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Best Tax Saving Options For First Job Employees in 2024

Updated on: 13 Mar, 2024 10:42 AM

Getting that first paycheck is a special moment, full of excitement and pride. But as you stare at that salary figure, it's important to think about how much of it you get to keep after taxes. You see, taxes can eat into your take-home pay, especially for those new to the workforce. But don't worry, there are ways to hang on to more of your hard-earned cash. So, here's a handy guide with 10 simple tips to help you make the most of your money and boost your take-home salary. Let's dive in!

Education Loan

The first and most important thing is to claim tax relief on the interest paid on an education loan. Suppose you took a loan from any financial institution or bank. You can take it for yourself or any of your relatives. Here the term 'relative' implies your spouse and children for whom you're the legal guardian. Now, you're paying regular EMIs with interest. In this situation, you may get tax relief under Section 80E as the interest paid on educational loans is eligible for tax deduction

Starting from the first repayment, you can get tax relief on interest paid for the next seven financial years or till the financial year you'll pay your last EMI, whichever is shorter. So, you can say that there is tax relief on interest paid for a maximum of 8 financial years.

House Rent Allowance (HRA)

Many youngsters live in rented houses/flats/apartments.You can claim this exemption through the employer, in your form 16. In case the employee is unable to claim the same through the employer, claim HRA by filing your tax returns. If an employee is not getting HRA but they are paying Rent then they can claim deduction under section 80GG to reduce their tax outgo by filing a 10BA Form that holds information related to their rent payment details. Please note that HRA and deduction under section 80GG cannot be claimed simultaneously.

Leave Travel Allowance (LTA)

Beginning-level employees must not be aware of Leave Travel Allowance (LTA) their companies/employers give to them. But they should know how beneficial LTA is for first-job tax saving. It lets you enjoy your vacations with your families without thinking about the travel expenses. It includes the expenses incurred by you and your spouse, children, and parents.

Furthermore, LTA is the travel allowance that makes you carefree. You can claim tax exemption under Section 10(5); this exemption is available for the utmost two short trips within India in the time span of four calendar years. Simply, make sure you are putting all the bills in place and keep track of your travel allowances.

Professional Tax

Under Section 16(iii), a professional tax is a tax levied on salaried persons by the state government. It varies from one state to another and is up to Rs 2,500 per annum. A deduction from salary can be claimed by the taxpayer on account of professional tax paid. The deduction for professional tax will be allowed in the year in which the tax is actually paid by the employee. It’s not mandatory that all states levy this tax. Some states even don't levy it, whereas some, like Andhra Pradesh, Karnataka, Madhya Pradesh, Telangana, West Bengal, Maharashtra, etc., levy this tax. The employers or companies deduct this tax from your salary and deposit it to the state governments, which allows P-Tax.

Exemption of Leave Encashment

It is pretty sure that many of you never heard about the 'Leave Encashment Exemption'. Several companies offer carry-forward leaves to their employees. But, many times, employees don't use them. In this condition, you can encash them at the time when you'll leave the company. The Government of India set a maximum limit of Rs 3 Lakhs for leave encashment. You can fill out Form 10E to get your leave encashment amount under section 89. However, these paid leave policies are different from company to company. You need to contact your company's HR to know it in detail.

PF Contribution

PF contribution will remain at the top in the 10 best first job tax-saving tips for salaried employees. It has a 15-year-long lock-in period. Therefore, it is a long-term investment plan offered by the government of India. It is a good option for employees who are less interested in carrying risks associated with ELSS. Additionally, it offers complete capital protection to its users. An individual can avail of up to 1.5 lakh tax exemption under section 80C.

Standard Deduction

Do you know a portion of your annual gross income is tax-free?Standard deduction is allowed under section 16(ia) of the Income Tax Act. From FY 2019-20 a deduction of Rs 50000/- is allowed to all salaried individuals without submission of any proof. The IRS or Internal Revenue Service allows employees to reduce their tax bills. Use Form 1040 to evaluate your total payable income and qualify for the standard deduction of ₹ 50,000 under section 16(ia) will be Rs 50,000.for a financial year Consult our Tax Experts to avail of it now.

Meal Coupons

Sodexo or Zeta are some popular meal coupons that employers may provide to their employees. If you are also one of those employees, then there is big news for you. Such meal coupons allow tax benefits of up to ₹ 50 per meal. Additionally, it is permitted on two meal counts for a day. Hence, if you are working for 22 days a month, you may reduce ₹ 2,200 from your expenses on meals. Consequently, up to ₹ 2,200, it is tax-free.

In addition to your salary, your company may reimburse you for the additional expenses incurred for your mobile/phone and internet bills. You may claim 100% of a tax deduction on the telephone reimbursement under Rule 3(7)(ix) in the Income Tax Act. Although there is no thumb rule, telephone and internet reimbursement offered by companies may vary depending on the job profile and the particular department. But you should give it a try!

Health Insurance

There is a plethora of tax-saving schemes available. But Health Insurance/medical insurance is one that every salaried person must buy. It covers unexpected medical expenses and hospital bills. It serves tax benefits under section 80D of the Income Tax act 1961. You may claim up to ₹50,000 (i.e., 25,000 for self and 25,000 for your parents, 50,000 if parents are senior citizens) exemption under Section 80D. You can easily entitle yourself to up to ₹ 5,000 tax deductions for preventative health check-ups per year. Also, this amount can be spent in cash.

Frequently Asked Questions

Q- Why is the first job salary so important?

Once you’ve embarked on your first job, you are living an essential part of your life. Of course, there must be a lot of negotiation on your job offer for which you’d get a tiff with the company’s HR. All of this will go in the vain if you don’t fully utilize your in-hand salary and think about first job tax saving. So it’s essential to save taxes on your annual income.

Q- Is my first salary tax-free?

If you are working in your first job where your net taxable income is up to ₹ 2.5 lakh, then your payable income tax is zero. Furthermore, if you’re earning above ₹ 2.5 lakh but less than ₹ 5 lakh in a year, then a 5% tax rate is payable. For the annual income between ₹ 5 lakh and ₹ 10 lakh, a 20% tax rate is payable, while above ₹ 10 lakh, a 30% tax rate is payable.

Q- How can Beginners save taxes?

Beginners must invest in first job tax saving schemes such as Public Provident Funds, Fixed Deposits, some post office schemes, Health Insurance, etc. so that they can avail of up to INR 1.50 lakh tax deduction under Section 80C. Moreover, they must practice using a top-notch Tax Planning Optimizer tool to reduce their tax liability. Use our Income Tax Calculator now.

Q- How can I start saving from my first job?

You should start saving by proposing a monthly plan as you are in the first job of your lifespan. It would help if you began contributing to some first job tax saving schemes such as PF, pension plans, savings schemes, or medical insurance. It will help you to reduce your tax liabilities up to 1.5 lakh under section 80C.

Q- What can you do with your 1st salary?

Read some first job tax saving tips that best utilize your 1st salary:

  • Pay Educational Loans.
  • Learn Money Management.
  • Start Investment Journey.
  • Buy Health Insurance.
  • Start a SIP.
  • Practice Tax-Saving Tips

Q- What is the best age to start investing in tax-saving schemes?

Tax2win suggests that you should start saving your taxes in your 20s when you are in your first job. Furthermore, it’s way important to begin it as soon as possible to maximize profits from your first job tax saving. So start doing it now.

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CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.