If you have a salary above Rs 20 lakhs, it is important to plan your taxes effectively to maximize your savings. Here are some tips.
If you have a salary above Rs 20 lakhs, it is important to plan your taxes effectively to maximize your savings. Here are some tax tips that can help you reduce your tax liability and save money:
Invest in tax-saving instruments
Investing in tax-saving instruments is one of the most effective ways to reduce your taxable income. Some of the popular tax-saving instruments include Equity-Linked Savings Schemes (ELSS), Public Provident Funds (PPF), National Pension System (NPS), and tax-saving fixed deposits.
ELSS is a type of mutual fund that invests predominantly in equities and offers tax benefits under Section 80C of the Income Tax Act. You can claim a deduction of up to Rs 1.5 lakhs in a financial year by investing in ELSS. PPF is a long-term investment option that offers guaranteed returns and tax benefits. You can claim a deduction of up to Rs 1.5 lakhs in a financial year by investing in PPF.
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The overall limit of investments under this is upto INR 1.5 lakhs including LIC, PPF, ELSS etc.
NPS is a government-sponsored pension scheme that offers tax benefits under Section 80C and Section 80CCD of the Income Tax Act. You can claim an additional deduction of up to Rs 50,000 in a financial year over and above the ceiling of 1.5 lakhs by investing in NPS. Tax-saving fixed deposits are also a popular investment option that offers tax benefits under Section 80C of the Income Tax Act.
Opt for the new tax regime
The government has introduced a new tax regime that offers lower tax rates and eliminates the need for claiming deductions and exemptions. If you are not claiming too many deductions, you may want to opt for the new tax regime to save money on taxes.
Under the new tax regime, you can claim tax rates of 5%, 10%, 15%, 20%, and 30% for different income slabs. However, you will not be eligible to claim deductions under Section 80C, Section 80D, and other sections of the Income Tax Act. You should carefully evaluate your tax liability under both the old and new tax regimes before making a decision.
Claim HRA exemption
If you are receiving House Rent Allowance (HRA) as a part of your salary, you can claim an exemption for the amount paid towards rent. The exemption amount is determined based on the actual rent paid, HRA received, and the location of the rented property.You can claim an exemption for the lowest of the following amounts:
- Actual HRA received
- Actual rent paid minus 10% of your basic salary
- 50% of your basic salary if you are living in a metro city or 40% of your basic salary if you are living in a non-metro city.
By claiming an HRA exemption, you can reduce your taxable income and save money on taxes.
Claim LTA exemption
If your employer provides you with Leave Travel Allowance (LTA), you can claim an exemption for the amount spent on travel. The exemption is limited to two domestic trips in a block of four years and can be claimed for the travel expenses of self, spouse, and dependent children.
You can claim an exemption for the actual amount spent on travel, subject to the maximum limit specified by your employer. By claiming an LTA exemption, you can reduce your taxable income and save money on taxes.
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Submit tax-saving proofs on time
If you are claiming deductions, ensure that you submit the necessary proof to your employer on time. This will help you avoid any last-minute rush and ensure that you claim the deductions correctly.
Some of the popular tax-saving proofs include investment statements for ELSS, PPF, and NPS, , and home loan interest certificates for claiming deduction under Section 24.
Deduct health insurance premium
You can also claim a deduction for the premium paid for health insurance. The maximum deduction allowed under Section 80D is Rs 50,000 for senior citizens and Rs 25,000 for individuals below the age of 60. You can also claim a deduction for the premium paid for the health insurance of your parents.
Claim deduction for interest paid on home loan
If you have taken a home loan, you can claim a deduction for the interest paid on the loan. The maximum deduction allowed under Section 24 is Rs 2 lakhs for self-occupied property and the entire amount for a rented property. You can also claim a deduction for the principal repayment under Section 80C.
