Top tax saving tips for salaried individuals
Salaried class of Tax Payers are the most worried class among all other classes of taxpayers. The reason for worrying are countless, most notable aspect is the salary growth rate per annum. People complain that the growth rate is not proportionate to the inflation rate. But for those who get better-paid jobs are concerned about the tax rates particularly those who have increments in a particular year but everything is taken back by the government by increasing the tax rates. However, we have come up with some relief to those who really need it. One may make use of the tips, mentioned below, to at least reduce some tax liability.
1. Leave Travel Allowance – Employees can utilize Leave Travel Allowance for the expenses on domestic vacations. This policy covers the expense of travel tickets for yourself and your family. You will not be taxed on the travel expenses of your spouse, two children and parents if they are part of your journey. Brother or Sister is covered only if they are solely dependent on you. However, the amount of tax exemption will be restricted to the allowance actually received by you.
You can avail this facility twice in the block of four years. If you were unable to claim the benefits in the four-year block then you can carry over one vacation in next block, provided you avail the deduction in the first year of the block itself.
2. House Rent Allowance – You can claim HRA to save tax on your house rent. This is applicable only if you are not owning any house near to your office. You must be living in a rented space and should receive rent receipts from the house owner. You have to submit PAN card copy of your landlord if you are paying more than Rs. 1,00,000 as rent annually.
If HRA forms part of your salary, then the minimum of the following three is available as exemption:
- The actual HRA received from your employer
- The actual rent paid by you for the house, minus 10 Percent of your salary (including your allowances)
- 50 percent of your basic salary (for a metro) or 40 Percent of your basic salary (for non-metro).
3. Income from Gratuity – Gratuity received on retirement or on becoming incapacitated or on termination or any gratuity received by the spouse of employee, children or dependants on his death is exempt subject to certain conditions.
The maximum amount of exemption that can be claimed by an individual during a lifetime is Rs. 10,00,000.
4. Meal Coupons – You can ask your employer to issue you meal coupons (like Sodexo) those are not taxable up to a certain extent per month. According to rule 3 (7) (iii) meal coupons up to Rs. 50 per meal for working days are taxable. Considering 2 meals per day for 23 average working days in a month, Rs. 2,300 will be exempt from tax.
5. Medical Bills – Preserve the receipts of your medical expenses which can be used to save tax at year end. You must know that up to Rs. 15,000 amount is non-taxable on medical expenses for yourself and your dependents – spouse, children sibling and parents.
6. Daily Travel Allowance – You can avail tax benefits on conveyance allowance received up to Rs. 1,600 per month from your company. You can save tax on Rs. 19,200 per annum on conveyance allowance. You don’t have to submit any bills or proof to avail this tax benefit.
7. Company Leased Car – Check with your employer if they have car lease policy. In that case, you will not be allowed to take advantage of Daily Travel Allowance, and you can drive company leased car to save tax on car EMI & fuel. The EMI of the car paid by the company to the leasing company will be deducted from your salary and you will also receive the reimbursement of fuel, repairs and maintenance expenses from the employer that are tax free. This will lead to the reduction in taxable income.
However, this amount will be added to the taxable perquisites. The amount of this prerequisite may range from Rs. 1,800 to Rs. 2,400 per month depending upon the type of car provided by the employer.
8. Well Known Tax Saving Options under section 80C – Everyone knows that section 80C offers a maximum deduction of up to Rs. 1,50,000 in total. A few of the popular tax savings options are as follows:
- Public Provident Fund
- Life Insurance Premium
- National Savings Certificate
- Equity Linked Savings Scheme
- Principal amount repaid on Home Loan
- 5 Year fixed deposits with banks and post office
- Tuition fees paid for children’s education, up to a maximum of 2 children
9. Money Received from Provident Funds (after 5 years) – You will save tax on investments in Provident Account in the year of investment. The good news is that you don’t have to pay taxes even on the interest received from EPF/PF investments (note that Interest received on Fixed Deposit is taxable).
You have to keep your Provident Fund active for at least five years before you start withdrawing money (however not recommended unless an emergency). In this case, even the withdrawals would be tax-free. However make sure that you withdraw after 5 years or else you will have to bear a TDS of 10% or up to 34% if PAN is not submitted. This can be avoided if you submit form 15H / G if your total income for the year is below the minimum amount chargeable to tax.
10. Tax Saving from Home Loan – Use your home loan efficiently to save more tax. There are three ways to get income tax deduction on your home loan(s).
The principal amount Repaid in the current financial year is included under section 80C, offering a deduction up to Rs. 1,50,000.
The interest portion offers a deduction of up to Rs. 2,00,000 separately under section 24.
If you are living in the home on which you took the first home loan, you can get another loan for the second house. There is no limit on income tax deduction on the interest payment of the second home loan. Very few people are aware of this benefit of tax saving on second home loan.
Apart from this you may also claim the deduction of the amount of registration charges paid at the time of booking the house u/s 80C. This deduction can be claimed in the year in which the property is booked.
11. Medical Insurance – deduction under section 80D – Deduction of up to Rs. 25,000 for medical insurance premium paid for self, spouse and dependent children and Rs. 30,000 for medical insurance premium for parents above 60 years is available u/s 80D. Preventive medical expenses paid up to Rs. 5,000 can also be claimed as a part of deduction under this section.
12. Donations – deduction under section 80G – Donations to specified funds or charitable institutions are eligible to be claimed as a deduction from total income up to 100% or 50% of the amount invested depending on the organization to which the donation is made. You need to retain the stamped receipts of the donations and make sure the charitable organization is registered.
If you have made donations to scientific research associations for research, national urban poverty eradication funds, Swachh Bharat Kosh, Clean Ganga fund and national fund for control of drug abuse are eligible to get a deduction of 100% under section 80GGA.
If the organization to which donation is made has an 80G certificate then deduction of only 50% of the amount donated is available.
13. Interest Income on Saving Account - Section 80TTA – There is some relief to tax payers since interest income on saving accounts is not taxable up to Rs.10,000. If you have earned Rs. 15,000 as interest from all your savings accounts (sum up interest from all your bank saving accounts), then you have to pay tax only on Rs. 5,000.
These were few tax planning tips which are compiled for your reference. Please contact tax experts at H&R Block to understand and avail all the deductions applicable to you.
This article was first published on H&R Block India