Through this blog we will make you aware of few Tax saving options for salaried people.In simple words, you will get to know few simple tips on How to save Income tax on salary ?
Are you a salaried person,worrying about your hard earned money ? Have you done proper tax planning in the previous year? Did you claim the available tax exemptions properly ? How to save income tax ?
These are the questions that you might think over many times.The lack of answers to these may lead to shedding extra money out of your pockets.
This is the right time for you to plan your taxes especially the salaried class if you have not done it so far.Don’t wait for reminders from your HR team for proof submissions that click you towards making investments in a hurry. And if not properly planned you can land up paying extra taxes.
There are few exemptions available only for salaried persons that reduce your taxable income.Being a salaried person you know how much fixed income you will probably earn and how much surplus you can spare out for further investments during the year.
I have tried to explain few Tax saving Options for the Salaried people with examples that will help reduce your taxable income to some extent.
7 Tax saving Options for Salaried :
1. Exemption of House Rent Allowance :
As an employee you might be receiving House Rent Allowance as a part of your salary package.So,if you stay in a rented accommodation you can claim an exemption U/s 10(13A) of The Income Tax Act.
The exemption will be the least of following 3 amounts:
(i) Actual HRA received from employer
(ii) Rent paid – 10% of Salary*
(iii) 50% of Basic salary(in metro cities) or 40% of Basic Salary (in non-metro cities)
*Salary here includes Basic pay + Dearness Allowance + Commission based on turnover.
For a complete analysis on HRA, do refer our detailed post House Rent Allowance or HRA : Rules,Calculation & HRA Exemption !
Example : Mr.Sam works in Delhi and gets a Basic salary of Rs.10000 p.m.,DA of Rs.2000 p.m.,HRA of Rs.4000 p.m.The actual rent paid by Mr.Sam is Rs.5000 p.m.
HRA exemption will be least of following 3 amounts:
(i) 4000*12=48000
(ii) (5000*12)-10% of 144000=45600
(iii) 50% of 144000 i.e.72000
Hence,Mr.Sam will get an HRA exemption of Rs.45600 from his salary income.
Do check and download, New form 12BB for claiming HRA,LTA and Home loan deductions.
2. Conveyance Allowance :
As per Finance bill 2015 salaried employees can claim an exemption of conveyance allowance for Rs.1600 per month i.e.Rs.19200 for a particular financial year.Earlier this limit was Rs.800 per month only.There is no need of any bills or receipts to claim the same.
Important: As per Union Budget 2018, this conveyance allowance exemption has been removed.
3. Medical Reimbursement :
An employer reimburses his employees against actual medical bills produced for treatment availed.An employee can claim an exemption upto Rs.15000 for medical reimbursements under the Income tax act.This is often confused with Medical allowance that is fully taxable.You can claim exemption only for reimbursements made by the employer provided proper bills are submitted for the same.
Important: As per Union Budget 2018, this medical exemption has been removed.
So, for the financial year 2018-19 the exemptions of conveyance allowance and medical reimbursements that you used to claim earlier have been withdrawn. Instead of these, if you are a salaried employee, you shall be allowed a standard deduction of Rs.40000 only. The net increased benefit is Rs.5800 only.
Standard deduction = Rs.40000
Less: Conveyance allowance = Rs.19200
Less: Medical reimbursement = Rs.15000
Net increased benefit for F.Y. 2018-19 = Rs.5800 only
4. Leave Travel Exemption (LTA) :
An employee can claim LTA exemption U/s 10(5) of the Income tax act for travel alone or with family when he is on leave.It is limited to actual travel costs incurred by the employee within India only through the shortest possible route to the destination.
Moreover,the travel cost does not include hotel stay and food expenses. LTA exemption can be claimed for 2 journeys in a block of 4 calendar years.
Example : Mr.Ravi travelled to Goa with his family.The Co.provides an LTA of Rs.15000 but his travel cost is Rs.25000,hotel stay Rs.10000 and food expenses Rs.6000.Now,Mr.Ravi can claim exemption of Rs.15000 only.
You may also like our exclusive post on Form 16 : Meaning,Format & Details !
5. Tuition fee :
You can claim a Tax deduction U/s 80 C of Income tax act for tuition fee paid for maximum 2 children.It is restricted to Rs.1.5 lakhs i.e.the maximum limit for claiming deduction U/s 80 C. It is available only for full time courses.
For other investments under section 80 C you can refer : Tax deduction U/s 80 C – Which are eligible investments ?
6. Employee Provident Fund (EPF) :
EPF is a benefit available only to salaried employees. A fixed portion of your basic salary is deducted monthly by your employer towards EPF. The employer contribution to your EPF is tax free.While the employees contribution can be claimed Under Section 80C of The Income Tax Act.
The interest earned and maturity amount will also be tax free if the withdrawal is made after 5 years of continuous service.
You may also like : What is VPF or Voluntary Provident Fund ? another investment tool for salaried persons.
7. Interest on Home loan :
You can claim income a tax exemption U/s 24(1)(vi) upto Rs.2 lakhs on interest paid on housing loan taken.The principal repayment of home loan if any,can be claimed as Tax deduction U/s 80 C of The Income Tax Act.This deduction can be claimed by persons other than salaried persons as well.
For details on Home Loans you can go through Home Loans-Facts you need to know !
So,these are various components that can help you save a fair amount of taxes.Making yourself aware and planning your taxes well in advance always proves beneficial.
In addition to above benefits, you can reduce your taxes substantially by investing your money in the eligible investments and claiming deductions Under Chapter VI A of The Income tax Act.
This was all about Tax planning for salaried individuals.Do proper Tax Planning and save your income tax in a legal way.
You should further plan your short term investments and long term investments wisely to generate good returns along with the available tax benefits.
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Happy Investing and wise tax planning !
Feel free to share your valuable feedback and any queries thereon in the comment section below …
Very good and informative article.