CA Sandeep Kanoi

Tax Planning is most important part of Finance Planning for Tax Payers In India especially for Individual and Salaried tax Payers. In this Article we are discussing some Tax Planning Tips mainly for Individual and Salaried tax payers by which they can minimise their tax burden fro Financial Year 2013-14  or Assessment year 2014-15.

Income from Salary:-Section 17 of the Income Tax (IT) Act is all about taxation under the head ‘salary’. In most of the cases, it is impossible for a salaried person to avoid tax on his income, except by way of deduction under chapter VI A of the IT Act.

However, there are ways that can help you minimise your total tax outgo if you plan accordingly.

Interest on Home Loan on Self Occupied House – The principal component of your loan, is included under Section 80C, offering a deduction up to Rs. 1,00,000. The interest portion offers a deduction up to Rs. 1,50,000 separately under Section 24.

Interest on Loan Taken for Repairs and maintenance of house property – You will never forget to claim deduction of interest on repayment of your home loan, but not many people know that any interest paid on home loan for reconstruction or repair of the “house property” qualifies for deduction of up to 30,000, subject to the overall limit of 1,50,000.

Read More – Interest on Home Loan on Self Occupied House –Tax benefits

Expecting a bonus- A bonus from your employer is fully taxable in the year in which you receive it. However request your employer to push the bonus payment to the subsequent year  If you anticipate tax rates to be reduced or slabs to be modified in the subsequent year but those who are in highest Income Tax Slab may not benefit from such exercise.  As bonus is a fully taxable component of an individual’s salary, tax is applicable on it whenever it is paid.

Leave Travel Allowance (LTA) is the most common element of compensation adopted by employers to remunerate employees due to the tax benefits attached to it.    Section 10(5) of the Income-Tax Act, 1961, read with Rule 2B, provides for the exemption and outlines the conditions subject to which LTA is exempt. Supreme Court has held in the case of Larsen & Toubro and ITI that employers are under no statutory obligation to collect bills and details to prove that the employees had utilised the amounts obtained against these claims on travel and related expenses.

The tax rules provide for an exemption only in respect of two journeys performed in a block of four calendar years. The current block runs from 2010-2013. If an individual does not use their exemption during any block on any one or on both occasions, their exemption can be carried over to the next block and used in the calendar year immediately following that block.

If both spouses are getting the LTA benefit in their respective places of work, they can both claim the separate exemptions for separate journeys for travel with their respective set of dependent parents.

Read More on LTA – Taxability of Leave Travel Allowance (LTA) – Section 10(5)

Opt for the company car instead of using your own car:- In this case, the taxable perquisite value is restricted to a maximum of Rs 3,300 per month (car with a driver) as against the actual expense being taxed when the vehicle is owned by the employee. Further If you want to use your own car, but do not want related high perquisite taxation, then subject to approval of your employer you can buy the car in your family members name and lease it to your company, who in turn can let you use it.

If you are paying Rent Make HRA Part of Your Salary –  A deduction is permissible under Section 10(13A) of the Income Tax Act, in accordance with Rule 2A of the Income Tax Rules for HRA. You can claim exemption on your HRA under the Income Tax Act if you stay in a rented house and get a HRA from your employer. You need to submit proof of rent paid through rent receipts, duly signed and stamped, along with other details such as the rented residence address, PAN of Landlord, name of the owner, period of rent etc.

If HRA forms part of your salary, then the minimum of the following three is available as exemption.

  • The actual HRA received from your employer
  • The actual rent paid by you for the house, minus 10% of your salary (this includes basic + dearness allowance, if any)
  • 50% of your basic salary (for a metro) or 40% of your basic salary (for non-metro).

Read More on HRA Taxation – House Rent Allowance (HRA) taxability, working / calculation

Deduction for Rent Even if HRA Not forming Part of Salary – Under Section 80GG, an Individual can claim deduction for the rent paid even if he don’t get HRA. Not many people are aware of this deduction.

Employee will be entitled to a deduction in respect of house rent paid by him in excess of 10% of his total income, subject to a ceiling of 25% thereof or Rs. 2,000/- per month, whichever is less. The total income for working out these percentages will be computed before making any deduction under section 80GG. In other word eligibility will be least amount of the following :-

1) Rent paid minus 10 percent the adjusted total income
2) Rs 2,000 per month.
3) 25 percent of the adjusted total income.

Adjusted Income Means Income total Income before making any deduction under section 80GG.

This deduction will however not be allowed, if you, your spouse or minor child owns a residential accommodation in the location where you reside or perform office duties.

The deduction will also not be available to an assessee if any residential accommodation is owned by the assessee at any other place, which he is occupying, and the concessions in respect of self-occupied house are claimed by him for that property. In such a case, no deduction will be allowed in respect of the rent paid, even if the person does not own any residential accommodation at the place where he ordinarily resides.

Read More – Section 80GG Deductions – For rent paid

Opt for Reimbursement of Expenses :- Identify the reimbursements available from the company and take maximum advantage of the same. Normal expenses that one incurs could help save tax. Example- Telephone/fuel reimbursements and meal vouchers. A person in lower tax slabs can reduce his tax liability to nil with exemptions alone.

  • Opt for salary components such as reimbursement of attire expenses, books and periodicals . These can yield small but profitable results.
  • • The reimbursement of telephone expenses including a mobile phone actually incurred by you on behalf of your employer is not taxable in your hands.
  • Corporate club membership fee paid by your employer to help you join a club is considered a tax exempt perquisite. This facility can be used by the employee or any of his family members.
  • The value of food coupons issued by the employer, redeemable only at eating joints, are exempt from tax as long as the value of the food coupons does not exceed Rs 50 per meal.
  • Medical Expenses Reimbursement – These are Exempt Up to Rs. 15000 per annum subject to few conditions. Read More – Valuation of perquisite in respect of Medical Facilities
  • Group mediclaim – This is a common benefit offered to employees irrespective of their grade and the premium is less than half of an individual mediclaim. You don’t have to pay for the premium; the company mostly bears the cost. Some companies, however, deduct the premium charges from the employee’s salary. In addition to this this insurance costs  upto 40% lesser then Individual Medical Policies.
  • Asset assistance given by your employer. For example, provision of a computer or laptop owned by the company and provided to you or any member of your household is not taxable in your hands.

Other Allowances Exempt From Tax –

Conveyance allowance for commuting between home and office is exempt up to Rs 800 per month. Rs. 1600 per month if employee is physically disabled .

Children’s Education Allowance is exempt up to Rs 100 per month per child up to a maximum of two children.

• Allowance granted to meet hostel expenditure on employee’s child.Rs.300 per month per child upto a maximum two children.

Set off of Capital Loss Against Capital Gain

While most of us know that we need to pay taxes on short term or long term capital gains, not many are aware of the fact that capital losses, if any, can be balanced off against gains. It is important to note that short term losses can be balanced off against both short term as well as long term capital gains. However, long term capital losses can only be balanced off against long term capital gains.  Read more – Carry Forward and Set Off of Losses – Income Tax

Save tax through your family – Simplest way of saving tax is by investing through parents, parent in laws, wife and children. If you invest in the right instrument, the rate of return may be higher as well. Here is how we can save tax through our family members. Read Following Post for more details :- Tax Planning- Save tax through your family

Rebate Under Section 87A – Section 87A seeks to provide that an assessee, being an individual resident in India, whose total income does not exceed five hundred thousand rupees, shall be entitled to a deduction, from the amount of income-tax (as computed before allowing the deductions under Chapter VIII of the Income-tax Act) on his total income with which he is chargeable for any assessment year, of an amount equal to hundred per cent of such income-tax or an amount of two thousand rupees, whichever is less. Read More – Section 87A – Income Tax Rebate

Deduction which One Can Claim to minimize Tax Burden

a. Deduction Under Section 80C – Section 80C allows a maximum limit of Rs 1 lakh across investments ranging from provident fund, PPF, infrastructure bonds, fixed deposits (5 years or more), NSC, insurance/pension plans, unit linked insurance, equity linked savings scheme etc. It also includes tuition fees of your children and the repayment of principal on your housing loan. To know about Investment which qualify for deduction Under Section 80C-  Read More –  Investments which qualifies for deduction u/s. 80C

b.  Section 80D – Medical insurance plan or a health insurance plan of general insurance company works on the principle of reimbursement of your hospitalization expenses. If you invested in any of such policy then you can claim income tax deduction under section 80D of income tax act, 1961. Medical premia upto a maximum of Rs 15,000 qualifies for deduction, with an additional Rs 15,000 for parents. Additional deduction of 20,000 could be availed in case of a senior citizen.You can claim a separate deduction for medical premium of your parents. Read More – Deduction U/s. 80D for Medical Insurance / Mediclaim

This deduction is allowed only to an individual (resident / non resident/ Indian citizen/ foreign citizen) or a Hindu undivided family (resident/ non resident).

c. Deduction U/s. 80DD –  A person  who have spent money on the maintenance (including medical treatment) of dependant persons with disability, could avail deductions  80DD of the Act. Read More – Deduction u/s. 80DD for expenses on medical treatment of disabled dependent

d.  Medical treatment of specified ailments under section 80DDB:-Deductions of expenses on medical treatment of specified ailments (such as AIDS, cancer and neurological diseases) can be claimed under Section 80DDB. The maximum amount of deduction allowed from gross total income is restricted to Rs 40,000 (which goes up to Rs 60,000 if the age of the person treated is 60 years or more) on condition that no medical reimbursement is received from any insurance company or employer for this amount.

Read More on section 80DDBDeduction under section 80DDB with FAQ

e. Interest on loan taken for higher education & vocational courses. :- Taxpayers also tend to forget that the interest paid on an education loan taken for higher studies or vocational curses qualifies for deduction under Section 80E of the I-T Act. Deduction is also available where the loan is taken for the purpose of higher education of spouse or children of the individual or the student for whom the individual is a legal guardian. Also remember that the deduction benefit on interest is allowed for maximum eight years, or till the interest is fully paid.

Read more on Deduction Under Section 80E – Education Loan – The Mantra to Save Tax under section 80E

f. Income Tax Benefit on Home Loan Interest- Section 80EE –  Benefit of this section can avail by Individual assessee. Deduction under this section is not available for any other assessee (like HUF, firm etc.). Individual can claim benefit under this section only when all the following conditions are satisfied, these are-

  • Purchaser should be first time buyer. i.e. he has never purchased any house and now he is going to purchase a house.
  • Value of the house should not more than 40 lakh.
  • Loan taken by Individual for the purpose of buy a house should not be more than 25 lakh.
  • On the date of sanction of loan individual does not have any own residential house property.
  • Loan for this purpose taken by individual should be from the Financial Institution or Housing Finance Company.
  • For this purpose, loan should be sanctioned between 01.04.13 to 31.03.14.

Assessee can take deduction u/s 80EE on interest payable on home loan upto 1 Lakh in A.Y.2014-15. It can claim deduction in two assessments year. Means if whole amount of interest payable upto 1 lakh is not claim as deduction in A.Y.2014-15 then remaining balance amount upto 1 lakh can claim in A.Y.2015-16.Total deduction under this section shall not be more than 1 lakh.

Read More- Section 80EE Income Tax Benefit on Home Loan Interest

g. Charitable deductions under section 80G: Deduction is also available under Section 80G of the I-T Act in respect of donations made by an individual to certain funds, charitable institutions and so on. There is no restriction on the amount of charity.  The rate of deduction, however, is either 50 or 100 per cent. However, you cannot use this route to evade tax by bringing down your income tax slab. There is a ceiling on the deduction a taxpayer can claim in a year. The quantum of deduction is limited to 10% of the gross total income of the donor. Also, only cash donations are taken into account. Donations of food, clothes and medicines do not qualify for such a deduction.

Read more on Deduction Under Section 80G – Deduction U/s. 80G of Income Tax Act, 1961 for donation

h. Deduction under section 80U for Person with disability:-Under Section 80U of the Act, an individual who is certified by the prescribed medical authority to be a person with disability shall be allowed a deduction of Rs 50,000 and an individual, who is certified as a person with severe disability, shall be allowed a deduction of Rs 1,00,000.

Read More on Deduction Under Section 80U – Deduction U/s. 80U for disabled persons

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Company: Taxguru / Sandeep Kanoi & Associates
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0 responses to “Tax Planning / Tax Saving Tips for Financial Year 2013-14”

  1. Murty says:

    This is about tax free income!
    The rule says you are exempted from a interest amount of RS.10,000 per annum.
    Can you give clarity, whether it is total interest gained in a year from one Bank/branch OR it is the total interest earned from all your FD’s?
    The question here is, I am in 30% bracket, and if I deposit RS.10L in one account, I need to show the RS.90,000 interest earned as income, but if I split it into 9 accounts, the interest becomes tax free!
    Any suggestions?

  2. Murty says:

    Under section 80C, there are two instruments.
    PPF and other instruments.
    If I invest one lakh in PPF and another Lakh in other instruments and do not show the PPF in my returns, would it still give tax free income?
    The point is all such savings are eligible, but if I do not reveal, how it is treated?

  3. Murty says:

    A house is a single apartment or it can be two, say in a floor? The point is the amount specified in your RS.40L in many cases is under-written.

  4. Murty says:

    We are working couple, and for the past 15years, we were paying taxes, filing returns, and we still have another 12 years of work, salaries will be added, saving under all sections available, paying the annual taxes on salaries.
    The point is, the amount saved for the past 15 years, and the next twelve years is being simply getting added and added, getting a compounding effect. My estimation is that it is now around Rs.75Lakhs and for the next 12 years, this amount as well as the future additions is going to be around Rs.4Crores, which we want to handover to our only son.
    The question is what is the tax treatment of this amount? Tax on accrued interest?
    Am I doing any mistake? Violating any tax laws?
    We do not own a house, and would continue to stay in a rented house. After retirement and handing over this amount to our son, in which ever way he decides, we would like to live on our pension, continuing to stay on rent , AS LONG AS WE LIVE! All tax saving tips are for the home loan and related ,but not in case you do not have one such loan
    Please suggest

  5. Ajay says:

    Dear Bipin
    If your installments of both the loans are upto 100000 and intetest amount upto 150000 then you can claim exemption for the same . . . .

  6. Bipin says:

    i have 2 Home loan as the case am i eligible to get benefit for installment and interest on both loan ?

    reply me fast
    thanks

    Bipin

  7. CA. Subhash Chandra Podder says:

    Good write up, carry on .
    CA. Subhash Chandra Podder, FCA
    Kolkata
    03/03/2014

  8. Ravindra Kunawat says:

    Please check about LTA exemption. In the recent circular 8/2013 by CBDT obligation of the employer is as under:

    “The employer has to satisfy the obligation that leave travel (fare) concession is not taxable in view of section 10(5), the employer is not only required to be satisfied about the provisions of the said clause but also to keep and preserve evidence in support thereof.”

    Please recheck and confirm.

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