Don't you fret when a large chunk of your hard-earned money goes away in taxes every financial year? While the road to your higher package has taken years of hard-work, you definitely don't want to blow it away in taxes and reduce your net income. Does that mean you should stop earning a good amount. Definitely not. The good news is even if you salary falls in a higher tax bracket of 30%, you can save your tax outgo. But if you are doling out huge amount in taxes every year, you may be committing following mistakes.
Not availing full deduction under section 80C:
While section 80C of the Income Tax Act helps you to claim deduction up to Rs 1.5 lakh from your total income and reduce your tax outgo every financial year, you may still be paying taxes if you procrastinate your tax planning. You can save a total of Rs 45,000 on investing Rs 1.5 lakh in various tax saving instruments provided you start your tax planning in the beginning of the financial year. A down payment for purchasing an item like car or any other major expense can leave little sum in your hands to invest at the end of the financial year.
Not having a tax-friendly salary structure:
If your salary includes a higher basic and variable pay or a special allowance, you would eventually end up paying higher taxes. This is because all these components are fully taxable. If the idea is to lessen tax outgo, ask your company to optimally structure your salary components. Most companies are willing to do it these days. Incorporate for more allowances and reimbursements as they are fully or partially exempted from tax. For instance, conveyance and mobile reimbursements are fully tax-exempt against actual bills. So is the uniform allowance. You can also claim tax benefit to the tune of Rs 15000 per month on medical reimbursement.
Not utilizing HRA benefit:
If you are living in a rented accommodation and not availing exemption on house rent allowance (HRA), you are bound to see a higher tax outgo from your end. A common component of the salary, HRA is not fully taxable. The amount of HRA exemption is deductible from the total income before arriving at a taxable. The exempted amount is least of the actual HRA received, 50% of your salary or excess in rent paid annually over 10% of annual salary. You need to submit the rent receipts or rent agreement in order to claim the exemption. You also have to report PAN card details of your landlord if the rent paid is more than Rs 1 lakh annually.
Not aware of other tax deductions:
Apart from Section 80 C, there are other lesser-known sections of the Income Tax Act too that can help us avail additional tax benefits. However, many salaried individuals fail to look beyond Section 80C. It would be prudent to avail the benefits of the other Sections as well, so as to ultimately reduce the tax outgo. Under section 80 GG, you can claim deduction for your rent outgo even without an HRA component in your salary. The deduction is available on the least of: Rs 5000 per month, 25% of total income or rent paid less 10% of total income. You can also avail tax benefit under various sections for donations made to research institutions and political parties, payment of medical insurance premium, interest paid on your housing and education loan, and even expenditure incurred on specific diseases up to a certain limit.