Income tax is the unfortunate reality of income. Once you start earning, you’re on cloud nine, devising innumerable ways of where to spend, and where to save money. We also realise how precious our hard toiled money is. If paying taxes were a choice, most of us wouldn’t want to pay it.
But we should, because income tax is the major source of revenue for our government. You should take pride in it, because you’re one of the 1.5% of Indians who pay tax. While the government asks you to pay tax, it also allows you to legally save on tax. Tax saving is a reality, if executed legally.
This is how you know which income tax slab your income falls under
Suppose you earn 8 lakhs per annum. You must then try and understand what Income Tax Slab you fall under. To determine a tax slab, you should consider these steps:
- Step 1: Subtract the exemptions of HRA, conveyance and medical expenses from your gross salary.
- Step 2: Add the extra income of interest, commission and bonuses, if any.
- Step 3: Add Rental Income, if any.
- Step 4: Add Capital Gains, if any. (eg. sale of house, car, etc.)
- Step 5: Subtract the deductions under section 80C, Section 80D and other deductions under Chapter VI.
- Step 6: The resultant income is your net taxable income. You can now apply the government income tax slab on this final income.
Income Tax Slabs
- Each individual in the country gets the benefit of tax-free income, irrespective of total income. Out of one’s total income, Rs. 2.5 lakhs is tax free.
- Post deducation of tax-free income, the income between Rs 2.5 lakhs & Rs 5 lakhs is subject to 5% income tax.
- Income between Rs 5 lakhs & Rs 10 lakhs falls under 20% tax bracket.
- Any remaining income over and above Rs 10 lakhs would be subjected to 30% income tax.
Make a note of these income tax deductions!
Where one side the government wants you to fulfill your moral responsibilities, on the other side, it shows leniency in some cases too. In a nutshell, the sections are as per the Income tax act :-
1. Section 80C: Allows you to save income tax through a lot of options like PPF, FD, ELSS etc. Up to Rs 1.5L
2. Section 80CCC: Gives you lease on pension products.
3. Section 80CCD: This comes under central government employee central scheme. Over & above the limit of 1.5 lac under Section 80C, this section allows benefits on investments upto Rs 50,000 in NPS tier 1 account.
4. Section 80C: This section allows benefits on investments upto Rs 50,000 in NPS tier 1 account.
5. Section 80D/80DD/80/DDB: Allows medical deduction for family or parents or medical issues. If you have parents who are aged, you might have taken medical insurance for them. You can claim such medical insurance payment up to INR 30,000 of uninsured parents. You should declare such amount at the beginning of the financial year so that your monthly net take home is reflected correctly.
6. Section 80U: Exemptions for physically disabled.
7. Section 80E: An education loan taken for yourself, spouse or children allows for exemption on tax on the interest paid upon such loan. There is no upper limit on the amount of deduction. However, the loan must have been secured from a financial institution or approved charitable institution for a full time higher education.
8. Section 24: Exemptions due to various loans, precisely home loan and education loan. The interest paid on housing loan qualifies for tax benefit under this section. Interest upto Rs 2 lac per financial year is allowed as deduction. Interest upto Rs 30,000 is allowed on home improvement loans as well.
9. Section 80G/80GGA/80GGC: This allows you not to pay tax if you’re donating your money to various fields.
10. Section 80TTA: Interest income upto Rs 10,000 per year from a savings account is allowed as a deduction from taxable income. Interest from fixed deposits & term deposits, however, does not qualify.
Once you have your income tax form 16 from your employer, you can even check for your income tax refund from this.
Tax Saving Investment Schemes by Government
1. Employee Provident Fund: In this, you need to contribute 12% of your Basic pay+DA to EPF, the interest earned here is tax-free. It is convenient to invest an amount directly deducts from salary. Although, the money is fixed till your retirement.
2. Public Provident Fund: This account has a compulsory locking of 15 years. It can be opened at post offices and nationalized banks. The interest earned is tax-free and cannot be attached by court orders. It’s backed me the central government.
3. National Saving Certificate: It is a tax saving fixed deposit from India Post. The interest is market linked and changes every year.
Other schemes and projects have also been carried out under the government for the upliftment and support for the needy people.
Tax-free Tuition Fees and Education/Home Loans
1. The expenses on Tuition fees for a maximum of two children is eligible for deduction in taxes. The maximum deductible value raises as high as 1.5L per annum. Also, the educational institution must be located in India, but it may be affiliated to any foreign University.
2. The entire interest (not the Principle amount) paid on education loans is entitled to a deduction from taxes. Also, the loan should be for children, spouse or self. Also, you can claim an exemption from taxes through education loan for a maximum of eight years.
3. For home loans, a deduction up to Rupees 1.5L is allowed on the principal repayment. Also, certain exemptions also help you to save money and axe tax during medical issues.
Use these to increase your take-home salary
In the matters of Tax Saving, there are a few points that you should get yourself acquainted with. There are multiple parts of your salary, where some of them are fully taxable whereas some of them are partially taxable/tax-free.
Talking about the tax-free components,
1. Medical reimbursements up to Rs. 15,000 per year.
2. Transport allowances up to 1,600 per month.
3. Leave travel allowance, Vehicle Maintenance, House rent allowance, Uniform allowance up to Rs. 24,000, all of this is tax-free.
4. Meal coupons and telephone allowances are also exempted from tax.
You can check out our complete guide to understanding the components of salary slip here.
Now that you have a lot of information on the fields where you could Axe Tax, it’s is the right time for your income tax payment. All you have to do is look for the right platform to invest to save tax.
We’ve got the easiest way out for you and you don’t need an income tax calculator to figure it out. Download Sqrrl and make an investment in ELSS funds to save up to Rs 46,350 on Income Tax. All of this takes only a few minutes.
This is what you have to do.
Step 1: Download Sqrrl by clicking here
Step 2: Complete the 2-minute Signup Process (KYC verification), which is swift, secure and completely paperless!
Step 3: Axe Tax with Sqrrl.
And there you go, quick and easy tax saving. Tell us if you have any other query and we’ll be more than happy to help you out! Drop a comment down below, or mail us at firstname.lastname@example.org.