How to Save Salary Tax in India?
We have a tendency to invest in various items that improve our quality of life but can also cause severe financial strain. To significantly alleviate this burden, the government offers income tax exemptions on direct taxes levied on your total salary.
Take out a home loan and benefit from Section 80C tax breaks.
Obtaining a home loan has two advantages: it reduces your tax liability and gives you the satisfaction of owning your own home.
Many government-mandated schemes, such as the PMAY (Pradhan Mantri Awas Yojana) and DDR (Delhi Development Authority) Housing Scheme, aim to make housing more affordable in India, while Sections 80C and 24(b) reduce monetary liability through lower tax burdens.
Total annual income spent on repayment of the principal borrowed amount is eligible for Section 80C deductions of up to 1.5 lakh.
Section 24(b) allows for tax exemption on the interest portion of a home loan up to Rs 2 lakh per year.
Furthermore, if you rent out the newly purchased property, the entire interest component is exempt from annual income tax calculations.
Individuals who purchase a property for the purpose of building a home can also benefit from section 24(b), as long as the construction process is completed within five years.
Section 80EEA allows you to claim an additional reduction in your annual tax liability if you are a first-time homeowner.
Furthermore, if total capital gains are less than one lakh, no tax is due on profits realised.
You can also choose to invest in 5-year fixed deposits to benefit from tax breaks without taking any risks.
All investments up to 1.5 lakh can also be claimed for tax exemption under Section 80C.
Select Life Insurance Plans
Tax breaks are available on both premium payments and the amount disbursed at maturity under life insurance policies.
Section 80C of the Income Tax Act provides for premium payments, and Section 10(10D) provides for the sum assured received upon maturity or premature death of the insured, whichever occurs first.
Nonetheless, if the policy is taken after 1st April 2012, tax benefits of up to 1.5 lakh spent on annual premiums can be claimed under Section 80C, provided it is less than 10% of the total sum assured.
If the policy was purchased prior to April 1, 2012, claims under Section 80C can be made as long as the total premium payments do not exceed 20% of the sum assured.
The sum assured on such life insurance policies is also exempt from tax calculations under Section 10(10D), provided it follows the rules stated above.
Purchase or renewal of life insurance coverage, as well as annuity payments on such policies through yearly salary, are eligible for tax exemptions of up to 1.5 lakh under Section 80CCC.
Only certain pension funds under section 23AAB are eligible for waivers of up to 1.5 lakh under section 80CCD(1).
In addition, as previously stated, individuals who invest in Unit Linked Insurance Plans (ULIP) benefit from tax exemptions.
The portion of investment directed toward the stock market is also exempt from long-term capital gains (LTCG) taxation.
ULIPs, on the other hand, have a minimum lock-in period of five years during which no money can be withdrawn from the scheme.
When people take out a home loan, they are allowed to deduct the principal loan amount under
Section 80C of the Income Tax Act. Section 24 allows homeowners to deduct the interest paid on their home loans. In some cases, a maximum deduction of Rs.2,00,000 is allowed, while in others, there is no maximum limit on the deduction that can be claimed on the amount spent on paying home loan interest.
Allowance for House Rent
Employees in India are entitled to House Rent Allowance (HRA), which is deducted from their pay. HRA allows people to save money on taxes because it can be claimed under the deductions section. Individuals who pay more than Rs.1 lakh in rent in a year must provide proof such as their PAN card, lease agreement, and so on. Furthermore, people cannot claim the entire HRA amount provided by their employer, but only the lowest of the following:
The employer provided the actual HRA.
50% of base pay plus DA (if the employee is in Mumbai, Delhi, Chennai or Kolkata). 40% of base pay plus DA (if the employee is in another city).
Actual house rent less 10% of basic salary plus DA
LTA (Leave Travel Allowance) (Leave Travel Allowance)
If taxpayers receive LTA from their employers, they are eligible for tax-free LTA. It can be claimed twice in a four-year period. To be eligible, they must travel within India during their leave period.
These are some of the most popular methods for people to save money on their taxes. Taxpayers who plan their income, investments, expenses, and taxes carefully may end up saving a significant amount of money. It is not recommended to use illegal methods to save taxes. For example, if people try to save money by not paying taxes, the money they save will be considered unaccounted money or black money, which, if discovered, can cause a slew of problems.
Some more Measures to Reduce Income Tax:
- Start an employment programme. The person who starts his own business can save money on taxes by keeping his money in the company rather than declaring it.
- Parents can save money by taking advantage of tax benefits by adopting some child’s plan if he is under the age of 17, and if the child is in college, parents can show the money as tuition fee, allowing them to receive income tax relief.
- Tax-deductible mortgage interest means that homeowners will benefit from the tax deduction as long as they keep the mortgage.
- Put money aside for retirement. It will benefit you in two ways: first, it will save you money for the future, and second, it will save you money from the income tax outlet.
- The best way to save your income is to make a charitable contribution.
- To be insured, whether for life, health, or other purposes, and to insure yourself, your spouse, and your children.
Best Tax Saving Strategies for Income Tax
The Tax Saving Investment Option – One of the best ways to save on taxes is to invest your hard-earned money in tax-saving instruments. You can claim tax deductions of up to Rs 1.5 lakh under Section 80C of the Income Tax Act.
PPF (Public Provident Fund): These government-backed investments have a 15-year lock-in period. After 7 years, you can withdraw a portion of your funds and earn 8% interest.
Employee Provident Fund (EPF): This retirement plan is available to salaried employees. A 12% deduction from the basic salary and Dearness Allowance is made by the employer (DA). The funds are then deposited in provident funds recognised by the government.
Sukanya Samriddhi Account: This government-backed project allows you to invest up to Rs 1.5 lakh per year. As a parent of a girl child, you can earn up to 8.5% in interest by opening an account in her name.
NSC (National Saving Certificate): These are fixed for at least five years. A compounded annual interest payment of up to 8% is made.
It is important to note that not all tax savers are the same in terms of asset class, so individuals should select the instrument that best meets their specific needs. The tax-saving instrument’s safety, liquidity, and returns should all be considered. No financial decision should be made solely on the expected returns from the product. Your goal is not only to save money on taxes, but also to achieve other objectives you have set for yourself. As a result, one should always have specific goals in mind and link their tax instruments to those goals.