Tax contributions in India are fueled by that of salaried employees. From official data available, we see that salaried employees, on average, pay three times more taxes than individual business taxpayers. For the assessment year of 2016-17, about 1.89 crore salaried individuals filed their returns and paid Rs 1.44 trillion in tax. The per head tax payment works out to Rs 76,306. In contrast, 1.88 crore business taxpayers filed their returns and paid a total tax of Rs 48,000 crore. The per head taxation works out to Rs 25,723.
Paying your taxes on time is commendable, but so is looking for the right tax-saving schemes. While the tax burden can fall quite heavily on the shoulders of salaried employees, they can invest in a number of instruments to avail of deductions and exemptions that help lighten this burden.
When choosing tax saving investment options, you should take into account how the returns would be taxed. Read on to understand how better save tax and invest wisely.
First things first, take a good look at your payslip and understand its various components. Ensure components like house rent allowance, leave travel allowance, conveyance allowance, etc. By understanding the numerous components of your salary, you can structure it in a manner that helps you avail of a maximum amount of exemptions.
Under Section 80C of the Income Tax Act, one can avail of a host of deductions to lower their income tax liability. There are several investments you can make to benefit from deductions under Section 80C. These are:
With a demat account, you can invest seamlessly in ELSS. Deductions of up to Rs. 1.5 lakhs are available every financial year. If you are looking to open an online demat account, you may consider a reputed stockbroker who can help you open an online demat account in India in few, easy steps.
Under Section 80D, you are eligible for deductions up to Rs 25,000 on your health insurance premiums. This limit is Rs 50,000 for senior citizens.
As per Section 24 of the ITA, if you’ve taken a home loan, you can get a deduction on the interest component of your repayment amount. You can claim a deduction of up to Rs 2 lakh per year.
For all those who prefer conservative avenues of investment, tax-savings under savings accounts are also available. Under Section 80TTA, interest earned on savings accounts is tax-deductible up to Rs 10,000. This limit shoots up to Rs 50,000 for senior citizens under Section 80TTB.
This step is crucial. While it does not refer to actual financial investment, it points out that planning your finance and tax is of utmost importance. For salaried individuals, investments in tax-saving instruments are a key part of financial planning. Last-minute investment plans lack research, making tax planning a huge burden. On the other hand, careful planning of investments for tax exemptions provides high returns. The deadline for such investments is March 31st, 2020.
These are some schemes that can greatly benefit a salaried employee while saving tax. Make sure you do your research and plan your investments according to your needs.