How to Save Tax on Salary?
As a salaried person, if you wonder how to save tax on your salary, there are a couple of ways you can achieve that. You can save tax under the provision of the Income Tax Act of 1961. Tax planning can be achieved by effectively utilizing these tax benefits by salaried employees to save their hard-earned money.
Here are some of the most common tax savings options for salaried employees.
House Rent Allowance (HRA)
Individuals who live in a rented apartment can claim House Rent Allowance (HRA) to lower tax payments. HRA, forming a part of one’s salary structure, is exempted from tax.
Employees’ Provident Fund (EPF)
Employee’s contribution to the Employees’ Provident Fund (EPF) is a well-known tax-saving option. Under the EPF, the employer and the employee contribute equally (in most cases 12% of the individual’s salary) to the Employee Provident Fund. The contribution made by the employee can be claimed for tax exemption under Section 80C. Also, the accumulated fund in an employee’s PF account (with interest earned) is tax-free.
Public Provident Fund (PPF)
This is also a tax-saving option that falls under the EEE (Exempt-Exempt-Exempt) category. PPF provides a return on investments for salaried persons that are free from tax.
Equity Linked Savings Scheme (ELSS)
Investment in Equity Linked Savings Scheme (ELSS) is eligible for deduction from an employee’s taxable income under section 80C. ELSS is a highly preferable tax saving option for salaried individuals as it provides a dual benefit – relatively higher returns with tax benefits.
National Pension Scheme (NPS)
One of the long-term tax saving options available for salaried people in India is National Pension Scheme (NPS). This investment plan is most suitable for people with a lower risk appetite.
Health Insurance Premium
The health insurance plan provides financial security to individuals and their families during medical emergencies. Apart from safeguarding financial interests, health insurance also helps in saving tax for salaried employees.
Tax Saving Through Group Health Insurance
Corporate insurance policies such as employee medical insurance policies are offered by employers to their employees and serve the same purpose as an individual health policy. Even in the context of tax benefits, a group insurance policy is beneficial for a salaried employee. Let us look at the tax benefits of group health insurance premiums under the following scenarios:
- When an employee pays the complete premium amount: The employee can claim the entire premium amount as a tax deduction under Section 80D. However, the amount should not exceed the maximum deduction of Rs 1 lakh.
- When an employee pays a partial premium amount: The employee can claim an amount up to the extent to which the premium is paid by the employee
- When the employer pays the complete premium amount: The employee cannot claim any tax benefit.
As a salaried person, tax planning is very crucial. It is thus important to learn about various options on how to save tax on salary and then take an informed decision. Group health insurance is one such product that provides financial safety at the time of medical need and is tax deductible, both for the employer and the employee.