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Income tax planning: Last-minute tips to save tax for salaried employees

The salaried employees of India have little to no recourse when it comes to dodging taxes. It is the employer’s responsibility to deduct tax at the very source and send it on its merry way to the government.

Income tax planning: Last-minute tips to save tax for salaried employees
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Corporates, business owners, and self-employed professionals have many ways to save tax. The salaried employees of India have little to no recourse when it comes to dodging taxes. It is the employer’s responsibility to deduct tax at the very source and send it on its merry way to the government.

While it is true that paying taxes is fulfilling your civic responsibility towards the state, there is no reason why you should not do whatever is possible to save on your tax payments. Here are a few clever tax-saving tips for salaried employees.

Understand your salary components 

Your salary is a sum of many parts. Some of these parts can be used to lower your income tax liability. Once you understand your salary components, you can structure it in a way that helps you save tax and get as many exemptions as possible.

  • Education allowance can be claimed under section 10(14) of the IT Act of India.
  • LTA/LTC exemptions can be claimed. As per Budget 2021, an LTC cash voucher scheme has been proposed, so you can still use this provision to save taxes.
  • HRA or House Rent Allowance can be claimed under Section 10(13A) if you live in a rental home and pay rent consistently.
  • Professional tax is an amount deducted by your employer as a form of state government-levied tax. This amount equals INR 2,500 and can be deducted from your taxable gross income.
  • Keep Section 89(1) in mind if you have received income in advance or arrears, as these amounts can be used to gain some tax relief.

 Use deductible options to the fullest 

Introduced in Budget 2018, Standard Deduction allows for deductions replacing medical and conveyance allowance. This amount was initially fixed at INR 40,000. However, post-Budget 2019, this amount has been raised to INR 50,000. This Standard Deduction can help reduce your tax outgoing by a substantial amount in one go.

Section 80C is a valuable section of the IT Act for salaried employees. Under this Section, you can avail of tax benefits on INR 1.5 lakhs from your annual salary if you invest this amount in tax-saving instruments. For income taxpayers who fall in the 30 per cent tax bucket, Section 80C can help you reduce your tax outgoing by INR 45,000 (without cess and surcharges). Investments made via life insurance premiums, EPF and PPF contributions, home loan principal repayment, and school fees come under this Section.

Under Section 24, you can also claim benefits on home loan interest payments up to INR 2,00,000 in a given financial year.

Medical insurance payments made for yourself, your spouse, and your children (dependents) are eligible for tax benefits under Section 80(D) of the IT Act.

Tax planning can help you zero in on the deductible options that apply to you. Use these options to the fullest to reduce your tax liabilities.

Don’t delay planning your taxes

Tax ‘planning’ has to be done in advance. Without this planning, you will not be making informed and intelligent choices for your financial health. Figure out how much you can save by restructuring your salary, carefully plan your investments to get maximum tax benefits, and remember to start as early as possible.

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