Best Tax-Saving Techniques for Salaried Employees in India are essential for reducing your tax burden and maximizing savings. Tax planning is a crucial aspect of financial management for salaried individuals. By utilizing exemptions, deductions, and smart investment options, employees can significantly lower their taxable income. In this blog post, we will share expert strategies to help you save more on taxes. If you want to enhance your tax planning, consulting an experienced Chartered Accountant can be highly beneficial.
1. Choose the right tax system
After the new tax system came into effect under section 115BAC, employees now get various new exemptions and deductions, while the new system has lower tax rates but no deductions. Salaried employees should compare both the options and choose the tax system they are eligible for.
2. Take advantage of Section 80C deductions
Deductions up to Rs1.5 lakh can be availed under Section 80C, such as:
Employee Provident Fund (EPF): It is a retirement scheme managed by the government in which both employers and employees contribute. It is a safe investment and provides financial stability after retirement.
Public Provident Fund (PPF): This is a long-term savings scheme in which the interest received is tax-free. It is a great investment option for those who want risk-free returns.
National Savings Certificate (NSC): This is a small savings scheme with a fixed interest rate, which one can easily buy from Indian post offices. Its purpose is to encourage monthly savings.
Life Insurance Premium: Life insurance not only provides financial security for the family but its premium is also deductible under Section 80C, thereby saving tax.
Children’s tuition fees: Parents can avail tax exemption on tuition fees paid for their children’s schooling. This facility is limited to two children only and is applicable for both private and government schools.
Repayment of home loan principal: If you have bought a house and taken a home loan on it, the capital repayment is tax-free under Section 80C. This is an important tax-saving measure for those planning to buy a home.
3. Take advantage of Section 80D (Health Insurance)
Salaried employees can avail tax exemption on health insurance premium:
Up to Rs25,000 for self, spouse and children: If a person takes health insurance for his family, he can avail a deduction of up to Rs25,000 under Section 80D.
Up to Rs25,000 for parents below 60 years of age: If the parents are below 60 years of age and health insurance is taken for them, an additional deduction of up to Rs25,000 can be availed.
Up to Rs50,000 for senior citizen parents: If the parents are senior citizens (above 60 years), a deduction of up to Rs50,000 is available for them.
4. House Rent Allowance (HRA) exemption
Employees who live in rented accommodation can avail HRA exemption under section 10(13A). The exemption amount can be availed on the same basis keeping in mind some points mentioned below.
HRA amount received: The portion of House Rent Allowance (HRA) paid by the employer that the employee receives.
50% of salary in metro cities or 40% in non-metros: If the employee lives in a metro city, his HRA can be up to 50% of the salary tax-free, while in non-metro cities it is up to 40%.
Rent paid – 10% of salary: While calculating HRA exemption, only the rent paid after deducting 10% of salary is considered tax free.
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