Tax Planning Strategies and Tips for Salaried People

As an employee in India, it is important to understand the rules and regulations applicable to the employees working in private limited companies, limited companies, or government companies and how they affect your in-hand salary. Income tax in India is calculated on the bases of taxable income. It is important to understand that income tax on salary is calculated on the income that arrives after deducting all tax-saving investments. The salaried employees are the major source of revenue for the Indian government and the funds collected are used for public services and infrastructure development.

In India, the income tax slab rates for the financial year 2022-2023 are as follows:

For individuals below the age of 60:

  • Up to INR 2.5 lakhs: No tax
  • INR 2.5 lakhs to INR 5 lakhs: 5% tax
  • INR 5 lakhs to INR 10 lakhs: 20% tax
  • Above INR 10 lakhs: 30% tax

For individuals aged 60 years or above but below 80 years:

  • Up to INR 3 lakhs: No tax
  • INR 3 lakhs to INR 5 lakhs: 5% tax
  • INR 5 lakhs to INR 10 lakhs: 20% tax
  • Above INR 10 lakhs: 30% tax

For individuals aged 80 years or above:

  • Up to INR 5 lakhs: No tax
  • INR 5 lakhs to INR 10 lakhs: 20% tax
  • Above INR 10 lakhs: 30% tax

A benefit for Indian employees with total income up to INR 5 lakhs

Individual salaried employees are eligible for an income tax rebate of Rs. 12500 or 100% of tax liability, whichever is less, under Section 87A of the Income Tax Act of 1961. Individuals with a total income of up to INR 5 lakhs can claim the benefit. In order to claim the rebate benefit, the taxpayers should file their income tax return with supporting documents such as Salary Slips, Form-16, and other supporting documents.

Tax deduction of Employees

As an employee, your employer is responsible for deducting the income tax from your salary as per the rule and method of income tax act and depositing it with the Indian government. This process is known as tax deduction at source (TDS). Your employer will provide you with a salary certificate, also known as Form 16, which details the amount of salary earned and the amount of tax deducted after completing the financial year.

As an employee in India, you have several options for reducing your income tax liability. Some of the most popular and common tax-saving strategies include:

  • Claiming deductions: As an employee, you may be eligible for several deductions on your income tax, such as deductions for housing loan interest, children’s education fees, and medical insurance premiums. These deductions can significantly reduce your income tax liability.
  • Investment in tax-saving Schemes: There are several tax-saving instruments available in India, such as Public Provident Fund (PPF), Fixed deposits in Banks and post office, National Savings Certificate (NSC), and Equity-Linked Savings Scheme (ELSS). Investing in these instruments not only helps you save income tax, but also helps you plan for your long-term financial goals.
  • Opting for the new tax regime: In the 2020 budget, the government introduced a new tax regime with lower tax rates, but with certain exemptions and deductions being disallowed. If you have a relatively lower income and do not have many deductions to claim, you may opt for the new tax regime to save on tax. For opting the right income tax slab that reduces the income tax is important and we a chartered accountant firm in Gurgaon helps our clients to reduce the reduce income tax liability by advising the suitable method of slab and tax saving investments.
  • Making contributions to certain pension schemes: Contributions to pension schemes, such as the National Pension System (NPS) under section 80CCD and Atal Pension Yojana (APY), are eligible for tax deductions. By making contributions to these schemes, you can save on tax and also plan for your retirement. Always remember that these investments schemes have long horizon period and require patience to generate good returns.
  • Investing in a life insurance policy: Premiums paid for a life insurance policy are eligible for tax deductions under Section 80C of the Income Tax Act. By investing in a life insurance policy, you can save on tax and also secure the financial future of your loved ones.

It is important to structure your salary in a way that can reduce your maximum income tax. Always submit the investment proof to your HR department and the company. Non-submission of proof can reduce your in-hand pay/salary because the higher the income tax deduction, the lowers the in-hand salary you will receive. Therefore, it is advised to carry all your supporting documents to an income tax consultant, or CA in Gurgaon. A tax consultant will not only help you save taxes but will also advise you on the best investments to make to meet your financial objectives.

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