At the end of every financial year, many taxpayers make investments to minimize taxes, without adequate knowledge of the various available options. The Income Tax Act offers many more incentives and allowances, apart from the popular 80C, which could reduce tax liability substantially for the salaried individuals. In this article, we will tell you how to plan for taxes on your salary.
How to plan FOR taxes on your salary:
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.
Some of the Popularly Known Exemptions/Reimbursements/Deductions .
House Rent Allowance
Minimum of –
1. Actual HRA
2. Rent Paid – 10% of Basic
3. 40% of Basic (Non-Metros) or 50% of Basic (Metros)
Rs 1600/ Month
Leave Travel Allowance
Use your Leave Travel Allowance for your holidays, which is available twice in a block of four years. In case you have been unable to claim the benefit in a particular four- year block, you could now carry forward one journey to the succeeding block and claim it in the first calendar year of that block. Thus, you may be eligible for three exemptions in that block .
- Section 80C allows a maximum limit of Rs 1.5 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. Also a deduction of upto Rs 50000, under new section 80CCD(1B), over and above the limit of Rs 1.50 lakh in respect of contributions made to NPS is provided for.
- Investment in Sukanya Samriddhi Scheme will be eligible for deduction u/s 80C and any payment from the scheme shall not be liable to tax.
- Limit of deduction u/s 80D of the Income tax Act increased from Rs 15,000 to Rs 25,000 on health insurance premium (in case of senior citizen from Rs 20,000 to Rs 30,000).
- A person who have spent money on treatment of specified diseases of senior citizens can avail an exemption of Rs. 80000 u/s 80 DDB
- The limit of deduction increased u/s 80DD of the Income tax Act in respect of maintenance, including medical treatment of a dependant who is a person with disability, from Rs 50,000 to Rs 75,000. The limit of deduction increased from Rs 1 lakh to Rs 1.25 lakh in case of severe disability.
To Conclude :
Keep in mind the below points, to avoid the hassles of last minute tax planning.
- Give your employer details of loans and tax saving investments beforehand, to prevent any excess deduction.
- Check the Form 16 received at the end of each year from your employer thoroughly.
- It is important to start your tax planning well before 31st March, and to file your returns before the 31st of July each year.
Get in touch with us for any query or assistance at : MakeYourTax