Save tax for Govt employee scheme is beneficial as compared to private jobs. That’s why everybody wants a government job. However, Government also makes tax-saving investments to take the benefit of tax deductions and reduce the tax burden.
How To Save Tax For Government Employees?
These are ways through which a government employee can save tax-
- This is one of the safest investment options with lesser risk to save tax.
- However, the interest rate in Public Provident Fund (PPF) is higher than the market interest rate.
- PPF has a lock-in period of a minimum of 15 years but one can take the loan from PPF after the fourth year.
- General Provident Fund was popularly known as GPF is the government employees’ version of the Employees’ Provident Fund (EPF) to save tax.
- Hence, a portion of a government employee is deducted every month for GPF which is a compulsion but you can even give the order to deduct a higher amount than the compulsion minimum amount.
- However, the TheGPF account offers higher saving than the normal saving account and it is completely safe because it is backed by the government itself and ideal one to save tax.
3- LIC Policies
- These are very popular among government employees to save tax.
- It is a state-owned insurance and investment company and the most famous LIC policy is the Money-Back Policies.
- This policy comes with a tenor of 20 years and 25 years. It provides life coverage over the policy period and pays out survival benefits once after every five years an probably the best option to save tax.
- If in case some unfortunate event takes place in your life then the sum that is assured of the policy is given to the nominee/beneficiary registered to the account.
- The premium paid towards LIC policies is tax-deductible as per Section 80C provisions of the Income Tax Act, 1961.
4- Fixed Deposit
- FD’s always pay more and the minimum lock-in period is of 5 years. The interest rate is higher in FD and with minimum risk factors involved.
- Through FD one can save tax.
- ELSS stands for Equity-Linked Saving Scheme (ELSS). They are quite risky than the other saving tax-saving investments to save tax because in ELSS the interest depends on the market conditions.
- The lock-in period of ELSS is of five years.
6- Mutual Funds
- Mutual funds are one of the most popular investment options these days and you can save tax too.
- In addition, Mutual fund investment is on the rise these days because of the increasing awareness among people as well as the ability of mutual funds to offer inflation-by-returns.
- If you are ready to take some risk, then you can invest in equity funds.
- However, If you are completely at risk, you can go with a debt fund. If you want to balance risk-reward, you can invest in hybrid funds.
7- Tuition Fees
- Your children’s schools/colleges fees will be liable for deduction and you can save tax through it too. This is one of the best benefits of working as a government employee.
8- Bank Deposits
- Saving money regularly in your bank accounts will not give you that much benefit. Hence for that, you have to make a fixed deposit or recurring deposit account.
- Hence, If you have a lump sum of the amount with you that you can invest in FD and if you have to deposit a lesser amount on monthly basis then you can go for RD and can save tax through that too.
Income Tax Exemptions For Salaried Employees
Income tax deduction provides a range of opportunities for salaried class to save tax and with the help of these tax deductions and exemptions one cloud reduce his/her tax.
- Exemption of House Rent Allowance
- Standard Deduction
- Leave Travel Allowance (LTA)
- Mobile reimbursement
- Books and periodicals
- Food coupons
- Income From Gratuity
- Section 80 Deductions – Section 80C, 80CCC and 80CCD(1) , Medical Insurance Deduction (Section 80D) , Interest on Home Loan (Section 80C and Section 24) , Deduction for Loan for Higher Studies (Section 80E) , Deduction for Donations (Section 80G) , Deduction on Savings Account Interest (Section 80TTA) , Additional Deduction for Interest on Home Loan (Section 80EE)
- Internet Reimbursement – Deduction related to Internet use for office purposes.
- Leave Encashment
- Income tax exemption on relocation allowance
- Tax treatment on Notice Pay and Joining Bonus
- Cab Facility transport provided by the employer
- Health club facility provided by the employer
- Gifts or vouchers provided by the employer
- Medical Allowance
- Company Leased Car
- Uniform Allowance – Allowance given for uniforms used for official duties.
Income tax is calculated based on the tax slab. Your income tax is calculated after making necessary deductions and other taxes that you have already paid. An Income Tax Calculator is an online tool that will provide you with an estimate of how much income you have to pay after you provide all the necessary details.
How To Save Tax For Salary Above 10 Lakhs
Well, there are many ways through which you can save income tax on your salary. However, you just need to choose the technique smartly to save tax on salary income.
However, before going forward let’s check the Income Tax Slabe Rate for FY 20-21 (AY 2021-22)
|Income Tax Slab||New Income Tax Slab Rates for FY 2020-|
|Rs 0.0 – Rs 2.5 Lakhs||NIL|
|Rs 2.5 lakhs- Rs 3.00 Lakhs||5% (tax rebate u/s 87a is available)|
|Rs. 3.00 lakhs – Rs 5.00 Lakhs||5% (tax rebate u/s 87a is available)|
|Rs. 5.00 lakhs- Rs 7.5 Lakhs||10%|
|Rs 7.5 lakhs – Rs 10.00 Lakhs||15%|
|Rs 10.00 lakhs – Rs. 12.50 Lakhs||20%|
|Rs. 12.5 lakhs- Rs. 15.00 Lakhs||25%|
|> Rs. 15 Lakhs||30%|
1- If you invest up to 1.5 lakh
- If you have invested in Public Provident Fund, Health Insurance, Bank Deposits, Mutual Funds, General Provident Fund, Fixed Deposits, Life Insurance, etc, or any other kind of provisions that provide tas exemption up to 1.5 lakh.
- But if you follow the old school tax-paying method you will still lose a maximum of Rs 31,200.
- Follow the new tax-paying regime to get some benefits and save tax.
- The new tax regime will allow one to get benefits from Public Provident Fund, Health Insurance, Bank Deposits, Mutual Funds, General Provident Fund, Fixed Deposits, Life Insurance, Retirement Scheme, Rent Paid, and compensation if the company goes down.
2- If you avail a deduction of Rs 2.5 Lakh or more
- Suppose if your annual income is between 15 to 20 lakhs and you claim a tax deduction of Rs 2.5 lakh then you have the option of choosing between the two regimes. As the tax payable will be more or less the same.
- However, if you are focusing on tax saving for income above 15 lakhs and the amount of tax exemption you have asked for is more than 2.5 lakhs, then it makes sense to stick to the old method of tax calculation.
- Let us understand this by looking at the tax calculation both ways for a person with an annual salary of Rs 20 lakh
|Details||Tax Calculation (Old)||Tax Calculation (New)|
|Salary||20 Lakh||20 Lakh|
|Standard Deduction||50 Thousand||NIL|
|Income Under Salary||19,50000||20 Lakh|
|Chapter 6 A Exemptions||1,50,000||NIL|
|Taxable Income||17,50000||20 Lakh|
|4 % cess||13,500||13,500|
Source- CANARA HSBC OBC LIFE INSURANCE
How To Calculate Income Tax on Salary Example
|Upto Rs 2,50,000||NIL|
|Rs. 2,50,001 to Rs. 5,00,000||5 %|
|Rs. 5,00,001 to Rs. 10,00,000||Rs. 12,500 + 20% of Income exceeding Rs. 500,000|
|Above Rs. 10,00,000||Rs. 1,12,500 + 30% of Income exceeding of Rs 10,00,000|
|Rs. 3,00,001 to Rs. 5,00,000||5 %|
|Rs. 5,00,001 to Rs. 10,00,000||Rs.10,000 + 20% of Income exceeding Rs. 500,000|
|Above Rs. 10,00,000||Rs. 1,10,000 + 30% of Income exceeding of Rs 10,00,000|
|Very Senior Citizen|
|Upto Rs. 5,00,000||NIL|
|Rs. 5,00,001 to Rs. 10,00,000||20 %|
|Above Rs. 10,00,000||Rs. 1,00,000 + 30% of Income exceeding of Rs 10,00,000|
Source – ICICI PRUDENTIAL LIFE INSURANCE
How To Save Tax For Central Government Employees
- While the pension paid in installments is taxable to all employees of organizations after retirement, government employees benefit by taking a lump sum.
- However, under the Income Tax Act, 1961, a special provision allows them to make lump sum pension tax-free at the time of their retirement.
- While retiring, a government employee may receive monetary compensation for any unused leave earned while working with the company.
- The amount will be completely exempt from tax as no tax can be levied on leave for retirement by a government employee.
- In the case of private-sector employees, only a limited amount is exempt from tax. Furthermore, it depends from firm to firm.
National Pension Scheme (NPS)-
- It is a good option for those who are looking to build a retirement fund utilizing market-linked returns and can save tax too.
- This scheme offers tax benefits to all the members but the central government employee enjoys more benefits.
- The government has recently announced that the contribution of employers in NPS for the central government will increment from 10% to 14%.
- The government amended Section 80 CCD (2) of the Income Tax Act, 1961, to allow government employees to claim an exemption on the total 14% of the amount contributed by their employers to the NPS. (But this provision is not applicable for private-sector employees)
- It is an amount paid by the employer to the employee as a note of thanks at the time of their retirement.
- Gratuity is applicable only for those employees who have worked for more than five years in a particular company.
- Government employees had a benefit in gratuity too they don’t have to pay tax in gratuity.
- However, the Gratuity that is paid in retirement or death of an individual is exempted from taxes.
- Private sector people don’t get entertainment allowances but the central government employees enjoy the entertainment allowances.
- The government employees get the special provision of taxes in entertainment allowances.
- Government employees are allowed to debit the allowance from their gross salary by utilizing the minimum of actual allowance/one-fifth of the salary (excluding any allowance, benefits, or other perquisites) / ₹ 5,000. This helps in reducing their overall tax burden and they save tax through that too.