Top 5 Tax Saving Deductions Every Salaried Individual Must Know

As a salaried individual in India, understanding and utilizing various income tax deductions and exemptions can significantly reduce your tax liability. The Income Tax Act, 1961, offers several provisions to help you save tax legally. While the tax regime (old vs. new) you choose impacts the availability of some deductions, knowing the popular ones is crucial for effective tax planning. Here are five key tax-saving avenues every salaried person should be aware of:

1. Section 80C: The Popular Investment Basket

Section 80C is one of the most widely used tax-saving provisions, offering a deduction of up to ₹1.5 lakh per financial year from your gross total income. It covers a wide range of investments and expenses:

• Provident Fund (EPF/VPF): Your contribution to the Employees' Provident Fund is eligible.
• Public Provident Fund (PPF): A popular long-term investment with tax-free returns.
• Life Insurance Premiums: Premiums paid for life insurance policies for self, spouse, or children.
• Equity Linked Savings Scheme (ELSS): Tax-saving mutual funds with a lock-in period of 3 years.
• National Savings Certificate (NSC): A fixed-income investment scheme.
• Tuition Fees: Paid for up to two children for full-time education in India.
• Home Loan Principal Repayment: The principal component of your home loan EMI.
• 5-Year Tax-Saving Fixed Deposits: Bank FDs with a 5-year lock-in.
• Sukanya Samriddhi Yojana (SSY): A savings scheme for a girl child.

Note: This deduction is generally available only under the old tax regime.

2. Section 80D: Health Insurance & Medical Expenses

This section provides deductions for health insurance premiums paid and, in some cases, medical expenditure:

• Self, Spouse, and Dependent Children: Up to ₹25,000. If you or your spouse is a senior citizen (60 years or above), the limit is ₹50,000.
• Parents (whether dependent or not): Additional deduction up to ₹25,000. If parents are senior citizens, this limit is ₹50,000.
• Preventive Health Check-up: Within the overall limits, a deduction of up to ₹5,000 for preventive health check-ups.
• Medical Expenditure for Senior Citizens: If senior citizen parents are not covered by health insurance, medical expenses incurred for them can be claimed up to ₹50,000.

Note: This deduction is generally available under both old and new tax regimes (for health insurance premiums).

3. House Rent Allowance (HRA) Exemption

If you live in rented accommodation and receive HRA as part of your salary, you can claim an exemption for the HRA amount, subject to certain conditions. The exemption is the minimum of:

1. Actual HRA received.
2. Rent paid minus 10% of basic salary (+ Dearness Allowance, if part of retirement benefits).
3. 50% of basic salary (+DA) if living in metro cities (Delhi, Mumbai, Kolkata, Chennai), or 40% for other cities.

Note: This exemption is generally available only under the old tax regime.

4. Leave Travel Allowance (LTA) Exemption

LTA allows salaried employees to claim an exemption for travel expenses incurred for themselves and their family within India. Key points:

• Exemption can be claimed for two journeys in a block of four calendar years. The current block is 2022-2025.
• Only actual travel costs (air, rail, or bus fare) are exempt. Expenses on food, accommodation, etc., are not covered.
• Specific conditions and limits apply based on the mode of travel.

Note: This exemption is generally available only under the old tax regime.

5. Standard Deduction

A flat deduction available to salaried individuals and pensioners, regardless of their actual expenses.

• For salaried individuals and pensioners, the standard deduction is ₹50,000 per financial year.
• This deduction replaces the earlier transport allowance and medical reimbursement exemptions.

Note: This deduction is available under both old and (from FY 2023-24 onwards) the new tax regime with certain conditions for the new regime.

Choosing Between Old and New Tax Regimes

It's important to note that the availability of many deductions (especially under Section 80C, HRA, LTA) is primarily for those opting for the old tax regime. The new tax regime offers lower tax rates but disallows most common deductions and exemptions. For FY 2023-24 (AY 2024-25) onwards, the new tax regime is the default, but taxpayers can opt for the old regime if it's more beneficial.

Carefully evaluate which regime saves you more tax based on your income, investments, and eligible deductions. Income Review can help you with this comparison during your ITR filing process.

Conclusion

Effective tax planning involves understanding and utilizing all available deductions and exemptions to legally reduce your tax outgo. While these are some of the most common tax-saving avenues for salaried individuals, several other sections of the Income Tax Act also offer benefits (e.g., Section 80E for education loan interest, Section 80G for donations, Section 24(b) for home loan interest). Consulting a tax professional can help you optimize your tax planning and ensure accurate ITR filing.

For personalized tax planning advice and expert ITR filing, contact Income Review today.