BackTax Saving Options for Salaried Employees in 2023
Let's dig deep and talk about different tax-saving schemes available to salaried individuals
PremiumWhen it comes to income tax, the Indian government follows the slab system, which is one of the fairest methods of deducting taxes. Under this system, income tax rates are applied based on an individual’s income – higher-earning individuals pay higher taxes, and individuals who earn less are asked to pay lower taxes.
The majority of taxpayers in India are salaried individuals. These individuals can make use of the tax-saving options available to them and save considerably on their tax liability each year. In this article, we dig deep and talk about different tax-saving schemes available to salaried individuals.
Top 7 Tax Saving Options for Salaried Individuals
1. Tax Saving under Section 80C, 80CCC and 80CCD(1)
When it comes to saving income tax, Section 80C is the section that offers the maximum number of tax-saving schemes. The maximum limit permissible under Section 80C is Rs.1.5 Lakh and only individuals and Hindu-Undivided Families (HUFs) can claim tax deduction under this section. Further, one cannot claim tax deductions through the investments listed under 80C in the case of income obtained from capital gains.
If you wish to save on taxes, invest in one of the following tax-saving schemes or instruments to claim tax deduction under Section 80C: Employee Provident Fund (EPF), Public Provident Fund (PPF), Annuity/Pension Schemes, Tax-Saving Fixed Deposits, Post Office Time Deposits, etc. One can also claim tax benefits on payments made towards the tuition fees of children as well as payments made towards the principal component repayment of their home loan.
Taxpayers must know that if they are claiming tax benefits under Section 80C through the home loan tax benefits available to them, they cannot sell their home within five years of buying it. Doing so would lead to the income tax benefits that one has claimed getting automatically reversed. Further, only those home loan borrowers can claim tax benefits under Section 80C who are also co-owners in the property.
2. Tax Saving Options Under Section 80D
Under Section 80D of the Income Tax Act, one can claim tax benefits on medical expenses. Under Section 80D, one can claim tax deductions on medical insurance premiums that one is paying for their self, family members, and dependent parents. One can claim tax deductions up to a maximum of Rs.25,000 in the case of medical premiums made towards oneself or family. If one is paying a medical insurance premium for parents who are also senior citizens, one can claim up to Rs.50,000 under Section 80D. Further, salaried individuals can also claim an additional Rs.50,000 on money spent towards covering the medical expenses of a senior citizen parent. However, one can claim this amount only if the amount is not covered under the health insurance policy. One can also claim an additional Rs.5,000 spent towards the health check-up of self or family members under this section of the Income Tax Act.
Salaried individuals must know that sometimes their employer will deduct Mediclaim premium directly from their salary. One can also claim tax benefits on such deductions while filing taxes at the end of the year.
3. Section 80E: Maximizing Tax Savings
If a salaried individual has availed themselves of an education loan to fund their education or the education of a spouse or children, they can claim tax deduction on the interest component of the loan under Section 80E of the Income Tax Act. There is no maximum limit mentioned under this section. Further, even if a person has claimed tax benefit under Section 80C, they can still claim tax deduction under Section 80E.
However, one can claim this tax benefit only if one has availed of an education loan from a bank or a recognized financial institution. One can start claiming this tax benefit from the year they start repaying their loan and can continue to claim tax benefit under this section until they have repaid the loan in full. The maximum loan tenor for education loans is generally 7 years and one can claim tax benefits under Section 80E for a maximum of 8 years.
4. Income Tax Benefit Under Section 80G
If a salaried individual makes donations to charitable institutions, one can claim a tax deduction under Section 80G. Under this section, taxpayers can claim tax benefits on either 50% or 100% of the total amount donated by them.
5. Tax Deductions Available Under Section 80TTA
How to save tax on salary? Salaried individuals who have a savings account can claim tax benefits up to a maximum of Rs.10,000 on income earned from their savings account. If the income earned is below Rs.10,000, one can claim a tax deduction on the entire amount. However, if the income earned is more than Rs.10,000, one can claim up to a maximum of Rs.10,000 only.
6. Leveraging Section 24B for Tax Savings
Salaried individuals who have availed themselves of a home loan can claim home loan tax benefit on the interest component of their home loan under Section 24b of the Income Tax Act. The maximum amount that one can claim under this section is Rs.2 Lakh. There are a few things that home loan borrowers must know about claiming home loan tax benefits under Section 24b. To start with, one can claim tax deduction under this section of the Income Tax Act even in the case of under-construction properties.
However, in the case of under-construction properties, one can claim tax benefits only after construction on the property is completed and in five equal instalments spread over 5 years. Further, pre-construction and post-construction interest on which one can claim tax benefits cannot exceed Rs.2 Lakh.
Couples who have taken a joint home loan and home loan co-borrowers who are also co-owners can maximize tax savings by claiming tax benefits separately under Section 24b of the Income Tax Act. If the borrower has let out the property against which they have taken a home loan, there is no maximum limit on the amount that one can claim as a tax deduction under Section 24b.
7. Section 80EE & 80EEA: Tax Perks Unveiled
Home loan is one of the key tax-saving instruments that taxpayers have access to and a home loan can help a taxpayer save considerably in terms of taxes. Over and above the tax benefits available on home loans under Section 80C and Section 24b of the Income Tax Act, first-time homebuyers can claim an additional tax benefit up to a maximum of Rs.50,000 under Section 80EE and up to a maximum of Rs.1.5 Lakh under Section 80EEA of the Income Tax Act provided the borrower meets certain conditions.
One can claim tax benefits under Section 80EE only if the price of the property bought with the loan money does not exceed Rs.50 Lakh and the home loan amount does not exceed Rs.35 Lakh. Further, only first-time homebuyers who had availed a home loan between April 1, 2016, and March 31, 2017, can claim tax benefits under this section. First-time homebuyers who have invested in affordable housing and are not eligible to claim home loan tax deduction under Section 80EE can claim home loan tax deduction under Section 80EEA up to a maximum of Rs.1.5 Lakh provided they meet certain conditions. To start with, they must have availed of a home loan between April 1, 2019, and March 31, 2021. Further, the stamp duty of the property must not be more than Rs.45 Lakh.
Final Words
In conclusion, taxpayers in India have access to many different tax-saving options. Unfortunately, most taxpayers are clueless about most of these tax-saving schemes. So, how to save tax on salary? Sit with a tax expert at the beginning of the year and develop a clear understanding of all the tax-saving options for salaried individuals. This will not only help you plan your investments well but also allow you to save maximum tax at the end of the year.
Disclaimer: This article is a paid publication and does not have journalistic/editorial involvement of Hindustan Times. Hindustan Times does not endorse/subscribe to the content(s) of the article/advertisement and/or view(s) expressed herein. Hindustan Times shall not in any manner, be responsible and/or liable in any manner whatsoever for all that is stated in the article and/or also with regard to the view(s), opinion(s), announcement(s), declaration(s), affirmation(s) etc., stated/featured in the same. This information does not constitute a financial advice.
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