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Maximize Your Savings: The Ultimate Guide to Income Tax Breaks for Salaried Persons

Are you planning to buy a luxury SUV with a base price of ₹1.0 crore. Have you ever wondered how much a salaried person would need to pay in taxes for such a purchase?

With GST at 28%, a compensation cess of 22%, and a road tax of 12%, the mandatory taxes add up to approximately 62%. This brings the total cost of the car to ₹1.62 crore.

Considering an income tax rate of 39% (including surcharge**), a salaried individual would need to earn an astounding ₹2.66 crore before taxes just to afford a ₹1.0 crore car.

Total Taxes on Salaried Personal = 2.66 - 1.00 = 1.66CR

To know more on Taxation impact on individual, please read my previous Article –  Taxes are stealing your future

For salaried individuals, there’s often limited awareness of the legal options available to reduce income tax liability. In this Article, we’ll explore various avenues that can help minimize your Income tax outgo effectively.

It’s important to consult with a Chartered Accountant (CA) to fully benefit from these options. CAs offer professional services at reasonable costs, and their expertise can ensure you maximize your tax deductions while complying with legal requirements.

For Ease of Navigation, dividing all the exemption across 5 sections. I could explain each Income Tax section in detail with specific examples as well, the results will become lengthy Article.  I want to put exact and specific detail to produce more value to readers, still if you need more details, write to me, will ensure that you will get revert for all your queries.

Section 01: Investment, Medical Insurance

1. Section 80 C || 1,50,000     || Famous section and known to All

2. Section 80 CCD (1B) || 50,000 || NPS contribution

3. Section 80 CCD (2) || 10% of Basic Salary || NPS through Employer deduction

4. Section 80 D || 25,000 ( less than 60Yr); if Age is above 60Yrs, then 50,000  || Medical Insurance

5. Section 80 D || 25000 ( for Parents); if Parents are above 60, then 50,000  || Medical Insurance

Section 02: Disabilities & Treatment

1. Section 80 U || 75,000 (disabled Person); 1,25,000 (Severe Disabled Person) || Exemption

2. Section 80DD || 75,000 (for disabled dependent) ; 1,25,000 ( for severe disabled dependent) || Exemption

3. Section 80 DDB || 40,000 (for severe specified disease); 1,00,000 (for above 60) || for self and dependent treatment

Section 03 : Housing

1. Section 80 EE || 50,000 || First time Home Buyer

2. Section 24 B || 2,00,000 (Interest on Home Loan for self-occupied)

3. Section 24 B || Entire Interest Amount || The home is Let Out

4. Section 80 EEA || 1,50,000 (Additional Home loan Interest above 2.0L of 24B, if House cost is less than 45L)

5. Section 80GG || 5,000 or 50% of Basic (minus 10% deduction of net income)  || House Rent

Section 04: Charity, Donation & Contribution

1. Section 80 G || 50% or 100% of total donation || Charity Donation

2. Section 80 GGC || 100% of Donation Amount || Political Party Donation

Section 05: Interest

1. Section 80 TTA || 10,000 || Interest on Saving Account

2. Section 80 TTB || 50,000 ( if age is above 60 Yrs) || Interest on Deposit For Senior Citizens

3. Section 80 E || Entire Interest on Education Loan || Education Loan Interest

Apart from Above, there are few other things which are either common or specific to companies [On actuals].

1. Standard Deductions

2. LTA

3. Tax free Allowance & Other Perks

Here is one guideline for Salary Class to structure the CTC to get maximum benefits into income tax. –

Consider a CTC of 21.25 L Rs and lets see how can this be completely tax free.

with Basic Salary as 10.0L

• HRA (80GG) : 50% of Basic Salary   = 4.5L                                                              [Total = 4.55L]
• Below is Tax free components with submission of Bill = 5.0 L                             [Total = 9.5 L]
• • Car Maintenance
  • Driver Bill
  • Helper Bill
  • Meal Coupons
  • Mobile Bill and Internet Reimbursement
  • Uniform Allowance
  • NewsPaper/Journal Allowance
  • E Gadget Allowance
• LTA = 0.5 L                                                                                                                      [ Total = 10.0 L]
• Gratuity = 0.5L                                                                                                                [Total = 10.5 L]
• 80C = 1.5 L                                                                                                                       [ Total = 11.5 L]
• NPS (80CCD (1B))  = 0.50 L                                                                                        [ Total = 12.0 L]
• NPS (80CCD(2) = 10% of Basic = 1.0L                                                                      [ Total = 13.0 L]
• Home Loan Interest =2.0 L  ( consider its available in other City)                      [ Total = 15.0 L]
• 80D ( Medical Insurance for self and Parents) = 0.75L                                        [ Total = 15.75 L]
• Standard Deduction = 0.5 L                                                                                        [ Total = 16.25 L]

Balance  Bill  = 21.25 – 16.25 = 5.0 L

Basic Tax Exemption = 2.5L

Taxable Income = 2.5L;  Applicable Tax (5%) = 12,500

Rebate u/s 87A = 12,500

Tax Payable = 0

**For Higher Salary, there is another tax called surcharge which is above the income tax. following are the details of the Surcharge Amount.

Navigating the intricacies of income tax can seem daunting, but armed with knowledge and strategic planning, you can significantly reduce your tax burden while staying fully compliant with the law. By exploring the various deductions and exemptions available under the Income Tax Act, you not only save money but also invest in your financial future.

Remember, each deduction—from Section 80C for investments to Section 24(b) for home loan interests—plays a crucial role in optimizing your tax liabilities. Consulting a Chartered Accountant (CA) ensures that you leverage all available avenues effectively.

As you embark on this journey towards financial wellness, make informed decisions, keep meticulous records, and consider professional advice where needed. Your proactive approach to income tax planning today will pave the way for a more secure and prosperous tomorrow.

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