How to Save Tax on Salary in India? | A Complete Guide on Tax Saving

Introduction to saving tax on salary in India

‘’Your salary has been credited to your account’’, it is that date of the month for which every one of us waits eagerly. But do we get to enjoy all of it that’s credited?
Every payment made by an employer to his employee for the service rendered would be chargeable to tax as salaries.
After meeting all the expenses and necessities, whatever is left, still a portion of it has to go to the government in form of taxes, which is what we call income tax. It is collected on an annual basis. But, it is not like, you have to pay 100% of tax everytime, rather you can save tax on salary if you are eligible as per the rules of income tax.

Is saving tax on salary in India easy?

Perhaps it may seem difficult to save tax on salary in India for some people, but the right knowledge and guidance on tax saving can really smoothen the process.
There are so many options available to save taxes on salary, and, if we utilize them efficiently, a good amount can be saved.
It’s not difficult to save taxes in India but sometimes people only use the traditional and famous ways of saving taxes and miss out on the more productive ways. It also becomes a nightmare for people who do not understand the terms and are unaware of policies and schemes. So, this article is directed towards keeping yourself updated with all the policies and schemes related to saving tax on salary in India.
You must have heard of the words, deductions and exemptions. Often these words are used interchangeably, but these two words are very different and hold a different meaning all-together. Let me explain it to you:

1. Exemption refers to that portion of income on which the taxpayer does not have to pay any taxes.




2. Deduction refers to that portion of taxable income which is reduced using the benefits and policy provided by the government and some portion of it is only taxable.

Options available to save tax on salary in India

Out of various options available to save taxes on salary, not every option is suited for everyone. It depends upon the type of income, nature of business, slab applicable, the new scheme of tax regime or old, and many others.

1. Claiming expenses: In this, the person can claim the expenses and reduce the total income chargeable tax and thereby reducing the income tax. Proof of expenses incurred is necessary to maintain.




2. Investing in tax saving instruments: Government encourages the public to invest their money in specified schemes and reduce their income tax. Proof of investment is mandatory to claim the deduction.

Now let’s go through all legal schemes to save taxes in India.

Investment -linked deductions:

1. Certain Investments (80C)- It is the most popular and commonly used method to save taxes on salary income in India. A taxpayer can invest into Provident fund, NSC, NPS, ELSS, Life insurance, also claim principal repayment for a home loan, tuition fees (maximum 2 children) and payment made for stamp duty, registration fees, subscription to notified bonds of NABARD. The maximum amount that can be claimed under this section is Rs.1,50,000.




2. Pension scheme of Central Government (80CCD)- Gives an additional deduction of Rs.50,000 on the investment made in NPS.

Deductions allowed for the certain expenditure

Medical Related Expenditures

1. Payment of Insurance Premium (80 D)- Provides for deduction of a certain portion of the insurance premium paid for self, spouse, children (minor or major), and parents. The amount of deduction under this section keeps on changing, however, premium paid for buying health insurance for senior citizens will help you save more taxes.




2. Deduction in respect of payments made for maintenance and medical treatment of dependant disabled (80DD): Any medical expenditure incurred for the treatment training including nursing of the person with a disability qualifies for the deduction. The quantum of the deduction is Rs.75,000 and in case of severe disability Rs.1,25,000.




3. Deduction in respect of medical treatment (80DDB): This deduction is available to an individual who incurred medical expenditure on himself or their dependent. Maximum deduction allowed Rs.40,000, and in the case of senior citizens Rs.1,00,000.

Loan Based Expenditures:

1. Repayment of education loan (80 E)- Not many people is aware of the fact that repayment of education loan can lead to tax savings. It provides dual benefits to the parents. Helps them provide liquid funds for children’s education and also helps save taxes. Certain things to keep in mind are there is no tax saving on the principal amount paid, just the interest component qualifies for the deduction. Also, there is no limit on the amount of deduction that can be claimed.




2. Section 24B- Having their own house is a dream for every one of us. To help achieve this government has provided us an advantage keeping in mind the high rates of interest charged by the lending institutions. In the case of self-occupied, the maximum amount of deduction allowed on interest payment is Rs.2,00,000 and in case the property for which loan is taken given on rent or deemed to be rented there is no such limit, you can claim a deduction of the whole interest amount.




3. Deduction on interest on loan borrowed for acquisition of house property (80 EE): Who doesn’t want to own a house property, to make it little easier, the government has introduced this section to provide tax benefits for the interest paid on loan taken for acquisition of house properties. To avail of this benefit certain conditions, need to be satisfied, as, the value of property should be less than 50 lakhs, the assesse should not own any other residential house on the date of loan sanction. The maximum deduction allowed is Rs.50,000.




4. 80 EEA- In this section also government provides tax benefits for the interest component on the loan taken for acquisition of residential house property during the period 1st April 2019 to 31st March 2022. Only those are qualified for this, who do not opt for the benefit under section 80EE. The Maximum deduction allowable is Rs.1,50,000.




5. Deduction on interest payable on loan taken for the purchase of electric vehicle:(80 EEB): A person who has taken, a loan for the purchase of an electric vehicle from any financial institution qualifies for the deduction on the interest component, provided the loan should be sanctioned between 1.4.2019- 31.03.2023. quantum of deduction maximum allowable is Rs.1,50,000..

Donation Based Expenditures:

1. Donation to certain funds and Charitable Institutions: Donation not only helps the person receiving but also helps the donor by helping save the taxes. The quantum of the deduction depends upon the type of donation the person is making, some are eligible for 100 percent while some are eligible for 50 percent only also subject to a certain limitation on gross total income. Donations made above Rs.2000 should be in any mode other than cash.




2. Contribution to political party: You make the government happy; the government is going to make you happy. Any sum contributed to any political party or electoral trust qualifies for the deduction under this section, provided no amount of donation made shall be in cash.

Other Expenditures:

1. Section 16(ia)-A standard deduction of Rs.50,000 or the amount of salary whichever is lower, is available to all the employees.




2. House Rent Allowance: All the people, living in a rented apartment can avail the benefit under this section. HRA Exemption will be the lowest of the HRA your employer pays you, actual rent paid minus 10% of basic pay, OR 50% or 40% of basic salary plus DA depending upon if you live in a metro or a non-metro city. Important to note is that this option is not available under the new tax regime.




3. Rent deduction under (80 GG): If a salaried person is paying rent and does not have HRA as a component of salary, can still save tax on the rent paid. The maximum deduction allowed under this section is Rs.5000 per month.




4. Deduction in respect of interest on deposits in Savings Account (80TTA): This is the way old method of earning income in the form of interest via a savings account. To promote such deposits government has provided tax benefits, as a deduction of up to Rs.10,000 in aggregate shall be allowed while computing the income of the assessee. However, this does not include any interest earned on FDs.




5. Leave Encashment: In the case of non-government employees salary received at the time of retirement is exempt to the least of Rs.3,00,000, or actual leave encashment received or 10 months average salary or cash equivalent of the leave.

Certain Exemptions

• Allowances to High court judges, allowances paid by United Nations Organisations, Allowances granted to government employees outside India.




• Compensatory allowances, Sumptuary allowances.




• Any commuted pension received by employees of Central Government or local authority is exempt.




• Retirement gratuity received by the members of Defence Service is fully exempt from tax.




• Leave salary received by government employees at the time of retirement is fully exempt from the tax.

Conclusion on How to Save Tax on Salary in India

After reading these articles you must have got good insights on how you can save taxes on your salary, but it doesn’t end there. Proper computation of salary keeping in mind all the provisions can be cumbersome. To help mitigate this problem, software at Webtel Electrosoft Pvt limited can be used for the correct calculation of the Salary. The software at Webtel is updated from time to time as and when the government policy changes and hence it will make the process much simpler and hassle- free. You can also book a demo by visiting Web-e-Tax by Webtel.