Tax planning is much better defined for the salaried class than the self-employed. Employers deduct advance tax from your salary and you need to plan the financials accordingly to attain maximum tax gains. There are a number of tax-saving instruments that can be used by salaried people to obtain an effective plan. A lack of awareness, sometimes, means that many salaried individuals run around frantically to save tax without exploring all options available. Here are some that you can look at for effective tax planning.

Utilise Section 80C wisely

Proper utilisation of benefits available under Section 80C is one of the key constituents of effective tax planning for the salaried class. Under this section of the Income Tax Act, an individual is allowed a maximum deduction of R1 lakh per annum.

Many individuals don?t utilise the entire amount available under this section. Ideally, any salaried person with a gross salary equal to or more than R2.5 lakh must use the entire available deduction limit of R1 lakh for effective tax planning.

There are many financial instruments that offer tax rebate under Section 80C. Some popular financial instruments include Public Provident Fund, National Savings Scheme, interest acquired on National Savings Certificate, ELSS funds, home loan repayment and tuition fee for children.

House Rent Allowance

House rent allowance (HRA) must be a part of any effective tax planning strategy for all salaried individuals. The first thing is to check your salary slip for the actual monthly split of the basic and HRA constituents. Comparing your monthly rent, basic pay and HRA is the first step towards using HRA effectively.

For example, if you live in your own house, it is a good idea to request your employer to restructure your salary in such a way that a majority of it goes under basic and less comes under HRA. This kind of a restructuring will allow you to opt for benefits under the higher basic pay.

If you pay more rent each year than your monthly HRA, you need to check whether your HRA is 50% of your basic salary. If not, you can request your employer to increase the HRA limit to 50% of the basic, which is the maximum permissible as per the Income Tax Act. This can work the other way around as well. If you are paying less rent as your HRA, you can request your employer to restructure your HRA equal to the amount of rent actually being paid. Irrespective of your HRA allowance, it is essential to obtain rent receipts from your landlord and send them to your employer well in advance.

Explore options beyond Section 80C

If you find yourself exhausting the R1 lakh limit under Section 80C as most individuals with a gross salary over R2.5 lakh often do, it is time to explore other tax-saving options. Use Section 80D for deduction of R15,000 for medical insurance for self, spouse and dependent children. Medical insurance of parents above 65 years of age is allowed a deduction of R20,000. All donations to specified funds and charitable organisations are eligible for deduction in income tax under Section 80G.

Joint home loan

Using home loan effectively is a good option. If you are a salaried individual with a home loan, make sure that you are availing the tax benefits on it. The principal amount repaid by you or your home loan is eligible for a deduction of R1 lakh under Section 80C, while the interest paid on the principal amount is eligible for a deduction up to R1.5 lakh under Section 24. One can include one’s spouse as a co-borrower for tax benefits on home loans and both husband and wife would be eligible for home loan rebate as per their share in the loan amount, subject to the maximum permissible limit.

Request for salary restructuring

Requesting your employer for salary restructuring as per your personalised requirement is one of the best ways to manage tax. While not all employers may agree to restructure your salary, quite a few of them usually oblige.

Opting for food coupons instead of lunch allowances can also save tax as they are exempted from tax up to R50 per meal. Opting for a company car instead of a private vehicle can be useful in reducing the high prerequisite taxation.

The writer is CEO, BankBazaar.com