Understanding how to save tax is not rocket science. All you have to do is to stay up-to-date with the latest tax slabs and regulations by the Government of India. Whether you are a salaried professional or a business owner, you would always want to save every single penny you earn from your hard-work. This article will provide you hacks on how to save tax in India. Keep reading –
How to Save Tax in India for Salaried Individuals.
1. House Rent Allowance
People who are living on rent in metro cities can claim House Rent Allowance from their employers to get tax benefits. It depends on a lot of factors whether the tax relief will be partial or complete. You have to make sure that you have your landlord’s Pan Number else you would not be able to claim the HRA.
If you are not receiving HRA from your employer, you can claim the benefits under 80GG. You have to fulfil a set of conditions such as proving that you are self employed or salaried. Also, you have not received HRA from your employer during the year you are claiming 80GG. You also need to prove that you or your spouse do not own this residential accommodation.
2. Leave Travel Allowance
The Allowance given to an employee from an employer to cover his travel expenses when is on leave from work is called Leave Travel Allowance. Under tax u/s 10(5) of Income Tax Act, 1961, Leave Travel Allowance (LTA) is exempt from tax.
Salaried individuals can avail tax reliefs on travel expenses for themselves, their children and their spouse if all are on the same vacation. However, this benefit can only be availed twice in four years. If you missed showing the expenses of your travel in first set of four years, you can carry forward the expenses of one vacation to the next set of four years.
3. Meal Vouchers/Coupons
Companies like Sodexo and Ticket Restaurant provide meal coupons to various organizations for their employees to eat at their own convenience. Tax is exempted on these coupons/vouchers on INR 50/meal basis.
These coupon providing firms have tie-ups with various restaurant chains, bakeries, outlets, fast food joints etc where your coupon can be redeemed. These vouchers can only be redeemed for regular food items and non-alcoholic beverages.
4. Medical Reimbursement
If you get medical reimbursement from your employer, tax will be exempted on the expenses up to INR 15,000. However, you have to make sure to provide all the valid bills/invoices of the expenses to your employer. Furthermore, the bills provided by you can be from any hospital, clinic or medical entity. Tax benefits on medical bills are valid for you and your family including children, spouse, parents, brother and sister who are solely dependent on you.
Some employers offer medical allowance instead of reimbursement or both. The difference between the two is, in Reimbursement, you have to get the treatment done at your expense and then get the relief. Whereas in allowance, the employer gives a certain pre-specified money to the employee which can be used later irrespective of the expenses. Please note, medical allowance is fully taxable by Indian Govt.
5. Day to Day Travel/Internet/Telephone Expenses
Salaried individuals can get tax benefits on their daily travel expenses. The upper limit is INR 1,600 per month that is 19,200 per annum. These expenses can be claimed without providing any bill or invoice. However, it is not applicable in the case if the allowances are high compared to salary received or unreasonable with the nature of the duties performed.
Regarding telephone and internet expenses, you should check with your employer about any reimbursement policy or tax benefits.
6. Medical Insurance Plan
Taking a medical insurance plan not only covers with medical risks but also offers tax benefits passed under the Income Tax Act. You can get a medical insurance plan from top insurance companies. With a maximum amount of INR 25,000, premium paid on your medical insurance can be claimed under section 80D. You can claim your premium paid for self, spouse, children and parents dependent on you.
How to Save Tax in India for Business Owners and Startups
If you are a business owner or a self-employed individual, you should check out these quick hacks to save tax in India.
7. Keep your daily expenses on your finger tips
In a labour intensive country like India, lots of transactions are done through cash. It is really important to keep a check on your business’ daily expenses. No matter how small they look, daily expenses can pile up to a big amount during the end of financial year and can help you to figure out actual profit which is taxable.
8. Travel Expenses during a Business Trip
This is one the most important hacks to keep in mind if you want to know how to save tax. Almost every business person has to travel to flourish his business. It would be a good idea to include the cost of traveling into your daily expenses. However, make sure you keep all the valid bills with you and present them before filing your annual tax.
9. Tax deduction at Source (TDS)
Some transactions require buyers to deduct tax at source as per the Income Tax Act. You cannot show some of those expenses if you are not deducting tax at source. Most of new business owners and startups miss TDS which increases tax burden on them. These deductions gets refunded later to the concerned person by the income tax department. TDS rates varies from 1% to 30% based on the nature of transactions for residents in India.
10. Income tax filing on time
It is always good to file your income tax on time. Most important, If you file your income tax on time, you can carry forward your business losses to consecutive period of 8 years. Also, filling your income tax on time saves you from unwanted penalties and hassles.
11. Investment in PPF
Public provident fund scheme introduced by government of India is a deposit scheme which has a a couple of benefits as compared to fixed deposits in tax savings. In PPF, you get high rate of interest with no tax under Section 10 which makes it better than fixed deposits. Furthermore, You can claim deduction up to INR 1,50,000 under PPF scheme.
There are surely more ways on how to save tax in India. All you have to do is to consult a good CA and keep an eye on your expenses.