Tax saving and Tax Planning are important aspects for the salaried person. As it allows you to save more money. If as a salaried person you are earning Rs 10 Lac per year, you have very little scope to avoid tax. At the most you can invest in tax saving scheme and get a tax benefit of few thousand rupees.
In any case, you have to pay income taxes, but with little tax planning, you can optimize your tax outgo. So, here is Tax Saving Tips for a Salaried person to maximize tax saving.
How Salaried Person can maximize tax saving?
Income Tax Exemption for Salaried Person
The first thing you should do as a salaried person is to take maximum advantage of available tax exempted allowance/reimbursements. In order to take this benefit, you must be aware of such allowances. So, here is a detail of all applicable tax exempted allowances.
House Rent Allowance
Most of the employer gives a benefit of HRA to their employees. Under House Rent allowance a minimum of a following is exempted from the income tax.
- Actual HRA
- Actual Rent Paid minus 10% of salary
- 50% of Basic for Metro City or 40% of Basic for NonMetro City
Leave Travel Allowance
LTA or Leave Travel Allowance is given by the employer to their employee in order to reimburse the cost incurred on the vacation. This allowance is exempted from income of the salaried people provided employee actually goes on the vacation and produced the valid proof of travel. Two such trips in the block of four years are allowed under LTA. The amount payable should not exceed Economy Air Ticket or First class AC Rail Fare for the shortest distance to a single destination.
You must be getting several leaves in the year. In case if you don’t claim these leaves employer gives the option to encash these leaves. The amount received by a salaried person as a leave encashment can be claimed for tax exemption up to certain extent.
Travel and Fuel Reimbursement
Travel and Fuel Reimbursement allowance is also exempted from the tax up to some extent. Let us say If an employer provides you a car for the official purpose and employer also gives you fuel reimbursement you can avail tax exemption. You need to maintain the record that car is used for official purpose only. The maximum amount that can be exempted from tax via this allowance is Rs 2400 per month. If the small car less than 1600 CC is used amount exempted would be Rs 1800 per month.
Uniform allowance paid by your employer to you as a part of your salary is fully exempted from the tax. It should be uniform, not a civil dress.
Children Education Allowance
Allowance namely children education allowance given by an employer to the salaried person is exempted from the income tax. The amount of exemption is very low it is Rs 1200 per year for maximum two children.
Medical reimbursement is actual amount paid to an employee by an employer on producing bills of medical treatment availed. The maximum tax exemption limit for this medical bill reimbursement is Rs 15000 year.
If you are getting transport allowance in your salary you can avail tax exemption benefit of the same. Transport allowance is given to meet the expense of traveling between your house and office. A maximum exemption limit for this allowance is Rs 1600 per month.
To get more information about tax exemption on the various allowances refer to Income Tax Site.
Income Tax Saving Investment/Deductions
Apart from tax exemption in various allowances salaried person can also make an investment in various tax saving instrument and maximize tax saving. The list of various sections and tax saving investment option is given below.
Section 80 C
Under section 80 C you can make an investment up to 1.5 Lac and avail tax benefit. Some of the best tax saving investment options under 80 C are ELSS, PF,PPF,Sukanya Smariddhi Scheme etc. You can also claim home loan principal and children’s school fees under this section.
Home Loan Interest
If you have taken home loan, you can avail additional benefit up to 2 Lac on the interest component of the home loan under section 24.
Section 80 E
If you have taken education loan you can take benefit of income tax exemption on repayment of interest on the education loan. The entire amount paid for the interest on education loan can be claimed under this section.
Section 80 CCD
Investment under New pension scheme can bring additional tax saving for you. So if you are salaried person and want to maximize tax out go you can plan to invest in NPS. As per new rule one can avail a deduction up to Rs 50000 under section 80 CCD (1B).
Section 80 D Health Insurance
Health Insurance premium can bring you additional tax saving of Rs. 25000 per year under section 80 D. it includes health insurance premium payment of self, family and parents. Along with this payment made for the preventive health checkup up to Rs 5000 can also be claimed as tax deduction.
Over to you
Know tax exempted allowance applicable to you. If required talk to your employer to restructure your salary for additional tax saving.
Use income tax exemption allowance and income tax deduction wisely to maximize your tax saving.
I hope important points and tips mentioned above will help salaried people to maximize the tax saving. If you have any query related to tax saving feel free to ask. I will try my level best to answer those.