21 March 2024 | By INDIE
The tax filing process can be pretty overwhelming. It’s even more confusing when figuring out how to get the most deductions possible as a salaried employee.
In this article, we'll discuss practical tips to help you maximise your tax deductions and keep your hard-earned money in your pocket. Please note that these tips are relevant only for those opting for the Old Tax Regime and cannot be claimed by those opting for the New Tax Regime.
In India, three sections can help citizens save on taxes – Section 80C, Section 80CCC, and Section 80CCD(1). If you have invested your money in the instruments mentioned in these sections, you can claim deductions up to ₹1.5 lakhs on your taxes. We have listed a few popular financial tools below to help claim these benefits.
It’s available at most banks and post offices in India for 15 years and offers a tax-free interest. The interest rate is subject to change every quarter. As of the most recent update in 2024, the PPF interest rate stands at 7.1% per annum, compounded annually for the April-June 2024 quarter.
These FDs are for five years and provide interest of 7-8% p.a., which is taxable.
This scheme is for a tenure of 5 years and, as per the past trends, the interest rate ranges between 6.8% and 8.1% per annum. The interest rate is subject to change every quarter.
With contributions to the NPS scheme, you can avail tax deductions up to ₹1.5 lakh under Section 80CCD.
A contribution of 12% of the salary made towards the EPF scheme can help you get a deduction of ₹1.5 lakh under Section 80C.
This scheme is available to citizens who have attained the age of 60 years or above. The investment is locked for a 5-year tenure at a rate of interest that is subject to change every quarter. As per the past trends, the interest rate on SCSS ranges between 7.4% and 9.3%.
This 3-year lock-in period mutual fund investment scheme requires a minimum of 80% equity investments. The returns are taxable – long-term capital gains tax applies at 10% above ₹1 lakh.
Parents of a girl child below ten years of age can claim tax deductions under this scheme. The tenure is 21 years or until the girl gets married after 18 years. As per the past trends, the rate of interest for this scheme ranges between 7.6% and 9.1%. The interest earned is taxable.
Taxpayers can avail of tax deductions on tuition fee payments for up to two children studying in Indian institutions.
If you have taken a home loan from any bank or financial institution, you can claim a deduction on the principal repayment component up to ₹ 1.5 lakh under Section 80C.
Premiums paid towards life insurance for self, spouse or children are eligible for deductions.
A ULIP offers a dual benefit of life insurance and investment. Investment in this instrument is also eligible for tax deduction under Section 80C.
Tax deduction against premiums paid towards pension plans can be claimed under Section 80CCC, with a limit of ₹1.5 lakh.
Contributions of up to ₹1.5 lakh made to pension schemes of the Central Government are eligible for tax deduction under this section.
Please note that the maximum tax deduction one can claim for investment in tax-saving instruments under Section 80C, Section 80CCC and Section 80CCD(1) is capped at ₹1.5 lakh per annum.
As per the Income Tax Act, the premium paid towards your health insurance policy is eligible for tax deduction. The amount of tax deduction you can claim depends on your age.
Category of Individuals |
Premium Paid for Self, Family, and Children (INR) |
Premium Paid for Parents (INR) |
Tax Deduction under Section 80D (INR) |
Individuals and parents (both below 60 years) |
25,000 |
25,000 |
50,000 |
Individuals and family (below 60 years) with parents (above 60 years) |
25,000 |
50,000 |
75,000 |
Individuals, family, and parents (all above 60 years) |
50,000 |
50,000 |
1,00,000 |
Hindu Undivided Family (HUF) and Non-Resident Indians (NRIs) |
25,000 |
25,000 |
25,000 |
This table outlines the tax deduction available under Section 80D of the Income Tax Act in India, based on the age of the insured and the premium paid for medical insurance.
HRA is a part of your salary and helps save taxes under section 80GG. However, if your annual rent is more than ₹1 lakh, you need to provide some documents like the landlord's PAN card, lease agreement, etc.
Please note that you cannot claim the entire HRA amount provided by your employer. You can only claim the lowest of the following:
1. Actual HRA provided by the employer
2. 50% of basic salary + DA (if the employee lives in Mumbai, Delhi, Chennai or Kolkata)
3. 40% of basic salary + DA (if the employee lives in any other city)
4. Actual rent paid - 10% of the basic salary + DA
When you secure a home loan for purchasing or constructing your house, it opens up the possibility of availing tax deductions on both the interest and principal amounts of the loan. Specifically, the interest payment on your home loan can lead to a deduction, but this is limited to the interest component only, with an annual cap of ₹2 lakhs.
In addition to the interest, the principal amount repaid on the home loan is eligible for a deduction up to ₹1.5 lakhs under section 80C. It's essential to understand that these deductions are accessible under both the old and new tax regimes, albeit with certain restrictions in place.
Here’s a structured overview of the deductions available:
Deduction Type |
Relevant Section |
Maximum Deduction Amount |
Key Conditions |
Interest Payment |
Section 24b |
₹2 Lakh |
The loan must be for buying or constructing a house, with construction completed within 5 years from the end of the financial year in which the loan was taken. |
Interest Payment |
Section 80EE |
₹50,000 |
The loan amount should be ₹35 lakh or less, and the property value should not exceed ₹50 lakh. The home loan must be taken between 1st April 2016 and 31st March 2017. |
Interest Payment |
Section 80EEA |
₹1.5 Lakh |
The stamp value of the property must be ₹45 lakh or less. The home loan must be taken between 1 April 2019 and 31 March 2022. |
Leave Travel Allowance (LTA) is a part of an employee’s salary, covering travel expenses for them and their family within the country during leave. Its amount varies based on employer policies and the employee’s salary, typically a percentage of the basic salary.
LTA can be claimed twice in a four-year block and unused allowance can be carried forward.
Donating money to charities or social causes in India can save money on your taxes!
Here's how it works:
● Section 80G permits tax saving through donations to qualified charitable institutions. Donors can claim deductions of 50% to 100% of the donated amount, subject to specific conditions and limits.
● Under Section 80GGC, individuals can deduct donations to political parties or electoral trusts from their Gross Total Income. The deduction that can be claimed is 100% of the donated amount without an upper limit, provided the political party is registered under Section 29A of the Representation of the People Act, 1951, and donations are not made in cash or kind.
The new tax regime offers standard deductions of ₹50,000 for salaried individuals. In the 2023 Budget, the government also increased the income limit for rebates to ₹7 lakh. This means you don’t have to pay tax if your salary is under ₹7.5 lakh!
Standard Deduction is also applicable under the Old Tax Regime.
As we end the discussion on tax deductions for salaried employees, remember that your money is precious and deserves to stay with you. By using the available deductions and exemptions wisely, you can lower your tax bill and set a foundation for a more financially stable future.
Whether it's taking advantage of allowances, making smart investments, or staying up-to-date on the latest tax laws, you can increase your income.
For more such interesting reads, check out the INDIE blog!
Source:
- https://incometaxindia.gov.in/Acts/Income-tax%20Act,%201961/2016/102120000000058181.htm
- https://www.incometax.gov.in/iec/foportal/help/individual/return-applicable-1#taxslabs
