Best Tax Saving Investments for Employed Individuals in India

Tax Saving Investment

Every GST registered individual in the country is obliged to pay taxes whether he/she is a business owner or a salaried individual. The other way is to reduce the amount of tax payable to the government. Though there are immense options in the market to reduce taxes and especially for salaried employees, some end up being confused about which option is beneficial for them. /

Here is a piece of information for those who wish to reduce their taxes (especially salaried employees):

The total income of an individual is not the same as the taxable income of an individual. These are two entirely different terms with different significance under tax laws.

Total income earned becomes taxable once the exemptions and/or deductions are computed over it.

Talking about salaried employees there are several ways through which they can considerably reduce the tax levy on their annual income. Below is the description of some tax investments for salaried employees:

1. House Rent Allowance (HRA)

As the name suggests it is the allowance given by the government on the rentals you pay to your landlord. HRA is the component of the CTC on your basic salary.
HRA can be determined as the minimum of:

  • Actual HRA
  • Cost of Rent 10% of the basic salary

For Instance: 
Mr. Ashok is an employee of a private firm in Agra. His monthly income is Rs. 30,000 and additionally he avails Rs. 7,500 as HRA per month. His monthly rent is Rs. 8,000. The rental property being in a non-metro city, following will be the exemptions :

Actual HRA received –  Rs. 7,500
Excess of rent paid (more than 10% of salary) = Rs. 8,000 – Rs. 3,000 (10% of 30,000)
Rs. 30,000 x 10%  = Rs. 5,000
40% of the salary = (Rs. 30,000 x 40%) = Rs. 12,000
Rs.5, 000 per month is the least of the above amounts and is exempt from taxes (and rest of the HRA is taxable).

2. Special Allowances (u/s 10(14))

Children Education allowance is given by the government max Rs. 100 per month for 1 child (2 children).

Maximum of Rs. 300 is given by the government under Hostel Expenditure Allowance (2 children).

Transport Allowance (to and fro from the workplace) is given by the government (maximum Rs. 1600 per month).

3. Travel Concession in India

Expenditure with regards to the fares for the shortest route (for 2 trips in 4 years where the amount is equal to Air Economy tickets or Rail AC tickets) is exempt if:

  • The concession is availed by an employee for his own purposes or travel for family members.
  • Leaving for any part of the country.

4. Provident Fund

Investment in a provident fund is yet another beneficial way of saving tax and you can save money for the future. EPF allows a deduction from total income under section 80C.

5. Saving Tax on Gratuity

If any employee who has invested 5 years serving in the same company is entitled to acquire gratuity payment. For government employees, gratuity on death or retirement of the employee is fully exempt from taxes.  For employees posted in the private firms the max amount of gratuity that is tax-exempt is Rs. 1,000,000.

6. Pensions

Pension is the amount earned after retirement. Over the years of an employee’s employment, the amount is saved and that is eventually given by the company after retirement. Pension funds up to Rs. 1,50,000 is eligible for deduction (as mentioned under section 80CCC and 80C) from your income.

7.  Investment in Life Insurance

Mentioned under section 80C of the Income Tax Act, any amount paid by any registered individual towards the life insurance premium is exempt from taxes. This is one of the sure-shot ways of tax-saving adopted by many registered taxpayers.

Mentioned above are some of the sound tax-saving investments that can be done by the employees to considerably reduce the amount of tax payable to the government. The Income Tax Act has more such allowances, exemptions, and deductions that can be adopted by the salaried individuals in order to save taxes. In some companies, employees are allowed to customize their salary structure as per the situation or their personal benefits in taxes.

To be noted: Tax Benefits are subject to alterations as and when required by the government or as per the situation demands. The entire list of tax benefits is in-line with the norms of the government and is subject to change as and when needed.


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