EN 
Salaried individuals in India are one of the highest taxpaying citizens. Therefore, they are often in search of tax saving opportunities. A person whose salary falls in the highest income slab (income above Rs. 10 lakhs) has to pay tax @ 30% plus applicable surcharge and cess.
Therefore, tax planning is a crucial part of their finances. However, what are the ways in which salaried employees can save tax in India? Find out here!
Following are the allowances and deductions for salaried employees in order to reduce their income tax burden:
The income tax law allows a flat standard deduction of Rs. 50,000 from the salary of the employees irrespective of the amount of salary.
Companies usually provide employees with a house rent allowance for meeting expenses in relation to residential accommodation in the city of employment. This allowance is exempted from tax up to a certain limit which is lower of the following:
Here, salary means basic salary + dearness allowance + commissions based on fixed percentage of turnover. Further, Mumbai, Delhi, Kolkata and Chennai shall be considered as the metro cities for deduction limit of 50%.
Also known as Leave Travel Concession (LTC), it is provided to the employees for travel during their leave period either during their employment or after retirement or termination of service. The government has provided exemption for such allowance however, it is subject to certain conditions that includes:
Exemption depends upon the mode of transportation used for travel i.e.,
|
Sr. No. |
Particulars |
Eligible Exemption |
|
1 |
Journey through air |
Economy class fare of the national carrier by the shortest route or the actual amount spent, whichever is less |
|
2 |
Journey through rail Or, Where the origin and destination of journey is connected through rail and journey is performed by any mode other than air |
AC first class rail fare by the shortest route or the actual amount spent, whichever is less |
|
3 |
Where the origin and destination is not connected by rail but a recognised public transport exists |
First class or deluxe class fare of such public transport by the shortest route or the actual amount spent, whichever is less |
|
4 |
Where the origin and destination is not connected by rail and no recognised public transport exists |
AC first class rail fare by the shortest route or the actual amount spent, whichever is less |
Certain allowances have been prescribed under Section 10(14) read with rule 2BB of the Income Tax Rules, 1962 that have been exempted from tax. This includes:
The above-mentioned allowances are subjected to exemption upto the expenditure incurred or the amount of allowance received, whichever is less.
Section 80C contains multiple avenues of deductions for salaried employees where they can invest and claim tax benefits. The amount of deduction allowed is up to Rs. 1,50,000 for each financial year. Following are some of the options available under section 80C:
Where the employee makes an investment in pension funds, he is eligible to claim deductions under Section 80CCC of the act.
If a person invests any amount in the pension scheme as notified by the Central Government, then he can claim a deduction under Section 80CCD of the act. The deduction is available for contributions made by both the employer as well as the employee. Further, even self-employed people are eligible to claim deduction under this section. The amount of deduction that can be availed is as follows:
A. For self-contributions
B. For contributions made by the employer:
Note: Section 80CCE provides an aggregate deduction limit of Rs. 1,50,000 under Section 80C, 80CCC and 80CCD(1) in a financial year.
Further, 80CCD(1B) allows an additional deduction towards the employee contribution amounting Rs. 50,000 over and above the deduction limit of Rs. 1,50,000 claimed by the employee u/s 80C, 80CCC and 80CCD(1).
The amount paid as premium of medical insurance can be claimed as deduction from the salary. The deduction is allowed up to Rs. 25,000 for insurance premium paid for self, spouses and dependent children. In the case of medical insurance premiums paid for the parents, an additional deduction up to Rs. 25,000 can be claimed. In case, any of the person mentioned above is a senior citizen (i.e., resident in India and aged 60 years and above), the deduction limit gets increased to Rs. 50,000.
If any person makes donations, then he is allowed to claim a deduction under the income tax act. These donations can be categorised as follows:
Section 80E of the act allows deduction of interest paid on loans taken for higher education. There is no limit as to the amount of deduction that can be claimed. Further, the deduction can also be availed for interest on loans taken for higher education of relatives that includes spouse and children of the individual or student of whom he is a legal guardian.
The government launched a new taxation scheme for the taxpayers, allowing them to pay tax at concessional rates. The scheme is available for all the individuals and HUF and they shall exercise the option to pay tax as per this new scheme by filing Form 10-IE. However, this scheme disallows most of the deductions that are otherwise available in the normal taxation regime. These disallowances include:
Here’s a comparative analysis of the tax rates as per the old regime and new regime u/s 115BAC:
|
Total Income |
Old Regime |
New Regime as per 115BAC |
|
Up to 2,50,000 |
Nil |
Nil |
|
From 2,50,001 to 5,00,000 |
5% |
5% |
|
From 5,00,000 to 7,50,000 |
20% |
10% |
|
From 7,50,001 to 10,00,000 |
15% |
|
|
From 10,00,001 to Rs. 12,50,000 |
30% |
20% |
|
From 12,50,001 to Rs. 15,00,000 |
25% |
|
|
Above Rs. 15,00,000 |
30% |
It’s time you plan your taxes wisely by claiming benefit of the above allowances and deductions for salaried employees. In case of any assistance, please feel free to contact the ASC Group.
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