An income tax is a tax that is levied on your income by the government. It is essential to pay this tax so that the government can use it for the development and welfare of the country. However, it is also necessary to save income tax to have more money in your pocket. You can save income tax on your salary income in several ways. One of the most common ways is to invest in a tax-saving option such as a life insurance policy or a public provident fund (PPF) account. Apart from this, you can also save income tax by using the available deductions and exemptions. You can claim deductions for expenses such as medical expenses, educational expenses, etc. You can also claim exemptions for certain incomes, such as interest on education loans.
What is Tax on Income?
Income from salary is taxable under the heading ‘Income from Salaries.’ The tax on income from salary is imposed on the total earning that is gained through salary, which includes both the gross salary and the allowances. It is payable by the employer on behalf of the employee and is deducted from the employee’s salary and is paid to the government. For the 2022 tax year, there are seven federal tax brackets including 10%, 12%, 22%, 24%, 32%, 35% and 37%. The tax on income from salary is a part of the personal income tax.
1. Income from salary is taxable under the Income Tax Act.
2. By utilising the numerous deductions and exemptions allowed by the Income Tax Act, an individual can reduce their income tax on income from salary.
3. An individual can also save income tax on income from salary by investing in various tax-saving instruments such as Public Provident Fund (PPF), Equity-Linked Saving Scheme (ELSS), etc.
4. People can also save income tax on income from salary by claiming various deductions and exemptions under the Income Tax Act.
Understand the Different Types of Income Tax
Income tax can be levied on several categories of assets and earnings that individuals or firms possess. The different types of income taxes in India on different categories are as follows-
1. Individual Income Tax:
Individual income India tax is levied on the total income of an individual. This includes income from all sources, such as employment, business, investments, etc. The tax rate is progressive, meaning that the tax rate increases as income increases.
2. Corporate Income Tax:
Corporate income tax is levied on the total income of a corporation. This includes income from all sources, such as business, investments, etc. The tax rate is flat, meaning that the tax rate is the same for all corporations.
3. Capital Gains Tax:
Capital gains tax is levied on the profit earned from selling capital assets, such as stocks, bonds, and real estate. Te thax rate is variable and depends on the type of investment sold and the holding period.
4. Gift Tax:
Gift tax is levied on the value of an individual's gifts. The tax rate is flat, meaning that the tax rate is the same for all gifts.
Deductions under Section 80C, Section 80CCC, and Section 80CCD of the Income Tax Act
The most popular are the three sections of the income tax act that provide tax deductions under section 80C, section 80CCC, and section 80CCD. These sections are prevalent among taxpayers. These sections are significant for taxpayers who are paying taxes on their income.
- Section 80C: This section provides the deduction for the investment made in specified instruments. The instruments include life insurance premiums, PPF, ELSS, NSC, infrastructure bonds, and Sukanya Samriddhi Yojana. The maximum deduction that a taxpayer can claim under this section is ₹1.5 Lakhs.
- Section 80CCC: This section provides the deduction for the investment made in pension plans. The pension plans can be of any type, like annuity plans, Unit Linked Pension Plans (ULIPs), and immediate annuity plans. The maximum deduction that a taxpayer can claim under this section is ₹1.5 Lakhs.
- Section 80CCD: This section provides the deduction for the investment made in the National Pension Scheme (NPS). The maximum deduction that a taxpayer can claim under this section is ₹1.5 Lakhs.
Tax Planning for Salaried Income
Every assessment year, the tax filing season serves as a signpost for anxieties and a frenzy among paid people. Since you must pay taxes for the relevant fiscal year, you look for ways to reduce your tax liability.
Being an Indian taxpayer, you must be aware of your tax bracket which is a range of incomes subject to a certain income tax rate. You will be able to understand how tax savings for the salaried class operate and steer clear of any difficulties that could occur during tax preparation. You can lower the taxable income for salaried personnel if you select the right financial instruments.
Slab system means different tax rates are prescribed for different ranges of income. If not done correctly, comprehending the income tax deductions for salaried employees can become challenging.There are a number of tools that can significantly influence your financial planning and provide tax benefits for salaried workers.
Following are some of the ideas that might help you cut down the amount of tax on your salaried income.
- Employees’ Provident Fund (EPF)
- Public Provident Fund (PPF)
- ELSS (Equity Linked Savings Schemes)
- NPS (National Pension System)
- Tax Saving FD (Tax Saving Fixed Deposit)
- Life Insurance Premium
- HRA (House Rent Allowance)
- LTC (Leave Travel Concession)
- Retirement Benefits (Gratuity)
- Health Insurance Premium
How to Save Tax on Salaried Income in India
Individuals can save taxes on their salary income in India in several ways. The most common and straightforward way is to use the available tax-free allowances and deductions. Some of the allowances and deductions that can be used to save taxes on salary income include the following
1. The standard deduction: This deduction is available for all taxpayer and is equal to the lesser of ₹40,000 or the actual salary earned.
2. Transport allowance: This allowance can be claimed for the cost of travel incurred in commuting to and from work. The maximum amount that can be claimed is ₹19,200 per year.
3. House rent allowance: This deduction can be claimed for the rent paid on the accommodation occupied by the taxpayer. The maximum amount that can be claimed is ₹60,000 per year.
4. Leave travel allowance: This deduction can be claimed for the cost of travel incurred for availing of leave from work. The maximum amount that can be claimed is ₹20,000 per year.
5. Education allowance: This deduction can be claimed for the cost of education incurred by the taxpayer for themselves or their dependent children.
6. Medical allowance: This deduction can be claimed for the cost of medical expenses incurred by the taxpayer for themselves or their dependent family members. The maximum amount that can be claimed is ₹15,000 per year.
7. Interest on home loan: This deduction can be claimed for the interest paid on a home loan taken for the purchase or construction of a self-occupied house property. The maximum amount that can be claimed is ₹2 lakhs per year.
8. Equity-linked savings scheme: This deduction can be claimed for the investment in an equity-linked savings scheme. The maximum amount that can be claimed is ₹1.5 lakh per year.
9. National Pension Scheme: This deduction can be claimed for the investment made in the national pension scheme. The maximum amount that can be claimed is ₹1.5 lakh per year.
10. Life insurance: This deduction can be claimed for the premium paid on a life insurance policy. The maximum amount that can be claimed is ₹1.5 lakh per year.
In addition to the deductions mentioned above, an individual can also use tax-saving investment instruments such as the public provident fund, the national savings certificates, and the 5-year bank fixed deposit to save taxes on their salary income.
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