In this blog, we have shared top tax saving options for salaried individuals.
Every assessment year, the tax filing season serves as a signpost for anxieties and a frenzy among paid people. You seek tax-saving strategies since you must pay money for taxes for the relevant fiscal year.
Top tax saving options for salaried individuals
Following are the top saving options for salaried individuals:
1. Employees’ provident fund (EPF)
The Employees’ Provident Fund, or EPF, is one of the most well-liked ways for salaried individuals to save on taxes.
The Central Board of Trustees oversees the Employees’ Provident Fund and Miscellaneous Act of 1952, which established it.
Under this plan, 12% of the employee’s income is contributed by both, the company and the employee to the EPF. The employees earn interest at a specific rate on their contributions.
For salaried workers, tax savings through EPF take the form of tax exemption. The money accrued in an employee’s PF account and any interest is tax-free.
A salaried person’s income plan is lacking without an investment in a Public Provident Fund, or PPF. You may start a PPF, a savings plan supported by the government, for as little as Rs. 500. Maximum investment allowed is Rs. 1.5 lakh.
2. Public provident fund (PPF)
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.
As a result, it’s an excellent way for you to invest and save on taxes.
3. Equity-linked savings scheme (ELSS)
Consider ELSS if you’re searching for financial solutions that let salaried workers deduct income taxes from their pay. One of the finest tax-saving choices for salaried people is the equity-linked savings scheme or ELSS.
Investments in ELSS plans may be written off from an employee’s taxable income under Section 80C. You should also be aware that it differs from all other mutual fund schemes because it qualifies for a tax deduction.
For salaried persons, ELSS distinguishes itself from other tax-saving choices because of its dual benefit of relatively more significant returns that are partially taxable.
For profits over Rs. 1,000,000 in ELSS returns after March 31, 2018, there is a 10% tax.
4. National Pension Scheme
The National Pension Scheme, or NPS, is designed for those who wish to save for retirement but have limited tolerance for risk.
Being directly governed by the central government, it is a secure alternative for investments and a great way for salaried people to save on taxes.
Under section 80C of the IT Act, you may claim tax advantages for the donation. Additionally, you are eligible for further deductions of up to Rs. 50,000 under Section 80CCD (1b).
5. Health insurance
Chronic health disorders have become more prevalent due to an increase in sedentary lifestyles, long work hours, bad eating patterns, and other environmental variables.
Additionally, the rising healthcare expense has elevated health insurance to the status of an essential investment.
It also offers tax advantages while protecting you and your family from health problems that might drain your bank account.
Premiums paid under Section 80D are eligible for deductions. One of the tax-saving investments that have several advantages is health insurance.
6. ULIPs
ULIPs, which stand for Unit Linked Insurance Plans, offer investment and insurance benefits. With the money you pay in premiums, you may give your family financial security and invest in various assets to earn returns via careful planning.
ULIPs come under the EEE category. This means that you can save taxes* since the premiums paid, the returns earned, which are not subject to deduction, and the maturity sum are all tax-advantaged, provided certain requirements are met, and recent tax* standards are followed.
7. House rent allowance (HRA)
According to the relevant regulations, those who rent housing can take advantage of tax incentives for salaried employees. HRA, also known as House Rent Allowance (HRA), is not entirely taxed and is thus deductible from income for salaried employees.
Because a portion of HRA is free from taxation under Section 10(13A) of the Income Tax Act of 1961, subject to certain restrictions, it is one of the tax-saving choices available to salaried persons. HRA is subtracted from the total income before calculating the taxable income.
Additionally, you should be aware that HRA received from your employers is entirely taxed if you own your home and do not pay rent. It would help if you considered this fully to grasp how a salaried person might reduce their tax burden.
8. Gratuity
It is tax-exempt under section 10 when given to an employee upon their death, dismemberment, retirement, or superannuation (10).
The maximum exemption amount is Rs. 20,000,000. Remember that to be eligible for the payment, you must have served a minimum of five years in the company.
Investments should be made early and frequently for effective tax planning. Your tax planning to-do list should also include studying your pay stub.
Don’t disregard the investment declaration form your company sent you; it contains a wealth of tax-saving information.
FAQs
How can I save more tax on my salary?
There are many ways to save on taxes on your salary such as:
- National Pension System
- House rent allowance (HRA)
- ULIPs
- Health insurance
- Equity-linked savings scheme (ELSS)
- Employees’ Provident Fund (EPF)
How much maximum tax a salaried person can save?
Salaried individuals can save up to 1.5 lakhs in India on taxes.
How can I reduce my monthly tax on my salary?
Salaried individuals can claim up to ₹1.5 Lakh spent on such investments as tax waivers under Section 80C of the Income Tax Act.
