Taxpayers are constantly on the lookout for opportunities to minimise their tax burden and reduce their overall tax liability. If you’re wondering how to save tax on salary, this article will help you explore the best tax saving options for salaried employees and help you make informed decisions about your financial future. Let’s look at different schemes that help with overall tax planning for salaried employees in India.
Top 10 Tax Saving Options for Salaried in 2024
Here are the top 10 tax-saving investment options for salaried;
1. Employee Provident Fund (EPF)
Employee Provident Fund is one of the most efficient and commonly used options for tax saving for salaried employees. Every month, both the employee and the employer contribute up to 12% of the employee’s salary to the provident fund and the employee receives interest set by the government, which is about 8.6%. When it matures, the returns are tax-free. Also, under section 80C of the Income Tax Act contributions to EPF are eligible for tax deductions.
2. Public Provident Fund (PPF)
Any tax planning for salaried employees is lacking without a Public Provident Fund investment. PPF is a government-backed savings scheme which also provides a return on investments, which are tax free. The appeal of PPF is in its tax advantages. It follows the Exempt-Exempt-Exempt (EEE) status, meaning the money you put into the fund, the interest it earns, and the final maturity amount are all tax-free. This makes it an excellent choice for both tax savings and long-term investments.
3. Equity Linked Savings Scheme (ELSS)
Equity Linked Savings Scheme or ELSS is hailed as one of the top tax-saving choices for salaried individuals. They are mutual funds that invest primarily in equities. ELSS has a shorter lock-in period of three years, making it a more flexible option for those seeking both tax savings and potential capital appreciation.
Investing in ELSS schemes allows you to claim deductions from your taxable income under Section 80C. It is also the only mutual fund scheme that is eligible for tax deductions, which sets it apart from the rest.
4. ULIPs
ULIPs, or Unit Linked Insurance Plans, are also a great option for tax saving for salaried employees. ULIPs are unique as they offer a blend of insurance and investment. When you pay premiums, you not only secure financial protection for your family but also have the opportunity to invest in a range of securities for potential returns through strategic planning.
ULIPs are categorised as EEE, indicating that they offer tax advantages, and under Section 80C, the premiums paid for ULIPs are eligible for tax deductions.
Also Read: Tax Planning for Beginners: Top Key Principles Explained
5. National Pension Scheme (NPS)
The National Pension Scheme (NPS) is a retirement-focused savings option that provides a long-term retirement corpus and is regulated by the government. It not only offers a secure investment avenue but is one of the best tax-saving options for salaried employees. Under Section 80C of the Income Tax Act, you can avail tax benefits on your contributions. Additionally, you have the opportunity to claim extra deductions of up to Rs. 50,000 under Section 80CCD(1b).
6. Tax Saving FD
A Tax Saving Fixed Deposit, or a tax-saving FD, is one of the most favoured savings options as it is often considered the safest choice for salaried employees. Not only do they offer a smart way to grow your money, they simultaneously reduce your tax burden. Tax Saving Fixed Deposits are offered by banks and have a lock-in period of five years. They are eligible for income tax exemptions for salaried employees under Section 80C. While these FDs offer the security of a fixed return, the interest earned is taxable, and the returns may be lower compared to other investment options.
7. House Rent Allowance (HRA)
Salaried professionals who live in rented houses can claim House Rent Allowance (HRA) exemptions as per Section 10(13A) of the Income Tax Act. In general, your salary package often comprises HRA, which isn’t entirely subject to taxation. Taxable income is determined based on your income tax slab rate, following the subtraction of HRA from the total income.
Note that you will have to pay taxes on HRA you receive from your employers in case you live in your own house and don’t pay any rent.
8. Retirement Benefits (Gratuity)
Retirement planning often involves taking into account benefits such as Gratuity, which also offers tax advantages. If you have completed a minimum of five years with an employer, you are eligible for gratuity. It is provided upon superannuation, resignation, retirement, or in the unfortunate events of an employee’s death or disability. The gratuity amount received under any of these circumstances is eligible for tax exemption as per section 10(10), up to a maximum limit of Rs. 20 lakh.
9. Life Insurance
Life insurance stands as one of the finest tax-saving investment options, serving as a means to both grow your wealth and ensure financial security during unforeseen circumstances. Salaried professionals can opt for term insurance plans, endowment plans etc. to meet their insurance needs while also reducing their tax liability.
The premiums you pay for life insurance are eligible for tax deductions under Section 80C of the Income Tax Act. The sum assured received in case of death and the survival benefit also comes with applicable tax benefits under Section 10(10D).
Read More: How to Save Taxes with Existing Investments?
10. Health Insurance
Health insurance not only offers financial security during medical crises but also serves as a popular tax-saving choice for salaried individuals.
Typically, the premiums you pay for yourself, your family, or your parent’s health insurance can be deducted from your taxable income under Section 80D, with a maximum of Rs. 1 lakh. This encourages people to secure their health and the health of their loved ones while enjoying tax benefits.
Conclusion
When it comes to financial planning for salaried employee in India, there’s a plethora of tax-saving options, each carrying its unique advantages and factors to consider. Diversifying your investments across these options can not only reduce your tax burden, but can also strengthen your financial portfolio.
FAQs on Tax Savings Options
How can a salaried person reduce income tax?
Salaried individuals can lower their tax liability by investing in Section 80C tax-saving instruments (e.g., PPF, ELSS, EPF), claiming Section 80D deductions (for health insurance premiums), using HRA exemptions, and optimising other Income Tax Act exemptions and deductions.
How can I save 30% tax on my salary?
You can invest in deductions under Section 80C, 80D, and other relevant sections. Use exemptions like HRA, standard deduction, and home loan interest deductions (under Section 24) if applicable.
How to save tax on 10 lakh salary?
To save tax on a 10 lakh salary, invest in Section 80C instruments like ELSS, PPF, NPS, and EPF. Claim deductions for health insurance premiums (Section 80D),, and HRA exemptions if renting. Effective tax planning and exemptions are crucial for lowering tax liability.
How to save tax for salary above 15 lakhs
To save tax on a salary above 15 lakh, invest in NPS, tax-saving fixed deposits, and senior citizen savings schemes. Explore deductions like home loan principal repayment (Section 80C) and maximise Section 80D deductions for health insurance premiums if you have dependents.
How to save tax for salary above 20 lakhs
To save tax on a salary above 20 lakh, optimise Section 80C deductions by investing in ELSS, PPF, EPF, NPS, and senior citizen savings schemes. Explore deductions under Section 80G for charitable contributions and Section 80E for education loan interest. Maximise exemptions such as HRA and standard deduction.
