As a salaried employee in India, navigating the complex landscape of income tax can feel overwhelming. However, with proper tax planning for salaried employees, you can significantly reduce your tax liability and save more of your hard-earned money. Many individuals are unaware of the various tax saving options for salaried employees available to them.
In this article, we will explore practical strategies and investment avenues that can help you optimise your taxes and keep more money in your pocket. By understanding these tax saving options for salaried individuals, you can make informed decisions and take control of your financial future.
Understanding the Tax Bracket for Salaried Employees
Before exploring tax saving options, it’s essential to understand which tax bracket you fall under. India follows a progressive tax system, meaning your tax rate increases as your income increases.
Current Tax Slabs for Salaried Employees (New Tax Regime – FY 2025–26 onwards)
· Up to ₹4,00,000: Nil
· ₹4,00,001 to ₹8,00,000: 5%
· ₹8,00,001 to ₹12,00,000: 10%
· ₹12,00,001 to ₹16,00,000: 15%
· ₹16,00,001 to ₹20,00,000: 20%
· ₹20,00,001 to ₹24,00,000: 25%
· Above ₹24,00,000: 30%
Rebate under Section 87A
Under the new tax regime, individuals with an annual income of up to ₹12,00,000 are eligible for a rebate of up to ₹60,000, making their tax liability zero.
Here are the old tax regime slab rates:
· Up to ₹2,50,000: Nil
· ₹2,50,001 to ₹5,00,000: 5%
· ₹5,00,001 to ₹10,00,000: 20%
· Above ₹10,00,000: 30%
You do have the option to choose between the old and new tax regimes when filing your income tax return. Under the old regime, you can continue claiming a variety of deductions and exemptions — for instance, deductions under Section 80C, 80D, HRA, and many others. In contrast, the new regime simplifies taxation by offering lower slab rates, but it does not permit most deductions under Chapter VI-A (including 80C, 80D, etc.).
So if your financial situation involves significant investments or expenses that qualify under these deductions, the old regime may still be more beneficial for you.
Maximising Deductions Under Section 80C
One of the most effective ways to reduce your taxable income is by maximising deductions under Section 80C of the Income Tax Act. This section allows you to claim deductions up to ₹1.5 lakh per financial year for certain investments and expenses.
Some popular tax saving options for salaried individuals under Section 80C include:
· Employee Provident Fund (EPF) contributions
· Public Provident Fund (PPF) investments
· Life insurance premiums
· Equity-Linked Savings Scheme (ELSS) mutual funds
· National Savings Certificate (NSC)
· Tax-saving fixed deposits
· Tuition fees for children's education
By strategically investing in these tax saving options for salaried employees, you can significantly reduce your taxable income and save on taxes.
Claiming House Rent Allowance (HRA)
If you live in rented accommodation, claiming House Rent Allowance (HRA) can be a valuable tax planning strategy for salaried employees. HRA is a component of your salary that is exempt from tax, subject to certain conditions. To claim HRA, you must actually pay rent and provide proof of payment, such as rent receipts or a rent agreement.
The amount of HRA exemption you can claim depends on the following factors:
· Actual HRA received from your employer
· Actual rent paid minus 10% of your basic salary
· 50% of your basic salary (for metros) or 40% (for non-metros)
By claiming HRA, you can reduce your taxable income and save on taxes as a salaried employee.
Investing in Health Insurance and Medical Expenses
Investing in health insurance not only provides financial protection against medical emergencies but also offers tax savings for salaried individuals. Under Section 80D of the Income Tax Act, you can claim deductions for the premiums paid towards health insurance for yourself, your spouse, dependent children, and parents. The deduction limits are as follows:
· Up to ₹25,000 for self, spouse, and dependent children
· Additional ₹25,000 for parents (₹50,000 if parents are senior citizens)
Moreover, expenses incurred on preventive health check-ups up to ₹5,000 per year can also be claimed as a deduction. By investing in health insurance, you can save on taxes while safeguarding your family's health.
Leveraging Home Loan Benefits
If you have taken a home loan to purchase or construct a residential property, under Section 80C, you can claim a deduction for the principal repayment of your home loan, subject to the overall limit of ₹1.5 lakh. Additionally, under Section 24, you can claim a deduction for the interest paid on your home loan up to ₹2 lakh per year.
Furthermore, if you are a first-time homebuyer, you can claim an additional deduction of up to ₹50,000 per year under Section 80EEA, subject to certain conditions. By leveraging these home loan benefits, you can save a substantial amount on taxes while fulfilling your dream of owning a home.
Donating to Charitable Organisations
Donating to registered charitable organisations not only supports noble causes but also offers tax savings for salaried individuals. Under Section 80G of the Income Tax Act, you can claim deductions for donations made to eligible charitable institutions. The deduction amount varies depending on the nature of the donation and the organisation. Some donations are eligible for a 100% deduction, while others qualify for a 50% deduction, with or without a qualifying limit.
By carefully selecting the charitable organisations you support and keeping proper records of your donations, you can claim deductions and reduce your taxable income.
Investing in the National Pension System (NPS)
The National Pension System (NPS) is a voluntary retirement savings scheme. Contributions made to NPS are eligible for tax deductions under Section 80CCD(1B) of the Income Tax Act, over and above the ₹1.5 lakh limit under Section 80C. You can claim an additional deduction of up to ₹50,000 for contributions made to NPS.
Moreover, the employer's contribution to NPS is also eligible for a deduction under Section 80CCD(2), subject to a limit of 10% of your basic salary. By investing in NPS, you can save on taxes while building a retirement corpus for your golden years.
Summing Up
Tax planning for salaried employees in India involves a combination of smart investment choices, claiming eligible deductions, and leveraging various tax saving options for salaried individuals. By maximising deductions under Section 80C, claiming HRA, investing in health insurance, leveraging home loan benefits, donating to charitable organisations, and investing in NPS, you can significantly reduce your tax liability and save more of your hard-earned money.
Remember, effective tax saving for salaried individuals requires careful planning and timely investments. It's essential to consult with a tax expert or financial advisor to create a personalised tax-saving strategy that aligns with your financial goals and risk appetite. Plan smarter, save better. Secure your future with expert tax-saving and insurance solutions from Generali Central Insurance.
FAQs
1. What is the maximum deduction available under Section 80C for salaried employees?
The maximum deduction available under Section 80C is ₹1.5 lakh per financial year.
2. Can I claim HRA if I am living with my parents?
No, you cannot claim HRA if you are living with your parents in a house owned by them. HRA can only be claimed if you are actually paying rent.
3. Is there a limit on the deduction for health insurance premiums under Section 80D?
Yes, the deduction limit for health insurance premiums under Section 80D is ₹25,000 for self, spouse, and dependent children, and an additional ₹25,000 (₹50,000 for senior citizens) for parents.
4. Can I claim tax benefits on both the principal and interest components of my home loan?
Yes, you can claim a deduction for the principal repayment under Section 80C (up to ₹1.5 lakh) and for the interest paid under Section 24 (up to ₹2 lakh) of the Income Tax Act.
5. Is there a minimum amount I need to invest in NPS to claim tax benefits?
There is no minimum investment requirement for NPS to claim tax benefits. However, the maximum deduction available under Section 80CCD(1B) is ₹50,000 per financial year.
