As salaried individuals, one of the most important financial aspects we deal with is income tax saving. It’s our responsibility to contribute to the nation’s development through taxes, but it’s equally important to explore legal and legitimate ways to optimize our tax liability and keep more of our hard-earned money.
If you’re wondering how to save tax on salary, you’ll be glad to know that there are various tax-saving options for salaried individuals. In this comprehensive guide, we will delve into ten easy and effective strategies that can help you save on income tax throughout the year. By implementing these measures, you can make informed financial decisions and maximize your tax savings without resorting to any unethical practices.
Best Income Tax Saving Tips You Must Follow
Discovering how to save income tax on salary can be a game-changer for your financial well-being. As an earning individual, it’s natural to invest a part of your salary for a secure future. However, some investments may turn out to be a financial strain. But fear not, there are numerous answers on how to save income tax on salary, ensuring that your hard-earned money works smarter for you. Below, we highlight a few ways by which you can save big on your taxes while securing your financial future.
- Choose the Right Income Tax Regime
Being a taxpayer, you can use any of the two regimes to calculate your taxes. The new income tax regime has been revised following the 2023 budget. In this regime, the taxpayer can claim a full tax refund if their yearly wage is up to 7 lakh INR and a standard tax deduction of up to 50,000 INR.
All the existing tax exemptions, such as HRA and deductions for interest paid on home loans, are available under the old income tax regime. However, the no-tax threshold is fixed at 2.5 lakhs INR. Thus, the taxpayer should compare the possible tax savings by both regimes to make a well-versed decision.
- Opt for Life Insurance
One essential tool to save tax on salary is life insurance. It assures the financial stability of an individual and his/her family. But, the recent Union Budget proposed changes in the tax laws and exemptions for life insurance plans.
Individuals can claim tax exemptions only on the maturity amount of a life insurance policy for policies issued on or after 1st April 2023. It is only possible if their total annual premium is up to 5 lakhs INR or the sum of premiums from numerous insurance plans is up to 5 lakh INR.
The taxpayer, though, may still claim the tax exemption for the sum assured received on the premature death of the policyholder under Section 10 (10D).
- Provident Fund
A social security initiative, the Provident Fund or PF, requires equivalent per month contributions from the employee and the employer for the employee’s pension and PF. The provident fund is 12 per cent of your base salary, and the government decides its interest.
The returns are, therefore, tax-free upon maturity. Moreover, EPF contributions are also claimable under Section 80C of the Income Tax Act.
- Leave Travel Allowance
If an employee wants to travel within the country, they can benefit from the exemption for the trip under LTA (Leave Travel Allowance). However, this exemption is solely valid for the shortest distance on a trip.
Only the trips with your parents, spouse, and children are claimable under LTA. You can thus claim this exemption on incurring the expenses and presenting the bills to the employers.
- Donate to Charity
Under Section 80G of the Income Tax Act, monetary donations to specific organisations are entitled to tax waiver.
You are eligible for deductions under Section 80GGA if you donate to an entity supporting rural development or scientific research. Cash donations are entitled to partial tax exemptions, whereas transfers made through cheque or draft enjoy full exemptions.
- Avail Education Loan
One can deduct education-related interest from their taxes. Such interest should be paid from the taxable income for the financial year. The loan should come from an established financial institution or a renowned nonprofit organisation. The taxpayer can take the education loan for himself/herself or for any of his/her family members. A spouse, children, and/or the student (for whom the taxpayer is the official guardian) are regarded as members.
You may claim the deducted amount from the year when you started paying the interest on the loan. Beginning from the initial year of the start of payment, you may claim for an additional seven fiscal years. Overall, a deduction for up to eight fiscal years is claimable.
- Invest in Capital Market and Government Schemes
Investments in capital markets and government-mandated programs may help earn you higher returns and tax-saving benefits, eventually saving you huge wealth. Several government schemes provide high returns on total investments and tax exemptions.
As per Section 80C of the Income Tax Act, you can claim up to 1.5 lakhs of your total annual income as a tax credit for such investments.
Taxpayers can enjoy tax exemptions under Section 80C if they invest in the following schemes:
- National Pension Scheme (NPS)
- Sukanya Samriddhi Yojana (SSY)
- Unit Linked Insurance Plan (ULIP)
- National Savings Certificate (NSC)
- Equity Linked Savings Scheme (ELSS)
- Senior Citizen Saving Scheme (SCSS)
- Home Loan
The best way to understand how to save tax on salary is availing of a home loan, via which you can enjoy multiple benefits. A home loan comes with reduced tax liability and the satisfaction of owning your property. Pradhan Mantri Awas Yojana and Delhi Development Authority Housing Scheme are a few government schemes that aim to make housing affordable in the country. On the other hand, Sections 80C, 80EEA, and 24(B) diminish financial liability from the lessened tax burden.
- Invest in Mutual Funds
A tax deduction is obtainable for investments in ELSS. Section 80 says the maximum claimable deduction is up to 1.5 lakhs INR. ELSS is a tax-saving mutual fund investing over 65 per cent of its corpus in equities and the other 35 per cent in debt instruments.
- Medical Insurance
Medical insurance has become very popular due to a significant rise in medical costs everywhere. A medical insurance plan helps lessen the fiscal burden on individuals and their families during serious health issues.
The government provides tax benefits to encourage individuals to buy these insurance plans. It lets them get excellent quality care at reputed medical institutes for little to no added charges.
Every month, a portion of your salary is deducted as income tax. As a salaried employee, this is a key portion of your income, and you just want to save it. Make the most of the above-discussed strategies on how to save tax on salary and save more money for future security and better quality of living.
Investing in some of the best tax-saving instruments, such as ELSS and tax-saving deposits, would be highly beneficial. While considering that, keep yourself up-to-date for any amendments in tax laws and assure yourself of implementing the right tax-saving strategies.