Ensuring tax savings is essential for salaried employees aiming to maximise their income. With many tax-saving options, understanding and utilising these avenues can significantly reduce your taxable income while boosting financial security.
However, it should be noted that a range of deductions and exemptions are not available in the new tax regime but only in old tax regime, which is now the default option. You would need to opt for the old tax regime to avail yourself of these exemptions and deductions.
Types of tax saving options for salaried employees
1. Tax saving FD: Tax Saving Fixed Deposits offer tax benefits under Section 80C of the Income Tax Act, which allows deductions up to ₹1.5 lakh per annum. They come with a lock-in period of 5 years and provide assured returns.
2. PPF: The Public Provident Fund is a popular long-term investment option offering tax benefits. Contributions to PPF are eligible for tax deductions under Section 80C, with an annual investment limit of ₹1.5 lakh. The interest earned and the maturity amount are tax-free.
3. NPS: The National Pension Scheme is a government-backed retirement savings scheme offering tax benefits under Section 80CCD. You can claim an additional deduction of up to ₹50,000 under Section 80CCD(1B). This is over and above the ₹1.5 lakh limit under Section 80C.
4. Leave travel concession (LTC): Leave travel concession allows you to claim tax exemption on travel expenses incurred within India. The exemption is available for two journeys in a block of four years. To avail of this benefit, you must ensure the expenses are supported by proper documentation and fall within the stipulated guidelines.
5. House rent allowance (HRA): HRA is a significant tax-saving tool for you if you live in a rented accommodation. HRA exemptions can be claimed under Section 10(13A) of the Income Tax Act. The amount of exemption depends on your salary, HRA received and rent paid.
6. Health Insurance premium: Investing in a Health Insurance policy offers dual benefits of securing your health and saving taxes. Premiums paid for Health Insurance for yourself and your family are deductible under Section 80D, with a maximum deduction of ₹25,000 (₹50,000 for senior citizens).
7. Equity Linked Savings Scheme (ELSS): ELSS is a Mutual Fund investment with tax benefits under Section 80C. It has a lock-in period of 3 years and offers you the potential for higher returns as it invests predominantly in equity markets.
8. Employees’ Provident Fund (EPF): Contributions to the Employees’ Provident Fund are mandatory for salaried employees. The employer's contribution is tax-free, and your contribution qualifies for deduction under Section 80C. The interest earned and the maturity amount are also tax-exempt under specific conditions.
Tax planning for salaried employees
Filing ITR is vital to ensure tax planning. It starts with selecting the appropriate ITR form and reporting gross salary, allowances, investments and other income. Essential documents include Form 16, Form 26AS, bank statements and TDS certificates. Accurate and timely filing ensures that you comply with the tax laws.
A thorough understanding of income tax rules and regulations for salaried individuals can significantly impact your financial planning. By staying informed about the latest tax laws and exemptions, you can optimise your savings and investments.
Also Read: Understanding tax implications on Savings Account interest
Conclusion
By exploring various tax saving options for salaried employees, such as tax-saving FDs, PPF, NPS, HRA, and more, you can ensure your investments are not only tax-efficient but also aligned with your long-term financial goals.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision. Mutual Fund investments are subject to market risk, read all scheme related documents carefully. Axis Bank Ltd is acting as an AMFI registered MF Distributor (ARN code: ARN-0019). Purchase of Mutual Funds by Axis Bank’s customer is purely voluntary and not linked to availment of any other facility from the Bank. T&C apply.
