Filing taxes in India might seem daunting, but it can be an empowering experience for salaried individuals. Income tax deductions significantly reduce your tax burden, putting more money back in your pocket. By understanding these deductions, you can save a significant amount of your hard-earned money, which can be used for your financial goals. This knowledge empowers you to make informed financial decisions.
The Income Tax Act offers various sections specifically beneficial for salaried taxpayers. Let’s explore these provisions and unlock their potential for financial savings!
Understanding Your Salary and Tax Regimes
Maximising tax benefits requires understanding your salary structure. Common components include:
- Basic Salary: This is your core income before deductions.
- House Rent Allowance (HRA): This allowance helps offset your rental expenses.
- Allowances: These include dearness allowance, conveyance allowance, etc., which might be taxable.
Tax Regimes
The table below provides a quick comparison of the old and new tax regimes. While it may initially seem complex, understanding these regimes is not as complicated as it looks. Analyse your income, deductions, and investment plans to determine the most beneficial regime.
| Feature | Old Tax Regime | New Tax Regime |
| Tax Rates | Graduated tax slabs with various deductions | Lower tax slabs with minimal deductions |
| HRA Exemption | Yes, subject to certain conditions | No exemption |
| Standard Deduction | No | Yes, ₹50,000 fixed deduction |
Maximising Tax Savings: Deductions and Exemptions
Here’s a breakdown of key deductions and exemptions under the Income Tax Act:
Section 80C: Deductions for Investments (up to ₹1.5 lakh)
Some of the popular Investment Avenues are:
- Equity-Linked Saving Schemes (ELSS): High-growth potential exists with some risk.
- Public Provident Fund (PPF): Safe, long-term investment with guaranteed returns.
- National Pension Scheme (NPS): Retirement planning with tax benefits.
- Employee Provident Fund (EPF) (employer contribution): Automatic deduction with long-term benefits.
- Unit Linked Insurance Plans (ULIPs) (with lock-in period): Combines insurance and investment but might have high charges.
- Children’s tuition fees (paid to schools and colleges in India, up to a limit): Reduce your tax burden while supporting your children’s education.
Section 80D
Under Section 80D, you can claim deductions for medical insurance premiums paid for yourself, your spouse, dependent children, and your parents. To claim this deduction, you must provide the necessary documents, such as the premium payment receipts, when filing your Income Tax Return (ITR).
Deduction limits vary based on age:
- Self, spouse, and dependent children (under 60 years old) – ₹25,000
- Parents (under 60 years old) – ₹25,000
- Parents (over 60 years old) – ₹50,000
- Maximum deduction for taxpayers and parents over 60 years old – ₹1 lakh
House Rent Allowance (HRA) Exemption
Reduce your taxable income if you pay rent and receive HRA from your employer.
The exemption amount depends on the least of the:
- HRA received
- Rent paid minus 10% of your basic salary + dearness allowance (DA)
- 40% of your salary (for non-metros) or 50% (for metros)
- Claim HRA exemption through your employer or by filing your Income Tax Return (ITR).
Leave Travel Allowance (LTA) Exemption (if applicable)
Reduce taxable income by claiming LTA for travel expenses incurred on leave.
Section 80G
Donate to charitable institutions and claim deductions based on the type of institution and purpose of donation. Donations made towards certain political parties are not eligible for tax deductions under this section.
Section 80TTA
Get a deduction on interest earned from your savings account (limited amount).
Section 16(ia)
Claim a standard deduction of ₹50,000 to reduce your taxable income. This deduction applies under both tax regimes and is a fixed amount you can claim without providing additional documents or proof. It’s a straightforward way to reduce your tax burden, so take advantage of it.
Section 80DD
Get deductions for medical expenses incurred for a disabled dependent.
Section 80E
Claim a deduction for interest paid on an education loan.
Section 24
Under Section 24, you can reduce your taxable income by claiming interest deductions paid on a home loan for self-occupied property (up to ₹2 lakhs per financial year). To claim this deduction, you must provide the necessary documents, such as the loan statement and interest certificate, when filing your Income Tax Return (ITR).
Section 80EEB
Interest on Electric Vehicle Loan (up to ₹1.5 lakhs): Reduce your tax burden by claiming deductions for interest paid on electric vehicle purchases.
Section 80EE
Interest on Home Loan for First-Time Home Buyers (up to ₹50,000): Enjoy additional tax benefits if you’re a first-time home buyer claiming interest deductions paid on your home loan.
Remember: Keep all receipts and documents related to your investments, medical expenses, rent payments, etc., for claiming deductions while filing your ITR.
Investment Options for Tax Saving
Section 80C offers a variety of investment options. Choosing the right one depends on your risk tolerance, investment horizon, and financial goals.
Here’s a closer look at some popular selections:
ELSS Mutual Funds
Offer high growth potential with moderate risk. Invest for a minimum of 3 years.
Public Provident Fund (PPF)
This is a safe, long-term investment with government-guaranteed returns. It is ideal for retirement planning.
National Pension Scheme (NPS)
Invest in a mix of equity and debt instruments for retirement benefits. This scheme offers tax benefits and flexibility when choosing your investment mix.
Additional Tips for Salaried Individuals
- Utilize Salary Structure for Tax Efficiency (if applicable): Discuss claiming specific allowances like conveyance allowance with your employer to reduce taxable income.
- Pay Bills Electronically: Electronically paying bills for rent, education fees, etc., simplifies record-keeping and might be eligible for tax deductions under specific provisions.
- Claim Medical Insurance for Self and Parents: Claim deductions for medical insurance premiums paid under Section 80D to save on taxes while securing your health.
- Utilize HRA Benefit: If you pay rent, claim the HRA exemption to reduce your taxable income significantly.
Remember: It is highly recommended that you consult a tax professional. Their expertise can ensure that you maximise tax benefits based on your unique financial situation and goals. This personalised guidance can give you the confidence that you are making the most of your tax savings.
Understanding deductions, exemptions, and tax-saving strategies empowers you to make informed financial decisions. Analyse the options mentioned here, conduct further research based on your needs, and seek professional advice for personalised guidance.
Do you have any queries regarding tax deductions?
Please get in touch with TAXVIC for more details.
FAQs for Salaried Individuals on Tax Deductions and Saving Tax in FY 2024-25
Which tax regime should I choose, old or new?
The best tax regime for you depends on your income and potential deductions. Generally, the old regime offers more deductions (like HRA exemption) but has higher tax slabs. Meanwhile, the new regime provides lower tax slabs with minimal deductions. Analyse your income, deductions, and investments to make an informed decision. Consulting a tax advisor is recommended to understand the implications of these changes on your financial planning.
What are the popular investment options for tax saving under Section 80C?
ELSS Mutual Funds, PPF, NPS, and ULIPs (with a lock-in period) are common choices. ELSS offers high growth potential, PPF is safe with guaranteed returns, NPS is good for retirement planning, and ULIPs combine insurance and investment. When choosing, consider your risk tolerance and investment horizon.
Can I claim a deduction for rent paid even if I don’t get HRA from my employer?
Unfortunately, you cannot claim a deduction for rent paid without HRA from your employer. However, you can explore claiming allowances like conveyance allowance to reduce your taxable income.
How much can I claim a deduction for medical insurance premiums under Section 80D?
The deduction limits vary based on the age of the insured person. You can claim deductions for yourself, spouse, dependent children, and parents. The maximum deduction for taxpayers and parents over 60 is ₹1 lakh.
How can I claim the HRA exemption?
You can claim HRA exemption through your employer or by filing your Income Tax Return (ITR). The exemption amount depends on the least of your HRA received, rent paid minus 10% of your basic salary + DA, or a percentage of your salary based on your city.
Is there a deadline for claiming tax deductions?
Yes, there’s a deadline for filing your Income Tax Return (ITR) each year. The Income Tax Department announces the specific due date, typically in July or August.
What documents do I need to keep to claim tax deductions?
Maintain records of all investments, medical bills, rent receipts, and other relevant documents to support your claims while filing your ITR.
Can I claim a tax deduction for interest paid on a personal loan?
Tax deductions are generally not allowed for interest paid on personal loans. However, you can claim interest deductions paid on home, education, and electric vehicle loans under specific sections of the Income Tax Act.
Is there a limit on the deduction for interest earned on a savings account?
Yes, there’s a limit on the deduction you can claim under Section 80TTA for interest earned from your savings account. Consult a tax advisor for the current limit.
What if I’m unsure about claiming tax deductions or filing my ITR?
Consulting a registered tax professional is highly recommended. They can guide you through the process, ensure you maximise your deductions based on your situation, and help you file your ITR accurately.
