Tax saving is an essential aspect of any financial planning. Every year, people are required to pay income tax based on their earnings. One can opt for various deductions and exemptions available under the Income Tax Act to save on taxes. The income tax laws in India provide many benefits and incentives to salaried employees who work from home. They can claim deductions on their expenses incurred while working from home.
Salaried employees form a significant chunk of the overall taxpayers in the country, and their contribution to tax collection is quite significant. These exemptions and deductions could be used to significantly lower one’s tax.
This article will discuss numerous tax-saving strategies and methods deductible under the 80c income tax legislation and can be used to lower one’s income tax liability.
Saving taxes while working from home –
- work from home expenses that can be reimbursed by the company
Working from home has several advantages. The employee saves money on travel and clothing, while the employer saves money on office space and utilities. But it can also be costly for them, particularly if their employers don’t pay them for the extra expense.
Employees are paying overhead costs simultaneously as many firms have reported a boost in productivity levels. For employees, working from home entails additional expenses such as a high-speed internet connection, the setup of a workstation, the employment of substitute child care services, and higher electricity costs resulting from the continuous use of air conditioning or heat.
Employees are compensated by their companies for additional expenditures they incur, either with a fixed allowance or reimbursement of expenses like internet connections, tables, ergonomic chairs, UPSs, monitors, etc. Despite how vital this remuneration may be, the employees will probably have to pay taxes on the increased salary.
- Section 89 – Salary Relief
A taxpayer’s total income generated or received during the fiscal year determines their tax liability. The Income Tax Act permits you to make a tax relief claim under section 89 if the assessee received a portion of his salary “in arrears or in advance” or got a family pension in arrears. The taxpayer’s income during that fiscal year is used to determine their tax obligations. Past dues that have been paid this year might be included in this income. Over time, tax rates rise, and under such circumstances, the assessee may be required to pay additional taxes. Assessees in such circumstances are given relief under Section 89 of the Income Tax Act.
Utilizing Section 89 to Request Relief
Form 10E must be submitted by an employee qualified to make a Section 89 claim. It must be submitted electronically through the income tax department’s e-filing system. By Section 89, tax relief is given by recalculating taxes for the years in which arrears are received and the years to which they pertain. The taxes are also adjusted for the year in which they were due.
- Income tax, 80c
The Income Tax Act provides deductions in various areas that might help reduce a taxpayer’s overall income tax liability. The Income Tax Act’s Section 80C is the most widely used tax reduction method. Combining Sections 80C, 80CCC, and 80CCD of the Income Tax Act, a total deduction of Rs. 1.5 lakh may be requested.
Here are the income tax-saving schemes under Section 80C to lower one’s income tax obligation –
- Employee Provident Fund
Employee contributions to the Employee Provident Fund are eligible for deductions under Section 80C income tax. EPF is a retirement benefit program for those who earn a salary. 8.65 percent is a high rate of interest for EPF. Anyone with a basic salary of more than Rs. 15,000 per month is eligible to register an EPF account.
- Investing in National Savings Certificate (NCS)
NSC has an interest rate of 8% and a five-year maturity period. The account is compounded, or the interest earned each year is reinvested. There is no maximum investment amount; it can be as low as Rs. 100.
- Payment of the Life Insurance Policy Premium
The cost of a life insurance policy for oneself, one’s spouse, or one’s children may be deducted under Section 80C. The LIC or any other insurer authorized by the IRDAI may issue the policy. The deduction is valid if the premium is less than 10% of the insured sum.
- Tuition Payment for Children
According to Section 80C income tax, a spouse may jointly claim a deduction for up to four children’s tuition expenses if they pay for the education of up to two children. Any Indian school, college, or university may charge the fees.
- Principal repayment of a mortgage
Interest and principle are the two components of a home loan repayment, and only the principal payments qualify for a Section 80C deduction. This deduction also applies to payments made to institutions like the Delhi Development Authority for purchasing a home allocated under a particular program.
- Sukanya Samriddhi Yojana investment amount (SSY)
Contributions to the Sukanya Samriddhi Yojana are deductible under Section 80C of the Income Tax Act. The Sukanya Samriddhi Yojana is a savings account program that can be started in a girl’s name until the age of ten. Only two girls can open one account at a time (three in case the first two are twins). With the SSY, one can avail of high-interest rates of up to 8.5%.
- ULIP investments
Unit Linked Insurance Plans (ULIPs) offer dual advantages of investing and insurance for those who invest in them. A portion of the premium is put toward insurance, and a second piece is put toward market-linked assets. If you buy a Unit Linked Insurance Plan (ULIP) and keep it in your name or the name of your spouse or children, the premiums paid are deductible under Section 80C of the Income Tax Act.
- ELSS investment
Mutual funds called Equity Linked Savings Schemes are created to reduce taxes. They have a three-year lock-in period. They are equity-linked, which increases the possibility of more significant returns (along with higher risk). The amount that may be invested in ELSS is unrestricted. The Long-Term Capital Gains Tax, applied to returns above the Rs. 1 lakh threshold, is 10%.
- Five-year Deposit Plan
Any fixed deposit, term deposit, or five-year post office time deposit held with a recognized bank may be written off as an expense on your income tax return under Section 80C of the Income Tax Act.
- Contribute to the Senior Citizens Savings Program
An SCSS account may be opened by a person older than 60 or older than 55 and retired under a Special Voluntary Retirement Scheme or a Voluntary Retirement Scheme. 8.6 percent in the current quarterly interest rate.
- Contribution to a pension fund (UTI or a mutual fund should notify and set up the fund.)
Tax deductions are also available for contributions to pension funds provided by mutual funds or the UTI (Unit Trust of India).
Working from home can be flexible, cost-effective, and time-saving. For example, you can avoid a daily commute and save time and money on gas and public transit fees. Potential tax deductions are also available to you under the 80c income tax act. However, it would help if you considered the potential tax implications before making this choice.