It’s once again that time of year: tax planning. We should all begin preparing for tax savings now that the fiscal year is concluding. Before anything else, as a salaried employee, you should comprehend your tax bracket and the significance of the components of your wage breakdown. You can use this to learn ways to reduce your tax liability. You must be aware of the available deductions. You can adequately organize your tax file by using the information below.
Employee Provident Fund
The Central Board of Trustees is currently in charge of overseeing this investment.
You and your employer can contribute a maximum of 12 percent of your salary to this fund under this investment plan. You receive interest at a specific rate on the amount you donated.
Now, the interest earned and the accumulated cash are both tax-free!
Public Provident Fund
A salaried person’s income plan is lacking without an investment in a Public Provident Fund, or PPF. You can open a PPF, a savings plan supported by the government, with as little as Rs. 500. Maximum investment allowed is Rs. 1.5 lakh.
PPF has the category of EEE or Exempt-Exempt-Exempt. This indicates that all contributions made to the fund, interest received, and maturity amount are tax-free.
ELSS Mutual Funds
The amount deposited via a systematic investment plan (SIP) and a lump sum investment are both eligible for the deduction. There is always some risk associated with ELSS funds because they invest a substantial amount in equities.
ELSS funds offer tax savings in addition to financial appreciation. As a result, investors find it to be one of the most effective tax-saving strategies.
Leave Travel Allowance
Salaried employees are eligible for LTA exemption for domestic travel. Only the smallest portion of a journey is excluded. This allowance is only available for trips taken with your spouse, kids, and parents; it is not available for trips taken with other family members. This specific exemption only applies to actual expenses. Therefore you cannot claim unless you make the trip and pay the associated costs. To be eligible for this exemption, present the bills to your employer.
School Tuition Fees
Section 80C of the Income Tax Act of 1961 allows for a deduction for the cost of children’s school expenses. Along with other securities like PPF, NSC, ELSS, etc., this tax-saving alternative is accessible under section 80C. Any registered college, institution, school, or other educational institution that charges tuition is eligible for a deduction of up to Rs. 1.5 lakh.
Typically, the incentive is given out once or twice a year. Whatever the label, a bonus or performance incentive is entirely taxable. According to business policy, performance bonuses typically depend on your performance over a specific period or your appraisal ratings.
The 2018 budget has reinstated the Standard Deduction. This deduction has replaced the medical allowance and transportation allowance. The employee can now deduct a flat Rs. 40,000 from their entire income, lowering their tax liability.
House Rent Allowance
You treat the HRA, a portion of your salary, as a powerful tax-saving strategy when you file your income tax returns. It is possible, nonetheless, to not be paid as part of the employee’s wage. In this situation, the taxpayer will not be able to claim the benefits even though they are paying the rent because the regular HRA deduction is unavailable. A taxpayer must also request a tax credit under section 80GG in such circumstances.
The state imposes a professional tax, which is worth Rs 2,500. The employer withholds it and deposits it with the state government. As a result, it may be deducted from your pay.
Section 24 of the Income Tax Act allows you to deduct up to Rs 2,00,000 in interest from your taxable income each year. The property must be purchased, built, repaired, renewed, or rebuilt to use the loan. Additionally, you are eligible for a tax deduction of up to Rs 1.5 lakhs for principal payments under section 80C.
In India, if you are a salaried person, you should plan your taxes rather than wait until the final few months. To avoid any fines, it is to your best advantage to understand how income tax for salaried staff functions. You have the opportunity to invest in various tax-saving strategies for salaried people, as explained above. Make sure your choices enable you to streamline various parts of financial planning.