Tax Savings Tips for Salaried People-- INDIA

Tax Savings Tips for Salaried People

 As the last phase of the financial year is approaching we can see a number of tax saving tips being published. What I can observe in those tips that most of them don’t address to the needs of salaried people. For example- spreading income among family members is not an option for salaried people which however is the top choice among those tips. Below are some of the tax saving and planning tips that would specifically be beneficial to the salaried -

1.Choose the Right combination of Flexible Compensation Plan - As soon as your HR manager gives you the CTC (Cost to Company) amount, it is most important to use the right combination of different heads of salary income. This alone could save a substantial amount of tax.
Among others the golden rules for this purpose include –

• Ascertain the right amount of House Rent Allowance (HRA). If you are residing in a rented house then you get the benefit of the amount of rent paid. This is calculated on the basis of your salary and HRA. It’s important to allocate the sufficient amount to HRA to get maximum benefit.
• First exhaust the maximum amount allowable as tax free allowances like transportation, children education allowance etc. However the amounts involved here are not big but still its good to save even a penny.

2.Invest full allowable amount in Tax saving schemes – Upto Rs. 1 lakh invested in schemes available under section 80C of the income tax act can be claimed as a deduction from income for calculating taxable income. These schemes include LIC premium, National Saving Certificates (NSC), Mutual Funds, Provident Funds, Repayment of Principal amount of Home Loan, Bank Fixed Deposits (Specific), Children’s Tuition Fee etc. Often we miss this point and end up investing a lesser amount.

3.Know about section 80D – There is hope beyond Rs. 1 lakh under section 80C. You can deduct an amount upto Rs. 15000/- for mediclaim premium paid for yourself, spouse and children. Also an amount of Rs. 20,000/- is allowed for payment of mediclaim premiums for dependent parents above 65 years of age. Always remember not to pay mediclaim premiums in cash.

4.Home Loans – The amount of interest paid on home loans is allowed as deduction from income. However, the following facts are to be considered:

• If you are residing in the same house then the maximum amount allowed as deduction is Rs. 1,50,000 and the loan was taken after March 1999.
• If the loan was taken before March 1999 and you reside in the house then only Rs. 30,000 are allowed.
  You can also get a rebate of amount upto Rs. 20,000 on the home loan interest under section 88. Further the principal portion of loan installment repaid is allowed as a deduction from income under section 80C.