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Tax Saving Options for Salaried Employees

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Tax Saving Options for Salaried Employees
January 23, 2024

Table of Content

 

In this policy, the investment risks in the investment portfolio is borne by the policyholder. 

With a high salary comes satisfaction. But with that comes a higher income tax burden too, which snatches away a part of that satisfaction. But here’s where tax-saving options can come to your aid. Proper tax planning for salaried employees and accordingly chosen tax-saving options can reduce the taxable income by a sizeable portion under the provisions of the Income Tax Act, 1961. 

To inculcate the habit of investment and tax planning for the salaried class, the Government of India offers various scopes of tax deductions against investments under different sections of the Income Tax Act. Catering to those, there are various tax-saving options for the salaried employees to choose from, if you are looking to invest and save on taxes. The trick here is to pick the right investment options that suffice your tax-saving requirements while fulfilling your specific financial goals. And for that, a proper understanding of the options as well as the various sections of the Income Tax Act, 1961 is essential. For example, when it comes to taxation of salaried employees, perhaps no section is a bigger ally than Section 80C.

Sr No.

Tax Saving and Tax Planning Tips

Comments

Tip 1

Employee Provident Fund

Requires both the employee and the employer to contribute 12% of the employee’s salary.

Tip 2

Life Insurance Premium

Premium payments up to Rs 1.5 lakh a year are exempted from tax under section 80 C Income Tax Act, 1961.

Tip 3

National Pension Scheme (NPS)

Tax exemptions for up to Rs 1.5 lakh a year can be claimed for NPS under section 80CCD (1).

Tip 4

Public Provident Fund

Deposit up to Rs 1.5 lakh per year with a lock in period of 5 years.

Tip 5

ULIPs

Claim tax benefits under Section 80C And under Section 24 towards interest payment on the home loan.

Tip 6

Health insurance premium

Deductions upto Rs 25,000 is allowed for medical expenses for individuals along with spouse and children.

Tax Saving Options for Salaried Employees 

To trace the right tax-saving investments, the primary task is to identify your life goals and the financial requirements to fund them. Matching those needs, choose the instruments that would offer you the optimum tax benefits. Here’s a list of the top tax-saving tools for the Indian taxpayers. 

Employee Provident Fund (EPF): One of the most popular investment opportunities for salaried individuals, this scheme requires both the employee and the employer to contribute 12% of the employee’s salary to the employee provident fund account. The accumulated corpus along with the interest earned is tax-free. 

Life Insurance Premium: While they let you financially secure the future of your loved ones, life insurance premium payments up to Rs 1.5 lakh a year are exempted from tax under section 80C of the Income Tax Act, 1961. In addition, the death benefit and the maturity benefit also offer tax deductions subject to conditions provided in Section 10(10D).

Public Provident Fund: You can subscribe to Public Provident Fund and deposit up to Rs 1.5 lakh per year with a lock in period of 5 years. To avail the maximum benefit under section 80C of the Income Tax Act, 1961.

ULIPs: This would typically include tax-saving mutual funds and ULIPs (unit-linked insurance plans) if you are the risk-taking type or PPF and NSC if you prefer low-risk options. Premium payments in ULIPs up to Rs 1.5 lakh per annum are tax-free under section 80C.  

National Pension Scheme (NPS): Aiming to safeguard your retirement needs, the National Pension Scheme (NPS) along with Atal Pension Yojana(APJ) enables salaried employees to invest till they retire. Tax exemptions for up to Rs 1.5 lakh a year can be claimed for NPS under section 80CCD (1)

Health insurance premium: Investing in health insurance is a wise bet as it takes care of your medical expenses as well as your salary. Deductions upto Rs 25,000 is allowed for medical expenses for individuals along with spouse and children and another Rs 25,000 for parents where both are below 60 years of age. In case where both exceed 60 years of age exemption can be claimed upto Rs. 100,000/- in total.

Education Loan : Section 80E of the Income Tax Act allows individuals to claim deductions exclusively on the interest paid on education loan for  higher studies in India or outside India. There is no maximum limit on the amount of deductions that can be claimed but has a time limit of 8 years.

Home Loan Interest Repayment: Sec 24b allows you to claim benefit upto Rs.2 lakh per financial year on your home loan interest whereas additional deduction u/s 80EE can be claimed for 1St time home owners for a maximum of Rs. 50,000 provided purchase value is below Rs. 50 lakhs.

Opt for a correct tax regime: Currently, there are 2 tax regimes prevalent in India, Old tax regime & New Tax Regime. Taxpayer has an option to choose any one of these regimes for computation of his tax liability. Tax liability varies in both the regimes depending on various factors like rate of tax, tax deductions & exemptions allowed. Hence, each employee should decide the tax regime to opt before the start of a new financial year so that tax liability can be computed accordingly by the employer. It is to be noted that as per law, New Tax Regime is the default regime unless an individual informs the department that he wants to opt for the old tax regime. 

Plan your taxes smartly: File ITR for salaried employees

The income tax payable by a salaried employee is calculated based on his annual taxable income after making the deductions through various tax savings investments. And that makes tax planning for salaried employees an essential practice. To ensure the deductions are in place, it’s crucial to file the Income Tax Return (ITR). The ITR filing requires the employee to list the investments made in the corresponding financial year and claim deductions for them under various sections of the Income Tax Act, 1961. It’s therefore a smart move to plan well, make the right investment decisions and declare them in your ITR filing on time. Following are the documents that need to be submitted at the time of ITR filing for salaried employees:

  • Form 16

  • Form 26AS

  • All the premium receipts, interest and TDS certificates

  • Annual statements of all the savings accounts held by the employee. 

Understand Income Tax for Salaried Employees

As a salaried employee, it’s extremely important to know how income tax functions to avoid hefty tax payments. To avail of the tax deductions under various sections of the Income Tax Act, it’s worth strategising well and doing the tax planning in advance. Accordingly, choosing the best financial instruments for tax savings suited to your needs will be a relief, lowering the tax burdens by a considerable amount. 

Conclusion

The right tax savings options can fetch you the maximum possible tax benefits in a financial year. Rely on the best tax-saving tips for the salaried. Lowered tax burdens and bigger will be the smile, right?

FAQs on tax savings options 

1. How can I save tax on my salaried income?

The Income Tax Act, 1961 allows tax deductions against various types of investments under its different sections. If you are a salaried employee, choose the appropriate tax-saving investments to avail of the deductions. This will help you save taxes and reduce the burden thereby. 

2. How can I reduce my salary for taxes?

You can reduce your net salary by increasing contributions to your employee provident fund and opting for exemptions like HRA, LTA and other reimbursements. Post that, use the tax deduction  as provided under sections 80C, 80D, 80E etc through various investments, crucial expenditures, educational and home loans, health insurance etc.  

3. What is the best option to save tax?

Under the provisions of different sections of the Income Tax Act, 1961, the following are among the best options to save tax:

  • PPF

  • Life Insurance

  • Tax-saving Fixed Deposits

  • National Pension Scheme (NPS)

  • Health Insurance

  • ULIPs

  • Education Loans

  • Home Loans

  • Child Plans

  • Annuity Plans

  • Donations to social causes 

4. Do salaried individuals need to pay taxes on their investments?

Yes, salaried individuals might need to pay taxes on their investment incomes like interest, dividend, and capital gains from sale of assets, etc  

5. Which investment options come under Section 80C?

Section 80C of the Income Tax Act, 1961 allows a total annual exemption of Rs 1.5 lakh for cumulative investments made in different instruments. The list of options includes life insurance, Public Provident fund (PPF), Equity-linked Savings Scheme (ELSS), National Savings Certificate (NSC), payment of home loan principal, SSY, SCSS etc.  

6. How can my family help me in tax saving?

Your family can help in tax saving through various investments and expenses. Following are how you can reduce your tax burden through them. 

  • Purchase medical insurance for your spouse, parents and children

  • Pay the tuition fees of your children

  • Invest money in the name of your parents

  • Take an education loan for your child

  • Pay rent to your parents to claim HRA

  • Take a joint home loan with your spouse

  • Get tax deductions for expenses towards a dependent with a disability

7. What are the tax benefits for senior citizens?

Senior citizens are entitled to a standard deduction of Rs 50,000 for their pension earnings. Family pensioners can claim tax benefits up to Rs 15,000.  

8. How can I save income tax on my house rent allowance?

You can claim the exemption on the House Rent allowance to save income taxes. This requires submitting rent receipts and rent agreements as proof to the employer. You can also submit the documents yourself at the time of ITR filing. However, this exemption can be claimed only if you pay rent for your residential accommodation. 

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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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#Tax benefits & exemptions are subject to conditions of the Income Tax Act, 1961 and its provisions.

#Tax Laws are subject to change from time to time.

#Customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.

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