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How To Save Income Tax On Salary

How To Save Income Tax On Salary

Tax planning is one of the ways which can help you save on taxes and increase your income. The income tax act provides deductions for various investments, savings and expenditures incurred by the taxpayer in a particular financial year. We will discuss some of the avenues which can help you save taxes.

Introduction

Salary under section 17(1) 

Under section 17(1), salary is defined to include the following :

    1. wages ;
    2. any annuity or pension ;
    3. any gratuity ;
    4. any fees, commission, perquisites or profits in lieu of or in addition to any salary or wages;
    5. any advance of salary ;
    6. any payment received by an employee in respect of any period of leave not availed by him;
    7. the portion of the annual accretion in any previous year to the balance at the credit of an employee participating in a recognised provident fund to the extent it is taxable ;
    8. transferred balance in a recognised provident fund to the extent it is taxable; and
    9. the contribution made by the Central Government or any other employer to the account of an employee under a notified pension scheme referred to in section 80CCD.

How to compute salary income

Salary income is calculated as under—

  Rs. Rs.
Income from salary ………………
Income by way of allowances ………………
Taxable value of perquisites ………………
Gross salary * * * * *
Less: Deduction under section 16
Standard deduction under [Sec. 16 (ia)]
Entertainment allowance deduction [Sec. 16 (ii)] ………………
Professional tax [Sec. 16 (iii)] ……………… * * * * *
Income under the head “Salaries”
Notes- * * * * *
1. Standard deduction is Rs. 50,000 or gross salary, whichever is lower. * * * * *
2. Professional tax is deductible on “payment basis”. If it is paid by the employer on behalf of the employee, it is first included in gross salary as perquisite and then deduction is allowed under section 16(iii). * * * * *

 

  • Taxable Salary Income = Salary (-) Exemptions (Exempt allowances + Standard deduction +Professional Tax)
  • Net taxable income= Taxable Salary Income (-) Deductions under chapter VIA.

Investments / Payments on which I can save taxes

Section 24(b) – Deduction from Income from House Property on interest paid on housing loan & housing improvement loan. In case of self- occupied property, the upper limit for deduction of interest paid on housing loan is  ₹ 2 lakh. However, this deduction is not available for person opting for New Tax Regime.

Interest on loan u/s 24(b) allowable is tabulated below:

Nature of Property When loan was taken Purpose of loan Allowable (Maximum limit)
Self-Occupied On or after 1/04/1999

Construction or purchase of house property

₹ 2,00,000
On or after 1/04/1999 For Repairs of house property ₹ 30,000
Before 1/04/1999 Construction or purchase of house property ₹ 30,000
Before 1/04/1999 For Repairs of house property ₹ 30,000
Let Out Any time Construction or purchase of house property Actual value without any limit

Tax deductions specified under Chapter VIA of the Income Tax Act which bring down the taxable income for an individual and thus reduce the tax payable.

These deductions will not be available to a taxpayer opting for the New Tax Regime u/s 115BAC, except for deduction u/s 80CCD (2), 80CCH which will be applicable for New Tax Regime as well.

Section 80C, 80CCC, 80CCD (1)

 Deduction towards payments made to

80C
  • Life Insurance Premium
  • Provident Fund
  • Subscription to certain equity shares
  • Tuition Fees
  • National Savings Certificate
  • Housing Loan Principal
  • Other various items
80CCC

Annuity plan of LIC or other insurer towards Pension Scheme

80CCD(1)
Pension Scheme of Central Government
group Combined deduction limit of ₹ 1,50,000
Section 80CCD(1B)
Deduction towards payments made to Pension Scheme of Central Government, excluding deduction claimed under 80CCD (1)
group
Deduction limit of ₹ 50,000
Section 80CCD(2)

Deduction towards contribution made by an employer to the Pension Scheme of Central Government

If the Employer is a PSU or Others
group
Deduction limit of 10% of salary
If the Employer is Central or State Government
group
Deduction limit of 14% of salary

 

Section 80CCH

Deduction in respect of contribution to Agnipath Scheme

Where an assessee, being an individual enrolled in the Agnipath Scheme and subscribing to the Agniveer Corpus Fund on or after the 1st day of November, 2022, has in the previous year paid or deposited any amount in his account in the said fund
group
Allowed a deduction in the computation of total income, of the whole of the amount so paid or deposited
Where the Central Government makes any contribution to the account of an assessee in the Agniveer Corpus Fund
group
Allowed a deduction in the computation of total income of the whole of the amount so contributed

 

Section 80D

Deduction towards payments made to Health Insurance Premium & Preventive Health check up

For Self / Spouse or Dependent Children
group
₹ 25,000 (₹ 50,000 if any person is a Senior Citizen)
₹ 5,000 for preventive health check up, included in above limit
For Parents
group
₹ 25,000 (₹50,000 if any person is a Senior Citizen)
₹ 5,000 for preventive health check up, included in above limit
For Parents
group Deduction limit of ₹ 50,000

 

Section 80DD
 

Deduction towards payments made towards maintenance or medical treatment of a Disabled Dependent or Paid / Deposited any amount under relevant approved scheme

group

Flat deduction of
₹ 75,000
available for a person with Disability, irrespective of expense incurred

The deduction is
₹ 1,25,000
if the person has Severe Disability (80% or more).=

 

Section 80DDB
 

Deduction towards payments made towards Medical treatment of Self or Dependant for specified diseases

Deduction limit of
₹ 40,000
(₹ 1,00,000 if Senior Citizen)

 

Section 80E
Deduction towards interest payments made on loan for higher education of Self or relative
group Total amount paid towards interest on loan taken

 

Section 80EE
Deduction towards interest payments made on loan taken for acquisition of residential house property where the loan is sanctioned between 1st April 2016 to 31st March 2017
group Deduction limit of
₹ 50,000
on the interest paid on loan taken

 

Section 80EEA
Deduction available only to individuals  towards interest payments made on loan taken for acquisition of residential house property for the first time where the loan is sanctioned between 1st April 2019 to 31st March 2022 & deduction should not have been claimed u/s 80EE
group Deduction limit of
₹ 1,50,000
on the interest paid on loan taken

 

Section 80EEB
Deduction towards interest payments made on loan for purchase of Electric Vehicle where the loan is sanctioned between 1st April 2019 to 31st March 2023
group Deduction limit of
₹ 1,50,000
on the interest paid on loan taken

 

Section 80G

Deduction towards Donations made to prescribed Funds, Charitable Institutions, etc.

Donation are eligible for deduction under the below categories

Without any limit
group
100% deduction
50% deduction
Subject to qualifying limit
group
100% deduction
50% deduction

 

Note: No deduction shall be allowed under this section in respect of donation made in cash exceeding  ₹ 2000/-

 

Section 80GG

Deduction towards rent paid for house & applicable to only those who are self-employed or for whom HRA is not part of Salary

Least of the following shall be allowed as deduction

Rent paid reduced by 10% of Total Income before this deduction ₹ 5,000 per month 25% of Total Income (excluding long term capital gains, short term capital gains under section 111A or income under section 115A or 115D)

 

Section 80GGC
 

Deduction towards Donations made to Political Party or Electoral Trust

group
Deduction towards Donations made to Political Party or Electoral Trust

 

Section 80TTA
 

Deduction on interest received on saving bank accounts by Non-Senior Citizens

group
Deduction limit of
₹ 10,000/-

 

Section 80TTB
 

Deduction on interest received on deposits by Resident Senior Citizens

group
Deduction limit of
₹ 50,000/-

 

 Section 80U
 

Deductions for a resident individual taxpayer with Disability

group

Flat ₹ 75,000 deduction for a person with Disability, irrespective of expense incurred

Flat ₹ 1,25,000 deduction for a person with Severe Disability (80% or more), irrespective of expense incurred

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