Every salaried individual is liable to pay tax to the government on his/her annual income. This tax is called income tax. The government has created various income slabs and taxation percentage for each one of them. So, if your employee falls in the slab wherein their income is above the threshold set by the government, they are liable to pay income tax to the government. However, your employees may seem to have the following queries:
How can I reduce my taxable income?
How can I pay less tax?
What kind of income tax deductions and other tax deductions am I eligible for?
According to the Income Tax Act, an individual can claim income tax deductions on his/her annual income by bringing down the taxable wages, therefore, decreasing the tax outflow. The taxpayer can make various deposits and investments under income tax section 80C, which is a tax saving option for salaried individuals. This will help them reduce their taxable income and make them eligible for income tax deductions.
The Income Tax department of India encourages the citizens to utilize different income tax rebates, income tax reductions and income tax exemption schemes that are permissible as per the Indian Income Tax Act to legally reduce the taxes. So, let us discuss the best way your employees can utilise income tax deduction options to decrease their tax outgoing:
An individual can claim multiple tax deductions under the Income Tax Act. The most beneficial income tax deductions that can be claimed easily and will greatly help you in decreasing the income tax burden are the deductions under section 80C of the Income Tax Act. So, let us take a look at the various tax deduction under 80C.
Income tax deduction as per section 80C
Section 80C is one of the most common sections utilised for income tax deductions. One can claim for tax deduction under 80C by investing in various instruments notified under this scheme. A few of the notified instruments for investments are as follows:
- Fixed Deposits that are tax saving
- PPF account
- Mutual Funds that save taxes
- National Savings Certificate
- Contributions towards Employee Provident Fund
- Premiums paid on Life Insurance policies
- Repayment of the principal sum of the housing loan
- Mutual funds that are linked to equity
The maximum amount that can be claimed as an income tax deduction under section 80C of the income tax act is INR 1,50,000.
Deduction as per Section 80CCC & Section 80CCD
- Insurance premium
An individual can apply for income tax deductions as per section 80CCC if they pay insurance premiums or deposit money in an annuity plan by LIC or other insurance companies. The annuity plan should offer a pension after maturity as mentioned under section 10(23AAB). However, the pension received after the maturity of the plan or the amount received on maturity, along with bonus or interest will be taxable under section 80C of the Income Tax Act at the time of receipt.
- Pension contribution
If your employee is making deposits to the pension accounts as notified by the central government, like the National Pension Scheme, they will be applicable for an income tax deduction as per section 80CCD. For a salaried employee, the maxim tax deductions that can be availed is 10% of the salary. While a self-employed individual can avail for 20% deductions on gross annual income. In both cases, the maximum threshold is 1.5 lakhs. So, whichever is lesser will be considered.
Deduction as per section 80TTA
Tax deductions for the interest on bank saving account
An individual can apply for income tax deductions for a maximum of INR 10,000 per annum on the interest gained from the money kept in the bank saving account, post office or co-operative society. However, taxes on interest earned from fixed deposits, corporate bonds or recurring deposits cannot be claimed for deduction as per section 80TTA.
Deductions as per Section 24 under section 80C: interest on a home loan
An individual who has taken a home loan can apply for an income tax deduction on the interest applied on the home loan amount as per section 24. Remember that the tax deduction can be claimed on the interest applied by the bank and not the interest repaid. Repayment of the principal sum is allowed for income tax deductions as per section 80C whereas, the interest applied is allowed for deduction as per section 24.
Deduction as per section 80 GG: Payment of house rentals
An individual can opt for income tax deductions under section 80GG on the house rent payment if the HRA is not provided by the employer. However, for your employee to become eligible for tax deductions under these sections, the individual, his/her spouse or child shouldn’t own a residential property in the same location as the company’s office.
The income tax deduction rules make it accessible to any individual, provided he or she should be staying on lease and must pay monthly rentals. And, the individual should not have any owned property at any other location to enjoy the income tax benefits.
Deduction as per section 80D
According to deduction under income tax section 80D, if an Indian makes an annual payment as premium towards any medical insurance for self spouse and child, he or she will be eligible to claim income tax deductions.
Also, if they have made payments towards preventive medical health check-ups, then they can apply for tax deductions for such payments too.
Deduction as per section 80E
According to deductions under income tax section 80E, an individual can avail income tax deductions on repayment of education loan interest that is taken for self, spouse and/or dependent child.
It is important to note that section 80 income tax deduction is applicable solely for the payment of the interest on the loan only; it is not applicable to the amount repaid towards the principal loan amount. The best thing about the income tax deductions under this section is that there’s no highest limit or threshold on the claimed deduction amount.
Mentioned above are some of the most beneficial income tax deductions that an Indian salaried individual can opt for to lower their tax outflows.
The tax deductions mentioned under the 80C deduction list will help one save a considerable amount of money. The investment options notified by the government under income tax section 80C are wonderful tax saving options for salaried individuals. They are also some of the most commonly used forms of depositing or investing money to reduce their taxable incomes, and hence, reduce the total outgoing of taxes.
Investing money is a great way to get income tax exemption and income tax rebates. That is why, as their employer, you must educate your workforce about the many ways in which they can take legal advantage of tax exemptions and deductions. Keeping them informed about things like this will help to increase their loyalty towards your company.
Related Articles on Tax:
Tax Deductions on the Educational Expenses of Your Children
Everything You Need to Know about Tax Computation on Fixed Deposits
E-filing Income Tax in India and The Documents Needed
Forms 15G and 15H to save TDS on Interest Income
The Tax Credit Guide for Taxable Income, GST & 26AS