A salary structure that can save you taxes
As must be clear by now, drawing a straightforward salary will result in the maximum tax liability for an individual. To save taxes, it is important to factor in other components of compensation which might help in saving taxes. So next time you negotiate your compensation with your employer, keep the following points in mind:
- HRA: It is possible to maximise the benefit received through HRA by balancing the figure in such a way that the figure calculated under all three methods is approximately the same.
- PF: The contribution made by an employee to his/her PF is deductible under the overall limit of Section 80C. The most hassle-free way of saving taxes is by increasing the amount of this contribution. This will result in an automatic saving and one will not have to worry about making the necessary investments.
- Other tax-free allowances: You can factor in fully exempt allowance in your compensation such as daily allowance, subsistence allowance, helper allowance, etc.
- Perquisites: Non-taxable perquisites such as free lunch, club membership, company car, etc., can be added to the compensation package.
In addition to structuring your salary intelligently, you can also save tax by availing of various deductions available under the Income Tax Act.
- Section 80C: As stated above, investments up to an amount of Rs 1 lakh annually are deductible from your taxable income under this section. This translated into a tax saving of Rs 30,000 in case you are in the highest tax bracket. This provides the individual with the double benefit of tax savings as well as investments.
- Housing loan interest: In case you take a home loan to buy your dream house you can claim benefit on the interest you pay on it, up to an amount of Rs 1.5 lakh annually. This can result in a tax saving of up to Rs 45,000.
- Educational loan: The interest that you pay for the repayment of any educational loan taken by you is deductible from your total income. There is no limit set for this amount.
- Medical expenses: An individual can claim a deduction of up to Rs 40,000 per annum in respect of expenditure incurred in the treatment of one of the following diseases:
- Neurological diseases
- Chronic renal failure
- LTA: Travelling expenses incurred by the individual and his/her family on outstation trips can be claimed as LTA deductions twice in 4 years