9 Investment Tips for a Employee to Save on Income Taxes in India

It is easy to plan taxes for salaried employees; however, the first checkpoint is to be careful and not recklessly invest in tax-saving or claim deductions and exemptions. The beginning of the financial year should mark the activity for income tax savings. Tax-saving activities should ideally start with April instead of the end of the financial year. The feeling of financial independence is a great confidence booster.

With great financial independence comes financial responsibility. When you start getting money for the work you do or get excited about a new job, it is easy to get carried away. However, the challenge is to stay calm, look up for the loopholes and bury them before it’s too late.

Tax saving is a part of the budget. As a money-management tip, every new earner should have a budget inclusive of tax savings. The importance of making a budget cannot be emphasised enough given that income and expenditure of a predefined period are easier to balance than letting the future takeover. Efficient and accurate planning of a monthly budget inclusive of taxes may help save to a great extent. Let us go through some of the tax-saving tips that salaried employees can take benefit of.

Tax-Saving Tips for Salaried Employees

Did you ever feel the pain of paying too much tax? Well, there is an advantage of paying a significant amount of tax, given you have the correct tax planning tips. The right information will help you make a substantial difference to the tax amount you pay and claim exemptions and allowances while filing the income tax return.

Saving is directly related to earning, which is not an impossible task. Look for the benefits available, the deductions, and have a separate budget to check out the amount you save on proper tax planning.

1. Tax Exemption From Medical Bills

The financial year 2018-19 witnessed a change for salaried employees concerning standard deduction on medical bills. A sum of rupees 40,000 has been put in place of medical expense reimbursement for salaried employees and pensioners. You do not have to go through the task of safely keeping the medical bills and submitting them to the employer. You can simply claim a standard deduction while filing an income tax return. Ensure your income falls within the purview of income tax filing.

2. Make the Most of Section 80C of the Income Tax Act, 1961

For salaried employees, Section 80C of the Income Tax Act, 1961 allows a maximum deduction of Rs. 1,50,000 yearly. Make it a point to utilise the amount to its fullest. If you are not aware of the places you can invest in making optimum use of section 80C, here are some:

Equity-linked saving schemes.
Public provident fund.
Life insurance premiums.
The principal component of home loan repayment of 5 years.
Fixed deposits with banks or the post office.
Contribution to employees provident fund.
Tuition fees paid towards children's education can be claimed for up to two children.

Section 80C is arguably the most significant section of the Income Tax Act. If you plan to economise your earning and saving whilst reducing the income tax rate with decreased tax payout, 80C will lead you. Take the help of a financial consultant or tax advisor to learn the different places you can invest and claim tax benefits.

3. Invest in Mutual Funds

An equity-linked savings scheme or mutual funds is an instrument claimed under Section 80C of the Income Tax Act. The benefits of taxable income you put into a mutual fund are a massive advantage if you fall within the earning tax slab. Mutual funds are equity diversified funds directly related to the equity market.

The money invested is put into equity and equity-related securities. Mutual funds have a lock-in period for 3 years or more. You will have to invest and leave your money in the fund for a minimum of 3 years. The longer you invest, the greater is the value of your return. You are allowed to claim rupees 1,50,000 on tax saving funds under 80C of the Income Tax Act.

The best way to invest in the mutual fund is through systematic investment plans known as SIPs. You can invest as low as Rs. 500 a month with a SIP. As soon as the financial year begins, try working on the selected directions to calculate the leftover you have from rupees 1.5 lakh under Section 80c. Easily divide the amount by 12, to decide the amount of your SIP.

4. Tax Exemption Under House Rent Allowance for Salaried Individuals

Section 10-13A of the Income Tax Act provides tax exemption for salaried individuals under house rent allowance. The deduction is calculated based on the lowest amount out of the following:

50% of employee salary eligible for tax exemption if the individual lives in any of the metropolitan cities in India.
The employee lives in any other city than 40% of salary can be HR exempted.
The employer gives the house rent allowance.
Actual rent paid by the employer for residence each month less 10% of his salary.

Salary under HRA includes basic salary + dearness allowance and any other commission provided by the employer. If an individual pays rent exceeding rupees 1,00,000 towards the rent paid can be claimed as a tax exemption. Of course, details of PAN and property owners with rent receipts are a mandate.

Salaried employees can claim tax benefits on both a home loan and a rented residence. If the employee rents his home to someone else and is himself living in a rented place, he can claim the benefits of house rent allowance on both the rented place and the home loan. As such, you will have to denote the income gained through the property and pay the due tax for it.

5. Standard Deduction

The 2018 budget reintroduced the standard deduction. Salaried employees can claim a deduction of Rs. 50,000, from the total income, thereby reducing tax outgo.

6. Save Tax on Donations

If you have made donations towards charities, non-governmental organisations, etc., such donations will be eligible for a tax deduction. 8% to 50% permitted for that NGO will be deducted under Section 80G. However, deductions up to Rs. 2000 will be allowed.

Donations made beyond Rs. 2000 will not be allowed as a deduction. Also, if you are fond of making donations, make sure the donation of any amount is made through cheque, draft, or cash deductions will be available for cash payments made towards donations up to Rs.10,000 only.

7. Options Beyond Section 80C

Medical premiums can be claimed as exemption up to rupees 15,000 with an additional amount of rupees 15,000 for parents. For senior citizens, the additional deduction can be up to rupees 20,000. If you are maintaining dependent parents, you can claim the money spent on the maintenance, including medical treatment under Section 80DD of the Income Tax Act. For severe disability, the claimable amount is 1,00,000, with 40% of any disability up to Rs. 50,000 under section 80U of the act.

To Summarise

Salaried employees are often confused about the tax-saving entities. The above details shed some light on how salaried employees can go beyond the regular earning and expenditure process and save some taxes. The above steps are some of the definite ways to save tax, and it should be kept in mind that filing a return for salaried employees every year should be mandatorily done.

Also read:

1) Why Do We Pay Income Tax in India? Importance, Applicability & more
2) Provisions for Income Taxes in India Applicable for Salaried People.
3) How To Pay Income Tax Online? Step-By-Step Guide.
4) The USA vs India: Taxation System