10 ultimate tax saving tips for salaried

CA Pallav Singhania (❤ Work Hard Party Harder ❤)   (32532 Points)

02 January 2016  

Do you feel that you are paying excess tax? Do you think that you can save tax? Have you not done proper tax planning? Do you want to know the ways of saving tax? We will learn the most useful tax saving method in this post.

Indeed, you or anyone else has the scope of saving tax.  There are many ways which can cut your tax outgo.

Today I will tell you the 10 best tips of tax saving.


1. Save Tax Through Salary Restructuring

There may be many expenses which you are doing because of your job. If you leave your job today, many of your expenses will end. Such as you wear a uniform just for the sake of your job. You travel to the office daily only for the job. You may be entertaining clients and spending over them to fulfill your job. You must be reading certain newspapers, magazines or books for your job purpose.

If you leave the job such expenses would end. It means, these are forced expenses and your employer should pay for them. Such expenses should go to the account of  employer expense. Since you are only medium of such expense this should not be part of the income.

Talk to your employer and ask to restructure your pay. You should get perks and allowances for such expense. This should not be part of your salary.

These perks and allowances or non taxable if incurred actually. However, you need to give proof of these expenses to avail tax-free allowances.

Some Allowances Which Save Tax

  • Conveyance

  • Driver

  • Newspaper, Books and Magazine

  • Medical Treatment

  • Uniform

  • Telephone and Mobile

  • Personality Development

  • Office Entertainment


However, these allowances are given according to the grade. You can’t ask all of them. Your employer will decide the eligibility of allowances. You can only demand.

The professional tax you pay every month is also eligible for tax deduction.


2. Save Tax On Rent Payment

We get a job in a different city or place. We go there to do our job. If the company does not give us accommodation we have to rent out. We live in rented house because of our job. Therefore, expense of rent should be deducted from the taxable income.

Employers do give some part of your remuneration as House Rent Allowance (HRA). You subtract this HRA from your gross income. However, you cannot take full benefit of HRA for tax saving. There is a formula for the HRA tax benefit.

You can deduct the lowest of these from gross income.

  • Actual HRA given by the employer

  • 50% of the basic salary plus DA if the employee is situated in Delhi, Mumbai, Kolkata and Chennai. Else, 40% of the basic salary plus DA.

  • Actual house rent paid by you, minus 10% of basic salary+DA.


HRA gives you big tax saving. Ask your employer to keep the provision of HRA in your salary structure.

Also, Don’t forget to take rent receipts from your house owner. If your total rent of a financial year exceeds 1 lakh then you need to give copies of registered lease agreement and copy of the homeowner’s PAN card.

You can also give the rent to your parents. But you have to complete all the formalities of lease as stated above.

3. Leave Travel Allowances and Medical Expense

Some personal expenses are also eligible for exemptions. These Expenses are deducted from your gross salary. Your employer may give you part of your salary as medical allowance. Check with the HR department.

If you produce an actual bill of medical expenses, this allowance becomes tax-free. So, Start collecting medical bills. However, it is limited to Rs 15,000 in a financial year. You can give receipts of medical expense of your dependents as well.

Your employer can give you leave travel allowance as well. You are entitled to tax-free leave travel allowances.

  • It is also limited to two times in a block of 4 years.

  • The travel should occur while you are on the leave.

  • It should be within India.

  • Travel should be from the shortest route.

  • You can claim the maximum for AC-I of the train journey and economy class of air travel.


4. Invest And Reduce Taxable Income

Certain investments give your tax rebate. These investments come under section 80C of deductions. The amount invested is deducted from your taxable income. Many of such investments come under EEE category. It means you need not to give tax at the time of  investment, earning and redemption. However, There is a maximum limit for 80C deductions. It has become 1.5 lakhs after the budget  of 2014.

List of Investments Which Saves Tax

  • Contribution to EPF account

  • Deposit in PPF account

  • Investments in tax saving mutual funds i. e. Equity Linked Saving Scheme (ELSS)

  • Deposit in tax saving FD

  • Investment in National Saving Certificate (NSC)

  • Deposit into Senior Citizen Saving Scheme


There are some expenses which also give a deduction for tax saving.  I have listed here only investments.


5. Expenses Eligible For Tax Saving

Under the limit of 1.5 lakh deduction there are some expenses as well.

  • Tuition fees for self and children

  • Insurance scheme premium

  • Home loan principal payment- Home loan EMI has two-part, principal and interest. Principal part gives tax saving benefit under section 80C.

These expenses and above mentioned investment in aggregate should not exceed 1.5 lakh limit.

6. Medical Insurance Deduction

Medical Insurance expense gives you the deduction, over and above the 1.5 lakh limit. You can save tax for the health insurance premium of your family and dependent parents. Also, health checkup can also give you tax saving. You can deduce these expenses from your total taxable income.

  • Up to Rs 25,000 for the health insurance of self and family. You can also include health checkups of up to Rs 5,000 within this limit.

  • Up to Rs 25,000 for the health insurance of parents. If they are above 60 years, This limit goes up to 30,000.


7. Enjoy Tax Benefit On  Home Loan Interest Payment

Home loan interest payment enjoys separate tax saving. The limit of deduction for home loan  interest payment is increased to 2.0 lakhs in the first Modi budget. This deduction can give you a very big tax saving. However, the loan amount should be big to get the full benefit. You can also double your tax saving through the joint home loan.


8. Set Off Capital Gain, Save Tax

Salaried people need to give capital gains tax on their investments. Shares attract only short-term capital gains tax while property and gold attract both short and long term capital gains taxes. However, you can set off your capital gain  from an investment with the capital loss of another investment. Note, you can set off short-term capital gain only with short-term capital loss and long term capital gain with long term capital loss only.

You can also carry forward your capital loss up to 8 years. This will give a fairly good chance of tax saving on account of capital loss. Suppose you incur trading loss in shares. This loss can be carried forward up to seven years. In subsequent years your trading profit can be set off with this big loss.


9. Giving Away Money For Charity, Why Pay Taxes

You can save tax on your donations. However, not every charity gives you 100% tax saving. Donations to  the PM relief fund, some notified NGO and political parties can give you the 100% tax benefit. You can also donate to scientific institutions and religious body and claim tax rebate.


10. On Time Tax Declarations And Investments

Practically, this is the most important tip of tax Saving.  Employers need to pay advance tax every quarter. Therefore, they deduct TDS every month from your salary. The TDS is deducted according to your projected tax liability for that financial year.

If you don’t declare your planned tax saving, investment and expenses of the year, the projected tax will be higher. Accordingly, the employer would start deducting TDS every month for the first quarter of the financial year. It may happen that when you declare all of your tax saving instruments, It has become very late. The company may have cut more TDS than required. Of course you can claim tax refund while filing income tax return, but for the time being you pay extra taxes. So, give a tax declaration at the beginning of the year.

There is an opposite scenario which is more worrisome. Suppose, initially you declare all the available tax saving option to save the maximum tax. But you avoid tax saving, investment and tax saving expenses till the last quarter. Now in the month  of January and February you will have a big burden of investing or Big tax cut. So, it is better to start tax saving investment from the beginning of the financial year.


Courtesy: ICAI Jouranls, News paper and Own

Pallav Singhania