How to Save Income Tax on Your Salary?
At the end of the financial year, every salaried individual has only one thing on his or her mind. How can you save on the income tax levied on your salary? The good news is that there are several components in your salary that are eligible for tax deductions.
This allows you to reduce the outgoing amount towards your taxes each year legally.
Here is a list of avenues that let you save on the Income Tax towards your salary:
1. Get an Exemption of upto Rs.1.5 Lakh on Investments and Savings
Under section 80C of the Income Tax Act, you get an exemption of up to Rs.1.5 Lakhs on different saving and investment channels. The deductions, however, should not be more than 1.5 Lakh. The cap is placed collectively on the following options:
Get deductions on Tax Saver FDs of up to 5 years. Only interest on these FDs is taxable.
You can get deductions on the Public Provident Fund or PPF, which is a savings scheme, by the government. The interest earned on PPF, is also tax-free.
Investments in ELSS Funds are eligible for exemptions up to Rs.1 Lakh.
The interest on National Savings Certificates is automatically placed under the deductions as per Section 80C, provided other investments are not already using up the cap.
You can get deductions on various insurance policies including term insurance, ULIPs and endowment plans up to Rs.1.5 Lakh.
Under Section 80CCD (1B), you can get a deduction of Rs.50000 on any investment made towards the National Pension System. In addition to this, you can also get a deduction of up to Rs.1.5 Lakh on NPS under Section 80 CCD.
The principal amount paid towards your Home Loan is eligible for tax deductions up to Rs.1.5 Lakh.
Tuition Fees paid towards your child’s education is eligible for deductions up to Rs.1.5 Lakh per annum.
Employees Provident Fund is also eligible for deductions up to Rs. 1.5 Lakhs under Section 80 C of the Income Tax Act.
All contributions made towards the Senior Citizens Savings Scheme are tax deductible with a cap of Rs. 1.5 Lakhs.
Parents with a girl child below the age of 10 can get a tax exemption of up to Rs.1.5 Lakh on SukanayaSamriddhiYojna. These are accounts with a tenure of up to 21 years.
2. Deductions on Rent
A Housing Rent Allowance is provided to most salaried individuals by their companies. While there is no cap on the deduction that the HRA is eligible for, you have to adhere to certain rules when claiming benefits towards the HRA. HRA Exemption is allowed if:
You are currently living in a rented house.
You draw a fixed salary each month. This exemption is not available to self-employed.
The rent is more than 10% of the salary.
Your salary includes a Housing Rent Allowance.
In case you currently live in a rented house but do not get a Housing Rent Allowance, you can still get a deduction of up to Rs.60000 per year under Section 80G of the Income Tax Act. In case of individuals who are living with family members, it is also possible to claim this benefit if they can show that they are paying rent to their parents or other family members that they are living with. You will require all the legal documents, which show that a certain rent amount is being collected from you each month.
3. Open a Savings Account
This is one of the simplest and the most widely used method to get deductions on your Income tax. Your savings account attracts an interest each month. This interest is completely tax-free up to Rs.1000 per annum. For senior citizens, the cap on the tax-free interest from savings accounts is Rs.50000. They can avail tax-free interest on Savings Account as well as Fixed Deposit. This provision for deduction is available under Section 80TTA and Section 80TTB of the Income Tax Act.
4. Get a Medical Insurance
It is always a good idea to invest in medical insurance. This helps prepare you for any medical emergency. In addition to that, you can also get the benefit of tax deductions on the premium that you pay towards your Health Insurance. As per Section 80D of the Income Tax Act, deductions of up to Rs.25000 are available for the premium paid towards the medical insurance. In case of senior citizens, the limit on this deduction is Rs.50000. For individuals who are paying towards Health Insurance for themselves as well as their parents who are senior citizens, you can get a combined deduction on the premium paid of up to Rs.75000 per annum.
5. Get Deductions on Home Loan Interest
While the principal amount that you pay towards the home loan is eligible for deductions up to Rs.1.5 lakhs, you can get benefits on the interest component that you pay as well. For those who are currently making repayments towards Home Loans, the interest can fetch deductions up to Rs.2 lakhs per annum. However, the total loss that is claimed from the house property from the income has a cap of Rs.2 Lakhs.
6. Make Contributions Towards Charity
It is possible to get deductions on any contributions made towards a charitable institution. With these charitable donations, there is no upper limit or cap on the deductions allowed. However, there are some rules that you have to adhere to when making claims on these deductions. For most donations made towards NGOs, a limit on the deduction is placed based on the amount that you contribute. You can claim up to 50% of the amount that you have donated. You also have the option of claiming up to 10% of the total adjusted income. It is necessary for an NGO that you are contributing to have an 80G Certificate. Without this certificate, they are not eligible for deductions under the Income Tax Act.
Also Read: Tax Saving Options for Salaried Individuals
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