Here are some lesser-known tax saving avenues to ensure you make your salary tax efficient. Read on to know more.
Often the most seemingly fat salaries get reduced significantly only to the disappointment of the earner due to lack of tax management. And giving away hard-earned money can make anyone flinch. You could get the better of it and keep your money from slipping away by structuring the salary in a tax efficient manner.
While the end of each financial year sees employees trying to put things together to minimise tax incidence, they often don’t look beyond Section 80C. Let’s look at some ways to cut back on the tax amount you need to shell out every year.
Uniform Allowance :
Section 10 (14) (i) of the Income Tax Act ensures tax exemption on an allowance given out if the job profile requires wearing a dedicated uniform. This includes all purchases made against the uniform allowance. However, to make claim for such deductions, you need to submit to your employer genuine bills for all purchases made during a financial year.
Education Loan :
The interest paid towards Education Loan is tax-free. Moreover, the Income Tax Department has not set any embargo on the amount.
Donations made to charitable institutions or trusts that are duly registered are not taxable under Section 80G. However, it is important to retain the stamped receipt of the donation to claim tax exemption.
Medical Allowance :
Healthcare costs keep going up every year. And you could relieve yourself from the burden of such expenses to a certain extent by claiming tax exemption against the medical allowance offered by your employer. You could produce bills for all medical expenses incurred for self, spouse, children, parents and dependent siblings during the financial year to avail tax benefits.
Retirement Benefits/Contributions :
Contributions toward retirement are not just lucrative for future days but also an avenue for tax exemption. People are often reluctant towards making such contributions, as higher retirement contribution would mean lower take-home salary. The Income Tax Department, however, offers exemptions and deductions for such contributions. This is to encourage more people to put money into such plans.
Restructuring Your Salary :
The size of the basic pay in a salary is what attracts the attention of employees the most. However, this is the component that is fully taxable. If your employer is open to restructuring the salary in a more tax-efficient manner, you must try and include allowances and perquisites to minimise the tax burden.
House Rent Allowance (HRA) :
HRA is a vital component of your salary structure. Any employee staying in a rented accommodation is eligible to get HRA under the provisions of the Income Tax Act.
Leave Travel Allowance (LTA) :
Under Section 10(5) of the Income Tax Act, the LTA provided by the employer to the employees is tax-free. This allowance is paid out as part of the employee’s salary towards meeting his/her travel expenses with family. LTA can be claimed for any two trips made in four calendar years. You can claim LTA by submitting proof of travel to your employer.
Section 80C :
Besides these avenues, anyone who falls within the taxable limits can enjoy tax exemption on investments covered under Section 80C. Some of these deductions include Life Insurance premiums, National Savings Certificate, five-year-long Fixed Deposits with banks or post office, the principal amount repaid on Home Loan, tuition fees paid for the education of children of up to two children etc.
While you explore these tax deduction options, make sure you keep your bills and receipts in place to make the most of it.