Tax Saving Tips for Salaried Employee for FY21

1. Tax saving Tips for Salaried Employee for FY 20-21 As the year-end nears, most of the salaried individuals will make a run to their wealth doctor i.e. Tax and Investment Consultant. This is the time where they can invest the money in tax saving instruments and save tax. Here, we will explain you in detail with respect to income tax saving tips for salaried people. How do you feel when tax is deducted from your salary? Obviously, the feeling is not good. The best you can do is to start at a right note. Start tax planning in the right way as per your future financial goals and aspiration. The objective of tax planning should not be only to save taxes but also to help you to create a corpus or wealth for your secured financial future. The government has encouraged savings and investment through tax exemption and deduction to save for various financial aspects of an individual's life. Let us discuss a few of the best suitable strategies for a salaried employee to save taxes. 1.Don't Just invest to save taxes, invest for wealth creation

2. 2.Don't buy insurance policies just to save taxes 3.Investment in NSC, Tax savings FD, etc. to save taxes 4.Don't follow someone blindly just to save taxes 5.Claim Expenses to save taxes 6.Increase your future tax-exempt income Don't Just invest to save taxes, invest for wealth creation One of the most common mistakes youngsters make in the initial years of their career is to just invest in tax savings. Ideally, investment should be done with an objective to save for a specific purpose of your life like retirement planning, wealth creation for future goals, etc. not just for tax savings. Getting into the wrong commitment of savings and investment just to save taxes harm your financial life. Tax savings is never a primary objective of investment. Right way for tax planning is to set your investment objective first and then select an instrument that helps

3. to achieve that objective along with tax savings. For example, a youngster wish to create wealth by investing in equity and wish to save taxes, ideally the best way to do investment and tax planning is to invest in the Equity Linked Savings Scheme (ELSS) of MF. Don't buy insurance policies to save taxes Insurance is a must-have product in anyone's financial portfolio. But buying insurance just to save taxes is not the right way to plan taxes or insurance. The main purpose to buy insurance is to ensure life and medical risk. There are tax benefits on Life insurance premium payment u/s. 80C and Mediclaim premium payment u/s. 80D. If you need insurance and additionally if there is tax benefit then it's a bonus point. But to create wealth and for saving taxes if you invest in an insurance policy without understanding it's real benefit in your financial life, then it can have a negative impact on your financial health. Investment in NSC, Tax savings FD, etc. to save taxes Many people take advice from their parents or seniors in their office. There is no harm in investing in NSC or tax saving FD. If it matches your financial objective then it is one of the best tax saving choice. Youngsters can take risk in their early

4. part of their career. By investing in this safe investment we may guarantee the return of interest and capital but loose chance of making higher return on investment. For long term investors like youngsters in 20's, there are better choices with higher possible returns and tax savings. For example, investing in ELSS MF scheme, Investing in RGESS, Investing in Equity pension scheme etc Don't follow someone blindly just to save taxes My friend has invested in a ULIP policy to save taxes that's why even I have purchased the same ULIP policy to save taxes. One of the common tax-saving & investment styles is to copy someone as it is. But it's a very big financial blunder which an investor makes. Ideally, every person’s financial needs and goals are different. Even if your age or salary is the same still your investment needs are different. It is always advisable to understand your financial objective first and accordingly investment and tax savings instruments should be identified. Claim Expenses to save taxes Income Tax Act allows you to claim your expenses for tax savings purposes. Not all but some specific expenses like rent paid, interest on the educational loan, etc. By showing rent receipts to your employer based on a calculation salaried people can claim HRA exemption to save taxes and increase in-hand salary.

5. Increase your future tax-exempt income Tax planning is not a one-time activity but it's a multiyear activity. We can invest and save in an instrument that will generate tax-efficient income. By creating a legal entity like HUF or by diverting your income to other members of your family, we can reduce tax on income earned through interest or dividend. Another way we can invest in an instrument that generates tax-free income instead of taxable income. Interest earned on NSC or FD is taxable but interest from PPF is tax-free. Deductions Vs Exemptions The Income Tax allows individuals a number of deductions on the gross income of an assessee after considering a number of factors. The Chapter VIA of the Income Tax Act deals with these additional deductions and must be separately distinguished from the exemptions, which are provided in Section 10 of the Act. The one point of difference between the Section 10 and Chapter VIA is that while the former does not form a part of the income on the whole, the latter is deducted from the gross income of an individual. Let us delve into the details of the deductions allowed by the Chapter VIA of the Income Tax Act.

6. Section 80C Section 80C is your popular code word for tax saving instruments. While EPF is fixed based on your salary structure, other investment options like PPF (Public Provident Fund), ELSS (Equity Linked Savings Scheme), NSC, etc. are discretionary. These investments in each year will fetch your tax savings. Typical instruments under section 80C are ELSS ( equity-linked mutual funds which are locked in for 3 years), PPF (lock-in 15 years), bank fixed deposits (lock- in period starting from 5 years onwards), principal repayment on housing loan, Provident fund contribution from the salary, tuition fees for your child. Section 80C of Income Tax Act has a sub-section for NPS (National Pension Scheme) where additionally you will be allowed to take benefit till Rs.50,000 under the relevant section. This investment can be used effectively by those salaried individuals who have already exhausted their section 80C limit of Rs.1,50,000. Interest on Housing Loan You must be very happy and proud homeowner. There is one more reason to rejoice because you can claim the installments repaid back against housing loan liability for tax purposes as below. Principal portion repaid ● Is eligible to be claimed under section 80C.

7. Interest portion paid ● Is eligible to be set off against income from house property under section 24. There is an additional benefit, where this interest can be set off against income from salary also. This will reduce the tax on salary income to the extent as given below. 1.If the house is self-occupied – interest deduction allowed is up to Rs.2,00,000 2.If the house is let out or deemed to be let out – unlimited interest deduction allowed subject to only 2 lacs in a year and rest can be carried forward to next year. Section 80D Deduction of up to Rs 25000 for self and family is available for the assessee. For senior citizens, the maximum deduction available is Rs 50000 on the medical insurance premium. This section allows Income tax benefit for the payment of premium for health insurance for self, spouse, and children. It also extends this benefit if the payment of health insurance premium is made for the parents. Currently, the thresholds are as below. ●Up to Rs.25,000 ●The threshold is raised to Rs.50,000 if you are a senior citizen ●Additional tax benefit on the investment made up to Rs.50,000 for parents is allowed where parents are senior citizens. Above all, this deduction is also availabl e to HUF along with individuals. Preventive health check-ups up to Rs.5,000 are allowed and are included in the Income-tax exemption limit. The premium can be paid in any mode other than cash. The insurance scheme is to be framed by the General Insurance Corporation of India and has been approved by the Central Government. It can be framed by any insurer and approved by the Insurance Regulatory & Development Authority.

8. Section 80E This section specifically governs the tax benefit with respect to the educational loan. However, the point to be noted is that only interest paid on the educational loan is exempt only if such loan is for higher studies which are taken for self, spouse, and children. This section does not come with an upper cap or threshold for a tax deduction, hence any amount of interest paid on the educational loan is a permissible deduction under section 80E. However, this deduction is limited to 8 years or till interest is paid whichever is earlier. Other allowances ● HRA (House Rent Allowance) HRA is exempt where the individuals stay in the rental property. However, there is a condition that such individual should not have own property in the same town.

9. HRA is exempt to the lower of the following 1.Actual HRA 2.Rent paid – 10% of basic salary 3.In the case of metro cities – 50% of basic and in the case of other cities – 40% of basic salary. Point to be noted is that you can pay rent to your parents and obtain rent receipts based on which you can claim HRA exemption. However, rent cannot be paid to the spouse. Best situation would be to where, 1.You own house property in a town for which you can claim interest and principal repayment against salary income. 2.You stay in rental property in any other town for work, where you can claim exemption from HRA. ● Leave Travel Allowance Leave travel allowance is allowable for travel ticket fare which is allowed twice in the block of 4 years. Hence, any other expenditures like hotel expenditure, food expenses, etc. are not considered for this tax exemption benefit. Section 80CCC If the assessee pays a premium for annuity plan of LIC or other insurer, a deduction is available up to Rs 150000. In this case, the premium must be deposited for maintaining a contract for the annuity plan of the insurer or LIC for the receipt of a pension. Section 80CCD If the employee has made a deposit in his or her respective pension account, which amounts to 10 per cent of the salary, he or she is entitled to deductions. The Central Government should make a contribution to the pension account, deduction of 10 per cent is allowed on the total salary. Also, if an amount is received from the pension account, this amount will be charged to tax deductions taking it to be as income of the previous year. Such a benefit has been extended to a non-Central Government Employee because of the Finance Act of 2009.

10. Interestingly, the ceiling for Section 80C, 80CCC and 80CCCD(1) together is 150000. Section 80TTA According to Section 80TTA, an assessee is eligible for exemption on saving bank account interest. The interest amount of up to 10,000 is allowed as a deduction. Please note that fixed deposit interest is not part of this and in fact, interest from fixed deposits is fully taxable as per the prevailing slab rates. Section 80GG If you are a salaried individual but do not receive HRA (House Rent Allowance ) as part of your salary structure. But you stay in a rented flat and is incurring the expense. You cannot claim exemption from HRA as you do not receive one. However, you can still claim the tax benefits under section 80GG towards the rent that you pay. Conclusion These were some of the deductions for a salaried individual. It is suggested to make use of these sections wherever applicable to you to plan your taxes. This is not an exhaustive list of income tax exemptions and deductions. However, it pretty much covers the peculiar ones, which you must consider. Ideally, it would be better to consult your tax consultant for tax planning who would be in a better position to advise based on your salary structure and relevant factors like affordability and liquidity.

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