We are sure you will agree that the no feeling can surpass the feeling that you get when you get paid for the month long hard work that you have put in at work.
But here’s the shocker:
A large fraction of your hard earned money gets depleted during the time of taxation. And we are sure you will agree with us when we say that there is nothing more disappointing than getting a sizeable part of your hard-earned money eaten up by the tax monster.
Here’s the BIG QUESTION…..
How do you save yourself from the high tax deduction that may end up making a dent to your otherwise higher bank balance?
Well, the answer is simpler than you would have ever imagined! You will need to first get acquainted with the salary slab and the deductions that are available at your disposal. You will need to then carefully declare your proposed investments. If you are looking for help to do so, you are at the right place. We have done the hard work for you.
So, let’s get started! Shall we?
But before we jump into action, it makes sense to understand that your overall salary is inclusive of your Gross salary, Leave pay, Provident Fund, Insurance, Gratuity, insurance and Labour Welfare Fund. And your Gross Salary is calculated as the sum total of your Basic pay plus the Dearness allowance and House Rent Allowance, transport allowance, special allowance and other allowance, if any.
Now that you know about how calculate income tax on your salary , it’s time to get acquainted to some of the most basic tax deductions allowed in your salary to help you declare your proposed investments.
Tax Deductions on Income from Salary
Tax deductions available on the income from salary come under the Section 16 of the Indian Income Tax Act. Here is a little listing of the basic tax deductions allowed on income from salary:
• Entertainment Allowance – If your employer provides you entertainment allowances, you are liable to take tax deduction benefits under the Section 16(ii) of the income tax act. Under this head, you may avail a tax deduction for one fifth of your salary without including any work bonuses or perks, or other allowance for a maximum limit of Rs.5000, whichever amount is lower. However, this tax deduction is not available for non-government employees.
Note: Your total taxable liability of income from salary is calculated after making all deductions from different heads of income.
Life Insurance Premiums Or Tax Saving Plans
Under Section 80C of the income tax act, you can a maximum of Rs.1,50,000. To avail tax deductions under this head, you will need to invest in PPF, Life Insurance, ELSS (Equity Linked Savings Scheme), Home Loan Monthly Instalments, National Savings Certificate, Children’s Tuition Fees and ULIPs (Unit Linked Insurance Plans).
Health Insurance Premiums
Under Section 80D of the Indian Income Tax Act, you can avail tax deductions of up to Rs. 25000 for health insurance premium for self, dependent children, spouse and parents. You can avail Rs. 30000 tax deductions, if you are a senior citizen and are paying for health insurance or your parents are senior citizens and you are paying for their health insurance premiums.
House Rent Allowances
Understanding house rent allowance benefits remains a tricky proposition for most salaried individuals. However, it is not that difficult to understand. Read on the following to understand the tax deductions allowed on House Rent Allowances:
• You may get deductions for either of the actual HRA amount, or
• Half of your basic salary. You can get half of your basic salary if you live in a metro city; but if your live in a non-metro city, you get only 40% of your basic salary.
• In addition, you get tax deductions equal to additional rent paid over and above 10% of your salary.
You cannot claim tax deductions for home loan interest repayment and rent, if you have a house of your own. But if you live in a rented accommodation, despite having a house of your own for reasons including workplace being too far or other reasons, you may avail tax deductions on home loan interest repayment. In addition, if you are first-time home buyer, you can avail an additional tax deduction of Rs.50000 under the Section 80EE of the Income Tax Act. But in order to avail this tax deduction, you will have to ensure that there is no other property in your name and the property has been bought and home loan availed for the property in financial year 2016-17.
Now when you understand where and how you can avail tax deductions on income from salary, it is time to start saving by utilizing this learning. Go ahead put this learning into practice and seek tremendous benefits of tax deductions on income from salary.