As you start out on your job and lay your hands on your first salary – make Tax Saving one of your goals.
Understandable that the first few months of your job will go by as you enjoy your newly acquired financial freedom – finally you get to splurge on the red hand bag or the fancy pair of shoes you’ve been eyeing for a while. It’s fine to indulge yourself for some time.
Once you have spent some time over your indulgences you should plan for the times ahead. As a 20 something – most of us have few financial burdens, and while we want to enjoy our financial freedom, we must save for a rainy day!
Here are some quick tips-
- The tax year or the ‘previous year’ is the 12 month period that begins on 1st April and ends on the 31st March of the next year. No matter when you start your job, your tax year closes on 31st March and a new tax year starts on 1st April. Plan your taxes for each financial year beginning on 1st April and ending on 31st March.
- Reach out to your payroll or HR department and get your Pay Slip and Tax Statement from them. Here you will get an idea of the major components of your salary and how much tax is being deducted from your salary.
- Make Section 80C your best friend – Section 80C can take off Rs 1,00,000 from your Gross Income. Tax rates are applied on Income net of 80C deductions and tax payable is calculated. One of the most popular deductions under 80C is deposits to PPF. When you open a PPF account, you need to deposit a minimum of Rs 500 and you can deposit a maximum of Rs 1,00,000 in a year. Money deposited in a PPF account grows while each year you can go on claiming the deduction for the deposits you make in that year. You can set aside some money at the start of the year towards your PPF or you can also make payments each month. PPF is a very traditional form of saving, our parents love it, but it is still considered to be a safe home for your hard earned money. A PPF account can be easily opened with a bank.
- Unforeseen medical expenses can really dig deep into your pockets. Think about securing your own and your family’s health. Paying premiums to maintain a health insurance policy can save you up to a maximum of Rs 40,000, when you take the policy for yourself, your spouse, your children and your parents. This deduction is available under section 80D. Make sure you make premium payments for each tax year and claim the benefit.
- Rent – If you live with your parents and the house is in their name, you can pay them rent. You need to enter into a rent agreement with your parents. The rental you pay will form part of their overall income. But as a family you may end up saving tax if they are in a lower income bracket or they don’t have any income. Even if the house is jointly owned by both your parents, you can pay them rent proportionately, it can result in tax saving for you. If your parents are more than 60 years old (and less than 80 years old), they are not required to pay any tax on income up to Rs 2,50,000. And if they are more than 80 years old their income is exempt up to Rs 5,00,000. Even if your company doesn’t pay you HRA, deduction for rent paid is available under section 80GG.
- Medical Expenses – Most companies allow a medical reimbursement of Rs 15,000 towards medical expenses of consultation with a doctor, medicines, medical tests etc. Make sure you keep all your bills safely and claim the deduction fully. This is only available once you submit your bills against the expense you have incurred. Also available for medical expenses of your dependants. If you claim this fully, in a way, you have reduced your income by Rs 15,000 and do not pay tax on it. Bear in mind, the Rs 15,000 is for each tax year that starts on 1st April to 31st March of next year.
- Interest on Savings Account – Interest on Savings account forms part of your Income from other sources, Rs 10,000 of which is exempt from tax under section 80TTA.
- Tax payment – If you have only salary income, your employer is liable to deduct all taxes as TDS and deposit with the government. However if you have any other income, Interest Income or Rental Income – you can disclose these incomes to your employer and get taxes deducted and deposited – saves you the extra hassle of paying taxes yourself.
- Finally, maintain a tracker for your expenses– classify them as Regular Expenses and One Time Expenses. Set a minimum amount that you must bring onto this sheet – say you will record every expense over Rs 100. This will help you understand where your money is going. See an example below –you may add details to each expense under the head Meals or say Clothes.
Once you have tracked your expenses over a period, may be 3 months or whatever you feel is a good average, you will be able to, see where your money is going for example Rent 40%, Clothes 20%, Meals 15% and Movies 5%, spare 20%. Whatever is your remaining balance or spare money – you now need to put that to good use – think over some of the options listed above.