Kaam Ki Baat: Four ways you can save tax on increased salary, take home salary is affected

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At present, the period of increment is going on. Companies are increasing the salary of employees according to performance and skill. Whenever the salary increases, the taxable income also increases. It affects your take home salary. However, you can reduce your tax liability by taking advantage of the deductions available under various sections of the Income Tax Act.

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Tax experts say that after the hike, deduct HRA, traveling allowance, medical reimbursement from your gross salary. Also remove the exemptions available under various sections like 80C and 80D in the Income Tax Act. After this, the amount left out of the gross salary is taxable i.e. tax has to be paid as per the slab. In this way, you can save tax on investing in various tax saving schemes. Under section 80C of the Income Tax Act, you can take exemption up to 1.50 lakh.

Here are some of the major plans…

Tax Saving Mutual Funds: Returns More Than Inflation

On investing in it, exemption is available up to Rs 1.5 lakh under section 80C of the Income Tax Act. The lock-in period of this mutual fund is three years i.e. before that you cannot withdraw money from this scheme. Investing in this is not only a good way to save tax but also the best way to get more returns than inflation.

PPF: Government guarantee on investment

There is no risk involved in investing in Public Provident Fund (PPP). In this, there is a guarantee of the government on the investment. It has a lock-in period of 15 years. At present, the return on investment is 7.1 percent, which is marginally higher than inflation. One can invest a minimum of Rs 500 in PPF annually and a maximum of Rs 1.50 lakh, which is exempted under 80C.

Tax Saving FD: Safe Investment

This avenue of investment is suitable for those investors who want to save tax with the safety of money. Tax Saving Fixed Deposit (FD) has a lock-in period of five years, in which you can get tax exemption under 80C on the investment. However, the interest earned on it is treated as ‘income from other sources’. Therefore, it is taxed according to the slab.

NPS: Additional Exemption Facility

NPS is a voluntary and long-term investment plan for retirement. The lock-in period of the National Pension Scheme (NPS) continues till retirement. In this, tax exemption is available on investment up to Rs 1.5 lakh under 80CCD (1). Also, if you make a voluntary contribution of Rs 50,000 after the limit of Rs 1.5 lakh under 80CCD (1B), then additional tax exemption can also be available.

Take full advantage of discounts

Tax related investments are not necessary. It is completely up to your wish. There is an exemption limit under every section of the Income Tax Act. If you do not use the full limit, you will have to pay more tax. Therefore, to save tax on your earnings, make full use of the exemptions available under various sections of the Income Tax Act. – Adil Shetty, CEO, Bank Bazaar