Often, investment for most individuals begins and ends with tax planning. Although it is pertinent to avail tax breaks, this should not be the sole focus. Start by jotting down your key financial objectives, the tentative time of money requirement and the corpus needed to achieve those goals. One can use tax saving investments effectively, to achieve financial goals. For example, one can take a children’s plan that also provides tax benefit. Consider the impact of inflation on your needs. After your first few working years, as income goes up, it is wise to invest beyond one’s tax saving investments to achieve your goals. Also, evaluate the life cover requirement, while planning for your taxes. We are giving below a brief on some of the Popular allowance / Exemption and deductions, benefit of which can be taken by the salaried taxpayers to reduce their tax burden.
Maximising your tax saving
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, meal vouchers and company car. A person in lower tax slabs can reduce his tax liability to nil with exemptions alone.
Similarly, salaried employees staying in rented apartments can claim exemption under Section 10(13A) of the Act in respect of house rent allowance by making the HRA a component of there salary.
Some of The Popularly Known Exemptions/Reimbursements
Minimum of –
1. Actual HRA
2. Rent Paid – 10% of salary
3. 40a% of salary (Non-Metros) or 50% of Basic (Metros)
Salary here means basic salary and includes Dearness Allowance if the terms of employment so provides. It also includes commission based on fixed percentage of turnover achieved by the employee as per the term of employment contract.
Rs 1600 / Month (However wef A.y 2019-20 this allowance has been withdrawn and in lieu of it a standard deduction of Rs 40,000 u/s 16 shall be allowed)
Two trips in a block of 4 Yrs for Amount not exceeding Air Economy or Rail AC I Fare shall be for shortest distance and for a single destination. Taxability of Leave Travel Allowance (LTA) – Section 10(5)
Medical Reimbursement Up to Rs. 15,000 in aggregate in a year is exempt.(However wef A.y 2019-20 this allowance has been withdrawn and in lieu of it a standard deduction of Rs 40,000 u/s 16 shall be allowed)
Section 80C allows a maximum limit of Rs 1.50 lakh across investments ranging from provident fund, PPF, infrastructure bonds, fixed deposits (5 years or more), Sukanya Samriddhi Account, 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. Deduction under section 80C and Tax Planning
(Republished with Amendments)