Tax Saving Options for Salaried Employees

Making the most of your tax savings as a salaried employee is essential to maintaining your financial security and guaranteeing a happy future. You can increase your discretionary income and drastically reduce your tax bill by utilizing various tax -saving strategies. Let’s discuss tax saving options for salaried employees.

Overview of Tax Saving Options for Salaried Employees

Every individual pays taxes based on the income tax bracket that applies to them. Taxpayers are placed in income tax brackets according to their annual income. Therefore, depending on your income, you can either invest in a long-term savings vehicle under Section 80C of the Income Tax Act, 1961, such as an Equity-Linked Savings Scheme (ELSS), Public Provident Fund (PPF), life insurance, or Fixed Deposits (FD), or you can purchase an insurance policy for yourself or your family (Section 80D), claim your paid finances (loan repayments, house rent allowance, holiday allowance, etc.).

Also read- Everything you need to know about Tax Saving Investment Options to save your Taxes

Advantages of Deductions for Income Tax

Investing in tax-saving options has several benefits. Some are mentioned below-

• Long-term investments undertaken by taxpayers to lower their income tax can provide significant rewards. The salaried employee can use the money they have saved to fulfill obligations when they become older, such as finishing school, getting married, or retiring.
• Such tax-saving investments serve goals beyond just reducing taxes. They support taxpayers in having a safe retirement. Salaried workers can obtain the money needed through them to cover post-retirement expenses.
• In the long run, tax-minimizing investments provide a large return. Moreover, long-term expenses like housing and school loans are eligible for tax deductions under the Income Tax Act 1961.

Housing Loan

The principal and the interest are its two constituent parts. You can benefit from a tax cut on both components, which is fantastic news. You are eligible for a house loan interest deduction under Section 24 of the Income Tax Act up to Rs. 2,00,000 (Rs. 3 lakh for senior people) or the actual amount you have returned. It should be noted that renting out your property will disqualify you from this exemption. Apart from the benefits mentioned above, you can claim a principal deduction under Section 80C up to Rs. 1,50,000 (Rs. 2 lakh for senior citizens). Furthermore, if your housing expenses do not surpass Rs. 50 lakhs, you qualify for an additional exemption of up to Rs. 50,000 on interest paid on loans up to Rs. 35,000.

Section 24(b) of the Income Tax Act governs interest deductions from home loans. The interest paid on a house loan may be subtracted from taxable income under this clause.

Deduction under Section 24 of Income Tax Act 1961

Deduction can be calculated as-

• Municipal tax– Municipal tax is an annual amount paid to the local authority of the area. Council taxes are deducted from the gross annual value to derive the net annual property value of the house.
• Standard deduction– The standard deduction is 30% of the net annual value calculated above. This 30% deduction is allowed even if your actual expenses on the property are higher or lower.
• Deduction of Home Loan Interest on Property– Home owners can claim a deduction of up to Rs.2 lakh on home loan interest if the owner or his family resides in the property. The same treatment applies when the house is empty. If you rented out the property, the entire home loan interest is allowed as a deduction. Your interest deduction is limited to Rs 30,000 unless you fulfill any of the conditions below for Rs 2,000 rebate.-
• A housing loan must be intended for the purchase and construction of real estate;
• Loan must be received on or after April 1, 1999;
• The purchase or construction must be completed within 5 years from the end of the financial year in which the loan was drawn

House Rent Allowance (HRA)

If you live in a rented flat/house that is not near your office, you can apply to HRA to save tax on your house rent. For this deduction, you must be living on a rental basis and should receive a rental confirmation from your landlord along with a valid copy of the rental agreement (notarized or registered). The following exception applies to HRA:

Take Full Advantage of Section 80C

The highest deduction allowed by Section 80C for a salaried individual is Rs. 1,50,000 per year; you should try to take advantage of this complete amount. The following investment alternatives will help you determine where to invest to maximize your Section 80C deduction:

• PPF, or the Public Provident Fund
• Certificate of National Savings (NSC)
• The primary repayment component of a home loan
• Contribution to Employee Pension Fund (EPF)
• Term life insurance costs
• Your children’s education (up to two children) is covered by paid school fees.
• Plans for Equity-Linked Savings (ELSS)
• 5-year fixed deposits at post offices or banks.

Section 80E: Encouraging Tax Benefits

Under Section 80E of the Income Tax Act, a salaried person may claim a tax deduction on the interest portion of an education loan if they used it to finance their education as well as the education of their spouse or children. This section makes no mention of a maximum amount. Furthermore, a person is still eligible to claim a tax deduction under Section 80E even if they have already claimed a tax advantage under Section 80C.

Tax Saving Options under Section 80D

According to Section 80D of the Income Tax Act, tax relief can be claimed for medical expenses. Under Section 80D, premium tax credits can be claimed for health insurance paid for yourself, family members, and dependent parents. In the case of health insurance premiums paid against self or family, tax deductions can be claimed up to a maximum of Rs 25,000. Further, salaried individuals can also claim an additional Rs 50,000 towards the money spent on meeting the medical expenses of a senior citizen parent.

Donation

By donating money to social or charitable causes or by contributing to the National Relief Fund, citizens of India can save money on taxes by claiming deductions on the amount spent on donations. An individual can claim 50% of the donated amount for NGOs and 10% of adjusted gross income. An NGO must provide an 80G certificate for a taxpayer to claim tax deduction under Section 80G of the Income Tax Act.

Deduction under Section 80G

Follow these steps to calculate the amount of deduction under 80G:

• Examine the category into which the fund/charitable institution falls (100% or 50% deduction, with or without a maximum/qualifying limit).
• When a payment is made to the first category, there is no need for additional calculations; simply claim 100% or 50% of the contribution amount as taxable income.
• When making a contribution to the second category, you must first determine the maximum/qualifying 80G deduction limit. The maximum/qualifying level is 10% of the adjusted gross total income.

Pension Savings

Pension plans are an excellent way to invest for retirement. You can also reduce your tax burden under section 80 CCC if you contribute up to Rs. 1,50,000 yearly to specified pension funds. Moreover, you will qualify for tax benefits upon withdrawal if you remove up to one-third of your whole pension savings.

Tax Deductions Available under Section 80TTA

Tax benefits on savings account earnings are available to individuals with savings accounts up to Rs 10,000. The tax credit is available on the entire amount earned if it is less than Rs.10,000. However, a maximum of only Rs 10,000 can be claimed if the earned income exceeds Rs 10,000.

Wrapping Up

It is facts that, the lower your salary, the less tax you have to pay. However everyone is not acquainted with the legal measures that allow one to reduce income tax. Including a few of the tax-saving strategies mentioned above in your financial planning can help you advance your career. They will also ensure your financial stability once you retire.

In case of any query regarding tax saving options for salaried employees, a team of expert advisors from Legal Window is here to assist you at every step. Feel free to reach us at admin@legalwindow.in.