Career Tips

A Guide for Tax Planning & Tax Saving for Salaried Employee

As the tax planning season is nearing, many income earners are rushing around with a view to make investments in such a way that they can bring down their tax liability.

Reports state that individual income earners in India are ending up paying more tax as compared to what they are obligated to pay.

Even though, some people state that they lack time to spend towards planning exercises, experts are of the opinion that this is something associated with lack of awareness about different rebates and allowances under the Income Tax Act.

In addition to section 80C benefits, which are highly popular, there are also many other sections that will help salaried people to enjoy savings on the tax.

Experts are of the opinion that it is important for salaried individuals to devote sufficient time and effort towards tax planning, so that they can gain the knowledge about the different benefits that can be availed by them.

Tax Planning & Tax Saving

If you are thinking about tax planning and tax saving being a salaried employee in India, the tips given below will be helpful, so that you can bring down tax liability to a great extent:

tax panning saving

Make use of the 80C deduction

Under section 80C of the Income Tax Act earlier, Rs. 1,00,000 per annum was allowed as maximum tax benefit. But, with effect from 1st April 2015, it is planned to raise this limit to Rs. 1,50,000 with a view to encourage household savings among people.

When you use this entire amount from the assessment year 2015-16, you can enjoy tax saving benefit. Savings in the following areas will attract 80C tax benefit for salaried individuals:

  • 5-year fixed deposits with post offices and banks
  • Investment in equity linked savings scheme
  • Principal component of home loan repayment
  • National Savings Certificate
  • Tuition fee paid towards child education for up to a maximum of 2 children.
  • Life insurance premium
  • Accrued interest on National Savings Certificate
  • Public Provident Fund

The above-mentioned list is not exhaustive and there are many other schemes that come under 80C savings and your tax planner can guide you in this regard.

Think beyond 80C

When your gross total income is more than Rs. 2,50,000 per annum, just a 80C benefit will not be enough for you to bring down the tax liability. You can choose any of the following options in such a case:

  • Home loan: If you are planning to invest in a property, you can opt for home loan. When you pay interest of up to Rs. 1,50,000 per annum towards home loan, you will be eligible for a tax benefit under Section 24.
  • Medical insurance: When you pay a medical insurance premium for yourself and your dependent children and spouse, you can get a deduction of up to Rs.15,000 per annum under section 80D of the Income Tax Act. If you pay premium for your parents as well, you can get an addition deduction of up to Rs. 15,000 per annum and if your parents are senior citizens, the deduction allowed is up to Rs. 20,000 per annum.
  • Donations: To certain limits, donations to particular institutions or funds are eligible for a tax benefit under section 80G of Income Tax Act.
  • If you plan for a higher education and apply for a loan for the same, the entire interest you pay towards the loan will be eligible for tax benefit under Section 80E. The loan can be either for yourself or for your children and spouse as well.

Restructure the salary

When you restructure your salary and include some components, it will go a long way in bringing down your tax liability.

When you make investments, even though they help in tax deduction, they will lead to additional cash outflow as well. On the other hand, when you restructure your salary, you can enjoy better benefits.

It is stated as one of the most efficient means for claiming tax benefits. The following items can form part of the salary structure of salaried people:

  • Transport allowance is exempted up to Rs. 800 per month.
  • For those living in rental houses, there should be an House Rent Allowance, which is popularly known as HRA as a portion of their monthly income.
  • For those who are eligible for Leave Travel Allowance or LTA, it can be claimed two times in a block of four years in the case of domestic travel.
  • Medical expenses that are reimbursed by the employer is exempted for up to Rs. 15000 per year.
  • Food coupons like Ticket Restaurant and Sodexo are exempted from tax up to Rs. 60,000 per year.

When you have the above-mentioned benefits in your salary, you can enjoy tax savings.

Claim tax benefits of house rent paid:

The rent you pay towards residential accommodation can be claimed. You can do this, if HRA is not a part of your salary. This deduction is allowed under Section 80G and any amount, which comes least of the following, is allowed as deduction:

  • Rs. 2000 per month or
  • 25% of your total income or
  • Any rent money paid over 10% of your total income.

However, this deduction will not be allowed if your spouse or children own a residential property in the location, where you are residing or you are performing your office duties.

Opt for joint home loan:

As mentioned earlier, the principal repayment on a home loan will be eligible for deduction for up to a maximum of Rs. 1,00,000 per annum and also the interest paid towards it will be allowed for a deduction for up to Rs. 1,50,000 per annum.

If the home loan is not a substantial amount, it is common for the interest and principal repayment to go more than the stated limit. To make sure that the tax benefit is used wholly, you can go for joint loan with your spouse, parent or your sibling.

This will make it possible for both the co-owners to enjoy tax deductions in the ratio of their holding in the loan.

Remember that tax planning and savings can bring great benefits to salaried employees. So, you can follow the tips given below and can enjoy savings on your tax liability.