How to Save Taxes after a Raise

Many of you may be looking forward to or have already received a raise in income this year. While a raise might bring us joy and excitement, it is vital to remember that tax preparation is essential. The amount of money you take home might be significantly reduced by taxes if you don't plan beforehand. Organize your Salary You need to ask your employer whether there is a way to increase the amount of money you are paid. You may save money on your taxes if you included allowances in a larger percentage of your income. Let's take a look at some of the parts of your pay that might save you tax Basic Salary: Your Cost-to-Company (CTC) is typically 30% to 40% of your basic income (CTC). It is essential to have a reasonable starting pay. When you have a high salary, you may have to pay more in taxes, but you may also lose out on other advantages, such as House Rent Allowance (HRA), Leave Travel Concession (LTC), superannuation, and so on. If you rent your home and receive HRA benefits from your employer, you may be able to deduct this expense from your taxable income. Paying your parents a monthly rent if you're living with them at their home is an option. While receiving HRA, this can help you save money on taxes. Exemption from rent is possible with the submission of proper documentation for the whole period for which you wish to claim an exemption. If your yearly rent exceeds Rs 1,00,000 (or Rs 8,333 per month), you must provide your employer with your landlord's Permanent Account Number (PAN). It's also important that your landlord provide you with their personal identification number (PAN) and the name and address of their place of business. HRA's maximum claimable amount is the least of HRA in its actual sense, Employees who pay rent that is more than 10% of their base wage plus their Dearness Allowance (DA) should be reimbursed. For employees in Mumbai and Delhi (and 40% for those in other locations), 50% of the base wage plus DA. One thing to keep in mind is that if your rent is extremely high and your HRA limit isn't sufficient to cover it, you'd be better off choosing a company-leased apartment (if your employer makes such an option available) because the perk value of a company-leased apartment is taxed at 15% of your gross income. Even though the value of the perk is taxable, choosing this over an HRA that just covers a portion of your rent is a better tax strategy. LTC(Leave Travel Concession): Any travel you have taken in India, whether alone or with your dependant family members, can be claimed for LTC. As for how much you may claim as a maximum, it's either the amount you really spent or the maximum permitted in place of taxes (LTA). During the period of four calendar years, you are granted an exemption from paying for two round-trip flights.  Note that the exemption is limited to travel expenditures and does not include expenses such as accommodation, food, or entertainment costs. Transport Allowance: The cost of getting from your place of residence to your place of employment is tax-free as well, thanks to the so-called "transportation allowance." There was an increase in the maximum monthly exemption from Rs 800 to Rs 1,600 in the 2015 Union Budget. Your compensation must include the increased limit. Medical Reimbursement: It's possible to save money on taxes by reimbursing medical expenses that you or your family incur. Every financial year, a maximum of Rs 15,000 in medical expenditures can be claimed. Nevertheless, you must submit your medical costs for the year in question, together with the total amount you wish to claim, to your employer. It's also worth noting that if your company pays your medical insurance premiums or reimburses you for them, none of these benefits is taxable. Tax-free medical expenses can also be claimed if your employer provides you with medical care in a hospital or clinic that is owned or operated by a government agency or a municipal authority. It's also worth noting that if your company pays your medical insurance premiums or reimburses you for them, you won't owe taxes on that money. Additionally, medical expenses incurred in a hospital owned by your employer, a municipal authority, the federal government, or a state government are exempt from income tax. Meal Allowance: Food coupons or food cards: If your company offers you with food coupons, this can also reduce your tax burden. A monthly exemption of Rs 2,500 is the highest amount that may be claimed. Additionally, as an assessee, you should take advantage of the following parts of the Income Tax Act, 1961, in order to lower your tax bill. Section 80CCD: Those who invest in the National Pension Scheme (NPS) can take advantage of an extra deduction of Rs 50,000 per year, in addition to the Rs 1,50,000 per year provided under section 80C. Section 80CCD of the Act provides for a tax deduction of up to Rs 1,50,000 lakh for employees who pay 10% of their salaries to the National Pension System (NPS). Section 80CCD of the tax code allows your employer to deduct its contributions to the NPS (2). Section 80C: Section 80C allows you to lower your taxable income by making investments in tax-advantaged securities. This section allows a deduction of up to Rs 1,50,000 per year for investments made in PPF, EPF, 5 year fixed deposits with banks and post offices, life insurance premiums, Equity Linked Savings Schemes (ELSS), principal repayment on housing loan, ULIPs, tuition fees paid for children's education (up to a maximum of 2 children), and so on. Section 80G The humane aspect of our lives is taken into account by our Income Tax Act, thus donations made to specific funds, charity organisations, accredited educational institutions, etc., can be deducted. To the extent allowed by law, you may deduct up to 50 percent or 100 percent of your gift from your taxable income for these organisations or funds. Section 80D Section 80D allows you to deduct the premiums you pay for health insurance policies that cover you, your spouse, and/or your dependent children. An annual deduction of up to Rs 25,000 can be claimed (or Rs 30,000 p.a. in case you are a senior citizen). In addition, if you pay the medical insurance premium for your parents, you can claim an extra deduction of Rs 25,000 each year (or Rs 30,000 p.a. in case your parents are senior citizens). Section 24(b) Section 24(b) of the Income Tax Act allows for the deduction of interest paid on a loan used to buy a home. It is possible to deduct up to Rs 2,00,000 under this provision if the property is owned by you and used for your own purposes (i.e. a Self-Occupied Property), however the deduction is restricted to the actual interest paid. The maximum amount that may be deducted under section 24(b) is Rs 30,000, regardless of whether you live in or rent out the property you have taken out a loan for. It must be kept in mind that these are not the only ways to reduce your tax burden, and a comprehensive evaluation should be made to save tax effectively and properly.

How to Save Taxes after a Raise