Tax planning Tips for the salaried employees is a matter of planning and discipline. Planning involves making a set of decisions at the start of the financial year in April and discipline comes in when you are required to adhere to the plan come what may.
There are certain tax saving tips for salaried employees that should hold them in good stead. The tips are geared to reduce tax outgo and help fulfill their financial goals.
Tip 1 – Take a good look at Section 80C
When it comes to taxation of salaried employees, perhaps no section is a bigger ally than Section 80C.
So the biggest tax planning tip for salaried employee is to take a good look at Section 80C to maximize take-home salary, legally ‘reduce’ income and lower tax payout.
Section 80C comes with a broad range of options to help individuals lower tax liability.
Section 80C offers as much as Rs 150,000 in terms of tax benefit, which tells you how important it is for taxpaying individuals.
Tip 2 – Start with Rs 150,000
Make Rs 150,000 your starting point and work backwards by considering the most suitable options like insurance, PPF (public provident fund), tax-paying mutual funds, NSC (National Savings Certificate) and so on.
The investment plansand allocations depend primarily on your financial goals, risk profile and income levels. Your financial planner should be helpful over here. He can guide you on how to make the most of these options.
Tip 3 – Begin with the most important options
While reviewing Section 80C benefits, go for options that you would take anyway, even if there was no tax benefit.
Typically this would include life insurance, employee provident fund (EPF) – should your employer qualify for the same, tuition fees and so on. Deduct all these from the Rs 150,000 starting point.
Tip 4 – Move to the second rung options
Once you have got the most important options out of the way, it’s time to take a close look at the second rung.
This would typically include tax-saving mutual funds and ULIPs (unit-linked insurance plans) if you are the risk-taking type or PPF and NSC if you prefer low risk options.
If you want to invest in a pension plan, then the good news is that premium payment on pension plans,under Section 80CCC – a sub-section of Section 80C – also qualify for tax benefits.
By the same token, contribution to New Pension Scheme (NPS) – under Section 80CCD – a sub-section of Section 80C, also qualify for tax benefits.
Tip 5 – Have you taken a home loan?
If you have availed a home loan, you can claim tax benefits under Section 80C by furnishing proof of principal re-payment on the home loan.
You can also claim tax benefits under Section 24 towards interest payment on the home loan.
Tip 6 – Don’t forget the other sections
While Section 80C seems to hog most of the footage, so to say, when it comes to tax-planning there are other sections that can save a bundle on taxes.
While listing the sections may not prove very meaningful, we have listed down the documents individuals need to submit to avail of tax benefits under the sections:
- Rent receipts to claim HRA tax benefit
- Medical bills to claim tax-free medical allowance
- Proof of travel to claim leave travel allowance (LTA) tax benefit – usually twice in a block of four years
- Proof of conveyance, if required by company guidelines, to claim conveyance allowance
- Premium receipt of health insurance/mediclaim, including premium paid on parents’ health insurance – Section 80D
- Statement of education loan with details of the interest component – Section 80E
- Proof of donation to a recognized charity under Section 80G