May 18, 2022
Every assessment year, the Income-tax return filing season acts as a beehive of worries and excitement for salaried individuals. Since salaried individuals shell out actual money for taxes from their salary for the said financial year, they are keener on tax saving options. Being a taxpayer, you should know various tax saving options for salaried individuals and your tax slab. It will help you figure out how a salaried person can save taxes and avoid complications during tax planning. Income tax planning for salaried individuals is always complicated. Now take a look into the tax saving options for salaried people. Salaried people get Form 16 from their employer, which gives information on salary earned and its bifurcation along with advance tax payment information. Besides the basic salary of an employee, there are numerous other components being benefits that are wholly or partially taxable. Further, there are tax saving options like eligible investments under SEC 80C, donations made etc.
H.R.A. House Rent Allowance
There are two ways in which an individual can file his Income Tax Return. One is by entering the details on the portal itself. The other involves downloading the ITR software, preparing the details to be filed in XML format, and then uploading to the portal directly. A salaried employee can smoothly file his ITR by visiting: www.incometax.gov.in/.
Please follow the steps:
???? Keep handy all the necessary documents like PAN, Aadhaar, Form 16, bank and investment details or any donations.
???? Go to www.incometax.gov.in/, select the user type that you are.
???? Download and make changes in Form 26AS as per your specifications. It's a summarized statement of all the taxes deducted from your income this financial year.
???? Calculate your total income tax liability for this year.
???? Deduct eligible amount from tax liability. e.g. TDS.
???? After paying all the tax dues, when the payable amount is set off completely, you can file ITR.
???? You need to do ITR verification by any of the six methods provided. The best & easiest one is by Aadhar OTP.
???? Once the e-verification is done, the IT department will process the ITR by verifying all the details you provided.
The Indian Finance Minister, while presenting the Union Budget 2018, announced a standard deduction amounting to Rs. 40,000 for salaried employees. This was in the place of the transport allowance (Rs. 19,200) and medical reimbursement (Rs. 15,000). As a result, salaried people could avail an additional income tax exemption of Rs. 5,800 in FY 2018-19.
The limit of Rs. 40,000 has been increased to Rs. 50,000 in the Interim Budget 2019.
The income tax law also provides for an LTA exemption to salaried employees, restricted to travel expenses incurred during leaves by them. Please note that the exemption doesn’t include costs incurred for the entire trip such as shopping, food expenses, entertainment and leisure among others. You can claim LTA twice in a block of four years. In case an individual doesn’t use this exemption within a block, he/she could carry the same to the next block. Below are the restrictions which are applicable to LTA:
A taxpayer may incur expenses on mobile and telephone used at residence. The income tax law allows an employee to claim a tax free reimbursement of expenses incurred.
An employee can claim reimbursement of the actual bill amount paid or amount provided in the salary package, whichever is lower.
Employees incur expenses on books, newspapers, periodicals, journals and so on. The income tax law allows an employee to claim a tax free reimbursement of the expenses incurred.
The reimbursement allowed to an employee is the lower of the bill amount or the amount provided in the salary package.
Your employer may provide you with meal coupons such as sodexo. Such food coupons are taxable as perquisite in the hands of the employee. However, such meal coupons are tax exempt up to Rs 50 per meal.
A calculation based on 22 working days and 2 meals a day results in a monthly benefit of Rs 2,200 (22*100).
Consequently, the yearly exemption works up to Rs 26,400.
Businesses, these days operate in multiple locations across the country. There are possibilities that you are asked to shift to a different city for business reasons. Such a relocation can cause expenses such as shifting to a new house, moving furniture, car transportation cost, car registration charges, getting your kids admitted to a new school, and more. Fortunately, these expenses are to be borne by the employer. Sometimes, the employer makes a direct payment for such expenses.
Here is a summary of the tax liability of these expenses:
The employer may provide you education allowance for your children as part of your salary. Such allowance received by the employer towards children education is exempt from tax.
However, the employee can claim maximum Rs. 100 per month as exemption or Rs. 1200 per annum. The exemption is allowed for a maximum of 2 children.
Section 80C is the most extensively used option for saving income tax. Here, an individual or a HUF (Hindu Undivided Families) who invests or spends on stipulated tax-saving avenues can claim deduction up to Rs. 1.5 lakh for tax deduction. The Indian government too supports a few as the tax saving instruments (PPF, NPS etc.) to encourage individuals to save and invest towards retirement. Expenditures/investment u/s 80C isn’t allowed as a deduction from income arising due to capital gains. It means that if the income of an individual comprises of capital gains alone, then Section 80C cannot be used for saving tax. Some of such investments are given below which are eligible for an exemption under Section 80C, 80CCC and 80CCD(1) up to a maximum of Rs 1.5 lakh.
Section 80D is a deduction you can claim on medical expenses. One could save tax on medical insurance premiums paid for the health of self, family and dependent parents.
The limit for Section 80D deduction is :
The taxpayer can claim maximum deduction of Rs. 50,000 including the premium amount and medical expenditure if he is a senior citizen
(60 years or above). In addition to that if he has paid the medical bills of his senior citizen parents, he can claim additional deduction upto Rs. 50,000.
Your employer may pay premium on your behalf and deduct it from your salaries. Such premium paid is also eligible for deduction under section 80D.
Section 80G of the Income Tax Act, 1961 offers income tax deduction to an assessee, who makes donations to charitable organizations. This deduction varies based on the receiving organisation, which implies that one may avail deduction of 50% or 100% of the amount donated, with or without restriction.
Section 80EE allows homeowners to claim an additional deduction of Rs.50,000 (Section 24) for interest component of the home loan EMI. Subject to the following:
Employers generally provide cab facility to and from the office and residence of the employees. Such a facility is not taxed as a perquisite for the employee. The facility would be an expense for the employer.
As per the Indian Income Tax Act, use of any vehicle provided by a company or an employer for a journey by the employee from his residence to his office or another place of work, shall not be regarded as a taxable perquisite, even if provided to him free of cost or at a concessional rate.
In the case of a health club facility provided by employer uniformly to all employees, the facility is not taxable as a perquisite in the hands of the employee.
Gifts or vouchers given by an employer in cash or in kind are tax exempt up to Rs 5,000 per year.
In a case where the employer incurs expenditure on medical treatment outside India:
Family’ means the spouse and children of the individual. Also the parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual. The above expenditure would be exempt from tax for the employee subject to the condition that –
Let us consider Ravi, an employee who has a CTC of Rs. 10,00,000. In the illustration below, we can understand how to save income tax on salary. Let us examine his salary under two different structures:
SALARY STRUCTURE 1 | SALARY STRUCTURE 2 | |
---|---|---|
Basic Salary | 5,00,000 | 4,00,000 |
(+) HRA | 3,00,000 | 2,00,000 |
(+) Provident Fund @12% | 60,000 | 48,000 |
(+) Standard Allowance (Conveyance allowance + medical reimbursement) | 40,000 | 40,000 |
(+) Leave Travel Allowance | 30,000 | 30,000 |
(+) Other Allowances | 70,000 | 2,82,000 |
TOTAL | 10,00,000 | 10,00,000 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(-) Exempted HRA | 2,50,000 | 2,00,000 | ||||||||||||||
(-) Standard Allowance | 40,000 | 40,000 | ||||||||||||||
(-) Leave Travel Allowance | 30,000 | 30,000 | ||||||||||||||
(-) Other allowances
|
| |||||||||||||||
Total taxable Salary | 6,80,000 | 6,51,000 | ||||||||||||||
Less: Profession Tax Paid | 2,500 | 2,500 | ||||||||||||||
Less: Profession Tax Paid | 2,500 | 2,500 | ||||||||||||||
Income under the head Salary | 6,77,500 | 6,48,500 | ||||||||||||||
(-) Deductions under Section 80C | 1,50,000 | 1,50,000 | ||||||||||||||
Total Taxable Income | 5,27,500 | 4,98,500 | ||||||||||||||
Tax on income | 18,720 | 12,920 | ||||||||||||||
Saving in tax | 5,800 |
If you were wondering how to save tax on salary, then restructuring it to reflect different exempt allowances is the best way of going about it.
With various tax saving options for salaried individuals, you can plan to save tax under the provisions of the Income Tax Act, 1961. These tax planning options for salaried employees provide a platform for the Indian taxpayers to save tax.
Here are the top 10 tax savings options for salaried that are worth knowing:
Let’s discuss about some of the top tax saving options stated above in detail:
Employees’ Provident Fund, also known as EPF, is one of the most popular tax saving options for salaried people. It was introduced under the Employees’ Provident Fund and Miscellaneous Act of 1952 and is managed by the Central Board of Trustees.
Under this scheme, both the employee and employers contribute 12% of the employee’s salary to the Employee Provident Fund. On their contributions, the employees receive interest at a specific rate.
Tax savings for salaried employees under EPF comes in the form of tax exemption. The accumulated fund in an employee’s PF account along with interest earned is tax-free.
Public Provident Fund, popularly known as PPF, is a tax saving option for salaried individuals that provides a return on the investments, which are free from tax. Being one of the best investment-cum-tax saving options for salaried people, PPF enables them to plan for creating a corpus for retirement and earn guaranteed returns.
PPF investments fall under the EEE or Exempt-Exempt-Exempt category. It means that the amount one invests in a PPF account is tax-deductible under Section 80C and thus, helps in income tax planning for salaried employees. Alongside, the accumulated amount, along with the returns, is exempt from tax when withdrawn from the account. This is one way how salaried person can save tax.
Equity Linked Savings Scheme or ELSS is considered one of the best tax saving options for salaried individuals. Investment in ELSS schemes is eligible for deduction from an employee’s taxable income u/s 80C. You should also know that its qualification for tax deduction makes it different from all other mutual fund schemes.
ELSS stands out from other tax saving options for salaried individuals because of its dual benefit – comparatively higher returns, which are partially taxable. After Mar 31, 2018, ELSS returns are taxable at 10% for gains above Rs, 1,00,000.
4. National Pension Scheme (NPS)
Compared to PPF and Fixed Deposit (FD), NPS investments can provide higher returns but is not equally tax-efficient. Salaried individuals can claim tax benefits under Section 80 CCD (1) within the Rs. 1.5 Lakh ceiling u/s 80CCE. In other words, it helps in income tax planning for salaried employees.
5. Tax Saving FD
A tax saving Fixed Deposit or FD is quite popular as one of the tax saving options for salaried individuals. It is a type of FD with which you can avail tax deductions on your investments of a maximum of Rs. 1,50,000. The related tax benefits are covered under Section 80C.
Along with FDs, there are many other tax saving options for salaried people to create wealth. However, tax-saving FD, which has a lock-in period of 5 years, is deemed as the safest option for tax savings for salaried employees.
The returns from FDs are safe but are taxable. It is added under the head ‘Income from Other Sources’ in the ITR and gets taxed at applicable rates.
6. National Pension Scheme (NPS)
The uncertainties in life call for planning for the financial security of your loved ones under life insurance. While the primary benefit of buying a life insurance plan is to secure the financial needs of your family, you can also avail of tax benefits on such investments.
In fact, buying life insurance is considered one of the most sought-after tax saving options for salaried people. You can use online insurance premium calculator to check how much tax you can plan to save in a financial year. The premiums you pay toward life insurance is tax-deductible u/s 80C, up to the limit of Rs. 1,50,000. Furthermore, the death benefits or survival benefits under these plans are tax exempted u/s 10(10D). As a result, investments in life insurance plans lead to tax savings for salaried employees
7. House Rent Allowance (HRA)
Individuals living in rented accommodation can avail tax benefits as per the related rules. HRA or House Rent Allowance (HRA), a part of an employee’s salary structure, is not fully taxable.
What makes HRA one of the tax saving options for salaried individuals is that a part of it is exempted u/s 10(13A) of the Income Tax Act, 1961, subject to certain clauses. The taxable income is calculated after deducting HRA from the total income.
You should also know that HRA received from the employers is fully taxable if you live in your own house and do not pay any rent. This is a crucial aspect you must consider to understand how salaried person can save tax.
Leave Travel Concession or LTC, as the name suggests, is an exemption that salaried employees receive from their employer to travel on leave. Although the tax savings for salaried employees looks simplified under LTC, there are various rules related to claiming LTC exemption. Some of them are:
You should also know that LTC cannot be treated as a tax-free income every year u/s 10(5) of the Income Tax Act.
Gratuity is yet another option for tax saving for salaried employees. It is given either on superannuation, resignation, retirement, or death or disablement of an employee. Another prerequisite is that the employee must complete a minimum of five years of service with an employer.
The gratuity amount received on any of these eventualities is tax-exempt u/s 10(10), up to the limit of Rs. 20,00,000. Previously, this limit was Rs. 10,00,000 but has been recently increased as per CBDT Notification no. S.O. 1213(E).
Health insurance Plan provides financial security to you and your loved ones in medical emergencies or planned hospitalization. Besides safeguarding your financial interests, health insurance is one of the most used tax saving options for salaried people.
In general, the premiums paid towards health insurance are eligible for tax deductions, subject to the term of Section 80D. As a part of income tax planning for salaried employees, you can benefit more from this provision by paying for health insurance of your spouse, dependent children, and parents.
The maximum deduction you can avail u/s 80D is Rs. 1,00,000
Your income is not equal to your salary. You could earn income from several other sources other than your salary income. Your total income, according to the Income Tax Department, could be from house property, profit or loss from selling stocks or from interest on a savings account or on fixed deposits. All these numbers get added up to become your gross income.
Your employer deducts tax from your salary and pays it to the I-T Department on your behalf. It's called TDS. TDS is tax deducted at source. Your employer cuts a portion of your salary every month and pays it to the Income Tax Department on your behalf.
Based on your total salary for the whole year and your investments in tax-saving products, your employer determines how much TDS has to be cut from your salary each month.
For a salaried employee, TDS forms a major portion of an employee's income tax payment. Your employer will provide you with a TDS certificate called Form 16 typically around June or July showing you how much tax was deducted each month.
This is a fixed component in your pay check and forms the basis of other portions of your salary and hence the name. It is usually a large portion of your total salary. HRA is also defined a percentage of this Basic Salary. Your PF is deducted at 12% of your Basic Salary.
House Rent Allowance: Salaried individuals who live in a rented house/apartment can claim House Rent Allowance or HRA to lower taxes. This can be partially or completely exempt from taxes. The allowance is for expenses related to rented accommodation. Note: If you receive HRA and dont live on rent your HRA shall be fully taxable. To understand about the other components in your Pay Slip read here
Individuals need to file their return by 30th September of next year, i.e for income earned in Financial Year 2015-16, the return has to be filed by 30th September, 2016.
Income from House Property is possible in these cases –
Yes, return can be revised within a period of one year from the end of the relevant assessment year or before completion of the assessment whichever is earlier. Filing of revised return is not part of the plan. Plan buyer is required to provide full and accurate details to avoid the need for any rectification in the originally filed return.
Yes, a belated return can be filed before the end of the assessment year or before completion of the assessment year, whichever is earlier. For example, in case of income earned during FY 2016-17, the belated return can be filed up to 31st March 2018. ?
Yes, under the Income-tax Act legal proceedings can be initiated up to 4 to 6 years (depending upon case to case) prior to the current financial year. However, in certain cases the proceedings can be initiated even after 6 years, hence, it is advised to preserve the copy of return for at least 6 years or maintain it as long as possible.
ITR return forms are attachment less forms and hence, you are not required to attach any document (like proof of investment, TDS certificates etc.) along with the ITR (whether filed manually or electronically). However, these documents should be retained and produced before the tax authorities when demanded in situations like assessment, inquiry etc.
Audit & preparation of financial statements is not part of the plan.
Revised return filing on account of incorrect information provided by the assessee during the original return filing shall not form part of the plan.
Refund is applicable only if no CA has been assigned on the case, for detailed policy please visit our terms of use
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