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Smart Tax Planning for Salaried Individuals

Submitted by admin on April 18th, 2024

Managing taxes is a big deal in personal finance management. If you are a salaried person, it’s crucial to take a regular look at what you make before it’s taxed. All money-related matters start from your pre-taxed earnings. Having a good understanding of your earnings before the authority makes a ‘tax’ cut helps you become a smart tax planner.

It’s not just about rule adherence but more about understanding your financial scenario inside out. As a result, you can make a plan that will keep you aligned with the tax laws and also help you make smart decisions to improve your overall financial well-being.

Tax Planning for Salaried Persons: 3 Steps to Follow

Under the Income Tax Act, certain components of your salary package will be subjected to exemptions and deductions. You can claim exemptions or deductions for perquisites, perks or tangible benefits up to a certain limit. A few examples are given below:

Optimize Your Salary Components

HRA: If you are a tenant and pay rent, you are entitled to claim an exemption under House Rent Allowance (section 10(13A)).

LTA: This supports two trips within a time span of four years. The exemption limit for travel by air is the amount spent or economy class airfare, whichever is less. For rail travel, the exemption is the amount spent or the first-class rail fare, whichever is less, as per section 10(14).

Education Allowance: You are entitled to claim allowances for your children’s education. The exemption is up to Rs 100/month for two children (maximum) and up to Rs 300/month for a hostel stay, as per section 10(14).

Invest Smartly for Tax Deductions

To minimize your tax payment and maximize your take-home salary, you should have a good understanding of Section 80C. It’s like a goldmine that provides up to Rs. 150,000 in tax benefits, leading to a potential tax reduction of Rs 45, 000 for those belonging to the 30% tax bracket (cess and surcharge excluded).

Pay attention to essential products – Employee Provident Funds and Life Insurance. Your EPF and life insurance premiums contributions as well as school fees come under Section 80C.

If you are paying off a home loan, you are allowed to claim a deduction for the principal repayment as per Section 80C. In addition, you will get benefits from tax perks as per Section 24 for interest payments on your home loan, up to Rs. 2,00,000 in a financial year.

When it comes to medical insurance premiums, you are entitled to have a deduction up to Rs. 25,000 yearly, provided the coverage is for you, your husband/wife, and children dependent on you (Rs. 30,000 if the insured is 60 years or older), under Section 80D.

File Tax Correctly

Filing your income tax correctly is the key component of effective tax planning. Make sure to file your returns ahead of time so that you don’t come under stress. These days, you can file your tax returns digitally on the income tax department website or via other ITR portals.

Final Words

Most people rush through tax planning at the year-end. You must avoid it. Keep away from investing in tax-saving schemes that are less likely to yield benefits. A well-managed and well-timed strategic approach is all you need for smart tax planning.

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