Taxpayers who are salaried continuously balance their income and tax deductions. They figure out how to reduce their taxed income while increasing their actual net income. They seek ways to achieve their goal of lowering their tax outlay, such as tax deductions, allowances, and exemptions.
The tax authorities, on the other hand, let businesses set up the wages of their salaried workers in a way that is tax-efficient and assists them in doing so by including a number of allowances in their pay.
These Tax Saving Exemptions go above and beyond the well-known Section 80C tax breaks, which allow for annual savings and investments of up to Rs 1.5 lakh. To have a handle on how to take advantage of income tax concessions at this point, it would be beneficial to comprehend the distinction between income tax exemption, refund, and deduction.
Salaried taxpayers should be aware that these options are not a way to avoid paying income tax, but rather a strategy to lessen their tax burden. The Income Tax Section 10 lists a variety of concessions that salaried workers can take advantage of to lower their tax burden.
Let's look at the 5 ways that salaried people might lower their tax bills:
The HRA received from the employer qualifies for exemption as long as the employee resides in leased housing and pays rent to the owner. For salaried taxpayers, this is their first experience with tax savings. The HRA exemption may also be requested by providing evidence of rent payments made to the employer or when filing income tax returns in accordance with Section 10. (13A). The lower of the following determines the HRA exemption amount:
- HRA obtained from a company
- Actual rent paid less than 10% of the monthly minimum wage
- 50% of the taxpayer's base wage if they reside in a large city
- 40 per cent of the taxpayer's basic wage if they reside in a non-metropolis
Leave Travel Allowance (LTA)
Salary taxpayers can deduct costs from
Tax Save Planning for domestic holidays under the LTA, including the cost of travel tickets for the taxpayer and their family. Costs expended for the whole vacation, such as those for shopping, food, entertainment, and recreation, among others, are not covered by the exemption. This exemption is only valid for two trips during a period of four years and can be requested under Section 10(5).
Rent Paid In Cases Where HRA Isn’t Paid
You can claim a deduction for rent paid under Section 80GG up to Rs 60,000 in a fiscal year if you are salaried but do not receive HRA because you work in the unorganized sector or are self-employed. Taxpayers who own a home but reside in a leased home in the same city are not eligible for this deduction. Taxpayers who own a home in another city and utilize a tax deduction under Section 24 to pay off the home loan interest on that home are not eligible to use it.
Income from Gratuity
Employees are eligible to receive gratuity payments if they retire or leave their job after at least five years of continuous service. It is a monetary incentive from the employer or expression of appreciation from the employer for their long-term service to the organization. The amount of the gratuity is determined by the employee's most recent income and the number of years they have worked for the company.
Leave Encashment
When an employee fails to use the available paid time off even when there is a provision to do so, leave encashment is in effect. This exemption is dependent upon the company that offers this benefit, as some firms only let you carry over a certain amount of such leave without offering encashment. Many employers who allow for leave encashment also place restrictions on how much may be redeemed. The sum paid as compensation for accrued vacation days is known as leave encashment, and it is subject to Tax Saving Exemptions as pay under certain circumstances.
It is important to remember that these tax breaks are not intended to be rewards in addition to gross pay or the cost-to-company (CTC) structure that governs how employees are paid. Likewise, a number of other allowances are offered, including those for books and magazines, leased cars, and outfitting.
However, because the total CTC stays the same, all of these are paid as part of the income. Basic pay, variable compensation, perquisites, and allowances are all part of the CTC system. In order to lower their income tax expenses, salaried employees are free to select tax-friendly options among these options. Learn more about
Tax Saving Exemptions online only at the website of My First Crore.