How to reduce your tax liability under salary head for AY 2018-19

Major sub heads of salary income and how we can reduce our taxable income portion:

What a salary structure should be…?

How can reduce our tax liability, if I am salaried person.?

Here I am providing the answer of above question.

I hope this article will help you in your tax planning.

S. No Sub head of Income Taxability Treatment
1 Basic Pay Always taxable
2 Dearness Allowance (DA) Always taxable
3 Conveyance Allowance Exempt up to. Rs.1600 per month

Max benefit: Rs. 1600 * 12 = Rs. 19,200

4 Bonus Always Taxable
5 Children Education Allowance Rs. 100 per month per child.

i.e. max. Rs. 200 per month. (Max for 2 children)

Total max benefit: Rs. 200*12 = Rs. 2400

6 Hostel Allowance for children Rs. 300 per month per child.

i.e. max. Rs. 600 per month. (Max for 2 children)

Total max benefit: Rs. 600*12 = Rs. 7200

7 HRA Exemption HRA Exemption amount is least of the following

i) HRA Received

ii) Rent Paid – 10% of (Basic Pay + DA)

iii) 40% of Basic Pay (50% in case of metro city)

This can be reduced to zero by proper planning.

8 Leave Travel Allowance LTA can only be claimed if the employee goes on a vacation as bills for the same would be required to furnished.

Exemption shall be available as per provisions of section 10(5) of Income Tax Act, 1961.

9 Uniform Allowance This allowance is exempt up to the amount spends by employee during the financial year.

This can also use for better tax planning and good salary structure.

10 Telephone Allowance This allowance is exempt up to the amount spends by employee during the financial year.

This can also use for better tax planning and good salary structure.

11 Books Allowance This allowance is exempt up to the amount spends by employee during the financial year.

This can also use for better tax planning and good salary structure.

12 Leave Encashment
13 Section 80C

(Max benefit under section 80C, 80CCC, 80CCD (1) cannot exceed ` 1,50,000)

S.No. Deduction detail
1. Tuitions fee of children.
2. LIC Instalment.
3. PPF Investment
4 Employee’s Share to PF
5 Principal payment of home loan
6. Investment in Sukanya Samridhi Yojana
7 Fixed deposit with bank or post office (minimum tenure shall be 5 year)
8 Senior Citizen saving scheme
9 Contribution to notified Pension Fund set up by Mutual Fund or UTI.
10 Investment in PPF / EPF
11 Investment in NPS
12 Purchase of national saving certificate.
13 Investment in Unit Linked Insurance Plan. (ULIP)
14 Section 80CCD (2) Employer’s Contribution to PF, this is allowed over and above the limit of Rs. 1,50,000
15 Section 80CCD(1B) Additional Contribution to NPS of Rs. 50,000. This is also available over and above the limit of Rs. 1,50,000
16 Section 80G Donation deduction is also available, if we donate in specified fund which mention in section 80G subject to limit specified in provisions of section 80G.
17 Section 80E

(Interest in Education Loan)

Interest paid as part of education loan EMI is fully allowed as deduction.
18 Section 80EE

(Interest on home loan)

80EE deduction is available only for those tax payers who own home for the first time, max amount available for deduction is Rs. 50,000 per financial year.
19 Medical Insurance

(Section 80D)

Availability of limit

For self, spouse and children Rs. 25,000

For parents more than 60 year is Rs. 30,000

For the point of Investment, here we provide analysis among different investment plan, so that a person can easily choose on the bases of return, time and tax saving.

Investment Risk Profile Lock in Period Interest Rate
Senior Citizen Saving Scheme Risk Free 5 Years 8.60%
Sukanya Samridhi Yojana Risk Free 21 Years 8.60%
ULIP Equity Related Risk 5 Years 8-10% Expected
Fixed Deposit Risk Free 5 Years 7.50%
NSC Risk Free 5 Years 8.10%
NPS Equity Related Risk Till Retirement 8-10% Expected
PPF Risk Free 15 Years 8.10%
Equity Linked Saving Scheme Equity Related Risk 3 Years 12-15% Expected

I hope you found your answer in above article, if you have any doubt you may directly contact to me on my mail id cakeharsingh25@gmail.com.

Thanks a lot for giving you precious time.

Author Bio

Qualification: CA in Practice
Company: KEHAR SINGH & ASSOCIATES
Location: Gurgaon, Haryana, IN
Member Since: 21 Nov 2017 | Total Posts: 2
CA KEHAR SINGH CHHIMPA (ACA, M.COM, B.COM, NET ) View Full Profile

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3 responses to “What a salary structure should include, how we can reduce our salary tax liability”

  1. narayanamurthi says:

    Precise and good to understand.
    Thanks

  2. O D sharma says:

    Dear Mr Krhar,correct yourself with PF point -114 80CCD(2) is related to NPS and that is employer part of 10% of basic ..
    thx

    • cakeharsingh25 says:

      Dear Sharma Ji,

      I agreed with you, i want to convey the same thing but at the point of writing of this article, might be i forgot to collect correct wording.
      Yes, 80CCD(2) deal with employer contribution which is available up to 10% of salary, and here salary only include basic pay and dearness allowance.

      Thanks for you valuable feedback

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