Tax Planning Tips for Salaried Employees

The current financial year is coming to an end and most of us have must start getting worried about the tax liabilities. Tax Planning is a key that helps you to take benefit of various tax deductions and exemptions to cut down the tax liability during a financial year. For a salaried person, tax planning forms an integral part of financial planning. Tax Planning Tips

It is important to understand your salary structure which constitutes various allowances, expenses, and perks related to your employment. Tax planning tips for salaried workers should be a planned program that should be a mix of ideal investments and optimum tax benefits. You only need to plan ahead and avoid last-minute tricks for tax saving.

We all live in a parallel society where humanity is first priority and living in a society means rules & regulations and terms & conditions. We all earn for living and our survival, at a certain time the rule come about the tax start through a different channel and the tax will be paid by us on the behalf of anything. With time people moved forward and the rules became old in a new period of time and it’s also changed.

But the only thing not changed yet is the word text and paying tax, look the way we earn in this world or any country only we know the challenges and we are “who did work whole day” for earning some money. After all of this and after a lot of labor whatever we earn, we have to pay tax and most people don’t like this.

Let us focus on some key points or tax planning tips that will help you to reduce your tax incidence.

1. Claim Tax Deduction Under Section 80C

Section 80C of the Income Tax Act allows salaried employees to claim the tax deduction during a financial year. There are numerous investment options that will help you to claim tax deduction under section 80C, so you can reduce the tax liability.

• You may invest in life insurance policies such as term life insurance, child plan, pension plan, ULIP plans, etc.
• Section 80C also allows tax reductions for investments in the Employees’ Provident Fund, Public Provident Fund, National Pension Scheme, Sukanya Samriddhi Account, Post Office Senior Citizen Savings Scheme, and so on.
• Expenses such as tuition fees for children and home loan re-payment are also entitled to get the tax deduction under section 80C.

All these investments ensure potential returns along with tax benefits up to an aggregate limit of Rs 1.5 lakhs under section 80C.

2. Buy a Medical Cover to get Tax Deduction Under Section 80D

Buying medicinal insurance also gives you a tax deduction. The premiums paid against the health insurance for yourself, your spouse, dependent children, and your parents are eligible for tax deductions under section 80D of the Income Tax Act.

You can claim up to Rs 25,000 health insurance premium for the self and family (below 60 years). For parents (non-senior citizens), an additional deduction of Rs 25,000 can be availed. For senior citizens (family & parents), up to Rs 30,000 can be availed as a tax deduction. This limit will be magnified to Rs 50,000 from the financial year.

3. Check for the Allowances given by the Employer to seek Tax Exemption

There are some expenses that incur only because of your job, such as travel expenses for going to the office, expenses for entertaining would-be or existing clients, wearing a uniform, etc. Such expenses go into the account of employer expense.

These expenses should not be part of your income and thus are considered non-taxable.

Allowances such as conveyance, uniform, telephone and mobile, newspaper & magazine, personality development, etc. if incurred actually will be non-taxable. You can also avail of the tax deduction for the professional tax that you pay for the income earned by salary.

• Conveyance allowance: Employers also provide conveyance/ transport allowance to support the expenses incurred in commuting between office and residence. You can avail of tax exemption for transport allowance of Rs 1,600 per month (Rs 19,200 annually). Blind and handicapped employees can avail of the tax exemption of up to Rs 3,200 per month.
• House rent allowance: You go to different cities, as the job location changes and reside over there to continue with the job. If you live in rented accommodation and receive a house rent allowance (HRA) as part of your salary, you can claim a tax deduction against HRA as paid to you, subject to the limits specified.

The lowest of the below three is exempt from tax:

• Actual HRA received
• 50% of annual salary (living in metro cities)/ 40% (for non-metro cities)
• Excess of annual rent paid over 10% of annual salary

You should take rent receipts from your house owner, so you can submit them for claiming the tax deduction under section 10(13A) of the income tax act. If your annual house rent exceeds Rs 1 lakh, you need to provide copies of the rent agreement and the homeowner’s PAN card.

• Telephone Reimbursement allowance: If your job requires you to call your clients, the employer will reimburse you against the billed amount. You also have the option to claim tax exemption for the same under the rules of 3(7)(ix) of the Income-tax act.

Some personal expenses are also eligible for exemptions.

• Reimbursement of medical bills: Medical reimbursement against medical allowance is exempted up to Rs 15,000 during a financial year. You need to produce the actual bill of medical expenses. You can also reimburse the medical expenses of your dependents, up to the maximum limit specified.
• Education allowance: You can get the tax deduction for the allowance received for education up to Rs 100 per month and hostel stay of employee’s children up to Rs 300 per month. The education allowance received is payable to a maximum of two children and tax deduction can be claimed u/s 10(14).
• Leave travel allowance: Your employer can also give you a leave travel allowance (LTA), which is tax-exempted under certain conditions. Under this, two trips are allowed in a 4 year period. The travel for which you get LTA should be within India and from the shortest route. You can claim for the maximum of AC first-class rail fare or economy class of air travel, whichever is less. You can take advantage of LTA for travel when you are on the leave.

Note: you can get updated information  for income tax slab rates for FY 2020-21

4. Make Optimum use of section 80c

Being a salaried person, you always try to find the ways by which you can save tax and also consult some outside consultant, but we always overlook some easy ways which can have a significant impact in saving taxes. And these are some real and ethical ways.

In this article, you will know about ‘Salaried employee tax planning tips’

Employee Provident Fund(EPF) – Employee Provident Fund is a government body that uniquely serves people. The person who comes under this service does not need to pay taxes. Both employee and employer contributions will be 12% of the salary. Look, many people are using this kind of government service to save their taxes and in this way, you have some special benefit as a person. It’s a way to save taxes, and it’s one of the best options to save taxes.

Public Provident Fund(PPF) – Public Provident Fund is also one of the government bodies that serve people in their unique way, and It’s one of the best ways to protect from paying tax. PPF has been providing service to the people since time immemorial, and with the increasing time, the interest rate of PPF has also changed. PPF is one of the best services; with PPF, you can not only save your tax rather you will get a good return by investing in PPF.

PPF Rate of Interest Over the Last Five Years

National Saving Certificate – It’s a service provided by the Indian Postal Service, it’s a kind of bond with the government of small savings and also income tax savings. NSC is also a good option for your investment and using this service you can also save tax.

National Pension System – As an employee or salaried person, your contribution to the national pension system can save your tax up to 10%, an account in NPS can save you from direct taxes. And this is why NPS is one of the best ways to save taxes and invest money for a good future.

5-year Fixed Deposit in Bank/Post Office – With this way you can also save your salary from taxes and it will create a huge difference because its way to for you is like a way of profit. On one side using this way you are avoiding tax and on another side, you are investing money in FD which means you are getting interested in 4-5% of your money.

Donations – Well, most of us know that donations can save us from tax. Under 80G you have to right of such kind use such kind of way for saving from tax.

Room Rent Allowance – If you are leaving in a rented house and you are a salaried person, then with room rent allowance you can save your taxes. Under 80GG you have to right of such kind use such kind of way for saving from tax.

5. Keep in your Mind

Invest to meet your financial goals – Look, if you want to save your tax that’s fine, but why not choose those ways by which we can’t only save our tax rather also we can make money with that saving money or investment. EPF, PPF, or services like FD can give an opportunity to achieve your financial goals, If you are investing money in PPF or FD it’ll return with an interest and these are the way in which your investment can also save you from taxes.

Avoid last-minute tax planning – In recent days we watch a lot of ads on different social platforms and everyone is just suggesting to us to save taxes and taught us the way of saving taxes, we all want this kind of service but no one care about the basic formulae. If you want to save money from tax then you should start planning earlier because, in hurry, people always do something wrong or something bad. So, before paying tax first carry out the plans that’ll make your planning smooth and easy.

Conclusion

Proper tax planning tips help you to reduce the tax burden. You need to choose investment options in a manner that your need for tax saving is fulfilled along with high returns from that investment.

When it comes to tax saving, it is recommended to give a tax declaration to your employer at the earliest during the year, so the employer would not deduct more TDS than required. It is important to begin your tax planning during the beginning of the financial year rather than at the end of the financial year.