The new budget announced this year by the new government brought a host of changes. However, the scope for salaried class were, as usual, limited. Only a few positive chances were introduced to enhance the quality of life of the salaried or working class. In these cases, tax planning can be extremely beneficial in saving crucial tax money in an absolute lawful manner. Below are some of the easy and effective tax planning tips for salaried employees that can help the salaried class to plan taxes for the financial year 2018-19 or A.Y.2019-20.
#1 Restructuring salary and saving tax
A salaried job involves many expenses that are incurred for the sake of completing the job. For instance, a particular dress code for the office, client lunches, travelling to a client’s office, daily commuting to the office, buying books for job purpose, newspapers or magazines for job purpose or purchasing accessories such as bags for carrying work documents.
These are essentially forced expenses and employees are entitled compensation for these expenses. Feel free to talk to your employer regarding the allowances and perks for similar expenses.
While you may not be entitled for all of your expenses, you will definitely save some bucks through tax-free allowances. Some allowances that can save tax are vehicle driver, conveyance, medical treatment, mobile, uniform, workplace entertainment, personality development or reading materials for office purpose.
See Also: Permissible Deductions From Salary
#2 Saving tax via rent payment restructuring
We are going from one place to other for the jobs. In case the company where we are working does not provide accommodation, we generally stay on rent. The rent is paid from the salary we get. Therefore, rental expenses are a liability of the employer and should be compensated for.
While the HRA (Housing Rent Allowance) is given to employees to compensate for the above rent payment obligation, employees still cannot avail full benefits of HRA for saving their tax. By applying the below formula, employees can increase their total tax redemption amount.
Total house rent- 10 % of the basic salary + Dearness Allowance
Also, it is important to know the policy of basic salary and DA for different cities. In general, metro cities give 50 percent of basic salary and DA as HRA compared to other cities. However, you should ensure that you have proper rent receipts for appropriate tax deductions.
#3 Medical Expenses and leave allowances
Salaried employees are also eligible for other exemptions such as leave allowances and medical expenses. Most of the companies now-a-days provide allowances for these types of expenses. Here, the trick is to understand the policies well, so the expenses are minimum and tax deduction is maximized. For instance, the tax exemption for medical bills goes up after a particular limit. Knowing this, you can keep collecting the relevant medical bills and submit them to get appropriate compensation.
#4 Invest And Reduce Taxable Income
There are various investments that provide tax rebate and fall under deductions. Invested amount is subtracted from the taxable income. Some of these investments include EPF account contribution, PPF account deposit, fixed deposits, investment in NSC and ELSS.
#5 Save tax by expense management
Various expenses are also eligible for tax deduction such as tuition expenses for kids, insurance schemes and home loan payment.