The salaried class faces the duality of fixed incomes and an increasing tax burden. Most of the middle and upper-middle class falls in this bracket, especially in the urban areas. Budget 2019 shows that the government has taken note of this burden with tax-saving schemes aimed at this section of the society.
Taxation is a necessary revenue for all governments, irrespective of their ideology or size. Every person from a salaried individual to a business person or entrepreneur has to pay taxes. It is argued that business people and entrepreneurs resort to unfair means to save tax; while the salaried person is bound by their salary slip and Form 15 provided by the employer. Hence, they end up bearing the tax burden, thus depriving them of aspirations. Many salaried people take financial advice from experts to invest in tax saving instruments such as fixed deposits offering the highest rates.
To save as much tax as possible, you have to know the various avenues to reduce the tax burden.
Essential Tax-Saving Tips You Must Know
Utilize Sec 80C benefits
You can claim a deduction of Rs. 1.5 lakhs from your gross income under Section 80C with investment in specified instruments.
A salaried person can invest in tax saver FDs from both private and public sector banks. These usually carry an interest of about 7 to 9% depending on the base rate prevailing at the time. But keep in mind that investment in corporate fixed deposits is not eligible for Sec 80C benefits. To avoid paying taxes on your FD returns in India, go for tax saving FDs.
Another popular method is to invest in PPF scheme at the post office or any bank. Investment in Public Provident Fund has the disadvantage of a long lock-in period, but it provides higher rates than FD returns in India. The income from PPF is also tax-free, which makes it an attractive option.
Alternatively, you can also invest in Equity-Linked Savings Scheme (ELSS) and NSC, both of which offer returns at par with the highest fixed deposit rates in India.
Opt for National Pension System
Contributions of up to Rs. 50,000 towards NPS can be deducted from gross income under Sec 80CCD(1B). NPS invests in equity, corporate debt, government bonds, and the corpus can be withdrawn at age 60.
Note that no more than 10% of basic salary can be claimed as a tax-free contribution. Hence if your basic salary is Rs. 38,000 per month you can only claim Rs. 38,000 * 12 * (10/100) = Rs. 45,600 as a tax deduction, though you are free to invest any amount you wish.
Deductions for Health Insurance Premiums –
Sec 80D allows deduction of Rs. 25,000 as medical insurance premium. It also allows deduction of Rs. 75,000 for medical insurance premium of parents who are senior citizens.
Home loan interest deduction –
If you have purchased a house with a bank loan, you can avail a deduction of Rs. 2 lakhs for interest paid on loans under Sec 24. Sec 80EE allows first time home buyers an additional Rs. 50,000 deduction from gross income.
This is a brief snapshot of the various provisions of the Income Tax Act, 1961. However, it is better to discuss your investment and tax saving options with a professional before you start investing. Also remember, changes are made to the Act regularly, and you need to update your investment portfolio accordingly.