It’s that time of the year again – Tax Planning. With the financial year-end around the corner, all of us start planning our tax savings now. As a salaried employee, before anything, you should understand your tax slab and meaning of your salary breakup components. This will help you figure out how to save on taxes. You need to understand what are the available deductions. Below list will help you plan your tax filing well.
15 tips to save tax
1. House Rent Allowance (HRA)
For those who live in a rented house/apartment, can claim HRA to lower tax outgo. HRA is partially or completely exempt from taxes.
2. Leave Travel Allowance (LTA)
For travel within India, an employee can avail exemption for the trip under LTA. This exemption is only for the shortest distance on a trip. Only for the trip taken with your spouse, children, and parents, this can be claimed. Hence, on incurring the expenses and submitting the bills to the employers you can claim this exemption.
3. Employee Contribution to Provident Fund (PF)
Provident Fund is a social security initiative where the employer and employee contribute an equal amount every month toward employee’s pension and provident fund. This is 12% of the basic salary. The government decides the interest rate which is about 8.65%. Therefore, upon maturity, the returns are exempted from tax. Also, EPF contributions can be claimed for tax exemption under Section 80C of the Income Tax Act.
4. Standard Deduction
Standard Deduction was reintroduced in the 2018 budget. This deduction replaced the conveyance allowance and medical allowance. Post the 2019 budget, employees can now claim a flat Rs. 50,000 (earlier, it was Rs. 40,000) deduction from the total income, thereby reducing the tax outgo.
5. Professional Tax
Professional tax is a tax levied by the state and is Rs 2,500. It is deducted by the employer and deposited with the state government. Hence, it is allowed as a deduction from your salary.
6. Exemption of Leave Encashment
Some employers allow you to carry forward some amount of leave days and allow you to encash them while others prefer that you finish using them in the same year itself.
7. Exemption Under Section 89(1)
As per Section 89(1), any salary received in arrears or advance is allowed for tax relief.
8. Exemption from the Receipt Upon Opting for Voluntary Retirement
As per Section 10(10C), any compensation on voluntary retirement or separation is exempted from tax. The exemption is subjected to the pre-requisite that the receipts comply with rule 2BA. Also, the maximum compensation received should not exceed Rs. 5,00,000.
Pension received is considered as salary and thus is taxable.
Gratuity is a retirement benefit that is provided by an employer if an employee renders five years of service in the organization. However, the amount is paid upon retirement or resignation.
11. Donations to Political Parties
Any donation made to political parties is exempt from tax if it satisfies certain conditions under section 80GGC.
12. Meal Coupons
Some employers provide meal coupons like Sodexo or Zeta to their employees. These aren’t taxable up to Rs 2,600 p.m.
13. Car Leased by Employer
If someone is making use of a car lease policy offered by his employer, he can drive a car leased by his employer. Therefore, save tax on car EMI since he may not require buying a car.
14. Expenses Related to Internet or Phone
Expenses incurred in using these devices are either pre-paid by some employers or can be reimbursed by the employees. Tax benefits can be claimed on these expenses.
The lower your taxable income; lower is your tax liability. There are multiple provisions by which you can lower your taxable income. For example, under section 80C you can save Rs 1.5 lakhs annually. 80C investments include FD, Equity Linked Savings Scheme, Insurance policies, etc. Also, there are a bunch of other deductions under Section 80 such as 80D, 80E, 80GG, 80U etc. that reduce your tax liability. Read 6 reasons Why ELSS is Better Than Other Tax Saving Instruments and 19 ways to save tax this 2019 to know more about tax savings options.
Every month, the employer deduct a part of your total income tax as Tax Deducted at Source (TDS). This is a significant portion for a salaried employee. Furthermore, the employer provides details of the tax deducted in Form 16 (TDS certificate). While filing returns, remaining you are entitled to make the remaining payment.
Income Tax Rates for taxpayers under 60 years of age – FY 2018-19
|Tax Slab||Tax Rate|
|Up to Rs 2,50,000||No tax|
|Rs 2,50,000 – Rs 5,00,000||5%|
|Rs 5,00,000 – Rs 10,00,000||20%|
|Rs 10,00,000 and beyond||30%|
Cess: Health and education cess is 4% on the sum of total income tax and surcharge.
Basic Exemption limit for senior citizens (age of 60 years or more but up to 80 years) is Rs. 3,00,000.
Basic Exemption limit for super senior citizens (age of 80 years or more) is Rs. 5,00,000.