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How to Reduce Income Tax for Salaried Professionals?
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The financial year 2017-18 is nearing its end and income tax is once again the priority in the financial world. If you’re fretting over the same as a salaried individual, we come to your rescue here with 5 ingenious tips that can substantially lower the amount of your due taxes.
So let’s get started and learn how to save tax on salary:
1. House Rent Allowance
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House Rent Allowance (HRA) is paid by the employer to their employees as a part of their salaries. HRA is often fully or partially exempt from income taxes and hence, the benefit can be claimed while filing the tax return. The ideal way to do so is submitting the bill receipts to your employee as and when you receive them. And if you’re wondering about how to claim HRA tax benefit then this can be done directly at the time of filing the income tax return.
Action Points:
- Maintain receipts for rent and details of payments made.
- Submit them to your employer before the financial year ends.
2. Leave Travel Allowance
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If your employer has included the benefit of Leave Travel Allowance (LTA) in the remuneration structure of the organization, you can avail this benefit to save tax paid on trips that are made within the country.
Since this is not a mandatory benefit and depends on your company, your employer is the sole point of contact to avail this benefit.
Action Points:
- Maintain bills of all travel expenditure.
- Submit them to your employer before the financial year ends.
3. Utilize Deductions Under Section 80C
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Section 80C of the income tax act allows a deduction of up to INR 1.5 lakhs in a single financial year on certain investments or expenses. So if you’re an employee in the 30% tax bracket, this translates to savings of up to INR 45,000 every year!
Let’s look at the deductions that can be claimed:
- Investment in PPF
- Employee’s share of PF contribution
- NSCs
- ULIPS
- ELSS
- Life Insurance Premium payment
- Children’s Tuition Fee
- Principal Repayment of home loan
- Subscription to notified securities/notified deposits scheme
- Investment in Sukanya Samridhi Account
- Senior Citizens savings scheme
- Amount paid to purchase deferred annuity
- 5-year deposit scheme
- Subscription to equity shares/debentures of an approved eligible issue
- Contribution to notified Pension Fund set up by Mutual Fund or UTI
- Contribution to notified annuity Plan of LIC
- Subscription to notified bonds of NABARD
- Home Loan Account Scheme of the National Housing Bank Subscription
- Deposit scheme of a public sector or company engaged in providing housing finance
Action Points:
- Make all investments/expenses for the financial year 2017-18 before 31st March, 2018.
- Claim deductions directly while filing the return.
4. Medical Benefits
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Medical allowances or insurances can also be used to claim tax benefits. Companies generally extend the facility of medical reimbursements to their employees. This is subject to validation of documents like doctor consultations fees and bills of tests. Moreover, you also have the option of investing in a medical insurance that covers you and your family. The entire premium of such plans can be claimed under Section 80D in the current financial year itself.
Action Points:
- Collect receipts and bills of all medical expenses and submit them to your employer since this cannot be claimed directly.
- Directly claim benefits of any medical insurance schemes that you have invested in by providing relevant details at the time of filing return.
5. Deduction Through Home Loans
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If you have invested in a house, you are allowed to claim benefits on both the principal amount and the interest paid in accordance with Section 80C and 24 accordingly. While the maximum allowed deduction is INR 2,00,000 in some cases, there is no stipulated ceiling amount in others.
Action Points:
- Claim the benefit on the amount of tax paid when the house is in the Pre-Construction phase.
- Provide all necessary documents and details at the time of filing return.
Conclusion
So this is how you can save considerably by shrewdly taking care of your tax returns. These deductions can be directly subtracted from the gross income of the employee and the tax is then applied to the balance income. Hence, one can easily save a considerable amount of taxes if these tips are followed to the core!
