Income Tax Deduction on Salary: Key Guidelines to Increase Savings

Income tax is a significant financial factor for salaried individuals. However, what many don't realise is that there are various provisions within the Income Tax Act to reduce this burden. One such provision is the "income tax deduction on salary" that every salaried individual should understand to maximise their take-home pay while ensuring they abide by the law.

What is income tax deduction on salary?

Income tax deduction on salary refers to the various allowances, exemptions, and deductions that salaried individuals can claim to reduce their taxable income. These deductions are provided under the Income Tax Act, 1961, and can significantly lower your tax liability.

Key benefits of income tax deduction on salary

1. Lower taxable income: The primary benefit of income tax deductions is the reduction in taxable income. By claiming these deductions, you can bring down your total income, thereby reducing the amount of tax you need to pay.
2. Increased savings: Lower taxable income translates to lower taxes, which means you can save more. These savings can be redirected towards other financial goals, such as investments, retirement planning, or purchasing a home.
3. Financial security: Tax deductions also promote financial security by encouraging savings and investments in various financial products. For instance, contributions to provident funds and pension schemes not only provide tax benefits but also ensure long-term financial stability.

Encouragement for investments: The tax benefits associated with certain investments motivate individuals to invest in financial products like mutual funds, insurance policies, and National Savings Certificates (NSCs), fostering a habit of saving and investing.

Major income tax deductions on salary

1. Standard deduction: The standard deduction is a fixed amount that is subtracted from your gross salary, reducing your taxable income. As of the latest fiscal year, the standard deduction for salaried employees is Rs. 50,000.
2. House Rent Allowance (HRA): House Rent Allowance (HRA) is a component of your salary that can be claimed as an exemption if you live in a rented house. The amount of HRA exemption is the least of the following:
   • Actual HRA received
   • 50% of salary (for metro cities) or 40% of salary (for non-metro cities)
   • Rent paid minus 10% of salary
3. Leave Travel Allowance (LTA): Leave Travel Allowance (LTA) can be claimed for expenses incurred on travel within India while on leave. The exemption is available for travel expenses only and does not cover food or lodging expenses.
4. Section 80C deductions: Under Section 80C of the Income Tax Act, you can claim deductions up to Rs. 1.5 lakh for investments in specified financial products such as:
   • Public Provident Fund (PPF)
   • Employees’ Provident Fund (EPF)
   • National Savings Certificates (NSCs)
   • Life insurance premiums
   • Equity-Linked Savings Scheme (ELSS)
   • Tuition fees for children’s education
   • Principal repayment of a home loan
5. Section 80D deductions: Section 80D provides deductions for premiums paid towards health insurance for self, spouse, children, and parents. The maximum deduction limit is Rs. 25,000 for individuals and an additional Rs. 25,000 for parents. For senior citizens, the limit is Rs. 50,000.
6. Section 24(b) deductions: Interest paid on a home loan can be claimed as a deduction under Section 24(b). The maximum deduction limit for a self-occupied property is Rs. 2 lakh per annum. For a rented property, there is no upper limit on the deduction, but the overall loss that can be set off under the head 'Income from house property' is restricted to Rs. 2 lakh.

Guidelines for claiming income tax deductions on salary

1. Maintain proper documentation: Ensure that you maintain all necessary documents, such as rent receipts, medical bills, investment proofs, and loan certificates, to substantiate your claims.
2. Plan your investments: To maximize your tax benefits, plan your investments at the beginning of the financial year. Spread your investments across various tax-saving instruments to diversify your portfolio and minimize risk.
3. Keep track of deadlines: Be aware of the deadlines for making tax-saving investments and submitting proofs to your employer. Missing these deadlines can result in losing out on potential tax benefits.
4. Stay updated: Tax laws are subject to change, and staying informed about the latest amendments can help you take advantage of new benefits and avoid any compliance issues.
5. Consult a tax advisor: If you find it challenging to navigate the complexities of tax deductions, consider consulting a tax advisor. A professional can provide personalized advice and ensure that you make the most of the available deductions.

Integrating home loans into tax planning

Home loans are not just a means to fulfil your dream of owning a house; they also offer substantial tax benefits. As mentioned earlier, under Section 80C, you can claim deductions on the principal repayment of a home loan, up to Rs. 1.5 lakh. Additionally, under Section 24(b), you can claim deductions on the interest paid on your home loan, up to Rs. 2 lakh per annum for a self-occupied property.

These deductions can significantly reduce your taxable income, making a home loan a wise choice for both investment and tax planning. Moreover, opting for a reliable home loan provider can simplify the process and enhance your overall experience.

Why choose Bajaj Housing Finance for your home loan?

When considering a home loan, choosing the right financial partner is crucial. Bajaj Housing Finance offers competitive interest rates, long repayment tenure, and quick disbursal. Our home loan is designed to cater to diverse needs, ensuring a seamless and hassle-free borrowing experience.

With Bajaj Housing Finance Home Loan, you not only fulfil your dream of owning a home but also enjoy substantial tax benefits that can enhance your financial stability.

Apply for a home loan by visiting the Bajaj Finserv website today!