5 Easy Ways to Save Tax

A year of hard work and part of the salary vanishes in the name of tax. It is quite obvious that working people would want to make use of their payments in a better way. The government has given many avenues to do so and a person who is aware of these easy methods can utilize it to the maximum extent.

For example consider the basic necessities of modern day living, food, shelter, travel, health care, investments and consider the possible ways of saving tax on these.

 

1. Food: The taxable amount on a salaried employee will reduce if the company offers food to the employee during the working hours. The cost of the meal can be a maximum of Rs 50 and the annual total of this expense is deducted from the taxable amount of employee.

2. Shelter: If the employee is living in a rented house then certain percentage of the basic pay is allowable as house rent and this amount also gets deducted from the taxable sum of the employee. For this purpose a receipt from the owner of the house for rent paid is required. So if you are living in a rented house start collecting these receipts that help you during the end of the financial year.

If the person (irrespective of salaried or self employed) is repaying a home loan then he/she can get a claim up to Rs 1 lakh on the repayment of principal and Rs 1.5 lakh on the amount paid towards interest on housing loan annually. This claim may go through changes when the newly proposed DTC comes to act.

3. Health care: The next important factor in a person’s life would be the health and there is an allowance towards the expenses made towards medical treatment. An amount of Rs 15,000 is deducted from taxable amount if proper receipts are produced by the employer for the expenses that are incurred in a financial year. So search all the cupboards and look for such receipts of this year. Make sure that the receipts contain the Tax Identification Number (TIN).

An additional Rs.15,000 is allowable as exemption from tax if this amount is paid towards the health insurance scheme of parents. So if your parents are not insured with health insurance, it is a good idea to shop for a policy now.

4. Travel: Conveyance allowance is paid for the expense of the employee’s travel from and to the office. This is a very small amount but yet, can be accounted for, to some extent if you use the mass transport system. The allowance is up to Rs 800 per month. There is also an allowance as of now called the LTA or leave travel allowance. This allowance lets you travel with your family and the expense to certain extent is deducted from the taxable income. The proposed DTC which is expected to come into act from 2012 does not feature this luxury.

5. Investments: Government also encourages investments in mutual funds, insurance schemes, ELSS, Public Provident Fund etc. There is a tax exemption of Rs 1 lakh that you get on investments made towards these schemes and Rs 20,000 as exemption if you invest in government certified infrastructure bonds. The Government has increased the limit of investment in PPF from Rs.70000/- to Rs.100000/- to encourage savings in long term investments. There is another simple way to divert your income towards your personal benefits like, purchasing a life insurance policy for self while you also reduce the taxable income on the other hand.

 

The tax laws may change with new acts but a common tax payer can always expect some deductions in these areas of taxation. These are more a benefit because it helps the tax payer make use of his income in the best possible way by removing off some basic expenses through these deductions in tax.