5 Tax Saving Tips for Salaried Employees

 Till the time most of us don’t start earning, we keep wondering why all the fuss about tax saving. But the moment we get our first salary and see the amount of tax being cut, we realise the importance of effective tax planning. 

Yet, most of us fail to take advantage of all the tax saving avenues available of us. Mostly we stop after claiming deduction under Section 80C, primarily due to lack of awareness about other options.

In this blog, we will tell you about 5 ways through which you can save tax beyond the Rs. 1.5 lakh allowed under section 80C

1. Additional tax saving for NPS investments under Section 80CCD (1B) 

Every year, you can claim a deduction upto Rs 1.5 lakh under Section 80C by contributing to the National Pension System or NPS. Besides this, you can claim an additional deduction under Section 80CCD (1B) by contributing another Rs 50,000. This means, if you fall under the 30 percent tax bracket,  you can reduce your tax amount by Rs 15,600 by investing in NPS. The 4 percent educational cess is also included within this.

2. Tax Saving on Health Insurance under Section 80D

Today, health insurance is a necessity rather than an option. If you do not have a health insurance policy, then a medical emergency can adversely affect your financial health. So, health insurance policies come with certain tax benefits so that more and more people buy it. 

You can claim tax benefits under Section 80D for the premium amount paid for your health cover. And the benefits can be claimed for – standard health insurance policy, health insurance riders and also top up health cover. You can also claim tax deduction for preventive health check ups, provided it is within the limits of your health cover.

Under Section 80D, the deduction limit depends on the age of the insured and family members covered under the policy. As per the taxpayer’s family situation, deduction limit can be Rs 25,000, Rs 50,000, Rs 75,000 or Rs 1,00,000.

Policy Type	Tax Deduction Limit
Covering individual, husband/wife and children	₹ 25,000
Covering individual, husband/wife and children and if any one is a senior citizen	₹ 50,000
Covering Parents (not senior citizens)	₹ 25,000
Covering Parents (senior citizens)	₹ 50,000

If the health policy covers your immediate family and not parents, then you can claim up to Rs 25,000 on the premium paid. If the policy covers a person who is over the age of 60, then the limit you can claim is Rs 50,000. Besides, if you have taken any policy for your parents, then the premium for non-senior citizens is Rs 25,000. And for senior citizens, it’s Rs 50000. This is over and above your family cover limit.

Let’s look at an example. Suppose, 35-year-old working professional Anil has bought a health insurance policy that covers him, his wife and child. Under Section 80 D, he can claim upto Rs 25,0000 for this policy in a financial year. A preventive health check up is also included in this policy. Every year, he pays Rs 18,000 for this policy, and another Rs 4,000 for the preventive health check up. Under Section 80D, he can claim a deduction of Rs 22,000.

Now, he has bought another health policy for his parents, who are senior citizens. For this policy, he can claim deductions upto Rs 50,000. In total, he would be able to claim deduction upto Rs 75,000 for two policies.

3. Tax Savings on Disabled Dependent under Section 80DD

If a taxpayer is looking after a disabled dependent, then he can claim tax deductions under Section 80DD. This deduction is offered as a help towards the family members of the disabled. Under this section, a disable dependent can be – wife, children, parents and siblings. In Hindu Undivided Family (HUF), it can be any member of the family. 

To claim benefits under this section, it is necessary to ensure that the disabled dependent has not claimed deduction under section 80U. 

Disabilities covered under the section are – 

• Blindness
• Low vision 
• Loco-motor disability
• Hearing impairment 
• Mental retardation
• Mental illness
• Autism
• Cerebral palsy

You can claim deductions on 

• Expenses on disabled person’s treatment, nursing, training and rehabilitation.
• For premium paid on policies for these specific conditions

However, the amount of deduction is dependent on the seriousness of the condition. If the disability is upto 40 percent, then the taxpayer can claim deductions up to Rs 75,000. If the disabled person is at least 80 percent disabled, then the taxpayer can claim a deduction up to Rs 1,25,000

4. Tax Saving on Education Loan interest under Section 80E

Under Section 80E, tax benefits can be claimed on the interest component of an education loan. And, there is no defined limit for this. This deduction can be claimed by the student or the parents, whoever is making the repayment. This benefit, however, can be availed from the first year of the repayment till the eighth year or till the time repayment is complete, whichever is earlier.

For example, let’s suppose, you complete the repayment process within six years, then you can avail the benefit for six years. On the other hand, you can continue to repay the education loan even after the eight year limit, but in that case, you cannot avail this tax benefit. 

5. Tax Saving on Saving Bank Interest under 80TTA and 80TTTB

We all keep money in banks and earn an interest on that. Every individual and HUF can claim a tax deduction on this interest paid. Tax payers, who are not senior citizens, can claim deductions under Section 80TTA and senior citizens can claim taxes under Section  80TTB. 

However, tax deduction cannot be claimed on the interest earned on FDs, RDs or Term Deposits 

Section 80TTA: 

The maximum deduction limit under this section is Rs 10,000. This means, you can claim deduction on the interest earned up to Rs 10,0000. If you have several savings accounts, even in that case, interest earned from all the accounts will be clubbed together. The excess amount will be considered as income from other sources and that money is taxable.

For example, Anant has three savings accounts. From these accounts, he earned an interest amount of Rs 6,000, Rs 8,000 and Rs 12,000. The total interest income is Rs 26,000. But, under Section 80TTA, he can claim a deduction of Rs 10,000. The rest Rs 16,000 will be considered as income from other sources.

Section 80TTTB: 

This section was introduced on April 1, 2018 as a benefit to be availed by the senior citizens who use interest earned from saving bank accounts and deposits as their source of income. Under this section, senior citizens can claim tax deduction up to Rs 50,000. 

Bottomline: 

As you can see, if you use all the tax saving options mentioned above, you can save quite a bit of taxes beyond Section 80C. However, please remember, tax benefit shouldn’t be the primary reason for you to go for the investment products or insurance mentioned above. 

Save Income Tax Legally in India

 

1. Tax Deduction In Case of Availing A Home Loan:

You can save tax if you plan your home loan wisely in accordance with section 80C. For the principal amount, the limit is Rs. 1.5 lakhs as per section 80C and for the interest amount the limit is Rs. 2 lakhs as per section 24.

Tax Saving Options under Sections 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80CCG, 80G

Here’s a list of tax-saving options for different sections.

2. Income Through Savings Account Interest:

Overall, interest earned on a savings account is exempt for taxation purposes for a limit of Rs. 10000. This amount is cumulative of all saving bank accounts. This limit extends to Rs. 50000 in the case of senior citizens.

3. Income Through NRE Account Interest:

Non-resident Indians have NRE accounts in India. They earn interest on the accumulated amount and the amount deposited as a fixed deposit. Due to the generous nature of the Indian government towards the NRIs, such an amount is not taxable. The interest amount is known as tax-free income. 

4. Money Received from Life Insurance Policy:

Money from a life insurance policy can be received on maturity or on receiving the claim amount. The amount received is exempt from tax if the premium doesn’t exceed 20% of the sum insured. This applies to policies issued before 1 April 2012. In case of policies issued after 1 April 2012, the percentage drops to 15.

5. Scholarship for Education:

Such an amount is tax-free under Section 10(16). There are no limits in such a scenario as the entire amount received under private or public scholarship is tax-free.

6. Amount Received From Sold Shares or Sold Equity Mutual Funds:

If the amount of long-term capital gain is more than Rs. 1 lakh, then a 10% tax is applicable.

7. Amount Received as Dividends on Shares or Equity Mutual Funds:

Such an amount is tax-free.

8. Wedding Gift:

A wedding is an eventful occasion for the entire family, especially for the individual getting married. In India, it is a humongous event where the bride and groom are showered with gifts. Under Section 56(2), such gifts are non-taxable. Be it a gift, cash, or cheque, gifts received on getting married do not attract tax. Such gifts can be from your relatives or friends.

9. Income from Agriculture:

Any kind of income from agricultural land defined as per section 10(1) is exempted from tax. Such an income can be related to rent from land, revenue from land, the amount generated through agriculture products, and the amount through a farm building.

10. HUF and Extra Income:

If you are someone who earns secondary income apart from your primary salary income, then you can save money paid as tax for the income apart from salary. For example, money earned from freelancing will constitute a secondary income. You will have to open a separate HUF account for the secondary income. And then you can invest that amount under section 80C to avail tax benefits for that amount.

11. Amount Received Through Inheritance:

The amount received through inheritance in the form of a Will is not taxable in India. Therefore, the amount you receive as per a Will shall not be taxed in India.

12. Provisions Under Section 80C:

In order to encourage savings, the government of India offers a provision to invest Rs. 1,50,000 as per section 80C of the Income Tax Act. Therefore, by investing in tax-saving options under 80C, you end up saving money on income tax as well as make investments for a secure future. Here’s a list of popular investment options to save tax under section 80C.

• Public Provident Fund

• National Pension Scheme

• Premium Paid for Life Insurance policy

• National Savings Certificate

• Equity Linked Savings Scheme

• Home loan’s principal amount

• Fixed deposit for a duration of five years

• Sukanya Samariddhi account

• Children’s tuition fees

Here’s a table that showcases which type of investment will fetch you how much returns with the respective lock-in period.

Investment	Returns	Lock-in Period
5-Year Bank Fixed Deposit	6% to 7%	5 years
Public Provident Fund (PPF)	7% to 8%	15 years
National Savings Certificate	7% to 8%	5 years
National Pension System (NPS)	12% to 14%	Till Retirement
ELSS Funds	15% to 18%	3 years

13. Extra Contribution to National Pension Scheme:

Usually, contributions to the National Pension Scheme fall under Section 80C, where there is a limit of Rs. 150000. However, you can opt to invest Rs. 50000 more in the National Pension Scheme, as this amount will be tax-free.

14. Amount from Provident Funds:

Interest received on the provident fund is not taxable. Wait for five years before you withdraw the amount from your Provident Fund.

15. Loan for Education Purposes:

This comes under section 80E of the Income Tax Act. The interest amount paid against an education loan is not taxable. There is no specified limit for such a category.

16. Health Insurance Premium:

Section 80D is a dedicated section for health insurance tax deductions. A certain portion of the money paid as health insurance premium is not tax-deductible. This amount keeps changing on an annual basis. Premium paid for buying health insurance for senior citizens can help you save more tax. 

17. Expenses to treat Disabled Dependent:

Such deductions are a part of Section 80DD. Fixed deductions of Rs. 75000 are allocated for a person with 40 to 80% disability and Rs. 125000 for more than 80% disability. Such expenses should be for treating a disease, rehabilitation or training. You will have to furnish a certificate of disability to avail of the benefit of such deduction.

18. Expenses for Treating Specific Diseases:

This deduction is part of Section 80DDB. Tax benefits are applicable for expenses incurred towards treating specific diseases such as Dementia, Cancer, Aids, etc. For such diseases, tax deductions up to Rs. 40000 are applicable. In case the expenses are for a dependent senior citizen, then the amount increases to Rs. 1 lakh.

19. Money Spent on Donation to Charity:

You can save money given as tax by donating money to certified charities. This deduction falls under Section 80G. To avail the benefit, you will have to source a valid certificate from the charity organization.

20. Money Spent on Donation to Political Party:

There is no upper limit to tax deductions on money spent on giving a donation to a political party. Such deductions are a part of Section 80GGC. Such a donation amount equals to 100% deduction.

Tax-Saving Tips for Business Persons:

Here’s a list of tax-saving options for a business person.

21. Distribution of Profit in Partnership Firm:

No tax shall be deducted from partners in the case where the partnership firm is making profits and the business holders decide to share the profit among themselves.

22. Expenses Made for Travelling:

Business owners can show expenses made for travel as business expenses to save tax.

23. Expenses Made for Food:

Business owners can show expenses made for food as business expenses to save tax.

Tax-Saving Tips for Salaried Individuals:

Here’s a list of tax-saving options for salaried employees. 

24. Leave Travel Allowance:

Employees can make use of this feature to cover travel tickets of spouse, children, and parents. Siblings are covered only if they are dependent on the salaried person. This falls under section 10(5).

25. When HRA is Part of Salary:

You should reside in a rented place to avail of this feature and you should possess relevant receipts. It falls under Section 10(13).

26. When HRA is Not a Part of Salary:

When HRA is not a part of the salary, the tax benefit can be availed in the following ways: 1) subtracting rent from 10% of income, 2) a flat rate of Rs. 5000 on a monthly basis, 3) 1/4th of total income. These deductions are a part of Section 80GG.

27. Amount Received from Gratuity:

Money received as gratuity is tax-free up to a limit. The limit for tax-free gratuity is Rs. 20 lakhs.

28. Coupons for Food:

Food coupons or meal coupons as they are commonly known are not taxable to a limit. They are non-taxable up till Rs. 2600.

29. Standard Deduction:

There is a standard deduction of Rs. 40000. This is the maximum amount.

30. Company Leased Car:

The company leased car can be utilised to save tax.

31. Expenses for Telephone and Internet:

Expenses for Telephone and Internet can be utilized to gain tax benefits.

32. Amount Received as per Voluntary Retirement Scheme:

A lot of people choose to opt for Voluntary Retirement and take a pay-out. The amount received as per the Voluntary Retirement Scheme is not taxable till the limit of Rs. 5 lakhs.