Tax planning is crucial for employees who draw a salary, and requires extensive planning and discipline on their part. Each year, the tax filing season leaves salaried employees scurrying around to calculate the taxes they have to pay for that particular financial year. It is extremely important for employees to understand the different components involved, and prioritize tax planning at the beginning of the financial year. Furthermore, it is also important to understand the tax slab one belongs to, and get a better insight into the different components that make up an employee’s salary. Doing so helps one to better understand how to save on taxes, and enables them to plan ahead for the new financial year.
While being prudent helps in building wealth, adhering to certain guidelines, and following a few tips contribute to tax savings for salaried employees. Here are a few tax-saving tips which will substantially reduce your tax burden.
Ensure That You Understand and Take Advantage of Section 80C
When it comes to income tax and taxation of individuals, there is no other section more important for salaried employees than Section 80C of the Income Tax Act, 1961. By understanding the benefits under this section, employees can not only maximize the salary that they take home, but can also legally reduce the tax payout. Section 80C allows employees to claim tax deductions of up to Rs. 1.5 lakh, and offers a wide range of tax-saving options.
Start With Rs. 1.5 Lakh And Work Backwards
Based on one’s risk profile, financial goals and the amount of salary they draw, it is imperative for employees to draw up a list of tax-saving instruments to invest in. It is easier to work backwards after considering Rs. 1.5 lakh as the starting point, and spread it across different investment options, including life or health insurance policies, tax-saver FDs, public provident fund (PPF), ELSS, Senior Citizens Savings Scheme and National Pension System (NPS) among others.
By soliciting help, or by approaching a financial planner, one can zero in on investment options that best fit their financial goals and risk profile.
Ensure That You Pay Insurance Premiums
Under Section 80D of the Income Tax Act, 1961, policyholders can claim deduction of up to Rs. 25,000 on health insurance premiums. Furthermore, if the policyholder is a senior citizen, one can claim deduction of up to Rs. 50,000.
Similarly, under Section 80C, the amount paid towards life insurance premiums up to Rs. 1.5 lakh are exempted from tax.
Claim Tax Benefits If You’ve Taken Home Loans
Considering one has already applied for a home loan, they can claim tax benefits on the principal component of the equated monthly instalments (EMIs) under Section 80C of the Income Tax Act, with the overall limit being Rs. 1.5 lakh. Furthermore, under Section 24 of the Act, individuals can also claim deduction for the interest component on their home loan, with the limit being Rs. 2 lakh. However, one can only claim the deduction if the owner, or their family members are living at the property. In case the house is rented, then the entire interest is waived off as a deduction.
Claim Tax Deduction on House Rent Allowance (HRA)
Under Section 10 (13A) of the Income Tax Act, salaried employees working in places where they do not own residential properties can also claim tax deduction on house rent allowance (HRA), which is based on the rent amount. To claim the tax benefit on HRA, employees have to provide rent receipts along with other details to their employer for computing the exemption amount.
However, considering one does not get HRA, but still pays rent for their house or apartment, under Section 80GG, it is possible to claim deduction up to Rs. 60,000 annually.
Salaried employees often use the above mentioned provisions to avail tax benefits, and lower the tax outflow. There are several other options under Section 80C, such as travel and conveyance bills, and charitable donations, that enable greater tax saving for salaried employees.
Thus, it is extremely important to understand the various tax exemptions that employees can avail, while considering the tax exempt income limit. One such exemption may be availed through the Invest 4G Term Plan from Canara HSBC Oriental Bank of Commerce Life Insurance, which, under Section 80C of the Act, allows for tax deductions on premiums.