As soon as the financial year ends, the salaried group of individuals begins worrying about the taxes they have to pay. For those who do not spend some time planning their taxes, the filing season becomes a nightmare. This article lists the simple things you can do to prepare your taxes better.
Income tax planning for salaried employees
1. Making use of the tax-saving components – One of the fundamental aspects of tax planning for salaried employees which everyone should take advantage of is the tax-saving components of one’s salary. Some elements of the structure of the individual’s salary have provisions for deductions under various sections of the Income Tax Act. A few of these are discussed below:
- – House Rent Allowance: if you are paying rent for your accommodation, then the house rent allowance (HRA) under section 10(13A) of the income tax act allows you to claim tax exemption either for the whole amount or part of it.
- – Contribution of an employee to the provident fund: The Employee Provident Fund is a social security initiative by the government in which both the employer and employee contribute around 12% of the basic salary of the employee towards his pension and provident fund. The interest set on this is about 8.65%. Under section 80C, the contribution you make and the interest it earns are tax-deductible.
- – Standard deduction: The 2018 budget reintroduced standard deduction. A salaried employee can claim a standard deduction of flat Rs 50,000 from his taxable income.
2. Invest in tax-deductible options – Another way in which you can manage your taxes better is by investing in deductible options. Section 80C lists numerous options that you can make use of to reduce your taxes. You can get a maximum of Rs 1.5 lakh per financial year as a tax benefit. This can reduce the tax you pay by Rs 45,000 for employees in the 30% tax bracket, excluding surcharge and cess.
- – Must have salaried individuals can claim options like life insurance, provident funds, and many other investments and expenses under 80C.
- – The principal amount you pay for your home loan is also eligible for tax deductions under section 80C. The interest you pay also qualifies for tax benefits under section 24, the upper limit for which is Rs 2 lakh in a financial year.
- – The medical insurance premiums you pay for yourself, your spouse, and your dependent children are also eligible for tax deductions of up to Rs 25,000. This is as per section 80D, which also allows tax deductions of Rs 50,000 for medical insurance for senior citizens.
- You can directly claim the deductions under section 80C for tax returns. The tax deductions are only applicable if these investments or expenditures are made by 31st March of that financial year.
3. The filing of taxes – The final step in tax planning for salaried employees is the execution- filing the income tax returns. Actions taken in the last moment are always hasty and cause stress. To avoid this, take time to file your returns well ahead of time. You can opt for e-filing your tax returns through the website of the income tax department or make use of other income tax returns portals.
Things to keep in mind
- – Most of the investments listed under section 80C have a lock-in period set at 5 years, so it is essential to ensure that one’s financial needs are well-covered before one invests.
- – You should consider the various investment options available before choosing the ones that are most beneficial to you. The need to save tax should never lead you to select investment options that yield poor returns.
- – Since these investments are long-term, it is best to give yourself the proper time to explore various options that section 80C offers.
A simple thing to keep in mind while planning taxes is keeping it simple. You do not need to hunt for advice from multiple sources and confuse yourself. Take your time to plan things out, instead of piling them up for the year-end, when it just becomes a hassle. These tax planning tips for salaried employees should help you in doing just that.