1. Proper Salary Structuring
Most parts of your salary are fully taxable, but certain parts are exempt to the extent they are used. For example, conveyance allowance of Rs. 800 is exempt for every month. You can also claim Children Education Allowance or Children Hostel Allowance.
If you live in a rented house, you can claim House Rent Allowance, which is partly exempt.
2. Home Loan and Education Loans
There are many tax benefits associated with home loans. Interest paid on home loan is allowed as a tax benefit. Also, the principal amount repaid on a home loan is allowed as a deduction under section 80C. Interest paid on education loan is also allowed as a deduction. This is over and above the 80C limit of Rs. 1,00,000, because this deductions falls under a different section.
3. Investments
ELSS mutual funds are probably one of the most beneficial and commonly used tax benefits amongst salaried individuals. ELSS means Equity Linked Savings Scheme. A tax benefit is available under section 80C.
Another common investment is contribution to Public Provident Fund. Even the interest on PPF account is exempt from tax. It is for those who want decent risk-free long term gains. Amount invested in NSS (National Savings Scheme) is allowed as a deduction. Interest that has been accrued for a year is also deemed to be invested; hence you also get tax deduction for interest earned. NSS only becomes taxable in the year of maturity. There is an upper cap to all these investments - Rs. 1,00,000 as these are allowed under section 80C
4. House Rent Paid
In case you pay rent, you can claim exemption under House Rent Allowance (HRA). What if you don't get HRA? Well, you can still claim exemption under section 80GG. The amount of exemption is lower of the three
(1) 25% of adjusted income
(2) Rs. 2000 per month; or
(3) Excess of rent paid over 10% of adjusted income
5. Insurance
Premium paid for Life Insurance is exempt under section 80C. So there is an upper cap of Rs. 1,00,000. Premium paid can be for any type of life insurance - term insurance, endowment policy, ULIPs, etc...
Certain types of insurance combine the benefits of insurance with investments.
Even the sum received from an insurance policy on maturity or death is exempt from income tax (including bonus, if any, on the policy)
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