Published By: Mohammad Haris
Last Updated: February 02, 2024, 17:22 IST
Opting for the NPS benefit under Section CCD (2) can reduce tax.
Individuals can reduce paying taxes on their pay structure by making wise decisions about investments like NPS or debt funds
The word ‘income tax’ comes across almost every taxpayer’s mind at one time or another. However, the first thing that we think about is how to save maximum taxes on our income. As a salaried person, when an individual is at a high tax slab, he/she will need to pay a considerable amount of income tax annually. However, there are a few provisions or tricks that can help users save a lot of taxes if claimed or purchased accordingly. Having very little knowledge about these, taxpayers often end up paying a lot of their hard-earned money in taxes.
If properly calculated, if individuals take a home loan, receive the NPS benefit from their company, and also receive some non-taxable key components in their salary like allowances from the employers’ end, they will help them save more than Rs 50,000 in taxes.
How to save income tax?
1. Individuals should seek the benefit under the National Pension System under Section 80CCD(2) from the employee wherein 10 percent of his basic salary will be put into NPS on his behalf and is completely tax-free. For example, if a company puts around Rs 5,000 in the NPS every month, the taxes will be reduced by almost Rs 13,000.
2. Apart from that, taking a house loan can also help in terms of reducing taxes. Employees being entitled to a loan from the employer at favourable terms should definitely use the opportunity to build an asset and also reduce tax liability. For example, a loan of Rs 25,00,000 for 20 years at an interest rate of 7 per cent will require him to pay an EMI of Rs 20,000 along with an annual interest of Rs 1.5 lakh. This might further help cut taxes by almost Rs 30,000.
3. Individuals should also explore the other tax allowances in the pay structures including leave travel allowance and reimbursement of books and newspaper bills. One should also reduce the amount of their special allowances to reduce the taxable portion. In line with income from other sources like fixed deposits and dividends among others, one should avoid FDs and instead go for debt funds.
One must note that opting for the new tax regime can restrict them from claiming any deductions from the employer. They must consider choosing the old tax regime that allows deductions for investments made in NPS, for medical insurance premiums, for interest from a savings bank account, or donations to charitable institutions.
