How to Save Income Tax on Salary Income

Introduction

How to Save Income Tax on Salary Income. Saving income tax on salary is a key concern for many employees. With the right strategies, such as utilizing medical exemptions, optimizing salary structure, and managing advance tax payments, you can significantly reduce your tax liability. In this guide, we explore practical methods to lower your taxable income, including fuel allowances and salary restructuring tips. 

Whether you’re planning for the next financial year or aiming to maximize your take-home pay, these strategies will help you achieve smarter tax management while staying compliant with the latest tax laws and slabs.

How to Save Income Tax on Salary Income

According to the law, what are the points that are available to us or exemptions that we can use to save the tax on salary? What is the best practice in the industry, and which logic is followed to reduce salary tax? In today’s topic, we will study it. You are watching Practical Learning House. How to Save Income Tax on Salary Income.
I am Faheem Ahmad. Let’s come back to the topic. We will study three points in today’s topic.

1. Medical Exemption

The first point, as we have discussed many times before, is Medical Exemption. In the form of medical exemptions, we have an exemption available according to the law—10% of the basic salary is exempted.
Now let’s study how we can claim these exemptions:
If an employee has a salary of 80,000 or 50,000. After that, he gets an allowance of 20,000. Additionally, he gets another allowance of 10,000. Fuel allowance may also be 20,000, totaling 100,000 as the round figure.

2. Monthly and Annual Salary Calculations

The monthly salary is calculated and then multiplied by 12 to determine the annual salary.
For a monthly salary of 100,000, the annual salary would be 1.2 million. Tax is applied on slabs according to the income:
If the tax rate is 5% for income exceeding 6 lakhs, the tax becomes 15,000 (as per the 2020-03 rate).
Now, the question arises—can this tax be reduced using exemptions?

3. Tax Slabs and Budget Changes

Every year, tax rates fluctuate with the budget: Sometimes higher, sometimes lower.
Tax slabs are revised, increasing or decreasing the tax burden. In this scenario, the available exemption is 10% of the basic salary. 5,000 is exempted from 1 lakh, leaving a taxable salary of 95,000. How to Save Income Tax on Salary Income.
When multiplied by 12, the annual taxable salary decreases, and the tax becomes lower than 15,000.

4. Optimization of Basic Salary and Allowances

Basic salary plays a critical role in tax exemptions. Employers can restructure salaries to maximize the available exemption.
It is not mandatory by law to divide salaries into:

• Basic salary
• Utilities
• Car allowance
• Fuel allowance

Instead, gross salaries can also be provided. Companies usually calculate increments based on basic salary.
A practical suggestion for tax savings: Employers can merge allowances into the basic salary.
For example, instead of a 50,000 basic salary, they can make it 1 lakh. Now, 10% of 1 lakh will be 10,000, reducing the taxable salary to 90,000.

5. Reducing Tax through Medical Exemptions

• With the taxable salary reduced to 90,000, the tax burden decreases accordingly.
• with the savings, you can also invest in gold.
• This restructuring helps employees pay less tax.
• Since the medical exemption rule allows for this, employees should utilize it fully.
• If, for example, you are already taking it, it is a good thing.
• If not, then you guide the employer that exemption is available according to the rule.
• Therefore, you minus it from this. And after that, apply the taxable salary to the figure. That is, apply the rate.

Fuel Allowance Considerations

• The second point is that, as we have discussed above, if you do not want to do this, then this allowance of fuel, although the allowance of fuel is given for whatever duties the employee is performing, official duty, is being given for that.
• So, what you do is, this 50,000 basic utility and after adding all these things, the figure that is made is 80,000.
• So, do a little effort. And because of this, the employee’s tax can be saved.

Suggestions for Fuel Management

• You can suggest that the card of fuel is usually given.
• That is, there is no fixed allowance with the salary. The card is given, and it is assumed that it is 80,000. Its salary is 20,000. The salary of the employee is not.
• And obviously, the medical exemption from this 80,000 will also be misused.
• So, this is also a suggestion that if your figure, tax saving, or sometimes it happens that the slab rate changes.
• That is, let’s say the salary has become 15 lakhs. So, up to 12 lakhs, it is 15,000. Above that, there is a rate of 10%. So, it becomes a good amount. It becomes a big amount. It will become a big percentage.
• So, if your figure is reduced, if the annual rate is less than 2 lakhs, then obviously the figure, the slab rate will be reduced.
• So, these fuel cards can be issued. Which ultimately benefits the employee.
• But when the company pays the bill of the card, whether it is PSO or Total or any other company, then there is no tax exemption on it.
• And it is also an allowable expense. There is no issue for the company. But it will benefit the employee if it is managed in this way.
• So, in this way, we have studied the second point. That is if you manage the fuel card.
• If you manage it. I am telling you all the practical points. Rest, you can find all the interesting things.
• You will find different kinds of things. Which are under your control. And some employers do not control it.
• When you get a salary, then the tax is deducted at the same time.

Tax Management Awareness

• If your tax is deducted more, then obviously you will follow the same.
• We do not get refundable. For some time, we have not been getting refundable because the company does not have anything to give.
• Therefore, you should give suggestions at the same time that are practical suggestions which the employer can make.
• It is under their control; they can implement them.

Understanding Advance Tax Adjustments

Overview of Advance Taxes

• What is the third point? If during the period, there are any advance taxes that you have given.
• For example, you have a commercial meter.
• The FBR takes an advance tax on the utility.
• After that, if you have purchased a car, then you have given a tax on it.
• If you have put a token on your car, then it is a tax.
• If you have purchased a property, then it is a tax.
• Any kind of advance tax during the period.

Reporting Advance Taxes to Your Employer

• If, for example, your tax is 15,000, and you have given 5,000 advance tax, then immediately give it to the employer so that he can adjust it from your tax.
• The remaining amount, 10,000, will be deducted from your salary.
• Your liability is the same: 15,000 is total, out of which 10,000 will be deducted by the employer and 5,000 you have already paid.
• So, at the end of the year, your 15,000 will remain.
• We often lack awareness, so we might be giving this advance tax while the salary is being deducted simultaneously.

Managing Your Tax Liability

• What happens is that 15,000 is your total liability, which will be deducted by all the employees.
• And 5,000 you have already paid in advance.
• So, indirectly, on the income of 12,00,000, how much tax have you given? 20,000.
• Manage on a timely basis, even the smallest tax.
  • For instance, you receive a bill for the internet or for PDCL or mobile phones.
• Everything is now an advance tax.
• Do not do it every month; do it annually or quarterly.
• After 6 months, take out a statement and give it to the employer, asking to adjust it against your total liability.
• This ensures that your tax is accurate and not over-deducted.

Practical Suggestions for Employees

• Apart from this, there are 2-3 points that are in the control of the employee, not in the control of the employer.
• We are discussing how we can guide the employer on saving tax.
• Implement these 3 points. Your slab rate can also change.
• After using it, if you see here, if you put the salary for this year, 2,20,000 are coming.
• If your slab is 15,00,000 or you are in the other slab of 14,00,000, you can adjust accordingly.

Impact of Slab Rates on Tax Liabilities

• As soon as you go ahead with the slab rate, your tax will increase significantly.
• This could sometimes double from the previous slab or be an increase of 80% or 50%.
• You will have to pay more tax.
• If you manage in this way, your income will remain the same, but your taxable income will be reduced.
• You must give this suggestion as there are likely to be changes in the upcoming budget.

Conclusion and Further Discussions

• If you manage in this way while staying within the rules, then your tax will be saved.
• If you have any questions related to this, please mention them so we can discuss them and continue the learning process.
• Thank you very much.

Conclusion

Effectively managing your salary structure can significantly reduce your tax burden. By utilizing medical exemptions, restructuring allowances, and optimizing advance tax adjustments, employees can minimize taxable income while staying compliant with tax laws. How to Save Income Tax on Salary Income. Collaborating with employers to manage benefits like fuel allowances and tracking advance taxes ensures accurate deductions. Implementing these strategies will not only save tax but also provide financial relief in changing budget scenarios. Stay proactive, review your tax liabilities regularly, and make timely adjustments to maximize your tax savings.

Frequently  Asked Question(FAQS)

1. How can I save tax on my salary in India?

• Answer: You can save tax on your salary by utilizing various exemptions and deductions such as:
  • Medical Exemptions: Claim 10% of your basic salary as a medical exemption.
  • House Rent Allowance (HRA): If you live in a rented house, you can claim HRA exemption.
  • Section 80C Deductions: Invest in tax-saving instruments like PPF, ELSS, and NSC to claim deductions up to ₹1.5 lakh.
  • Optimize Salary Structure: Restructure your salary by increasing the basic salary and including allowances that qualify for exemptions.

2. What are the tax slabs for salaried individuals?

• Answer: The tax slabs for individual taxpayers below 60 years for the financial year 2023-24 are:
  • Income up to ₹2.5 lakh: No tax
  • Income from ₹2.5 lakh to ₹5 lakh: 5%
  • Income from ₹5 lakh to ₹10 lakh: 20%
  • Income above ₹10 lakh: 30%
• Tax slabs may vary based on the budget, so it’s important to check annually for updates.

3. Can I claim a fuel allowance for tax deductions?

• Answer: Yes, you can claim fuel allowance as a deduction if it is provided as part of your salary structure for official duties. However, it’s essential to manage this allowance correctly to ensure it qualifies for tax exemption.

4. What is the benefit of restructuring my salary?

• Answer: Restructuring your salary can provide tax benefits by:
  • Increasing your basic salary allows you to claim higher medical exemptions (10% of basic).
  • Integrating allowances that qualify for tax deductions can reduce your overall taxable income.
  • Proper salary structuring helps in minimizing tax liability while staying compliant with tax regulations.

5. How do advance taxes affect my salary income tax?

Answer: Advance taxes are pre-paid taxes based on your estimated income. If you’ve paid advance tax, inform your employer to adjust it against your total tax liability. This ensures that your net tax deducted from salary reflects your actual income and any advance payments made, reducing the risk of over-deduction.