Know how to save tax on salary
At the end of every financial year, many tax payers frantically make investments to minimize taxes, without adequate knowledge of the various available options. The Income Tax Act offers many more incentives and allowances, apart from the popular 80C, which could reduce tax liability substantially for the salaried individuals. Here are seven smart tips to help you save more and reduce taxes.
- Standard Deduction
Standard Deduction, re-introduced in 2018 budget, has replaced the conveyance allowance and medical allowance. A deduction of flat Rs. 40,000 (for FY 2018-19)/50,000 (for FY 2019-20) can be claimed by the employee from the total income, reducing the tax outgo.
- House Rent Allowance
Any salaried employee who lives in a rented house can claim HRA. This can be partially or fully exempt based on the least of-
- Actual HRA received
- 50% of (basic salary + dearness allowance) for Delhi, Mumbai, Kolkata & Chennai and 40% of (basic salary + Dearness allowance) for non-metros
- Rent paid – 10% of (basic salary + dearness allowance)
- An alternate to HRA- Deduction of rent paid u/s 80GG
- Individuals living on rent and not able to claim benefit of house rent allowance (HRA) can claim deduction under Section 80GG. To be eligible for this deduction you should satisfy certain conditions as follows:
- You should be living on rent, not receiving HRA or rent-free accommodation
- You should not own a house in the city you are living in your name, spouse’s or minor child name.
- If you own the house in other city, then it should not be assessed as ‘self-occupied’ property
After fulfilling the conditions mentioned below, deduction available to you will be the lower of the following:
=> Rs 5,000 per month
=> 25% of your total income*
=> Rent paid in excess of 10% of your total income
- Leave Travel Allowance
Leave Travel Allowance can be claimed by the employee for any trip in India. One can claim LTA twice for two domestic trips with family in block of four years. The present block is 2018 – 2021.
- The exemption is available for the shortest distance on travel.
- The travel can be done either by the employee alone or with his blood relatives i.e. spouse, children, parents (dependent) and/or brother-sister (dependent).
- The employee can avail exemption on actual expenditure incurred by submitting the bills of the travel to the employer.
- Meal Coupons
Meal coupons are exempt from tax up to Rs. 50 per meal. This includes 2 meals per day for 22 working days (assumption). Therefore, annual exemption comes up to Rs. 26400.
- Gift Vouchers
Any gift received by the employer on birthday or anniversary is exempt up to Rs. 5000 per year.
- Relief under Section 89(1)
Relief u/s 89(1) is allowed only if employee has received a portion of his salary in arrears or advance or have received family pension in arrears.
As an employee, you may not have complete control over how your salary is structured. However, employers these days are flexible enough to design your salary appropriately. It is best to identify your short-term and long-term financial goals and modify your pay structure accordingly.