A Guide to Income Tax Deductions and Allowances for Salaried People in AY 2023-2024
Taxation is a crucial aspect of any economy, and India is no exception. The Indian taxation system is designed in such a way that every citizen has to pay taxes in one form or another. While it is the responsibility of every individual to pay taxes, it is also important to take advantage of the various tax-saving measures that are available to them. For salaried individuals, there are several ways to save tax and reduce their tax liability. In this blog, we will discuss some of the most effective ways that salary income earners can save tax in India.
Tax Saving Ways for Salaried People
Utilize Section 80C of the Income Tax Act
Section 80C of the Income Tax Act is one of the most popular tax-saving provisions available to taxpayers in India. Under this section, individuals can claim a deduction of up to Rs.1.5 lakh from their taxable income by investing in various instruments such as Public Provident Fund (PPF), Equity-Linked Saving Schemes (ELSS), National Savings Certificate (NSC), and tax-saving fixed deposits. These investments not only provide tax benefits but also offer attractive returns.
Claim deductions for medical expenses
Under Section 80D of the Income Tax Act, taxpayers can claim deductions for medical expenses incurred on themselves, their spouse, children, and dependent parents. The deduction amount varies depending on the age of the individual and the type of insurance policy they have. For instance, individuals below the age of 60 can claim a deduction of up to Rs.25,000 for the premium paid towards a health insurance policy, while those above 60 can claim a deduction of up to Rs.50,000.
Claim deductions for home loan repayments
Individuals who have taken a home loan can claim deductions on the principal amount repaid under Section 80C and on the interest paid under Section 24(b) of the Income Tax Act. Under Section 24(b), individuals can claim a deduction of up to Rs.2 lakh on the interest paid towards a home loan for a self-occupied property. In case the property is not self-occupied, there is no upper limit on the deduction amount.
Opt for the NPS (National Pension Scheme)
The National Pension Scheme (NPS) is a government-backed retirement savings scheme that allows individuals to invest in a mix of equity, debt, and government securities. Under Section 80CCD(1B) of the Income Tax Act, individuals can claim an additional deduction of up to Rs.50,000 over and above the deduction available under Section 80C for contributions made towards the NPS. This deduction is available only for investments made in the Tier-1 account of the NPS.
Claim deductions for education expenses
Under Section 80E of the Income Tax Act, individuals can claim deductions for the interest paid on education loans taken for higher studies for themselves, their spouse, children, or any student for whom they are a legal guardian. The deduction is available for a maximum of 8 years or until the loan is fully repaid, whichever is earlier. There is no upper limit on the deduction amount.
Invest in tax-saving mutual funds
Tax-saving mutual funds or Equity-Linked Saving Schemes (ELSS) are mutual funds that invest primarily in equity and equity-related instruments. Under Section 80C of the Income Tax Act, investments made in ELSS funds are eligible for tax deductions of up to Rs.1.5 lakh. ELSS funds not only provide tax benefits but also offer the potential for higher returns compared to other tax-saving instruments.
Claim deductions for donations
Under Section 80G of the Income Tax Act, individuals can claim deductions for donations made to certain charitable institutions and funds. The deduction amount varies depending on the type of organization and the percentage of the donation that is eligible for deduction. For instance, donations made to certain government relief funds are eligible for a 100% deduction while donations made to other charitable organizations may be eligible for a 50% or 25% deduction.
Claim deductions for rent paid
Individuals who live in rented accommodation can claim deductions for the rent paid under Section 80GG of the Income Tax Act. The deduction amount is calculated as the lower of the following:
- a) Rs.5,000 per month
- b) 25% of the total income
- c) Actual rent paid minus 10% of the total income
However, it is important to note that individuals who receive House Rent Allowance (HRA) from their employer are not eligible for this deduction.
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Claim deductions for interest on savings account
Under Section 80TTA of the Income Tax Act, individuals can claim a deduction of up to Rs.10,000 on the interest earned from their savings bank account. This deduction is available to individuals and Hindu Undivided Families (HUFs) but not to senior citizens who can claim deductions under Section 80 TTB.
In a nutshell, salary income earners in India can save tax by utilizing the various tax-saving provisions available to them as discussed above. These provisions not only help individuals reduce their tax liability but also encourage them to invest in various instruments that provide attractive returns. It is important to plan one's investments and expenses in a way that maximizes tax savings while also achieving financial goals. Consulting a tax professional also helps individuals make informed decisions and avoid any tax-related issues in the future. At SuperCA, we ensure that taxpayers make the most of these benefits. We act as a Tax Saviour for our clients. Our systems are designed to suggest deductions and tax exemptions applicable to income tax returns and also ensure that the clients get the maximum possible tax refund & exemptions and they do not pay more than they owe.