Tax-saving tools for salaried class

Chetan Chandak

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As the financial year is about to end, for salaried class, this is the time to show proof of all the promises they made (of making investments) to their employers to escape TDS. Late tax planners, who haven’t made the required investments so far, need to do it before March 31. Failing to do so can put unnecessarily high tax burden on them. All the procrastinators must know a few things before they scramble to find investment tools. Even those who plan their taxes need to analyse their tax profile to figure out whether it is properly optimised or not.

Options available

Before you start looking out for tax-saving investment options, you should look at your salary structure and expenses first. Your salary may comprise several allowances such as HRA, LTA, uniform allowance, etc. which are tax exempt. There are several common expenses like tuition fee, health insurance premiums, education and home loan EMIs which are eligible for tax benefits. Other than these, you can claim several perquisites as tax deductions. Once you have utilised them, you can look out for various investment plans which can serve the dual purpose of generating lucrative ROI as well as reduce tax.

House rent allowance

If you are residing in a rented accommodation and you get HRA as part of your salary, then you can reduce your tax liability by claiming the tax benefits as per provisions of Section 10 of the I-T Act. Even if your employer doesn’t give you HRA, you can still claim tax deduction under Section 80GG. To claim HRA benefit, you need to submit rent receipts and PAN details of the landlord.

Leave travel allowance

If LTA is part of your salary, then you should keep your proof of travel safely. You can use them to claim LTA deductions twice in a block of 4 years. You can claim LTA for travel expenses incurred on yourself, your spouse, children, parents, brothers and sisters who are completely dependent on you. Things like travel tickets, boarding passes, invoice received from travel agent, duty slip, etc. can be submitted as proof of the journey to your employer.

Conveyance allowance

Another popular tax-exempt allowance is conveyance or transport allowance. The best feature of this allowance is that you can get tax exemption without actually spending any money on travel. No documentary proof is required to get tax deduction here. The exemption limit is Rs 19,200 per annum. Other than these popular allowances, there are several other allowances under Section 10 of the I-T Act which can further reduce your tax.

Other perquisites

Some employers provide various benefits to their employees in the form of perquisites. You can claim these as a deduction based on bills submitted within maximum allowable limits. Club membership fee, money spent on uniform, car fuel and conveyance can minimise your taxes if you submit proper bills to your employer. It is important to claim deductions beforehand in this case as these cannot be claimed as refund while filing a tax return.

Tuition fee

Apart from allowances and perquisites, there are several common expenses which can reduce your tax liability. For example, tuition fee of your kids is a common expense you incur on a monthly basis. 

Health insurance 

Another common expense is money spent on your family’s healthcare. If you have a health insurance plan for you and your family, you can get some tax deduction on the premiums that you pay. If you take care of your parents’ medical bills and they are above 80 years of age, then you can reduce your taxable income by up to Rs 30,000. If you spend money on preventive healthcare, you become eligible for the additional tax benefit of Rs 5,000. Section 80D covers all these benefits which provide deductions up to Rs 60,000. Your employer will ask you to submit tuition fee receipts, medical bills and receipts of premium paid. However, the premium shouldn’t be paid in cash to make it eligible for tax exemption.

Education loan

If you are paying EMIs of education loan taken for yourself, your spouse or your child, then you can deduct the amount paid as interest from your taxable income. No upper limit is applicable on this deduction. You should submit the proof of interest paid to your employer.

Home loan

Similarly, tax benefits are available on home loan as well. The principal component of your EMIs is tax deductible under Section 80C while you can claim the interest component as a deduction under Section 24. First time home buyers get the additional tax benefit of Rs 50,000. Tax deduction is also available on stamp duty and registration charges paid irrespective of whether the buyer bought property with or without a home loan.

Donations

Donations of various kinds have been made tax deductible by the tax department to encourage such charities by citizens. Section 80G, 80GGA and 80GGC cover the rules and regulations regarding the same. To claim the tax benefits here, you need to submit a tax exemption certificate to your employer. You can obtain this certificate from the institution where you made a donation.

There are several other tax-saving investment schemes which you can invest in to save even more taxes. For example, if your employer deducts your salary to make a contribution to your EPF account, then you get some tax deduction under Section 80C. Your employer’s contribution up to 12% of your salary is also exempt from the tax net. You don’t need to submit any documentary proof as your employer already considers the eligible amount while calculating your tax liability.

PPF/ELSS/NSCs/SCSS

You can also start investing in PPF, which is considered as one of the best long-term tax-saving scheme as it earns best tax-free returns. It is also eligible for tax benefits under Section 80C. Copy of PPF passbook or PPF e-receipts can be used as investment proofs. Other popular tax-saving options under Section 80C are Sukanya Samriddhi Scheme, Equity Linked Savings Scheme, National Savings Certificate, Senior Citizens Saving Scheme, etc.

These are some of the best ways for salaried individuals to save their taxes. Taxpayers should do tax planning from the beginning of financial year. By doing so, they can make optimum utilisation of all tax-saving tools.

The writer is Head of tax research, H&R Block India. The views expressed in this article are his own