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Income Tax Saving Tips for Young Earners

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Income Tax Saving Tips for Young Earners
October 23, 2024

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Your employer might send you an email regarding the submission of your investment declaration i.e. as proof of your tax saving documents. When it comes to tax savings, usually old or experienced employees are able to make prompt swings and can take the most appropriate step. However, young people in this aspect are left confused and often end up making poor decisions.

Here in this article, we will discuss some of the tax-saving tips for young earners and more.

Smart Tax Savings Tips for Young Earners

Here are some of the smart tax-saving tips for young earners:

1. Consider an Investment in Equity Linked Saving Scheme:

ELSS or Equity-Linked Savings Schemes are equity mutual funds with diversified portfolios offering you exposure to the equity market along with higher returns. Apart from higher returns, it allows you to claim tax deductions under Section 80C of the Income Tax Act. The maximum amount of deduction that can be claimed is Rs. 1.5 lakh in a financial year.

2. Purchase a Health Insurance:

Purchasing health insurance has become essential considering the rising medical inflation in the country. Health insurance allows you to mitigate the financial risk associated with a medical emergency and takes care of your hospitalisation expenses during a medical contingency. Apart from this, it allows you to claim tax deductions under Section 80D of the Income Tax Act toward the amount of premiums paid in a year.

The amount of deduction can be up to Rs. 25,000 for paying premiums on insurance for yourself, dependent children & spouse. Rs. 25,000 can be claimed additionally for parents. If the you or your parents are senior citizens then the aggregate limit can extend upto Rs 1,00,000.

3. Plan, Even if You Don't Have to:

Consider making a financial plan even if your income does not exceed the tax limit. Usually, young earners fall within the tax-free range (Rs. 2.5 lakhs under the old tax regime and Rs. 3 lakhs under the new tax regime). Here are some of the key reasons why you should consider making a plan even if you do not fall under the taxable range.

  • There can be TDS deducted from your income which you are not supposed to pay being income within the threshold limit. In such a case, you must file your ITR to claim it back as a refund.
  • Filing income tax returns helps in creating a paper trail which can act as proof of income while applying for a loan or any credit product.
  • Moreover, it can help you learn the basics associated with tax planning. Hence in future, whenever your income rises, you will be able to leverage the maximum of the tax saving techniques.

4. Invest According to Your Goals:

It is always recommended to invest as per your financial goals. Always set a clear objective while starting an investment and based on it, choose the right amount, tenure and investment type. Let’s say you are planning to buy a car worth Rs. 10 lakhs in the next 4 years. In such a case, you can start investing in equity mutual fund schemes such as ELSS which will fetch you higher returns along with tax benefits.

5. Stay Proactive:

It is always trying to stay proactive when it comes to tax planning. Consider avoiding the last-minute rush which might result in wrong investment decisions and mistakes. Start off with your tax planning as and when the fiscal year begins. This provides you with an entire year to do proper research and find the best tax-saving avenues that suit your needs.

6. Ensure You Meet Deadlines:

You must ensure that you do not miss the deadline for filing Income tax returns. Typically, the due date is 31st July, consider filing your returns in advance and re-checking them to avoid any type of mistakes. Otherwise, you will have to pay various penalties, interest and late fees.

7. Seek Assistance from Professionals When Needed:

When it comes to investments, tax and insurance, having a basic understanding helps. You need to have a basic idea regarding the technical jargon and concepts associated with taxes and investments to make a sound decision. However, if you feel you are absolutely new in this field, consider consulting a professional such as a tax consultant, investment adviser, financial planner etc., to help you prepare a financial plan and file taxes.

What is TDS and what is the Significance of Providing Tax-Saving Proofs?

TDS or Tax Deducted at Source refers to a process of collecting taxes at source by the payor and deposited with the Government of India (GOI). Under this, a certain percentage of tax is deducted at the time of making payments to the receiver. It is applicable to a wide range of income streams such as rent, salaries, professional/technical fees, commissions, FD interest, etc. 

TDS deductions are mandated and bound by law at the time of paying it to the receiver. Therefore the payroll department of the company will start calculating the taxes you owe on your salary based on your estimated taxable income. 

This estimated net taxable income can be derived by subtracting the deductions for investments or expenses (proposed to be made in the near future) from the gross total income expected to be received during the fiscal year. Moreover, TDS on salary is subtracted in case no proposed tax-saving investments are declared.

Therefore, in case if you have invested in any of the tax-saving avenues or if you have any expenditure which qualifies for a deduction, you will have to furnish proof of evidence for the same to your employer. Furthermore, if your income is not taxable, you can file Form 15G  to your bank to avoid TDS deductions on interest from FDs.

Conclusion

To wrap up, tax planning is extremely crucial for all, especially for young earners. Some tax-saving tips for young earners include making ELSS investments, availing health insurance, investing as per your goals, and seeking expert advice. 

Apart from these, make sure to compare the old tax regime and the new one and choose the one that suits you the best depending on your income and tax planning. Remember, new tax regime is the default regime and hence you need to inform your employer if you plan to choose the Old Tax Regime. If you find all of these processes too difficult, you can simply consult an expert.

FAQs on Tax Saving Tips for Young Earners

1. How can I save 100% income tax?

If your annual income is under the income bracket of Rs. 2.5 lakhs under the old regime and Rs. 3 lakh under the new regime, you are exempt from paying taxes. If it exceeds this amount, you can make specific investments which qualify for deductions under Section 80C. 

Moreover, you can purchase health insurance and avail other tax deductions to save taxes. All of these measures can reduce your income to below the tax threshold.

2. How can I save 30% tax on my salary?

If you fall under the 30% tax bracket, you can save up to Rs. 1.5 lakhs under Section 80C of the Income Tax Act by making investments such as Life Insurance, ELSS, NPS, PPF, etc. Similarly, there are other deductions you can avail such as Section 80D for medical insurance premiums paid, Section 80E for education loans, interest on housing loan, etc.

3. How to pay zero taxes on a 15 lakh salary?

You can avoid taxes by understanding the tax slabs and choosing the appropriate regime at your convenience. Then, choose the right avenues offering tax deductions such as Life Insurance, ELSS, PPF, NPS, SSY, etc., under Section 80C to reduce your taxable income. You can also claim Section 80D for paying medical insurance premiums, Section 24 (b) for home loan interest payments and Section 80E for education loan payments. 

4. How can I save tax if I earn 18 lakh?

You can save taxes on Rs. 18 lakh salary through efficient tax planning such as choosing the appropriate tax regime and investing in avenues which qualify for tax deductions like making payments towards life insurance, health insurance premiums, payment of interest on educational loan, donations, interest on home loan etc.

5. Is 13 lakhs a good salary in India?

It totally depends on various factors such as your family size, outstanding obligations, living standard, city where you live, place of residence, etc. However, for an ordinary Indian middle-class family, a Rs. 13 lakh salary per annum is quite a reasonable salary  in many Indian cities.

Reference Links

ARN- ED/05/24/11187

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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