Income tax and compliance with the corresponding rules are an important element of a salaried individual’s professional life. As much as you need to plan on saving taxes from an earlier stage, it is also important to understand how much tax you owe to the Government.
Following are some of the best practices to save taxes in India:
- Medical Expenses: A salaried individual in India can claim a medical reimbursement of Rs.15,000. It comes as an essential component in one’s CTC. If you have undergone any surgical or medical treatments, all you are required to do is present the consultation bills, medical test bills, and so on. It is critical to bear in mind that medical expenses incurred can only be claimed for refund through the employer.
- Transport Allowances: Your salary structure includes a component called transport allowance, which is granted only if you are commuting from your residence to your place of work and vice versa. Once again, in this case, your allowance for conveyance is dependent wholly on your employer. In most cases, Rs.19,200 is provided as transport allowance in India. You can save taxes here by including this portion of allowance in your CTC.
- House Rent Allowance or HRA: If you are working in a particular city and living in a rented accommodation, you will be eligible for House Rent Allowance, or HRA. Every company provides a certain amount of money as compensation for rental expenses that in turn helps in tax saving. Ensure that you have in place all the rent receipts of the previous year before you begin the claim. In case you forget to submit the rent receipts on time, make sure you do it while filing your income tax return.
- Employee’s Contribution to Provident Fund or EPF: 12% of an employee’s salary is regularly contributed towards provident funds and pensions. Out of this, an 8.5% interest gets ensued. Usually, companies that have hired more than 20 employees are eligible for this provision. This component of one’s salary also helps save a huge chunk of one’s income.
- Professional Tax: The state levies this tax on employees in India. The amount deducted is usually upto Rs.2500 and after being slashed from the salary of the employee, it goes directly to the State Government. Professional tax is usually paid to the Government by the employer of an organisation, a failure of which can result in imposition of penalties.
- Section 80C: Deduction under this section allows an exemption upto Rs.1.5 lakh and can end up saving a huge chunk of your income. You can invest in schemes such as National Savings Certificate (NSC), Equity Linked Savings Schemes (ELSS), Senior Citizen Savings Schemes (SCSS), National Pension System (NPS), Life Insurance Policies, and so on.
- Section 80D: An exemption of Rs.25,000 is allowed on premiums paid towards health insurance policies. For every citizen who is above 80 years of age and is not eligible for health covers, a standard deduction of Rs.30,000 is provided to cover medical expenses.
- Section 80DD: If you are paying for the medical expenses incurred by your family members (spouse, children and parents), then you can claim upto Rs.75,000 for 40% disability.
- Food and vacation bills: If you are traveling anywhere in India, you can claim a refund under Leave Travel Allowance from your employer. The fare for the shortest route anywhere in India is generally considered under this allowance. Certain companies also offer food coupons to take care of employees’ food expenses. A part of your salary can come in the form of food coupons from your employer. This amounts to Rs.26,400 per annum, which in turn can be used as coupons for meals during office hours.
Make optimum use of these deductions and inculcate them in your investment strategy, in order to render your tax saving procedure smooth and hassle-free.