Tax Saving Tips for Salaried Employee for FY21

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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
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• Don't buy insurance policies just to save taxes
• Investment in NSC, Tax savings FD, etc. to save
  taxes
• Don't follow someone blindly just to save taxes
• Claim Expenses to save taxes
• 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
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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
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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 persons 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.
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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.
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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.

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• 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.
• If the house is self-occupied interest
  deduction allowed is up to Rs.2,00,000
• 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 ta x 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.

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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.

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• HRA is exempt to the lower of the following
• Actual HRA
• Rent paid 10 of basic salary
• 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,
• You own house property in a town for which you
  can claim interest and principal repayment
  against salary income.
• 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.

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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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