose to invest a certain amount in the PPF account scheme which is launched by the government, and claim the amount so invested as a deduction under section 80C while filing the return. Similarly, you can choose to deposit the amount in a fixed deposit for over 5 years or more in order to claim an additional deduction under section 80C.
Tax Planning Through Investment in Schemes
There are many schemes launched by the government for the benefit of the salaried individual which gives the best returns as well as provides tax-saving benefits. Some of such schemes are Sukanya Samriddhi Account Scheme, National Saving Certificate Scheme, Senior Citizen Saving Scheme, and National Pension Scheme. You can choose any of the schemes in order to do tax planning and lower your tax burden.
Tax Planning Through a Retirement Plan
We all need to plan our retirement, but what if we tell you can save your current taxes by doing your planning for your retirement. Under section 80CCC, an amount contributed by an Individual assessee to the notified Life Insurance Annuity Plan is eligible for deduction. Also, under section 80CCD(1) and section 80CCD(2), the contribution made by an individual assessee and his employer to the pension scheme of the government or the NPS (National Pension Scheme) is eligible for deduction. This is a great way to plan your retirement pension by earning good returns on the amount invested and getting the benefit of tax savings as well on your current income.
Please note that as per sub-section 80CCD(1b) an individual can claim Rupees 50,000 more over and above the deduction available under section 80CCD(1) by investing in National Pension Scheme. Also, note the aggregate deduction under section 80C + 80CCC + 80CCD(1) is restricted to Rupees. 1,50,000. You can know more by clicking here (please link to the related article).
Tax Planning Through Spending Amount on Specified Eexpenses.
Not just investments, a salaried individual can do tax planning through spending amount on specified expenses. Under section 80C, an individual can claim certain expenses such as tuition fees for children, premium paid for insurance, principal repayment of home loan, stamp and registration charges, and so on.
Tax Planning Through Doing other Deductions
To lower your tax liability, there are a bunch of other deductions as well which you can claim if you satisfy certain conditions such as deductions under 80D, 80E, 80GG, 80U, etc. The detailed provisions related to those deductions are explained by us in other articles. You can refer to it by clicking here (please link to the specific articles).
Hope, through this article you get an idea of how to save taxes on your salary, if you still have any queries or need any assistance then kindly let us know. Our team of experts is always available to help you.
