How to save income tax forsalaried employees ?

Individuals who earn a monthly salary are generally able to avoid the volatility associated with an unsteady income. Yet, when it comes to making investments to save income tax, the same individuals get into a flurry towards the end of the financial year. There are various income tax saving options that are available to salaried employees and a deeper knowledge about them will help individuals save tax.

All the income earned by a salaried employee is subject to taxation. However, there are various options that an individual can utilise to reduce the overall taxable income and consequently the total tax payable on said income. Below are some income tax savings options that can help individuals reduce tax liability.

Deductions Under Section 80C of the Income Tax Act 1961

Section 80C allows individuals to claim a total deduction of up to Rs. 1,50,000 by investing in a broad selection of approved investments. The lock-in period, rate of return and tax treatment of returns will differ from one option to the other. Some investment options under Section 80C include:

· Public Provident Fund· Equity Linked Savings Scheme· Five year fixed deposits with banks and the post office· National Savings Certificate

Deductions in addition to Section 80C

Do not fret if you have exhausted your limit of Rs. 1,50,000 under Section 80C. There are a few other Sections under which you can claim deductions. Some of these are discussed below:

· Section 80D - Deduction of Rs. 25,000 for medical insurance of self, spouse and dependent children and an additional deduction of Rs. 25,000 for medical insurance of parents below 60 years and of Rs. 30,000 if parents are above 60 years of age. Incase both the tax payer and the parent are older than 60 years of age then a total deduction of Rs. 1,00,000 is allowed.

· Section 80G - Donations to specified funds or charitable institutions.

House Rent Allowance

Scenario I: Individual tax payer is paying rent but is not receiving any HRA from the company.The least of the following could be claimed under Section 80GG:

i. 25 per cent of the total income; ii. Rs. 5,000 per month or

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iii. Excess of rent paid over 10 per cent of total income

This deduction will, however not be allowed, if you, your spouse or minor child owns a residential accommodation in the location where you reside or perform office duties.

Scenario: If HRA forms part of your salary, then the minimum of the following three is available as exemption:i. Actual HRA received;ii. 50% of [basic salary + DA] for those living in metro cities (40% for non-metros); oriii. Actual rent paid less 10% of basic salary + DA

Tax Saving from Home Loans

Use your home loan efficiently to save more tax. The principal component of your loan, is included under Section 80C, offering a deduction up to Rs. 1,00,000. The maximum tax deduction that you can avail under Section 24 on interest payment of home loan taken for a self-occupied property is Rs. 2 lakhs.

Other Options

Contribution to pension account, leave travel allowance, transportation allowance, medical bills reimbursements etc, can also be used to reduce the tax liability of an individual.Salaried individuals have many income tax saving options which can help them reduce tax liability. However, the key is to plan in advance and avail of the benefits in a structured manner rather than get into a frenzy towards the end of the financial year.