How can you save tax in India- 10 ultimate ways for salaried person

Do you feel that you are paying excess tax? Do you think that you can save tax? Have you not done proper tax planning? Do you want to know the ways of saving tax? We will learn the most useful tax saving method in this post.

Indeed, you or anyone else has the scope of saving tax.  There are many ways which can cut your tax outgo. Today I will tell you the 10 best tips of tax saving.

1. Save Tax Through Salary Restructuring

There may be many expenses which you are doing because of your job. If you leave your job today, many of your expenses will end. Such as you wear a uniform just for the sake of your job. You travel to the office daily only for the job. You may be entertaining clients and spending over them to fulfill your job. You must be reading certain newspapers, magazines or books for your job purpose.

If you leave the job such expenses would end. It means, these are forced expenses and your employer should pay for them. Such expenses should go to the account of  employer expense. Since you are only medium of such expense this should not be part of your income.

Talk to your employer and ask to restructure your pay. You should get perks and allowances for such expense. This should not be part of your salary.

These perks and allowances or non taxable if incurred actually. However, you need to give proof of these expenses to avail tax-free allowances.

Some Allowances Which Save Tax

• Conveyance
• Driver
• Newspaper, Books and Magazine
• Medical Treatment
• Uniform
• Telephone and Mobile
• Personality Development
• Office Entertainment

However, these allowances are given according to the grade. You can’t ask all of them. Your employer will decide the eligibility of allowances. You can only demand.

The professional tax you pay every month is also eligible for tax deduction.

2. Save Tax On Rent Payment

We get a job in a different city or place. We go there to do our job. If the company does not give us accommodation we have to rent out. We live in rented house because of our job. Therefore, expense of rent should be deducted from the taxable income.

Employers do give some part of your remuneration as House Rent Allowance (HRA). You subtract this HRA from your gross income. However, you cannot take full benefit of HRA for tax saving. There is a formula for the HRA tax benefit.

You can deduct the lowest of these from gross income.

• Actual HRA given by the employer
• 50% of the basic salary plus DA if the employee is situated in Delhi, Mumbai, Kolkata and Chennai. Else, 40% of the basic salary plus DA.
• Actual house rent paid by you, minus 10% of basic salary+DA.

You can also use a HRA calculator to find out the tax benefit.

HRA gives you big tax saving. Ask your employer to keep the provision of HRA in your salary structure.

Also, Don’t forget to take rent receipts from your house owner. If your total rent of a financial year exceeds 1 lakh then you need to give copies of registered lease agreement and copy of the homeowner’s PAN card.

You can also give the rent to your parents. But you have to complete all the formalities of lease as stated above.

3. Leave Travel Allowances and Medical Expense

Some personal expenses are also eligible for exemptions. These Expenses are deducted from your gross salary. Your employer may give you part of your salary as medical allowance. Check with the HR department.

If you produce an actual bill of medical expenses, this allowance becomes tax-free. So, Start collecting medical bills. However, it is limited to Rs 15,000 in a financial year. You can give receipts of medical expense of your dependents as well.

Your employer can give you leave travel allowance as well. You are entitled to tax-free leave travel allowance.

• It is also limited to two times in a block of 4 years.
• The travel should occur while you are on the leave.
• It should be within India.
• Travel should be from the shortest route.
• You can claim the maximum for AC-I of the train journey and economy class of air travel.

4. Invest And Reduce Taxable Income

Certain investments give your tax rebate. These investments come under section 80C of deductions. The amount invested is deducted from your taxable income. Many of such investments come under EEE category. It means you need not to give tax at the time of  investment, earning and redemption.

List of Investments Which Saves Tax

Contribution to EPF account

Employee Provident Fund is a retirement saving instrument. Contribution to the EPF is mandatory for the employees of organised sector if their bic salary is less than Rs 15000/month.

he employer also contributes equal amount in the EPF account of employee. The contribution to EPF by employer is tax exempt, while contribution  by the employee is tax deductible under section 80C.

Deposit in PPF account

PPF account is also a long term saving scheme by the government. Anyone can open the PPF account in SBI, post office or other banks. The PPF account gives tax deduction under section 80C.

Investments in tax saving mutual funds i. e. Equity Linked Saving Scheme (ELSS)

Equity linked saving scheme are diversified mutual fund scheme which have lock-in period of 3 years. The ELSS invests in share market. It has potential of highest return.

Sukanya Samriddhi Account

This is a government saving scheme for the girl child. It gives highest return among all the small saving schemes. The investment is locked till your girl child turns 18. The investment and maturity amount is tax-free.

Tax Saving Fixed Deposit

Tax saving Fixed deposit is like any other fixed deposit of bank. The only difference is the lock in period of 5 years. The interest earning of tax saving FD is subject to tax.

National Saving Certificate (NSC)

It is post office small saving scheme. The national saving certificate is issued for 5 years. The interest rate of this scheme is 8.5%. the NSC gives tax benefit under section 80C. The interest is subject to tax.

Senior Citizen Saving Scheme

This is also an small saving scheme by the government. It is designed for senior citizens. This scheme gives regular income. The interest rate of senior citizen saving scheme is better than NSC or PPF. The retired defence personnel can subscribe this scheme at any age.

There are some expenses which also give a deduction for tax saving.

5. Expenses Eligible For Tax Saving

Under the limit of 1.5 lakh deduction there are some expenses as well.

• Tuition fees for self and children
• Insurance scheme premium
• Home loan principal payment- Home loan EMI has two-part, principal and interest. Principal part gives tax saving benefit under section 80C. Know more about the tax benefit of home loan

These expenses and above mentioned investment in aggregate should not exceed 1.5 lakh limit.

6. Medical Insurance Deduction

Medical Insurance expense gives you the deduction, over and above the 1.5 lakh limit. You can save tax for the health insurance premium of your family and dependent parents. Also, health checkup can also give you tax saving. You can deduce these expenses from your total taxable income.

• Up to Rs 25,000 for the health insurance of self and family. You can also include health checkups of up to Rs 5,000 within this limit.
• Up to Rs 25,000 for the health insurance of parents. If they are above 60 years, This limit goes up to 30,000.

7. Enjoy Tax Benefit On  Home Loan Interest Payment

Home loan interest payment enjoys separate tax saving. The limit of deduction for home loan  interest payment is increased to 2.5 lakhs in the budget 2016. This deduction can give you a very big tax saving. However, the loan amount should be big to get the full benefit. You can also double your tax saving through the joint home loan.

8. Set Off Capital Gain, Save Tax

Salaried people need to give capital gains tax on their investments. Shares attract only short-term capital gains tax while property and gold attract both short and long term capital gains taxes. However, you can set off your capital gain  from an investment with the capital loss of another investment. Note, you can set off short-term capital gain only with short-term capital loss and long term capital gain with long term capital loss only.

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. Suppose you incur trading loss in shares. This loss can be carried forward up to seven years. In subsequent years your trading profit can be set off with this big loss.

9. Giving Away Money For Charity, Why Pay 

You can save tax on your donations. However, not every charity gives you 100% tax saving. Donations to  the PM relief fund, some notified NGO and political parties can give you the 100% tax benefit. You can also donate to scientific institutions and religious body and claim tax rebate.

10. On Time Tax Declarations And Investments

Practically, this is the most important tip of tax Saving.  Employers need to pay advance tax every quarter. Therefore, they deduct TDS every month from your salary. The TDS is deducted according to your projected tax liability for that financial year.

If you don’t declare your planned tax saving, investment and expenses of the year, the projected tax will be higher. Accordingly, the employer would start deducting TDS every month for the first quarter of the financial year. It may happen that when you declare all of your tax saving instruments, It has become very late. The company may have cut more TDS than required. Of course you can claim tax refund while filing income tax return, but for the time being you pay extra taxes. So, give a tax declaration at the beginning of the year.

There is an opposite scenario which is more worrisome. Suppose, initially you declare all the available tax saving option to save the maximum tax. But you avoid tax saving, investment and tax saving expenses till the last quarter. Now in the month  of January and February you will have a big burden of investing or Big tax cut. So, it is better to start tax saving investment from the beginning of the financial year.

I hope this post will give you a basic idea of tax saving ways. For detailed information about the individual tax saving method you can read my other detailed posts. Give your opinion about tax saving methods. Do you have any query? Please feel free to ask. I will try my best to reply.