Why Tax Planning Matters for Salaried Employees
Salaried employees in India often lose ₹50,000–2 lakhs annually to avoidable tax simply because they don't plan. Tax planning is legal: using deductions, exemptions, and regime choice to minimise tax within the law. This guide covers practical tax planning strategies for salaried employees: choosing the right tax regime, maximising 80C and 80D, optimising HRA, structuring salary for tax efficiency, and timing investments. All strategies are compliant with current income tax rules and aimed at maximising take-home pay.
Key Takeaways
- Regime choice saves ₹20K–1L+: Compare Old vs New using a calculator; switch every year if beneficial
- 80C (₹1.5L): EPF, ELSS, PPF, LIC, NSC, FD—use fully. Employer PF counts toward limit
- 80D: Health insurance for self, parents. ₹25K–75K depending on age and coverage
- HRA exemption: Submit rent receipts. Exemption = min of 50%/40%/10% of basic, actual rent minus 10% basic, or actual HRA
- Plan at year-start: Investments in March rush often miss optimal allocation
Strategy 1: Choose the Right Tax Regime
India has two regimes. Old: more deductions (80C, 80D, HRA, LTA, interest) but higher slabs. New: lower slabs, higher standard deduction (₹75,000), but almost no other deductions. You can switch each financial year. Rule of thumb: if total deductions (80C + 80D + HRA + others) exceed ₹2.5–3L, Old often wins. Below that, New may be better. Use a Tax Regime Calculator with your actual numbers; don't guess.
Strategy 2: Maximise Section 80C (₹1.5L)
- EPF: Employer and employee PF both count. If basic is high, you may hit ₹1.5L from PF alone.
- ELSS: Equity-linked savings. 3-year lock-in. Good returns potential. Lump sum or SIP.
- PPF: 15-year lock-in. Tax-free returns. Safe, government-backed.
- LIC / ULIP: Premium qualifies. Compare returns and charges before buying for tax alone.
- NSC, 5-year FD: Fixed returns. Suit conservative investors.
- Principal repayment on home loan: Counts under 80C. Useful if you have a loan.
- Don't invest in instruments you don't need just for tax. But if you'd save anyway, use 80C fully.
Strategy 3: Claim Section 80D Fully
- Self and family (below 60): Up to ₹25,000 for health insurance. Additional ₹25,000 for parents below 60.
- Parents 60+: Up to ₹50,000 for their insurance. Total 80D can go up to ₹75,000 (self + senior parents).
- Preventive health check-up: Up to ₹5,000 within the above limit.
- Keep premium receipts and policy details for filing. Employer-provided insurance doesn't count; personal policy does.
Strategy 4: Optimise HRA Exemption
How to maximise HRA exemption
To maximise: pay rent, get a proper receipt/agreement, and declare it to employer. If you live with parents, you cannot claim HRA in most cases. If you own a house and live in it, no HRA exemption. Structure matters: higher basic increases 10% component, so exemption may be lower. Work with HR to optimise basic vs HRA split.
Strategy 5: Salary Structure Optimisation
- Basic: Affects PF, gratuity. Higher basic = more PF (long-term benefit) but higher deduction now.
- HRA: Should align with actual rent if you want full exemption. Overstated HRA without rent = tax risk.
- Special allowance: Usually taxable. Some employers allow tax-free reimbursements (medical, LTA) against bills.
- Food/meal allowance: Some portion may be tax-free under perquisites. Check employer policy.
- Discuss structure with HR at joining or during revision. Changes mid-year may have limits.
Strategy 6: Timing of Investments
Invest through the year, not in March. SIPs in ELSS spread investment and avoid lump-sum timing risk. EPF is automatic. For PPF, contribute before 5 April to earn interest for that year. Plan 80C and 80D at the start of FY. Declare estimated investments to employer for correct TDS. Submit proof (LIC receipts, ELSS statement, rent receipts) as per employer deadline to avoid excess TDS.
Strategy 7: Home Loan Benefits (If Applicable)
- Interest (Section 24): Up to ₹2 lakh deduction on self-occupied property. No cap if let out.
- Principal (80C): Up to ₹1.5L. Shares 80C limit with EPF, ELSS, etc.
- 80EEA: First-time homebuyers can claim additional interest deduction. Check eligibility.
- These apply only in Old Regime. New Regime has limited home loan benefits.
Strategy 8: Document and Declare Correctly
- Investment declaration: Submit to employer by deadline (often Jan–Feb). Under-declaration = higher TDS.
- Proof of investment: LIC receipt, ELSS certificate, PPF passbook, rent receipt, rent agreement.
- HRA: Rent receipt (monthly or consolidated), agreement, landlord PAN if rent >₹1L/year.
- 80D: Health insurance premium receipt showing your name and policy details.
- Keep copies. Mismatch during tax filing can cause notices. Correct declaration reduces year-end tax liability.
Use Our Tools
Use our Tax Regime Calculator to compare Old vs New. Use In-Hand Salary Calculator to see impact of deductions on take-home. Plan at the start of the year and review when salary or investments change.
Disclaimer
Tax laws change. Strategies are for educational use. Consult a CA for personalised advice based on your income and investments.