How To Save Income Tax On Salary Above 7 Lakh - Loan Trivia


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Tuesday 14 May 2024

How To Save Income Tax On Salary Above 7 Lakh

Effective financial planning can ensure that we maintain a good balance between our income and expenses. One integral part of the financial ecosystem is the income tax, which sometimes becomes a burden that we always want to reduce or even extinguish.

The income tax on 7 lakh salary or above can be substantially reduced with a few tricks up your sleeve, which we will discuss in this article.

Understanding your tax liability is the first crucial step towards efficient tax planning. A person earning a salary of 7 lakh rupees will fall under the tax slab of 5-10% as per the Indian Income Tax Act. This means a part of your income will face a tax of 5-10%, making it essential for you to understand the ways to reduce it efficiently.

1. Utilize Section 80C of the Indian Income Tax Act

As per Section 80C of the IT Act, you can claim a deduction of up to 1.5 lakh rupees. You can invest in various elements from this section, including Employees Provident Fund (EPF), Public Provident Fund (PPF), National Savings Certificates (NSC), Life Insurance Premiums, Five-Year Fixed Deposits with banks and post office, Tuition Fees, Home Loan Principal Repayment, etc.

2. Health Insurance

Under Section 80D of the IT Act, a deduction can be claimed on premium payments for medical insurance. The maximum limit for individuals below 60 is twenty-five thousand rupees. This deduction leads to an effective reduction in the tax liability on your salary package.

3. House Rent Allowance (HRA)

The House Rent Allowance given by your employer can be claimed as tax-exempt as per the Income Tax rules. If you live in a rented apartment, the tax benefit can be claimed under Section 10 (13A) of the IT Act, reducing your salary's taxable portion.

4. Education Loan

Deductions can be claimed under Section 80E for repayment of the interest component of education loans. The good news is, this benefit applies not just to your own education but even when you borrow for your spouse's or children's higher education. There is no maximum limit for this claim, and you can avail of it for 8 years from the start of your loan repayment period.

5. National Pension Scheme (NPS)

Investments in NPS are eligible for tax deductions under Section 80CCD (1B). You can claim a maximum deduction of 50,000 rupees, apart from the 1.5 lakh allowed under section 80C.

6. Standard Deduction

Another benefit for salaried individuals is the standard deduction of 50,000 rupees, which the government has allowed. This deduction is provided regardless of actual expenses incurred and reduces your income liable for taxation.

7. Rent Paid

In case you do not receive HRA and you pay rent, you can still get tax benefits under Section 80GG. The least of the following can be claimed as a deduction: rent paid in excess of 10% of total income, 25% of total income, or 5000 rupees per month.

8. Deductions for the Differently-Abled

Under sections 80U and 80DD, tax deductions are available for differently-abled individuals and those who have dependent differently abled persons, respectively. These could be helpful in reducing your tax burden if you happen to fall in these categories.

9. Miscellaneous Sections

Sections like 80G (donations towards specified funds), 80TTA (interest on savings bank account), 24B (home loan interest repayment) are other ways where deductions can be claimed to reduce tax liability.

10. Professional Tax

A small but important aspect is Professional Tax, which is deducted from salary and is eligible for deduction under the IT Act. The maximum benefit is 2,500 rupees a year.

These tax-saving tools can significantly reduce the overall income tax on a 7 lakh salary or above, leaving you with a higher take-home pay package. Whether it's investing in tax-saving instruments or utilizing allowances and reimbursements provided by employers, understanding these basic tax saving alternatives can help you plan your taxes efficiently.

Lastly, remember to maintain proper documentation for all tax-saving expenses and investments. This will ensure a smooth and hassle-free process when filing your income tax returns. So, leverage these opportunities to get the maximum out of your hard-earned money by saving on income tax.

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