As the income of individual increases, so does the tax liability. If you are earning a salary above 10 lakhs, it is essential to plan your taxes well in advance to avoid paying a large sum of money as taxes. Here are some effective ways to save tax for a salary above 10 lakhs.
Utilize Section 80C:
Section 80C of the Income Tax Act allows you to claim a deduction of up to Rs. 1.5 lakhs on your taxable income. You can invest in various tax-saving instruments like Public Provident Fund (PPF), Equity-Linked Saving Scheme (ELSS), National Pension Scheme (NPS), and many more. These investments not only help in tax saving but also offer long-term benefits.
Invest in NPS:
If you are looking for a long-term investment option, National Pension Scheme (NPS) can be an excellent option. Under Section 80CCD (1B), you have the opportunity to claim an extra deduction of Rs. 50,000 in addition to the Rs. 1.5 lakhs allowed under Section 80C. This means you can claim a total deduction of Rs. 2 lakhs by investing in NPS.
Claim HRA exemption:
If you are a salaried individual staying in a rented accommodation, you can claim an exemption on House Rent Allowance (HRA). The exemption is calculated based on the actual HRA received and other factors like the rent paid and the location of the rented property. This exemption can help you save a considerable amount of tax.
Opt for a Health Insurance Plan:
Health insurance not only provides coverage against medical emergencies but also helps in tax-saving. Under Section 80CCD (1B), you have the opportunity to claim an extra deduction of Rs. 50,000 in addition to the Rs. 1.5 lakhs allowed under Section 80C. If you are paying the premium for your parents, you can claim an additional deduction of Rs. 25,000 or Rs. 50,000, depending on their age.
Claim LTA exemption:
If your employer provides Leave Travel Allowance (LTA), you can claim an exemption on the same. The exemption is allowed twice in a block of four years, and it covers the travel expenses incurred by you and your family. This exemption can help you save tax on your salary.
Opt for the New Tax Regime:
The new tax regime introduced in the budget 2020 offers a lower tax rate with no deductions. If you are not availing any of the deductions and exemptions mentioned above, you can opt for the new tax regime and save tax on your salary.
Claim deduction on Interest paid on Home Loan:
Section 24 allows you to claim a deduction of up to Rs. 2 lakhs on the interest paid on a home loan. Additionally, you can also claim a deduction of up to Rs. 1.5 lakhs on the principal repayment of the loan under Section 80C. By utilizing these strategies, you can significantly reduce your tax liability.
Claim deduction on Education Loan:
If you have taken an education loan for yourself, your spouse, or your children, you can claim a deduction of the interest paid on the loan under Section 80E. The deduction is available for a maximum of 8 years, starting from the year in which you start repaying the loan.
Utilize Section 80G for donations:
If you have made donations to a charitable organization, you can claim a deduction under Section 80G. The deduction can be claimed for donations made to specific charities and can be up to 100% of the donated amount. However, it is essential to ensure that the charitable organization is approved by the government for the deduction.
Invest in National Saving Certificate (NSC):
National Saving Certificate is a popular investment option that offers tax-saving benefits. You can invest in NSC for a period of 5 years and claim a deduction of up to Rs. 1.5 lakhs under Section 80C. Additionally, the interest earned on the investment is also eligible for tax exemption.
Opt for Voluntary Provident Fund (VPF):
If you are a salaried individual and your employer provides Provident Fund (PF), you can opt for Voluntary Provident Fund (VPF) and increase your contribution towards PF. The contribution made towards VPF is eligible for deduction under Section 80C.
Claim Deduction on Professional Tax:
Professional tax is a tax imposed by the state government on the income earned by an individual. You can claim a deduction on the professional tax paid during the financial year under Section 16 of the Income Tax Act.
Utilize Section 80TTA:
Under Section 80TTA of the Income Tax Act, if you hold a savings account, you are eligible to claim a deduction on the interest earned on the account, up to Rs. 10,000. This deduction is only applicable to individuals and not to HUFs and other entities.
Claim Deduction on Medical Expenses:
If you or any of your family members have incurred medical expenses, you can claim a deduction of up to Rs. 15,000 under Section 80DDB. The deduction is available for expenses incurred on the treatment of specified diseases like cancer and neurological diseases.
Utilize Section 80GGA:
If you have made donations for scientific research or rural development, you can claim a deduction under Section 80GGA of the Income Tax Act. The deduction is available for donations made to specified research institutions and can be up to 100% of the donated amount.
Claim Deduction on Interest Paid on Personal Loan:
If you have taken a personal loan for any purpose, the interest paid on the loan is not tax-deductible. However, if you have utilized the loan amount for certain specified purposes like higher education, medical treatment, or home renovation, you can claim a deduction on the interest paid under Section 80E, 80D, or 24(b), respectively.
Conclusion
In conclusion, tax planning is an essential aspect of financial planning. By utilizing the above-mentioned methods, you can save a considerable amount of tax on your salary above 10 lakhs. However, it is advisable to consult a tax expert to make informed decisions and make the most of the tax-saving options available.
Read more useful content:
Frequently Asked Questions (FAQ’s)
Q1.) What is the maximum limit for tax-saving under Section 80C?
The maximum limit for tax-saving under Section 80C is Rs. 1.5 lakhs. This can be utilized for investments in specified instruments like Public Provident Fund, Equity-Linked Saving Scheme, National Pension Scheme, etc.
Q2.) Can I claim a deduction on the premium paid for health insurance for myself and my family?
Yes, you can claim a deduction of up to Rs. 25,000 for the premium paid for health insurance for yourself and your family under Section 80D. If you or your family members are senior citizens, the limit is increased to Rs. 50,000.
Q3.) Can I claim a deduction on the rent paid for accommodation?
Yes, if you are a salaried individual and living in a rented accommodation, you can claim a deduction on the rent paid under Section 80GG. However, there are certain conditions that need to be fulfilled to claim the deduction.
Q4.) Is there any tax exemption for interest earned on fixed deposits?
No, the interest earned on fixed deposits is not tax-exempt. It is taxable as per the income tax slab of the individual.
Q5.) Can I claim a deduction on the interest paid on my education loan?
Yes, you can claim a deduction on the interest paid on your education loan under Section 80E. The deduction is available for a maximum of 8 years or until the loan is fully repaid, whichever is earlier.
Q6.) Can I claim a deduction on the premium paid for my life insurance policy?
Yes, you can claim a deduction on the premium paid for your life insurance policy under Section 80C. The deduction is available for the premium paid for yourself, your spouse, or your children.
Q7.) Can I claim a deduction on the interest paid on my car loan?
No, the interest paid on a car loan is not tax-deductible.
Q8.) Can I claim a deduction on the interest paid on my credit card outstanding?
No, the interest paid on credit card outstanding is not tax-deductible.
Q9.) Can I claim a deduction on the interest paid on my personal loan?
No, the interest paid on a personal loan is not tax-deductible unless the loan is utilized for specific purposes like higher education, medical treatment, or home renovation.
Q10.) Can I claim a deduction on the education expenses incurred for my child’s education abroad?
No, there is no specific deduction available for education expenses incurred for education abroad. However, if you have taken an education loan for the same, you can claim a deduction on the interest paid on the loan under Section 80E.
