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
1. Saving Tax on Exemptions/reimbursements
- 1. Saving Tax on Exemptions/reimbursements
- 2. Income Tax Deductions
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.
b. Transport Allowance
Rs 1600 / Month (However wef A.y 2019-20 this allowance has been withdrawn and in lieu of it a standard deduction of Rs 40,000 u/s 16 shall be allowed)
c. Leave Travel Allowance
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)
d. Medical Reimbursement – Section 17(2) proviso
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Reimbursement Up to Rs. 15,000 in aggregate in a year is exempt.(However wef A.y 2019-20 this allowance has been withdrawn and in lieu of it a standard deduction of Rs 40,000 u/s 16 shall be allowed)
2. Income Tax Deductions
a. Section 80C of Income Tax Act, 1961
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
b. Home Loan Interest
- The interest component on your home loan has a separate limit of Rs 2 lakh. Income Tax Benefits from House Property and Loan
c. Section 80D of Income Tax Act, 1961
- Medical premia upto a maximum of Rs 25,000 qualifies for deduction, with an additional Rs 25,000 for parents. Additional deduction of 30,000/- (Rs. 50,000/- wef A.Y. 2019-20) could be availed in case of a senior citizen.You can claim a separate deduction for medical premium of your parents. Deduction U/s 80D for Mediclaim Premium to Individual, HUF, Senior Citizens
d. Section 80DD of Income Tax Act, 1961
- A person who have spent money on the maintenance (including medical treatment) of dependant persons with disability, could avail deductions Rs. 75,000 if the disability is not less than 40 per cent and Rs 125,000 in case of severe disability u/s 80DD of the Act. Section 80DD Deduction- Medical expense of disabled dependent.
e. Section 80E of Income Tax Act, 1961
- Individuals paying interest on education loan should obtain the interest payment certificate under section 80E of the Act. Section 80E – Deduction for Interest on education Loan
f. Section 80U of Income Tax Act, 1961
- Those who are suffering from not less than 40 per cent of any disability is eligible for deduction to the extent of Rs. 75,000/- and in case of severe disability to the extent of Rs. 125,000/- under section 80U of the Act. Deduction U/s. 80U for disabled persons
(Republished with Amendments)