Income Tax Act in India has many provisions that allow us to save money, so we can increase our take-home salary. However, you need to know these rules/provisions in order to get the maximum possible tax benefit on your income.
The best way to get started is to understand your salary slip. You can check out our complete guide to understanding the components of salary slip here.
Now, let’s have a look at some of the key levers to increase your take-home salary.
1. Tax saving on house rent allowance
House rent allowance (HRA), allows an individual to save tax on the rent you pay to your landlord under Section 10 (13A) of the Income Tax Act.
The exemption amount is calculated as the minimum of:
i) Rent paid annually – 10 per cent of basic salary + DA (dearness allowance)
ii) Actual HRA received
iii) 40% of basic and DA (50% for metro cities).
HAR is taxable if you don’t pay any rent, or stay in your own house. However, if you stay with your parents, you can claim the benefits of HRA by paying rent to your parents.
2. Deductions under Section 80C
You can claim tax benefits on investments up to Rs 1.5 lac under the section 80C of the Income Tax Act. Investments under this section include EPF, PPF, National Savings Certificate, Tax-saving FDs. Premium paid for Life Insurance, NPS & Tax-saving mutual funds (ELSS funds) also qualifies for tax benefits under this section.
Of all of these, ELSS funds provide the lowest lock-in period (3 years vs 5-15 years), and the probabilities of earning the highest returns because of the investment in equity markets.
3. Deductions under Section 80CCD(1B)
Over & above the limit of 1.5 lac under Section 80C, this section allows benefits on investments up to Rs 50,000 in NPS tier 1 account.
4. Deduction under Section 80E
An education loan is taken for yourself, spouse or children allows for exemption on tax on the interest paid upon such loan. There is no upper limit on the amount of deduction. However, the loan must have been secured from a financial institution or approved charitable institution for a full time higher education.
5. Deduction of interest on housing loan (Section 24B)
The interest paid on housing loan qualifies for tax benefit under this section. Interest up to Rs 2 lac per financial year is allowed as deduction. Interest up to Rs 30,000 is allowed on home improvement loans as well.
6. Tax benefit under Section 80TTA
Interest income up to Rs 10,000 per year from a savings account is allowed as a deduction from taxable income. Interest from fixed deposits & term deposits, however, does not qualify.
That’s about it for now, and we hope we could help you take more of your salary home. Remember, the best time to plan your taxes is in the month of December. Read more about it here!