As the financial year 2019-20 begins, I hope every salaried employee must be worried on tax savings, where, how much to invest etc.,

It’s a time to plan your tax savings, referring to recent budget 2019, I have made a small write up were salaried employees can rethink, realign there  investment plan.

Lot of salaried employees are unaware of certain good schemes like NPS (National Pension Scheme) in the said presentation efforts are made to through light, benefit on NPS scheme with illustrative examples.

I hope definitely this article will help in Tax Savings

Best Regards,

Srinivas

Salient Features of Interim Budget 2019

Interactive Session on Budget Pronouncement|Tax Planning

Income Tax Slab Rates for FY 2019-20 and other changes for salaried class**

♦ There is no change in Income Tax Slab Rates. However GOI announced the increase in Income Tax Rebate u/s 87A from current INR 2,500 to INR 12,500

♦ Above stated rebate is applicable for “Resident Assesse” whose total income does not exceed INR 5,00,000

♦ The rebate has been given by amending Section 87A and increasing the eligibility limit from an income of INR 3,50,000 to INR 5,00,000.

♦ Increase in standard deduction from INR 40,000 to INR 50,000, results in effective savings would be between INR 2,080 & INR 3,120

♦ TDS threshold on interest earned on bank FD/ Post Office FD raised from INR 10000 to INR 50000

Particulars Mr. X Mr. Y
Total Income 500,000 505,000
Tax on Total Income 12,500 13,500
Less: Rebate u/s 87A 12,500 NIL
Add: Cess 4% NIL 540
Total Tax Payable NIL 14,040

Example 2: Coupled with other deductions currently available such as for investments, interest on housing loan, standard deduction, etc.,

Particulars Amount
Gross Total Income 965,000
Less: Standard Deduction   50,000
Less: Interest on House Loan 200,000
Less: Investment u/s 80C 150,000
Less: NPS (individual) 50,000
Less: Medical Insurance* 25,000
Total Deductions (475,000)
Total Income 490,000
Applicable Tax NIL

National pension scheme

What does National Pension System offer you? Under NPS, Subscriber gets the option to open Tier I account and Tier II account. Difference between Tier I and Tier II accounts are as mentioned below

Tier I NPS Account Tier II NPS Account
It is also known as Pension account It is known as investment account
Withdrawal from this account is permitted after 10 years of account opening or attaining the age 60 years whichever comes early Withdrawal from this account can be done at any point of time as per Subscriber’s need
Minimum annual contribution required for this account is Rs. 1000 NA

Tax saving through nps investment

Section 80CCD governs the NPS Contribution

♦ Tax Benefits for Salaried Employees

NPS Account Tax Benefit
Tier 1 : Salaried Individual Investment up to 10% of Salary (Basic + Dearness Allowance) is deductible from taxable income u/s 80CCD (1) of Income Tax Act, 1961 subject to 1.5 lakhs limit of section 80C

Contribution towards NPS by employer 80CCD(2) under Corporate NPS Scheme, employee can claim deduction up to 10% of Basic+DA

Individual can claim additional  deduction up to INR 50000 u/s 80CCD(1B)

How NPS will save tax : For instance, If Basic salary is 600000 per annum gross being 12,00,000

Particulars
Amount (Case 1  NO NPS INVT
Amount  (Case 2)  NPS INVT u/s 80CCD(1B)
Amount (Case 2)  NPS INVT u/s 80CCD (2) 80CCD(1B)
Gross Total Income
12,00,000
12,00,000
12,00,000
Less: Standard Deduction
  50,000
  50,000
  50,000
Less: Interest on House Loan
200,000
200,000
200,000
Less: Investment u/s 80C
150,000
150,000
150,000
Less: NPS (individual)
-NA-
  50,000
  50,000
Less: NPS (Corporate Employee Contribution) 10% of Basic
-NA-
-NA-
60,000
Less: Medical Insurance*
25,000
25,000
25,000
Total Deductions
(425,000)
(475,000)
(535,000)
Total Income
7,75,000
7,25,000
665,000
Applicable Tax
INR 70,200
INR 59,800
INR 47,320

Author Bio

Qualification: Student - CA/CS/CMA
Company: Ledger Services Private Limited
Location: BENGALURU, Karnataka, IN
Member Since: 05 Apr 2019 | Total Posts: 2

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13 Comments

  1. Nidhi Jain says:

    Suggest me the optimal salary structure for Pvt co employee having salary of 100000 pm basic and hra 40% of this in metro city. Thank you

  2. Avanti says:

    If CTC of employee is 30 Lacs i.e. 20lacs fixed pay and 10 lacs variable paid on half yearly basis.
    Can employer provide reimbursement of 5.40 lacs (tax free) in order to deduct less TDS and more in hand salary.

  3. Mohamed Kamal says:

    Thanks Srinivas, for bringing in several useful points from Interim Budget 2019. At ICA (Institute of Company Accountants) we provide practical training and up-to-date courses on taxation and accounting. Free classes are conducted every Friday which is open to all. Please feel free to contact at ica.org.in

  4. Malkisab says:

    Sir, please clarify
    Govt employees(GPF Holders) are eligible to take NPS for claiming 50000 under section 80ccd(2).
    I think we can take only tier-2 Where tier-1 Only eligible for 80ccd

  5. SATYANDRA KUMAR JAIN says:

    Dear Mr Srinivas

    I read your article & your expert view but I understand that TDS threshold on interest income earned on bank/PO raised to INR 40000/- & excludes Interest on bank FD’s.
    Regards
    S K Jain
    M-9837030904

  6. kumar says:

    Sir,
    please clarify,

    amount invested by Employee would be added with gross salary and can be claimed as 80CCD(2)

    or directly claim as deduction?
    NPS (Corporate Employee Contribution) 10% of Basic

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