We have all, at some point or the other in our lives, questioned the logic behind paying taxes. As a natural corollary, we have also asked ourselves how to reduce the quantum of taxes that we pay, since we cannot avoid paying taxes altogether. If you are a salaried individual, spending your precious time, working a 9 to 5 job (with those additional, unspoken work hours thereafter), then given below are certain ways by which you can save upon your income tax.
Top 10 Effective Ways to Save Income Tax
If you are a salaried individual, then here are a few tips to save tax -
1. Leave Travel Allowance (LTA)
Section 10(5) of the Income Tax Act states that an employee can make use of this exemption for leave travel allowance to cover for tickets of one’s spouse, children and parents. Please note that this can be availed by only dependent children and not those who are married or pay tax themselves. Brothers, sisters and parents, who are not dependents, but members of the household, cannot derive this benefit. This benefit can be availed only twice in a span of four years. It can even be carried over, if the claim has not been made, but it must be encashed in the first year of the next block.
2. House Rent Allowance (HRA)
Section 10(3) of the Act states that one can avail tax benefits if HRA is part of the salary and there are receipts to prove that you reside in a rented building. In cases where HRA is not a part of the salary, then the tax benefit can be availed by firstly, subtracting rent from 10% of income, secondly, a flat rate of INR 5000 on a monthly basis, and thirdly, 1/4th of total income. These deductions are a part of Section 80GG. In case one’s rent exceeds INR 1,00,000 then, he or she is required to furnish PAN details.
3. Gratuity Amount
Gratuity is the lump sum amount received by the salaried individual at the time of retirement. In some special circumstances, it is given in case of an emergency, or termination or if the individual is incapacitated and is no longer fit to work. If the salaried individual passes on, then his or her dependents receive the sum. The taxpayer is exempt from paying taxes on gratuity for a maximum sum of INR 20,00,000 (enhanced limit in the amended Income Tax Act, 1961).
Commuted pension (i.e. pension received in advance) and uncommuted pension Commuted pension or lump sum received may be exempt in certain cases, such as a government employee can have his or her commuted pension fully exempt from tax liability. However, uncommuted pension or any periodical payment of pension is fully taxable as salary.
5. Food or Meal Coupons
Most companies have the practice of issuing meal passes as a part of the employee’s monthly salary. These meal coupons are not taxable to a limit of INR 2,600 per month, as per the Act.
6. Standard Deduction
There is a standard deduction of a maximum amount of INR 50,000 that can be availed by the taxpayer in lieu of transport allowance and medical bills. The salaried individual has no compulsion to submit bills and other documents in order to avail this deduction and can claim it as is.
7. Company Leased Car
You can save tax by declaring the company leased car.
8. Telephone and Internet Expenses
The expenses for Telephone and Internet can be utilized to gain tax benefits. These expenses are a part of the reimbursement component of one’s salary and hence can either be claimed as a tax benefit or it can be reimbursed.
9. Voluntary Retirement Scheme Amount
The pay-outs received from a VRS is not taxable up to a limit of INR 5,00,000. But this benefit is available only for those who work in public sectors or work under some authority established by the central or state government. This can only be availed if the receipts are in compliance with Rule 2BA of the Act and if no other claim has been made by the employee under Section 89 for compensation of voluntary retirement or separation or termination of services.
10. Medical Insurance
A mediclaim policy can help one avail deductions under Section 80D of the Act. The deduction that can be availed is INR 25,000 when you insure yourself, your spouse or your dependent children. If the person has dependent parents who are senior citizens (i.e. 60 years and above), then the salaried individual can claim a deduction of up to INR 30,000 and if they happen to be super senior citizens, then a claim of INR 50,000 can be made. One can even claim INR 5,000 for the cost incurred for preventive health check-ups for self, spouse, children or parents under the said provision.
Beyond these ten efficient tax-saving avenues, one can also consider an Equity Linked Savings Scheme, or a Tax Saving Fixed Deposit, to avail certain benefits under Section 80C under the Act. The list is inexhaustive, and depending on the components of each individual’s salary, the tax-saving measures can differ. Go the extra mile to find out which options are most suitable to you – both for investing as well as reducing your tax liability!