Tax Saving Tips: If you start tax planning at the beginning of the year, you can save a lot of tax. Sometimes the tax on your salary can also be zero. Even if your annual salary is Rs 12 lakh, you can avoid paying any tax by following some steps. This means that your income tax can be zero.
If you plan properly and use all the exemptions and deductions properly, then you can surely save tax on a salary of up to Rs 12 lakh. For this, you will also have to keep your salary structure such that the tax scope is not high. Usually, at the beginning of the year, there is an option to change the salary structure. You can decide how much money you want in reimbursement and how much money as taxable salary. In reimbursement, options like conveyance, LTA, food-coupon or entertainment, internet or phone bill and petrol are available.
Take full advantage of HRA
Apart from this, there is also an option of HRA for tax saving. For HRA, you have to calculate 3 numbers and whatever is the lowest among them, you will get tax exemption on that.
1. The HRA given by the company in the salary can be claimed.
2. You can claim up to 50% of the basic salary in metro cities and 40% of the basic salary in non-metro cities as HRA.
3. You can claim HRA up to the amount that remains after deducting 10% of the basic salary from your total rent.
If your annual salary is Rs 12 lakh, then you should structure your salary in such a way that HRA is Rs 3.60 lakh, LTA is Rs 10,000 and telephone bill is Rs 6,000. You will get deduction on gross salary in this way-
- Standard deduction under section 16 – Rs 50,000
- Exemption from professional tax – Rs 2,500
- HRA under section 10 (13A) – Rs 3.60 lakh
- LTA under section 10(5) – Rs 10,000
- If you add all the above items, your taxable salary will now be Rs 7 lakh 71 thousand 500 (7,71,500).
The further calculation will be like this:
- Under Section 80C (LIC, PF, PPF, children’s tuition fees, etc.) – Rs 1.50 lakh
- National Pension Scheme (NPS) under Tier-1 under section 80CCD – Rs 50,000
- Health insurance for self, wife and children under 80D – Rs 25,000
- Deduction on health policy for parents (senior citizens) – Rs 50,000
Now the taxable salary will be less than Rs 5 lakh. If the taxable salary is less than Rs 5 lakh, then rebate and basic exemption will be available under section 87A. In this way your tax will become zero. It is worth noting that this formula will work on the old tax regime.
