The big question that stares right at every salaried person is what are the best ways to save tax legally.
There are a myriad number of options available. One has to make certain rational investments or incur some of the expenditures that are treated as exemptions while calculating taxable income.
Here are 5 best ways to save tax for salaried employees so that they can benefit out of that:
Tax Benefits On Rent Payment
Employees who live in a rented residence and have to pay a certain amount of monthly rent can claim benefits on income tax deductions on Houses Rent Allowance (HRA).
HRA is either fully or partly exempted from being a taxable income, provided the salaried employees do not own a residence of their own in any other place. In case you don’t live in a rented place and still get HRA, the allowance will be fully taxable.
The least that amounts among the deduction option available shall be subjected to tax deductions at the time of filing income tax returns.
The deductions may be (a) 25% of the total income of the employee (b) Rent paid by him minus 10% of his total income (c) Rs. 5,000 whichever is less.
One must maintain the rental receipts and should be able to produce the details of payments made towards rent at the time of filing a claim for deductions.
Maximize Options Under Section 80C
When it comes to income tax deductions section 80C has laid down myriad options of the items you may invest in so as to get the benefits of deductions from taxable income.
The maximum deduction available in reference to section 80C is Rs. 1.5 Lakhs.
You may incur expenditures like contribution to EPF, pay an insurance premium, children’s tuition fees. Also, the amount of investments you make in PPF or ELSS is exempted from tax and so are investments in National Savings Certificates and ULIPS.
Consider going through all the clauses of Section 80C in detail and choose the form of investment best suited for you.
Invest In Buying Medical Insurance For Your Family
Investment in medical insurance for self, spouse or minor/dependent child is also a great way to mobilize your income and claim deductions while filing your taxable income.
The maximum deductions that can be claimed in this area of investment is restricted to Rs. 25,000.
However an additional of Rs. 25,000 is subjected to income tax deductions too in case the employee takes up insurance for his parents (father/mother or both) if the insured is below 60 years of age. The deductions go up to Rs. 30,000 in case the insured is a senior citizen.
Investment in medical insurance is one of the most popular and among the best ways to save tax.
Ask You, Employer, To Restructure Your Pay
The fact is you can get a lot of benefits of income tax deductions in case you are paid a part of your salary in transport allowances and good coupons. Ask your employer to pay a part of your salary in transport allowance. This item which is referred to as an allowance to commute between office and residence is subjected to income tax deductions.
The maximum restriction for deduction in case of transport allowance is Rs. 1,600 per month and Rs. 19,200 per year.
Also, you can ask your employer to pay you food coupons as a part of your salary which is again a deductible from taxable income.
You can receive food coupons of up to Rs. 55 per day for 22 days up to 2 meals a day. Therefore, the total that amounts at the end of the year, i.e., Rs. 26,400 may be what you gain in case you opt for this option.
Leave Travel Allowance And Medical Expenses
These are items that are paid as personal expenses are eligible to be tax exemptions. Ask you, employer, to pay a part of your salary as Leave Travel Allowance and as medical allowances. In case you start to incur medical expenses such as doctor’s pay, payment for medicines, and such others, collect the receipts and keep them safely so as to provide details on these expenses while you claim a deduction while paying taxable income.
You may collect medical bills of yourself or your dependents as well. The maximum limit up to which these expenses are subjected to tax deductions is Rs. 15,000 per annum.
If you opt to go for a leave travel allowance, the following should be kept in mind:
- The location you are traveling to should be within the Country.
- Travel should always be from the shortest route.
- The maximum you may claim is for an AC class ticket for the train journey and an economy class ticket for air travel
- It is limited to two times in a span of 4 years.
- The employee should be on actual leave.
A salaried employee can choose to go for any or more of the options mentioned above that are eligible for income tax deductions and are considered as the best ways to save tax.