10 easy ways to save income tax on salary - Inventive (2023)

10 easy ways to save income tax on wages

Individuals and companies payincometax, a type of tax imposed by the government on money earned within a tax year. One of the most important sources of government revenue is taxes. This money is used to build infrastructure, provide forhealthcare, educate children and offer agricultural subsidies i.a.

The two main forms of taxes are direct and indirect taxes. For example, a direct tax is levied directly on earned income. A form of direct taxation is income tax. The calculation of the tax is based on the income level rates applicable at the time.

The centralgovernmentis empowered to tax non-agricultural income under Item 82 of the Union Schedule to the Seventh Schedule to the Constitution of India; agricultural income is defined in Section 10(1) of the Income Tax Act 1961. Statute 1961, Income Tax Rules 1962, orders and circulars issued by the Central Board of Taxation Direct, the annual financial laws and judicial pronouncements of the Supreme and Superior Courts prepare the Income Tax Act.

Individuals, Hindu Undivided Families (HUF), Corporations, Companies,LLP, associations, agencies, municipal authorities and any other legal entity is liable to tax. The amount of personal income tax you pay is determined by where you live. The CBDT is run by the Income Tax Department, which is part of the Ministry of Finance's Revenue Department. The most important source of government revenue is income tax.

From $1,392.26 billion in 1997-98 to $5,889.09 billion in 2007-08. Total tax revenue increased from US$ 1,392.26 billion in 1997-98 to US$ 5,889.09 billion in 2007-08. The Income Tax Department is the state's largest revenue generator; Total tax revenue increased from $1,392.26 billion in 1997-98 to $5,889.09 billion (US$78 billion) in 2007-08.

Direct taxes are divided into three categories:

Income tax is a type of tax that an individual, an undivided Hindu family or any other taxpayer, other than a company, pays on their earnings. The rate at which income must be taxed is set by law.

Corporation tax is a tax that companies pay on the profits from their operations. India's income tax laws have once again provided for a specific tax rate on corporations.

Who must pay income tax? - Different types of taxpayers

The Income Tax Act divides taxpayers into categories to apply different tax rates to different groups of people.

Taxpayers are classified as follows:

• individuals
• Hindu Undivided Family (HUF)
• Association of People (AOP)
• Corps of Individuals (BOI)
• Companies
• companies

People are also divided into two groups:residents and non-residents. People living in India have to pay tax on their worldwide income, including money received in India and abroad. Non-residents are liable to pay tax only on income earned or earned in India. For tax reasons, residency status has to be determined separately for each financial year based on the duration of stay in India.

In tax terms, resident natural persons are divided into the following categories:

• 60 years old
• Over 60 men under 80
• Over 80 years

Bearing types / Bearing heads

Income tax is levied on anyone who earns or receives money in India. (This applies to both Indian residents and non-residents.) The Income Tax Department divides income into five categories for ease of classification:

• Income from other sources-Income earned from interest on bank savings accounts, fixed deposits and lottery winnings are taxable under this item.
• Home Owner Income:Income earned by renting a residential property is taxable under this income item.
• Capital gains income:Under this head, income from the sale of a capital asset, such as mutual funds, shares or real estate, is taxable.
• Business and business incomeEmployed individuals, businesses, self-employed workers or contractors and income earned by professionals such as life insurance agents, public accountants, doctors and lawyers who have their own practice and teaching masters are taxable under this item.
• Salary:income from salary and pension is taxable in this category.

Taxpayers and income tax sheets

Indian tax laws apply differently to each of these taxpayers. Individuals, HUF, AOP and BOI are taxed according to their income level. While Indian companies and corporations have a flat rate, individual taxpayers, HUF, AOP and BOI are taxed based on their income slab. Tax brackets or tax slabs are used to categorize people's income. And the tax rate varies depending on the tax table. With an increase in income, the rate at which income is taxed increases. Individual taxpayers and HUF are subject to a "new tax regime" implemented in the 2020 budget:

What is the existing/old income tax system?

The previous tax regime established three rates for determining income tax for different income levels: 5%, 20% and 30%. People have the option of continuing to use the old tax system, which allows them to deduct allowances such as Travel License Allowances (LTCs), House Rent Allowances (HRAs) and other allowances. Deductions for tax-saving investments under section 80C (LIC, PPF, NPS etc.) can also be claimed under section 80U. The deduction for interest paid on a home loan is a standard deduction of Rs 50,000.

Individual taxpayers under the age of 60 are subject to the following tax rates under the old tax system:

Up to Rs.2,50,000- Nil

Rs 2.5 lakhs and Rs 5 lakhs - 5% tax

Between Rs 5 lakhs and Rs 10 lakhs- Rs 12,500+ 20% of income above Rs 5 lakhs

Above 10 lakhs- Rs 1,12,500 + 30% of income above Rs 10 lakhs

There are two additional tax brackets for people above 60 and above 80. A word of caution: many people think that if they earn Rs 12 lakh, they will have to pay 30% tax on this amount, or Rs 3,60,000. That is not correct. A person earning 12 lakhs pays Rs in a progressive tax system. 1,12,500 plus Rs. 60,000 = Rs. 1,72,500.

From the tax year 2020-21 onwards, individuals and HUFs will benefit from a better tax regime with lower tax rates and zero deductions/exemptions. Individuals and HUF can choose between the old and the new regime. The new tax scheme is optional and when you file your ITR, you have to choose between it and the previous one. If the current system is maintained, the taxpayer can make use of all available deductions and exemptions.

The following are the tax tables under the new tax system:

Up to 2.5L - No taxes

Rs 2.5 lakh to Rs 5 lakh- 5% tax rate

Rs 5 lakh to Rs 7.5 lakh- 10% tax rate

Rs 7.5 lakh to Rs 10 lakh- 15% tax rate

Rs 10 lakh to Rs 12.5 lakh- 20% tax rate

Rs 12.5 lakh to Rs 15 lakh- 25% tax rate

Rs 15 lakh- 30% tax rate

Most deductions, such as deductions and exemptions, are not available to taxpayers who opt for the new tax system.However, under the new scheme, the following exemptions and deductions are available:

• Transport allowance for a person with a disability.
• Travel allowance earned to cover travel expenses incurred as part of the job.
• Any remuneration paid to help cover the costs of a trip or transfer.
• Daily stipend paid to cover normal routine costs or expenses incurred due to your absence from your usual duty station.

Residents and non-residents:

In India, income tax is levied based on the taxpayer's state of residence. People who qualify as residents have to pay tax on their worldwide income, including money generated in India and abroad. Non-residents are liable to pay tax only on their Indian income. Residence status must be determined separately for each tax year for which income and tax are estimated.

Payment of income tax

• Tax Deducted at Source (TDS)

When paying the recipient of the income, the payer deducts the withholding tax in specified amounts. The income earner can claim the TDS amount as a credit by adjusting the TDS amount with the final tax liability.

• advance tax

When a taxpayer's expected tax burden for the year exceeds Rs 10,000, he or she has to pay tax in advance. The government has set payment conditions for advance payments of tax.

• self-employment tax

The balance tax is the taxpayer's tax on their estimated income. The self-employment tax is calculated after deducting the advance tax and TDS from the total income tax calculated from the estimated income.

• Easy electronic payment

The NSDL website allows taxpayers to pay advance tax and self-employment online. However, the taxpayer must have an online bank account in an authorized financial institution.

Presentation of income statement

With a few exceptions, all classes of taxpayers must file their tax returns online.

Taxpayers aged 80 and over do not need to submit their tax returns online.Taxpayers with less than Rs 5 lakhs who do not claim a refund are not required to file an online return.

Online submission is required for all others. It is worth noting that there are also deadlines for filing tax returns. The deadline for most individual taxpayers to file a tax return is 31 July following the relevant tax year.

These are some of the consequences of not submitting the return on time:

• You will not be able to carry forward losses to future years (except for losses on your home).
• If there are claims for refunds, there will be a delay in processing them. It will be difficult to get a home loan.
• Section 234F imposes a late filing fee of up to Rs 10,000.
• If there are taxes to be paid per 31 July, interest will be charged in accordance with § 234A. It can also be used for purposes other than electronic submission of your tax return. Clear helps you claim all your tax credits and helps you invest. After filing your return online, you can check it electronically or print it and send it to CPC in Bangalore for processing.

Income statement

Every year the individual has to file a tax return using the ITR forms provided by the IRS. The government has created seven ITR forms for taxpayers to file their tax returns. The taxpayer must complete the necessary ITR documents and file their tax return.

Income tax forms

Following are the seven ITR forms:

ITR-1:Individuals (residents) having income from salary, home ownership, other sources, agricultural income less than Rs 5,000 and total income up to Rs 50 lakh.

ITR-2:Individuals/HUF who do not own or operate a business or profession.

ITR-3:Individuals/HUF with income from sole proprietorship or profession

ITR-4:Individuals/HUF with presumed income from a business or profession must submit the ITR-4 form.

ITR-5:Companies associated with LLP

ITR-6:companies

ITR-7:Confidence

Documents required for presentation of ITR

Some of the most important facts/documents you should have ready before filling your return are Form 16, 26AS, Form 16A, proof of investments made to save taxes, bank account details etc. Additionally, the documentation you will need to prepare your tax return, be largely determined by your source of income.

Calculation of taxes

People must calculate their income tax based on the type of income they receive. The civil servant can make use of the exemptions available for various tasks. Individuals and HUF can deduct under section 80C to 80U, deduct from your total gross income and calculate your tax payable. In addition, taxes paid such as advance tax, TDS etc. is deducted from the total income tax liability. To calculate the net amount of income tax payable, the taxpayer must also apply the effect of the reduction of Article 87A and the relaxation of Article 89, 90 and 91.

All sources of income must be reported on your tax return. Of course, some income is exempt from the law, such as dividend income from an Indian company, long-term capital gains on listed shares up to Rs 1 lakh in any financial year, etc.

As a result, here's a quick formula you can use to calculate how much you owe in taxes:

• List all your sources of income, including your salary, rental income, capital gains, interest income and earnings from your business or profession.
• Eliminate any income that is exempt under the Act.
• Claim all applicable deductions from each source of income. For example, deduct Rs 50,000 from your salary income, deduct council tax from your rental income, deduct business-related expenses from your commercial invoicing, etc.
• Claim all eligible exemptions for each type of income such as money reinvested in another home as capital gains exemption etc.
• Claim all appropriate deductions from your total income like 80C, 80D, 80TTA, 80TTB and other beliefs.
• You have now calculated your taxable income. Check your tax bracket and calculate your tax liability accordingly.

It is ideal for keeping up with the budget because the government introduces and constantly changes tax tables, schemes and benefits.

electronic statement

The individual must file their tax return electronically through the IRS e-file portal. The taxpayer must first register at www.incometax.gov.in to file a tax return. The taxpayer can then access the internet and file his tax return. There is also no need to manually email the return receipt to the IRS. The Income Tax Department now offers electronic verification of ITRs on various methods, which completes the Income Tax filing procedure.

Following are the 10 easy ways to save money on payroll taxes.

Save income tax on the salary

If you want to save a significant portion of your income, you should pay special attention to the many Indian tax-saving financial alternatives. Sections 80C, 80CCC and 80CCD can help you save money on tax if you work as an employee in India.

If you believe that you have paid a significant portion of your income in taxes, you have definitely not managed your taxes correctly. You can save money on tax in several legal ways. By deducting certain expenses, the Indian Income Tax Act allows citizens to save some money on taxes. Deductions may be claimed when submitting a tax return.

1. Section 80C, 80CCC and 80CCD deduction

These three categories allow Indian citizens to reduce their tax burden. Individuals can claim certain deductions if they invest in the instruments listed in sections 80C, 80CCC and 80CCD. PPF accounts, pension schemes, life insurance policies, NSCs, 5-year tax saving fixed deposits and other instruments are among the most popular investments. Individuals claim a maximum deduction of Rs 150,000 for each of the three components individually or for all three sections combined. Section 80CCD allows any person contributing to the National Pension Scheme to claim an additional deduction of Rs 50,000.

2. Medical expenses

Medical expenses can be deducted from the taxpayer's tax base. If people give their medical bills, their medical expenses are tax free. Employers also offer medical care to all employees. People can claim a maximum of Rs 15,000 in medical expenses every year. Sections 80D, 80DD, and 80DDB of the Internal Revenue Code allow taxpayers to deduct money spent on health insurance.

3. Mortgage loans

Most people are advised to get a home loan to save money on tax because deductions can be claimed in three separate areas, resulting in big savings. Section 80C of the Internal Revenue Code allows people applying for a mortgage loan to deduct the principal amount of the loan from their taxes. Section 24 allows people to deduct the interest they have paid on their mortgage. In some situations, a maximum deduction of Rs 2,00,000. allowed, but in others there is no limit on the amount of mortgage interest that can be deducted.

4. Education loans

Getting an education loan for yourself, your children or your spouse, for example, can help people save money on taxes. Section 80E allows people to deduct the amount they spent in interest on the loan. There is no limit to the number of deductions you can claim. Individual taxpayers can only take advantage of Section 80E deduction.

5. Shares and mutual funds

People can save money by investing in stocks and mutual funds. Citizens earning less than Rs.12 lakhs per annum can get additional deduction under section 80CCG if they invest in certain stocks and mutual funds. The facilities are available only to first-time investors under the Rajiv Gandhi Equity Savings Scheme.

6. Long-term capital gains

Long-term capital gains can save taxpayers money in taxes if they receive this gain by selling long-term capital assets and then investing them in specific instruments. Any asset/property that the taxpayer has owned for more than three years is considered a long-term fixed asset.

7. Sale of capital shares

The Indian government has exempted from tax any long-term gains made through the sale of equity shares to encourage citizens to participate in equity shares and mutual funds. Only persons who have held the said shares for more than a year are exempt from paying tax.

8. Donations

Indians can save money on tax by claiming deductions for donations made to social or charitable causes or by contributing to the National Relief Fund and can claim these deductions under section 80G. The Ministry of Finance keeps track of the organizations to which taxpayers can donate and whether deductions are allowed based on the purpose of the donation. Tax deductions are not possible for contributions in kind. Individuals can claim a deduction of up to Rs 10,000 for cash donations, but must donate by check for more than Rs 10,000.

9. House rental assignment

Employees in India are entitled to a House Rent Allowance (HRA) which is deducted from their salary. HRA allows people to save money on tax by claiming it as a deduction. People paying a total rent of more than Rs 1 lakh. of one year, have to produce proofs like PAN card of the house owner, lease agreement etc. Additionally, individuals can claim only the least of the following amounts from their employer's HRA:

Actual HRA provided by employer-

50% of basic pay plus DA (if the person is in Mumbai, Delhi, Chennai or Kolkata). 40% of the basic salary plus DA (if the person is in another city).

Real income: 10% of basic salary plus DA

10. LTA (Travel License Allowance)

If taxpayers obtain LTA from their employers, they will be entitled to tax-free LTA. It can be claimed twice in four years. They have to visit any place in India during their vacation to claim it.

Here are some common methods for people to save money on their taxes. Taxpayers who carefully organize their income, assets, expenses and taxes can save a significant amount of money. The use of illegal methods to save tax money is strongly warned against. For example, if someone tries to save money by not paying taxes, the money they save will be considered unaccounted for or black money, which can cause a lot of trouble if discovered.

edited and reviewed by nikita sharma