How To Save Tax On Salary

Individuals, especially salaried employees, always look for “how to save tax on salary.” No one likes to pay a significant portion of their hard-earned salary. 

To save tax on salary, you must be aware of how to do tax planning and save tax. Therefore, to help you out from income tax on salary problems, we have explained various tax-saving options for salaried individuals.

 With the proper tax planning, you can reduce a substantial amount of tax on your salary income. 

Basically, there are two answers for your question “how to save tax in India,” i.e., 

• By claiming expenses
• By making the investments in specified tax-saving plans

Income tax on salary

Income tax on salary is the tax that you pay on your salary income. Income from salary covers various components such as basic salary, dearness allowance, HRA, transport allowance, and various other benefits/allowances. 

The income tax on your salary is calculated based on tax slabs. After availing of the various deductions and exemptions benefits (as applicable), you will get your taxable income. At this taxable income, income tax on salary is calculated.

Calculation of net taxable income

TDS on salary

Before moving ahead, let us understand why the companies ask for the investment declarations at the beginning of the financial year.

There is a concept of tax deducted at source, i.e., TDS on salary under the Income-tax Act, 1961. Here, the employer needs to deduct some portion of your salary as a tax (TDS) and deposit the amount to the government.

Based on your investment declaration statement, the employer calculates your taxable income and tax thereupon on an estimated basis. They deduct tax on a monthly basis (TDS on salary) and pay the remaining amount (Salary) to the employee.

Tax saving options for salaried individuals 

Here is a detailed analysis of how to save tax in India. Ensure to check out which tax planning options are meeting your requirements/eligibility as per your income tax salary problems.

Standard deduction from salary:

The first saving option available for the salaried persons to save income tax on salary is availing standard deduction from salary income. Every salaried employee is eligible to get a deduction of flat Rs. 50,000 from their total income and hence reducing the tax liability. 

Save tax on rent payment (HRA):

The companies provide accommodation or pay for your accommodation, and such expense is eligible to get an exemption. It is known as a house rent allowance (HRA), which is part of your salary. 

However, as per the Income-tax act, 1961, you are allowed to deduct the lowest of the:

• HRA provided by your company
• 50% (metro cities)/40% (non-metro cities) of the basic salary (including DA, if it forms part of the salary)
• House rent paid minus 10% of your basic salary + DA

Deductions available under the Income Tax Act, 1961 for tax planning. 

Section 80C:

Deduction under section 80C is the most commonly used for tax planning that can help you to save up to Rs. 1.5 lakh in a financial year. You have various alternatives for making investments; however, under section 80C, you can utilize a deduction of a maximum of Rs. 1.5 lakh.

Here are the options where you can invest or spend your money and claim the deduction:

• Employee provident fund (EPF)
• Public provident fund (PPF)
• Equity-linked savings scheme (ELSS) funds
• National Pension System (NPS)
• 5 years tax saver FDs
• National saving certificate (NSC)
• Life insurance premiums 
• Repayment of the principal amount of the home loan 
• Payment of tuition fees or school fees of your children 
• Senior citizens saving scheme
• Sukanya Samriddhi Yojana (SSY)

Section 80CCD(1b):

An additional deduction of Rs. 50, 000 if you invest in NPS. 

Note: If you invest in 80C and 80CCD(1b), then you will get a total deduction of Rs. 2,00,000.

Section 80D – Payment of health insurance premiums:

Section 80D is another tax-saving option for salaried persons. If you have taken any health insurance policy for yourself, spouse, dependent children, or parents, then you can claim deduction under section 80D. 

The deduction allowed shall be the lower of premium paid or the amount paid as below:

• For self, spouse, or independent children – Up to Rs. 25,000 and 
• For parents (if age is below 60 years) – Up to Rs, 25,000 or senior citizen parents (if age is 60 years or above) – Rs. 50,000

Here are the different cases of tax planning to clarify further:

Section 80DD and section 80DDB

Section 80DD – Payment for medical expenses:

This section can help you to save tax if you have paid any medical expenses for dependent disabled or specified persons. Here dependent disabled include spouse, children, parents, brother, and sisters of an individual. 

The amount allowed for deduction shall be:

• If the dependent is disabled 40% or more – Rs. 75,000
• If the disability is 80% or more – Rs. 1,25,000

Section 80DDB– Payment for medical expenses:

It offers a deduction for the treatment of specified illnesses such as Neurological Diseases, AIDS, chronic kidney diseases, etc.

The amount for deduction shall be the lower of:

• For individual (self or dependent) – amount actually paid or Rs. 40,000
• For senior citizens (60 years or more) – amount actually paid or Rs. 1,00,000

Section 80GG – Payment of rent:

If any salaried employees/self-employed person doesn’t receive HRA and paying rent on a property, then he/she can claim rent deduction under section 80GG. 

Amount of deduction under section 80GG shall be the least of the following:

• Rs. 60,000 per annum
• 25% of the adjusted gross income 
• Total rent paid less 10% of basic salary 

Triple tax savings on home loan

If you have purchased property on a home loan, then you have the benefits of claiming various deductions, such as

1. Under section 80C (as covered above) – For the repayment of the principal component of the home loan.
2. Under section 24 – Interest on your home loan: For the payment of the interest on loan amount during a financial year. You can claim up to Rs. 2 lakh for the deduction. 

However, for claiming deduction under section 24, you must fulfil the following conditions:

• The loan must be taken for self-occupies property
• The deduction is allowed in five equal instalments after obtaining possession of the house
• The construction of the property should be completed within five years

3. 3. Under section 80EEA – Interest on home loan: If you have taken a loan to buy a house under the affordable housing scheme during the period 01.04.2019 – 31.03.2022, you can claim an additional deduction for interest paid. The amount of deduction shall be up to Rs. 1.5 lakhs. 

Conditions for claiming deduction under section 80EEA:

• The loan should be availed from a financial institution or a housing finance company 
• The stamp duty value of the property should not exceed Rs. 45 lakhs
• The taxpayer should be a first-time homebuyer for residential property and doesn’t own any other residential house property on the loan sanction date.

Note: If you satisfy the conditions of both sections, i.e., section 24 and 80EEA, then you can avail of both deductions. The best way to utilize both deductions is to first claim Rs. 2 lakhs under section 24 and then under section 80EEA. 

Section 80E – Payment of education loan:

Individuals paying interest on education loan for self, spouse, or children can claim the deduction. The deduction is available for a maximum period of 8 years from the date of loan repayment. There is no upper limit of amount to claim the deduction and save tax on salary. 

Section 80TTA – Interest on saving bank:

It allows you to avail of the deduction for the interest earned on saving account balances during the year. You can claim deduction under section 80TTA up to Rs. 10,000. 

Note: senior citizens are not covered under section 80TTA; they are eligible for deduction under section 80TTB.

Section 80TTB – Interest on saving bank:

Senior citizens (having age 60 years or more) can claim deduction up to Rs. 50,000 on interest income. Here, interest income includes interest from saving accounts, fixed deposits, senior citizen savings account, etc.  

Section 80G – Do some charity:

The government has notified some charitable funds under section 80G. If you donate in these funds, then you can claim up to 100% deduction of the donations made. 

Let’s look at a glance at how to save tax on salary?

Conclusion

Tax on salary above 10 lakhs or having multiple Form 16 can lead to huge tax liability. In such cases tax planning must be done before the end of the year. Also one must make it a point to invest in maximum tax saving funds as that will help not only to save tax but also to grow your money through investments.