The earning class of the society has to pay income tax. There are no two ways to this. The higher you earn the higher tax you have to pay. For as long as the concept of Income Tax exists, the problem of income tax saving also prevails. Paying tax is particularly wounding for the salaried and the professional class of individuals. Even though paying income tax looks painful to us, we still need to make a living, go out and earn. Paying Income Tax is mandatory but, your sound tax related knowledge can facilitate the significant amount of income tax saving. Let us look at different ways in which you can reduce your tax liability as a salaried individual or as a professional.
Changes in Income Tax Rules as per Budget 2018
Every year the government introduces new laws and makes changes in the existing ones which have a significant impact on the entire process of taxation. In order to make the most of the rules and for income tax saving you must understand them clearly. Some such tax rule changes that are beneficial for the salaried individuals and professionals are specified below.
- Standard Deduction
Earlier you were allowed to deduct Rs.15, 000 each in the name of travel allowance and medical reimbursement. However, as per the budget 2018-19, the medical reimbursement and transport allowance are not tax exempt for the salaried people. The government has announced a single standard deduction of an amount of Rs. 40,000 for the salaried and the Pensioners. This change has led to an income tax saving of Rs. 10,000.
- Entertainment Allowance
Some of the private employees are already receiving this allowance, but it is originally and exclusively available only for government employees. This amount is either 1/5th of an individual’s salary or Rs. 5,000 whichever is lower.
- House Rent Allowance
This is one of the most popular allowances for income tax saving. However, the actual amount of deduction allowed is different from the amount of rent paid. It is either 40% of your salary or equal to the actual rent paid minus 10% of your salary.
Section 80C is one of the most popular sections among salaried class and the professionals. For the current year, the maximum limit of Rs.1, 50,000 is set. This means from this section alone you can make an income tax saving of Rs. 1, 50,000 on your salaried income. The list of various investments that can be claimed under this section are mentioned below:
- Public Provident Fund (PPF)
- Employee Provident Fund (EPF)
- Life Insurance Premium
- Sukanya Samriddhi Account (SSA)
- ELSS or Tax Saving Mutual Funds
- National Saving’s Certificate (NSC)
- Principal payment towards the home loan
- Senior Citizen Savings Scheme
- Tuition fee for kids
- The registration cost of the house and the stamp duty.
Any deductions claimed under section 80C, 80CCC, 80CCD1, and 80CCD2 have a combined limit of Rs.1, 50,000.
Section 80CCD (1B)
Under this section, you can receive NPS tax benefits. You can deduct an additional amount of Rs.50, 000 from your taxable income. This section is applicable to both salaried and self-employed individuals.
Under this section, to avail income tax saving benefits, one must first fulfill certain criteria. He or she must be an individual or a Hindu Joint Family (HUF). The payment that they make must be made out of taxable income, and it must be made in noncash mode.
This deduction under section 80E can be made by an individual if he or she has taken any education loan for the purpose of studying any course, be it in India or outside of India. This deduction can also be made if the loan taken is in the name of a child or a spouse. The entire interest has to be deducted in the first year in which the individual begins to pay interest on the loan.
If you are a professional or a salaried employee and a first time home buyer you can do some income tax saving under this section. You can claim an additional dedication upto an amount of Rs. 50,000 on the payment of home loan interests. To avail this deduction, the amount of loan mustn’t exceed ₹35 lakh, the price of the home mustn’t be more than ₹50 lakh, the loan must be sanctioned after 2016-17, it must be made only on the acquisition of a property and the buyer must not have any existing residential house at the time of the sanctioning of the loan.
You can claim a tax deduction if you have made any donation towards an approved charitable fund, trust or a political party. The limit of such deduction is Rs. 2000.
Section 80TTA also offers another opportunity to do income tax saving. It is applicable to an individual or a HUB. A deduction under section 80TTA can be made up to a maximum amount of Rs.10, 000 on interest earned on deposits (not fixed deposit) made to savings account in a co-operative society, post office or a bank.
This section is meant to help senior citizens with income tax saving. Under this section, the income earned in the form of interest from RDs and FDs will be exempt up to an amount of Rs.50, 000.
To save income tax for the salaried and professionals, the government has introduced a rebate of Rs.2500. For income tax saving under this section, one must be a resident of India and an individual and his/her income must be equal to or less than Rs.3, 50,000.
Other than the above-mentioned ways, there are many other income tax rules that can be used for income tax saving for the salaried and the professionals. You can consult a knowledgeable CA to ensure you get the maximum deductions based on your specific unique situation and annual income.