Hello folks, financial year end is near by and it is that time of the year where employees started to think about the tax planning on their salaried income. I will explain in a simplified manner regarding how to pay zero taxes and claim full refund of the TDS deducted u/s 192.

1. Understand the Basic pay structure.

Many of you will be confused when you see your salary slip and will be thinking why PF is deducted, Why TDS is being deducted, will I get refund of such deduction, How do I get refund?

Okay, Will answer all of those. First will go through the Normal Salary breakup Structure.

Basic Salary Xxx
House Rent Allowance Xxx
Special Allowance Xxx
Gross Salary XXX
Less: Deduction
Provident fund (xxx)
Professional Tax (xxx)
TDS (xxx)
Net Salary XXX

The Above structure is the simplified one, some will get Leave travel concession and other perquisites also.

(a) Basic Salary– It is fully taxable and it consists of 50-60% of CTC(Cost to company)

(b) House Rent Allowance– It is provided by the employer to employee for payment of rented accommodation. It is partially taxable as employee can claim exemption u/s 10(13A) who lives in a rented accommodation and may give the rent receipts to the HR for claiming Deduction.

For Example:- Assumed Basic plus DA is Rs.3,50,000 and HRA is Rs.5000 as part of the salary and employee pays Rs.50,000 as annual rent then total deduction employee shall get is whichever is lower of following three options

(i) Total HRA Received = Rs.5000

(ii) Actual rent paid-(10% of basic salary+ Dearness allowance)=50000-35000=Rs.15,000

(iii) 50% of Salary(Metro cities)/ 40% of Salary=1,75,000

Deduction allowed=Rs. 5000

(c) Provident Fund– It is helpful to employees who can withdraw the amount from the PF account post retirement/Termination from a company. It includes contribution from employees and also from employer. The PF deducted from employees salary can be claimed as deduction u/s 80C.

(d) Professional Tax– It is deducted by the employer from the employee’s salary and the slab rate for deduction of professional tax is different from state to state, But the maximum limit for deduction is Rs.2500. Employees can claim deduction of professional tax while filing the ITR u/s 16(iii) under the salary head.

(e) TDS u/s 192– It is deducted by the employer from the employee’s salary when the salary exceeds the basic exemption limit. It is calculated on the basis of average rate of tax. Employees can reduce their tax liability or can claim the refund of the TDS whatever their circumstance of tax liability is. Employees can check their form 26AS whether TDS deducted is reflecting or not. Moreover, Employees will get form 16 from their employers every quarter regarding the details of TDS deducted.

2. When to do tax planning?

It is recommended for the employees to start their tax planning before the beginning of the financial year. Make sure to do the Investments during the financial year. For Example- if you want to claim 80C deduction from an investment in ELSS for FY 2022-23, then make the investment during anytime in FY 2022-23 and not after 31st march 2023.

3. Deductions

Let’s come to the most important part for any salaried employees i.e. deductions to reduce their tax liabilities.

(a) Section 80C ( Maximum deduction of Rs. 1,50,000)

It is the most important section where employees can claim deduction while investing in any of the following investments:-

(i) Employee Provident Fund– The amount of PF deducted from the employee’s salary can be claimed in this section, Hence PF are tax free.

(ii) Public Provident Fund- It is the most common investment employees can make to claim deduction. Best thing about the investment in PPF is that the interest earned in PPF is exempt. Investment in PPF can be start from as low as Rs. 500.

(iii) Equity Linked Savings scheme- One of the popular investment is ELSS for those who wants to enjoy high returns and also wants to claim deduction u/s 80C. It is a mutual fund scheme which invests in equity. Remember returns from ELSS is taxable under the Long term capital gain if the gain is more than Rs. 1 Lakhs as there is compulsory lock in period of 3 Years.

(iv) Life Insurance- It is the most recommended investment to avoid any eventuality. Employees will get the deduction of any premium paid during the year. Normally employees will get the deduction of least of the following two:-( Example if the sum assured is Rs. 1.5 lakhs and premium paid is Rs.20,000)

(A) Premium paid = Rs.20,000

(B) 10% of Sum assured= Rs. 15,000

Deduction (Whichever is Lower)= Rs.15,000

(v) Unit Life Insurance Plans- It is the rare investment where it provides the benefit of both insurance and investment. The Amount of Premium paid will be taken as deduction and moreover, The return from the investment in ULIP will be taxable as capital gain as per the new threshold amendment made as per the income tax act. 

(vi) Tuition Fees- Parents who pays the tuition fee/ Education fee in India of their children can claim the deduction u/s 80C. It is eligible only for Max 2 Children per assesse This includes school fees/ Graduation/ Post Graduation courses. 

(vii) Tax Saving Fixed Deposit- FD provides the guarantee of return and it is the safest investment to reduce taxes. However, The lock in period is minimum 5 years. 

(viii) Principal Repayment of Housing Loan- Any Principal loan repayment for housing can be claimed as deduction u/s 80C. However, The condition for claiming such deduction is that the house should be constructed or purchased during the financial year and such loan shall be taken from Government/ Any financial institution and such house shall not be sold for a period of 5 years from the date of completion of the construction/Purchase. 

(ix) Stamp duty- Any stamp duty or registration fees paid for purchase of house property can be claimed as deduction under this section.

Save income tax on Salary Income

(b) Section-80CCD: Contribution to pension scheme of the central government/New pension scheme/Atal pension yojana

This section divides into three parts:-

(i) 80CCD(1)- Any assesse or employee can contribute to the NPS or Atal Pension Yojana and they can claim deduction of whichever is lower of the following:-

(A) Employee contribution or

(B) 10% of Salary(Basic+DA)

(ii) 80CCD(1B)- In this section, If the employees are unable to claim the full deduction u/s 80CCD(1) because of the limit above then they can claim the additional balance deduction upto Rs.50,000 under this section

(iii) 80CCD(2)- Employers contribution on behalf of employees can be claimed under this section subject to the same threshold restriction in 80CCD(1)

(Note- Total deduction u/s 80C,80CCD(1),80CCD(2) shall not exceeds Rs.1,50,000)

(c) Section-80D: Deduction in respect of Medical/Health insurance

Any individual or HUF can claim this deduction for self, spouse, dependent children and parents(whether dependent or not) for payment towards Medical/Health insurance premium. The maximum deduction allowed under this section is as per following table:-

Amount paid for Nature of payment Amount of deduction
Self/spouse/dependent children(Less than 60 Years) Health/Medical Insurance premium paid other than cash Whichever is lower is of-
(a) Rs.25,000 or
(b) Amount paid
(Limit will be taken as aggregate for all)
Self/spouse/dependent children(Resident 60 Years or more) Health/Medical Insurance premium paid other than cash Whichever is lower is of-
(a) Rs.50,000 or
(b) Amount paid
(Limit will be taken as aggregate for all)
Parents(Less than 60 years) Health/Medical Insurance premium paid other than cash Whichever is lower is of-
(a) Rs.25,000 or
(b) Amount paid
(Limit will be taken as aggregate for all)
Parents(60 Years or more) Health/Medical Insurance premium paid other than cash Whichever is lower is of-
(a) Rs.50,000 or
(b) Amount paid
(Limit will be taken as aggregate for all)
Note- For parents the assessee will get a separate deduction limit of Rs.25,000/50,000 as the case may be

 (d)  Section-80E: Deduction w.r.t interest paid on loan taken for higher education in India or abroad

Any individual can claim deduction of interest paid for any education loan taken for self, spouse, and children or for any student for whom assesse is a legal guardian. The interest paid will be allowed as deduction for maximum 8 years.

Note- Higher education means education after class 12th.

(e) Section-80G: Donations

If you give any donation to funds as mentioned in the income tax act or to any charitable/Religious trust recognized as per the income tax act can be claimed as deduction.

(f) Section-80TTA: Deduction w.r.t Interest on deposit in savings account

Interest from savings will be taxable under the head income from other sources, But the assessee can claim deduction under this section of maximum of interest amount received or Rs.10,000 whichever is lower.(This section is not applicable for resident senior citizen, They can claim deduction u/s 80TTB).

4. Basic Tax planning

Employees shall try to reduce their total income upto or less than Rs.5 lakhs to claim full refund of their TDS deducted and to pay zero tax with the help of the above deductions because eventually employees will get rebate of Rs.12,500 if the total income is Rs.5 lakhs or less .

Disclaimer- This article is for educational and knowledge purpose only. For proper guidance, Contact your tax experts.

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March 2024