How salaried employees can save on Income taxes

Tax saving is a tricky subject and needs a lot of planning. By learning the intricacies in the taxation laws and studying your own situation in relation to the taxation laws will enable you save on your taxes. Here are some easy ways for the salaried employees to save on income taxes.

Understand your salary slip first

You must understand your salary slip well to know the ways to save on the gross tax you are liable to pay. The salary slip consists of three segments namely earnings, allowances and deductions. These sections will give enough clues on how to save on your taxes.

The basic pay reflects on your earnings. Towards contributions, you might receive conveyance allowance, leave travel allowance, dearness allowance, house rent allowance and others. This section will also include deductions including income tax, professional tax and provident fund. Here are a few useful tips to plan for your taxes efficiently.

How to save on taxes

Income tax is levied on basic pay. Your House Rent Allowance (HRA) is tax exempted if you live in a rented house and pay the monthly rent. A fixed amount received as conveyance allowance also qualifies for tax exemption. Some employers might deduct income tax at the source. In such cases, the taxes paid already can be claimed by producing the necessary supporting documents at the end of the financial year. Also explore some options for investing in tax saving instruments.

Understand Section 80C

If you can understand the 80C section of the Income Tax Act thoroughly, you can hope to save on taxes and take home more salary. You are allowed to invest till an upper limit in schemes like National Savings Certificate (NSC), Equity Linked Savings Scheme (ELSS), Public Provident Fund (PPF) Bank Fixed Deposit (FD) and many other products.

Do not plan for the taxes during the last minute

If you will only study the tax during the last minute, it will give you very less room to save. If this happens, you will be overburdened with a need to make a sizeable investment in one time during the last minute. Small regular investments in Mutual Funds and SIPs over the entire year can help you make significant saving on taxes.

Meet your financial goals through investments

Investments planned in the right way not only enable you save on taxes, they also help you meet some of your cherished goals in life. It is possible to convert all your tax saving investments into ones that will bring you higher returns. For example, if you wish to buy a car, invest regularly in any ELSS. The lock in period will end in three years and after that you can withdraw this amount. Hence many tax saving instruments can help you meet your financial goals easily and effectively.

Other ways to save on taxes

It is possible to claim tax benefit on LTA once in every two years. To do this, you must submit the proof of travelling. Section 80D contains provisions for you to avail of tax benefits for the premiums paid towards health insurance policies. Section 80E contains provisions for tax exemptions on interest paid towards education loans.
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