It is our duty to pay our taxes on time for the development of our country, however poor tax planning can ruin the joy of employment if you do not save cleverly. Read on to know how to save tax in India.
Restructuring of your Salary
Along with the professional tax you pay every month that is eligible for tax return, restructuring your pay saves you the money being spent by you for the sake of your job. This may include one of the following:
- On the job uniform
- Telephone or Mobile expenditure
- Medical expenses
- Books, magazines, and newspapers
- Personality development
- Office entertainment
- Driver allowance
Ask your employer how to save tax in India by restructuring you pay slab.
How to Save Tax in India – HRA Allowance
House rent allowance is eligible for tax returns under certain given conditions and after the below calculations:
- House rent allowance that is provided by your employer
- House rent paid by you, subtracted by 10% of your basic pay and the dearness allowance
- In metro cities like Delhi, Mumbai, Kolkata, and Chennai – 50% of the basic pay and the dearness allowance
- Other cities – 40% of the basic pay and the dearness allowance
- Rent exceeding Rs. 1 lakh need copies of the registered lease agreement along with the copy of the home owner’s PAN card with your submission
Finally, the amount eligible for return will be lowest amongst the above. Use the income tax saving calculator available online to the exact number.
Investments to Reduce Your Taxable Income
The easiest way to know how to save tax in India are through investment agencies who offer tax rebate come under section 80c tax saving instruments. The total amount of tax exemption limit 2016-17 under such investments is 1.5 lakhs as of the 2014 budget.
Employee Provident Fund
Employee Provident Fund is a known retirement saving investment and is mandatory for if you are an employee of an organized sector where the employer also contributes towards the fund which is tax exemptible for both.
Public Provident Fund
How to save tax in India without hassle? Try this long-term scheme initiated by the government where anyone is eligible to open a PPF account in nationalized banks, post offices, or other associated banks.
How to Save Tax in India on FD Interest
Just like the regular fixed deposit that you can take, tax-saving FD can also be taken in the same manner. Tax-saving FD, however, has a lock-in period of 5 years and the interest earned during the period is taxable.
Mutual Funds Equity Linked Saving Scheme
Mutual funds of the highest return equity-linked saving scheme is a popular income tax saving options that have lock-in period of 3 years since it is invested in the share market.
Sukanya Samriddhi Account
This high return government saving scheme is initiated for the girl child with a lock-in period limited until the girl child turns 18. The investment as well as the maturity amount is tax-free.
National Saving Certificate
The tax saving investments option is a 5-year small-saving scheme is available at any post office with a rate of interest of 8.5%. The interest gained is however taxable, not the savings.
Senior Citizen Saving Scheme
Specially designed small-saving scheme to provide regular income to senior citizens. With highest rate of interest under the small savings category, defense personnel are also eligible at any age post retirement.
Medical Expenses and Other Allowances
Although the conditions of eligibility and criteria may vary with employers, some expenses are definitive exemptions. A maximum of Rs. 15,000 in one financial year can be filed for return. Travel allowance is also tax-free if your employer provides the same as a part of your salary package
How to Save Tax in India Other Than 80C
- Home loans – income tax saving limit up to 2.5 lakhs as of 2016 budget
- Tuition fees for children and self
- Medical insurance premium – Save up to Rs. 25,000 (or Rs. 30,000 for senior citizens) under health insurance of self and family.
- Charity – save tax on your donations like PM relief fund, some NGOs, and political parties for 100% tax benefit
Capital Gains and Loss to Save Tax
You can also carry forward your capital loss up to 8 years. This will give a fairly good chance of tax saving on account of capital loss. Supposing you suffer shares trading loss. This cost can be carried forward up to 7 years. In the following years your trading profit can be started out with this great loss.
Tax Saving Options for Salaried 2016-17
Employers pay mandatory advance tax every quarter, that is TDS is deducted every month from your pay. If you fail to declare your planned savings, expenses, and investments, in that year, you liable to bear higher projected tax. By giving your tax declaration at the beginning of the year will save you from paying extra tax.