Salaried employees need to thoroughly chalk out their annual tax plan. They are required to make some important decisions at the beginning of each financial year and ensure they adhere to their plan. But tax planning takes a lot of discipline. You must ensure that your investments can do both; exempt you from certain taxes and safeguard your investment objectives so that you can fulfil your financial goals. Let us look at some of the best tax saving options in India for salaried employees.
Maximise 80C- PPF and ELSS
PPF or Public Provident Fund account holders can avail tax benefits by depositing as much as ₹1.5 lakh per year in their PPF account. You can deduct the amount you invest in PPF from your income and reduce your taxable income. The interest earned on PPF deposits is also tax-free. ELSS or Equity Linked Savings Scheme is another worthy investment option that provides income deductions of up to ₹1.5 lakh per financial year. It is one of the most popular options among 80C investments despite the introduction of long-term capital gains on equity investments last year. Over the long term, ELSS has the potential to provide higher returns than most other investments and comes with a shorter lock-in tenure of only three years.
Maximise 80C- PPF and ELSS
A social security initiative launched by the Central Government, the National Pension Scheme or NPS enables investors to avail tax benefits under various sections of the Income Tax Act such as:
- Under Section 80CCD (1) – In a financial year, investment of up to ₹1.5 lakh is eligible for deduction, within the overall ceiling of ₹1.5 lakh under Section 80C.
- Under Section 80CCD (1B) – Investors are eligible for an additional tax benefit on investments up to ₹50,000. If a taxpayer contributes over ₹1.5 lakh to NPS, the amount exceeding ₹1.5 lakh may be claimed as a deduction.
- Under Section 80CCD (2) – Exceeding the ceiling limit of ₹1.5 lakh and the additional limit of ₹50,000, investors are also eligible for deduction on employer contribution up-to 10% of salary (basic + DA) without any monetary limit.
Maximise Health Insurance Savings
For tax saving options other than 80C, you can put your money in health insurance. Buying health insurance is as wise as it is vital because it safeguards your family and you during medical emergencies by covering the cost of the treatment. Apart from offering services like cashless hospitalisation facility, it also comes with several tax benefits. You can avail income tax exemption under Section 80D, based on the premiums you pay on health insurance policies purchased for yourself, your family (spouse and children) and parents. However, the deduction depends on the person insured. Payment should be made through methods other than cash.
- If you are under 60 and purchasing health insurance for yourself, your spouse and dependent children, you are eligible for a maximum deduction of ₹25,000.
- If you are paying for health insurance for your parents under 60 years of age, you become eligible for an additional deduction of ₹25,000. If they are over 60, you can claim up to ₹50,000
- If you are over 60, you can claim a deduction of ₹50,000 on premium paid towards health insurance for yourself and your family. If you are also paying the insurance premiums for your senior parents, then you are eligible for an additional deduction of ₹50,000 making your total savings ₹1,00,000.
- You can also claim up to ₹ 5,000 (paid in cash) for your medical check-up, within the above-mentioned limit.
Take a joint home loan- the big tax saver
Joint home loans can also prove to be a great tax saving option for salaried employees. If you and your spouse, sibling or any other family member are on a payroll; you can avail several tax saving benefits provided both applicants are registered as co-owners of the loaned property, co-borrowers of the loan and the construction of the property is completed. Each co-owner is eligible for a maximum deduction of ₹2 lakh on interest. The total payable interest on the home loan is allocated as per the ratio of ownership held by each owner. If you and your spouse purchase a home and are paying ₹5 lakh in interest, with each of you holding a 50:50 share in the property, you can both, individually claim ₹2 lakh each i.e. a total of ₹4 lakh as joint owners, in tax returns.
Maximise HRA benefit
All salaried employees can avail tax exemption on a part of their HRA or House Rent Allowance as per Section 10 (13A) of the Income-tax Act. HRA benefit is provided to those employees living in rented homes. For HRA tax exemption, the deduction is the lowest amongst the following:
- The actual HRA received from your employer
- Total rent minus 10% of salary (this includes basic + Dearness Allowance, if any)
- Rent equal to 50% of the salary in metro cities or 40% of the salary in non-metro cities.
Individuals paying over ₹1 lakh towards house rent can claim HRA tax exemption provided they furnish the property owner's PAN details, along with rent receipts.
Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.