First Job High Salary: Here Come the Taxes

Salaried individuals have a lot to worry about, especially when they have to pay a lot in taxes after working hard to make some decent savings. The best way out is to keep abreast of new income tax laws and regulations to leverage them to your advantage. Believe it or not, there are a lot of codified sections under the Income Tax Act that let you save on taxes. However, the caveat here is that you cannot expect to benefit from these sections if you are conservative-minded and are not willing to invest in the market. If you are looking for a safe investment option, you can consider fixed deposit. They offer guaranteed returns and a fixed interest rate throughout your investment tenure.

• TDS and EPF are the most common deductions on your monthly salary.
• Knowing your tax exemptions like HRA is important for tax saving.
• Make the appropriate calculations to claim deductions and exemptions (under the old regime).

Before we strategise on saving income tax, we must first understand the deductions that are mandatorily made on your salary.

• TDS: The most usual kind of tax is the TDS (tax deduction at source). TDS deductions are made by your employer to comply with income tax norms, and you are furnished the details of such deductions under form 16A. Furthermore, please note that the TDS can be filed under different ITR forms, according to the pertaining rules. For instance, an individual or a HUF is required to make a 5% deduction if they are paying rent exceeding Rs. 50,000 per month, even if no tax audit is required under the corresponding ITR form.
• EPF: Since April 2022, the government has decided to make the interest on principal amounts in your provident fund taxable if they exceed the limit of Rs. 2.5 lakhs. Furthermore, if your employer’s contribution towards your EPF exceeds Rs. 7.5 lakhs, it is you who is held liable for the income tax levied.

You do not necessarily cut corners in order to make savings on taxes. Here are some tips on tax savings:

• Using Section 80C of the Income Tax Act, you can claim deductions of up to Rs. 1.5 lakhs. You can claim these deductions if you make equity investments, invest in life insurance, apply for a home loan, etc.
• Sections 80CCC, 80CCD (1), and 80CCD (1B) are tax deduction avenues related to investments in pension schemes, including the NPS and the Atal Pension Yojana. You can consider investing Bajaj Finance Fixed Deposit. With a top-tier AAA rating from financial agencies like CRISIL and ICRA, they offer one of the highest returns, up to 8.85% p.a.

Furthermore, you may choose to apply strategies like tax harvesting to claim deductions in the value of your property so the tax levied on them is also reduced. You can do this by selling low- or non-performing stocks at a loss and registering such losses with the Income Tax Department. Furthermore, you can use the proceeds from this sale to buy better stocks and recover the losses incurred till date. If you make smart investments, you may even convert the losses into profit.

Companies offer a lot of perks and benefits that are outside the purview of your salary. This pay structure is beneficial to you because these payments, if added to your salary, would also come under the scope of taxation.

House Rent Allowance (HRA): This payment or subsidy offered by your company will help you find affordable housing if you have relocated for your job. Based on the city you have moved to, the percentage of HRA can vary from 10-30% of your income.

Conveyance allowance: Also known as travel allowance, this amount is accounted for by your company for your daily commute.

Leave Travel Allowance: If you have to travel for business purposes relevant to your company, you will be entitled to reimbursement.

Special allowance: Companies allow special allowances for purposes related to your dependents, such as hostel allowance or even extended medical insurance.

The fundamental idea of calculating your taxable income is that you can claim the lowest among three variables as tax exemption amount: a) total HRA you receive, b) 40-50% of your basic salary, and c) total annual rent minus 10% of your basic salary.

Considering your basic salary is Rs. 30,000 and you receive an HRA of Rs. 14,000, although you pay Rs. 12,000 as rent.

• Your total HRA = 14,000 × 12 = Rs. 1.68 lakh
• 50% of basic salary = Rs. [50% of (30,000 × 12)] = Rs. 1.8 lakh
• Rs. (12,000 × 12) – (10% of Rs. 30,000 × 12) = Rs. 144,000 – Rs. 36,000 = Rs. 1.08 lakhs

Now, as the last amount is also the least, you might claim this amount for tax exemption.