Tax planning is crucial for salaried individuals to minimise their tax liability and increase disposable income. By leveraging deductions and exemptions under the Income Tax Act, you can effectively reduce your taxable income. Some of these exemptions include life insurance, health insurance, investment options, and more.
Here are ten effective ways to save taxes.
1. Utilise Section 80C Deductions
Under Section 80C, you can claim up to ₹1.5 lakh annually by investing in eligible instruments such as:
- Public Provident Fund (PPF)
- Employee Provident Fund (EPF)
- Equity-Linked Saving Schemes (ELSS)
- National Savings Certificate (NSC)
- Life Insurancesuch as term insurance, ULIP, etc.
2. Claim Section 80D for Health Insurance
Premiums paid for health insurance policies for yourself, your spouse, children, or parents are eligible for tax deductions. Limits are:
- Up to ₹25,000 for self and family (₹50,000 if senior citizens are included).
- An additional ₹50,000 for policies covering senior citizen parents.
3. House Rent Allowance (HRA)
If you live in rented accommodation, HRA exemptions can significantly reduce your taxable income. The exemption is based on your actual rent, basic salary, and city of residence.
4. Standard Deduction
Salaried employees can claim a flat standard deduction of ₹50,000 annually. This deduction is automatic and does not require any investment proof.
5. Tax Benefits on Home Loans
Under Section 24(b), the interest paid on a home loan is deductible up to ₹2 lakh per year for self-occupied properties. The principal repayment can also be claimed under Section 80C.
6. Invest in National Pension Scheme (NPS)
Under Section 80CCD(1B), investments up to ₹50,000 in the NPS offer additional tax savings beyond the ₹1.5 lakh limit under Section 80C.
7. Leave Travel Allowance (LTA)
LTA exemptions are available for travel expenses incurred during domestic trips with your family. Ensure you retain travel-related bills for claiming this exemption.
8. Opt for Tax-Free Allowances
Some allowances, such as meal coupons, education allowances, and transport allowances, are tax-exempt up to specified limits. These allowances reduce your taxable income effectively.
9. Life Insurance and Maturity Proceeds
Premiums paid for a life insurance plan not only qualify under Section 80C but the maturity proceeds are also tax-free under Section 10(10D), provided specific conditions are met.
10. Use an Income Tax Calculator
An income tax calculator is a useful tool to estimate your tax liability and identify areas for savings. By inputting your income details and eligible deductions, you can plan investments and ensure compliance with tax laws.
Salaried individuals can maximise their tax savings by making informed financial decisions. From leveraging allowances to investing in instruments like a life insurance plan or NPS, the opportunities are abundant. Using tools like an income tax calculator can help plan better and reduce your overall tax outgo.
