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Tax Saving Options for Salaried Employees

Tax planning for salaried employees is essential because it varies with increasing income. Here are some tax-saving options for salaried employees. Read on to know more about it.

  • Nov 22, 2021

As you start working and earning beyond a salary slab of Rs. 2.5 lakhs per annum, you must pay what is known as income tax. Tax planning for salaried employees is essential because it varies with increasing income. To facilitate the planning process, various sections under the Income Tax Act, 1961 provide opportunities for tax saving for the salaried. These provisions empower you to enjoy the income tax exemption for salaried employees.

The best financial planning for salaried persons should always include the benefits reaped on taxes they pay. However, every section has an income tax limit for salaried people. Some of these tax-saving options include:

Section 80C of the Income Tax Act

Section 80C puts the income tax limit for salaried persons at Rs. 1,50,000. Under this section, income tax exemption for salaried employees comes in the form of:

  • National Pension System is a retirement scheme where one can invest a minimum of Rs.6000 per annum. Apart from section 80C, since one is investing themselves in NPS, they can also claim a deduction of up to 10% of the salary under section 80CCD. Additionally, the income tax limit for salaried person is 20% of the salary if the person is self-employed.
  • An equity-linked saving scheme or ELSS is a scheme that invests in equity or the stock market and provides tax saving for salaried employees under section 80C. While this is a good option to consider when tax planning for salaried employees, it is also a high-risk option.
  • Life and term insurance are among the best financial planning for salaried persons to invest and one can claim tax deductions on their premiums under section 80C.
  • Employee Provident Fund can be paid for by the employee and the employer by using 12% of the base salary.
  • Public Provident Fund is an investment instrument for tax saving for salaried under which one can make payment. The contributions made to a PPF can be valid for a tax deduction.
  • National Savings Certificate or NSC is an account that one can open at any post office. It is a fixed income saving scheme where you can invest as low as Rs. 100, and there is no upper limit for the investment, which can be claimed in tax deduction.
  • Sukanya Samridhi Yojana is a scheme for the girl child, till she is ten years old. Income tax exemption for salaried employees here is on the investment that is made.

Section 80CCC

Tax Saving Options For Salaried Employees

Under this, the income tax limit for salaried person is Rs. 1.5 lakhs combined with section 80C, which means that the total exemption you can avail should not exceed Rs. 1.5 lakhs. The income tax exemption for salaried employees is on the annuity that is paid on any pension plan.

Section 80D

Here the income tax exemption for salaried employees is on the premium paid for any health insurance plans or any additional health riders that may have been bought on the term insurance plans. And the limit is Rs. 25,000 for self, spouse, and children and Rs. 50,000 for parents above the age of 60. Apart from this, one can claim income tax exemption on House Rent Allowance, which is for those living in rented spaces; here, the rent slips must be shown to claim any deductions.

It is important to look at tax saving options for salaried employees to get the most of your income. Tax saving is the best financial planning for salaried persons and can be done by anyone paying income tax. One must, thus, explore all their options before coming to a decision and make the best of it.

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- A Consumer Education Initiative series by Kotak Life

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