Saving TAX for the salary above 10 lakhs:
When you earn a salary above 10 lakhs, you are considered a high-income earner and are subject to a higher tax bracket. However, there are ways to save tax and reduce your liability. Here are a few tips to help you save tax:
1. Invest in tax-saving investments: Tax-saving investments are those that are eligible for tax deductions under Section 80C of the Income Tax Act. Some popular tax-saving investments include Public Provident Fund (PPF), National Savings Certificate (NSC), Equity-linked Saving Scheme (ELSS) and National Pension Scheme (NPS). PPF is a long-term investment option with a maturity period of 15 years, while NSC and ELSS have a maturity period of 5 and 3 years respectively. These investments not only help you save tax but also help you grow your wealth over time.
2. Take advantage of deductions: The Income Tax Act provides several deductions that can be claimed to reduce your taxable income. Some of the most commonly used deductions are for investments in health insurance, home loan interest, and children’s education. Health insurance premium deductions can be claimed under Section 80D of the Income Tax Act, while home loan interest deductions can be claimed under Section 24 of the Income Tax Act.
3. Make use of Section 80C: Section 80C of the Income Tax Act allows you to claim deductions for a variety of investments and expenses, up to a maximum of Rs 1.5 lakh per year. This can include investments in PPF, NSC, ELSS, National Pension Scheme (NPS), Tuition fees paid for children’s education, and more.
4. Plan your salary structure: You can also plan your salary structure to take advantage of tax-free allowances and reimbursements. For example, you can ask your employer to provide you with a transport allowance or a medical reimbursement that is tax-free. Transport allowance of up to Rs 1,600 per month and medical reimbursement of up to Rs 15,000 per annum are tax-free.
5. Keep records and claim all eligible expenses: It is important to keep records of all your investments, expenses, and income to ensure that you claim all the deductions and exemptions that you are eligible for. This will help you reduce your tax liability. For example, Keep all the bills and receipts of the investments and expenses you made during the financial year.
6. Renting out a property: If you own a property that is not being used and you are paying interest on the home loan, you can consider renting it out. The rental income you earn is taxable, but the interest paid on the home loan can be claimed as a deduction under Section 24 of the Income Tax Act.
7. Buy a second house: If you are planning to buy a second house, you can claim a tax benefit on the home loan interest paid for the second house as well. However, it is important to note that the second house should be let out and the rental income should be shown as income from house property.
8. Charitable donations: Donations made to certain charitable institutions are eligible for tax deductions under Section 80G of the Income Tax Act. You can claim a deduction of 100% or 50% of the donation amount, depending on the institution.
9. Carry forward loss provisions: In case, you have incurred losses in certain investments or business, you can carry forward the loss and set it off against the gains in the next financial year. This can help to reduce your overall tax liability.
10. Retirement planning: Planning for your retirement can also help you save tax. Investment in National Pension Scheme (NPS) and contribution to the Employees’ Provident Fund (EPF) are eligible for tax deductions under Section 80C and 80CCD of the Income Tax Act.
It is important to note that tax laws and regulations are subject to change, and it is always best to consult with a tax expert or financial advisor to understand the best tax saving options for your specific situation.
Please find the other articles on our financial advices on various topics.