Income Tax is essentially a tax levied by the government on individuals as well as businesses residing within its jurisdiction. The tax is levied to generate revenues, which are then directed towards the state expenses. The law dictates, every taxpayer is liable to file an income tax return each year, in a bid to determine their tax obligations.
Ideally, income tax is levied as a percentage of one’s income. Given below is the income tax slab applicable for Salaried Individuals in India, for the financial year 2019-2020
|Income Tax Slab|
Individuals Below the Age of 60 Years
|Up to Rs. 2,50,000||Nil|
Rs, 2,50,001 to Rs. 5,00,000
Rs. 5,00,001 to Rs. 10,00,000
Rs. 12,500 + 20% of total income exceeding 5,00,000
|Above Rs. 10,00,000|
Rs. 1,12,500 + 30% of total income exceeding 10,00,000
Here, it is important to remember certain aspects such as:
The income tax rates mentioned in the table are NOT inclusive of Surcharge and Cess.
If the income is between Rs. 50 lakh and Rs. 1 crore, a 10% surcharge is applicable on the income tax.
If the income exceeds Rs. 1 crore a 15% surcharge is applicable on the income tax.
Health & Education Cess of 4% applies to the income tax and applicable surcharge.
Individuals having total income below 5 lakhs are eligible for full tax rebate under section 87A this financial year.
Thankfully, the Income Tax Act of 1961 allows various tax saving opportunities for salaried employees, including your child’s education, housing rent, medical expenses, insurance cover, Home Loan Interest Rate and principal amount, and much more. Here is a quick run down:
Considering that income tax requires an individual to part from a significant amount of their hard earned money, it is completely justified if these individuals would wish to save as much on taxes as possible.
Thankfully, the Income Tax Act of 1961 allows various tax saving opportunities for salaried employees, including the following:
It is no hidden fact that the House rent allowance (HRA) forms one of the most cost-intensive aspects of an individual’s salary. If the employee of an organisation resides in rented accommodation, they are entitled to claim tax exemption on the HRA.
Earlier there was an exemption which was available towards medical expenditure and transport allowance. The effective financial year 2018-19, the government removed the same, and instead introduced a standard deduction of up to Rs. 40,000. This has led to an overall increase in tax-exempt income by Rs 5,800.
The Income Tax Law offers a wide variety of tax saving avenues, wherein deductions of up to Rs. 1.5 lakh can be claimed. These tax saving avenues include:
Investment Made Towards Public Provident Fund (PPF)
Life Insurance Corporation (LIC) Premium
National Savings Certificate (NSC)
Sukanya Samriddhi Yojana (SSY)
Repayment Of Housing Loan Principal
Equity Linked Savings Scheme (ELSS)
5-Year Fixed Deposit (FD) with Banks and Post Office
Tuition Fees Paid For Children’s Education
An employee can claim an additional deduction of Rs. 50,000 a year on their contribution towards the National Pension System (NPS). Employee contribution of up to 10% of basic plus DA is deductible under Section 80 CCD within the limit of Rs. 1 lakh. While the contribution to NPS was earlier restricted only to government employees until 2009, it can now be made by employees of entities registered under the Companies Act and Cooperative Act, registered partnership firms, proprietorship concerns, trusts as well as societies.
Salaried individuals are also eligible to claim a deduction of up to Rs 25,000 for payment made towards medical insurance taken for self, spouse as well as that taken for children under the age of 18 years. Besides, the individual can also claim a deduction of up to Rs. 50,000 for medical insurance taken for parents, who are 60 years or above in age.
The government has always strived to encourage higher education for its citizens. To this end, it offers a special deduction on the interest paid towards the educational loan, taken for the purpose of accomplishment of higher studies. An individual can conveniently claim this deduction for up to 8 tax years. Unfortunately, the principal repayment on this loan is not eligible for a deduction.
A homeowner is eligible to claim tax benefits on the principal repayment as well as interest paid towards any Home Loan product such as Aditya Birla Home Loan. The home loan borrower can claim a deduction of up to Rs, 2 lakh for interest paid towards the housing loan on a self-occupied property. In his case, there is no cap on the deduction for a let out property. Similarly, the homeowner is eligible for a deduction of up to Rs. 1.5 lakh on the annual principal repayment of the home loan.
If the home loan is jointly owned, each of the joint-owners can individually claim the tax benefits.
Owing to the aforementioned tax saving avenues, one can easily come to the conclusion that a salaried individual can claim a tax benefit of up to Rs. 6.15 lakh. Considering that the individual falls in the tax slab of 30%, and is liable to pay a 4% cess, they can enjoy tax savings of up to Rs. 1.92 lakhs, approximately. Of course, this tax saving may not sound as significant as one would imagine, but when accumulated over the years, it can become a substantial part of an individual’s wealth!
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