Often it happens that salaried people end up paying more tax than actually needed. This happens mostly because of lack of knowledge about tax saving.
If you feel that you have a similar story and are figuring a way out to reduce the tax burden, then this article is for YOU…
Indeed, there are many ways; you can save tax while you are earning your salary. Here are 5 simple and legal tips to save tax.
- Structure your Salary:
While you work for an organization, you incur many expenses, which otherwise you may not. So these expenses are because of the company you are working in and once you leave the company, these expenses shall also stop. Expenses like transport, tiffin, uniform, etc. are to be reimbursed by the company.
These are known as allowances and perks which every employee is subject to get. These allowances are tax free, provided you need to show its proof.
Ask your employer to structure your salary and the allowances you tend to get. Ofcourse you won’t get all of them but you can have knowledge regarding them.
Allowances which are tax free are as follows:
- Telephone and Mobile bills
- Professional tax (payable every month is tax deductible)
- Office Entertainment
- Save tax on House Rent:
When you get a job in another city you need accommodation. Sometimes the company provides you with the accommodation, or else you need to rent out a space. The rent which you are paying is also eligible for tax deduction known as House Rent Allowance. You are given your remuneration including a part of HRA in it.
The least amount of HRA is deductible from your Gross income.
There’s a formula for calculating this HRA.
- Actual HRA given by the employer.
- 50% of your basic salary plus DA if you are placed in any of the metro cities namely Mumbai, Delhi, Kolkata and Chennai, else 40% of your basic salary plus DA.
- Actual rent payable minus 10% of your basic salary plus DA.
Collect the receipts of rent payment from the house owner as they are needed to be shown while paying tax.
- Make Investments:
Making investments can raise your annual expenses and as a result you have to pay less tax on your income. Some investments also give tax rebate under section 80C. These investments are deductible from your taxable income. Thus you are not supposed to give tax at the time of redemption, earning or investment.
But remember that the maximum limit of the 80C deduction is 1.5 lakhs as per the financial year 2015-16.
Investments which could save your tax-
- Deposit to PPF account
- Investment in Equity Linked Saving Scheme
- Investment in National Savings Certificate
- Investment in Senior Citizen Savings Scheme
- Medical Insurance Deduction:
There is a provision of deduction for medical insurance up till the limit of 1.5 lakhs. You can save tax on the health insurance premium which you pay for your parents or dependent family.
You can even avail deductions on the health checkups.
- The maximum deduction available for the medical insurance is 25000, but you can include upto Rs. 5000 deduction on the medical checkups.
- The deduction on medical insurance for your parents or family is limited to 25000, but if your parents are above 60 years of age then, it is extended till Rs.30000.
- Begin with Charity, Save tax:
You can save tax by giving donations to organizations, certified NGO’s or religious bodies. Donating to such institutions can give you 100% tax benefits.
Donations can be done PM relief funds or scientific institutions, etc. or can claim tax rebate.
We hope that following these steps for a considerable amount of time shall surely help you to succeed in your goals.