Income tax planning for salaried individuals is a matter of planning and discipline. It is an important financial objective of any person Planning means taking decisions at the start of the financial year and discipline comes when you comply with the plan what may. So, if you think that, being a salaried professional you pay too many taxes and want to curtail them, then you should go for tax planning. There are many ways in to reduce your taxes. Soon FY 2017-2018 will end and some of you must be thinking about the tax you’re paying. It is possible to lower your tax outgo on salary income.
Most of the people today fail to do tax planning and begin making investments in a mechanical way. If we talk about salaried class, they are often under a misconception that they have a little scope when it comes to saving tax. There are, however, various allowances that they receive in their salary structure for which they can claim deductions in order to reduce their taxes. For example, in some organizations, you strictly have to wear office uniforms. Moreover, you might be spending money for your clients.
Your employer might also want you to pursue an academic course for the benefit of the organization and the employer has to incur this expenditure. Therefore, you should be aware that you will get a deduction for these expenses.
However. You must provide evidence to claim such allowances as a tax deduction from your salary.
Following are the allowances that will help you to save your Taxes but only for an official purpose:
- Uniform allowance
- Helper Allowance
- Standard Deduction
- Academic pursuit Allowance
- Telephone reimbursement
- Office Entertainment
If we talk about entertainment allowance, it is available only for government employees.
Though this depends on the employer regarding the eligibility criteria of employees to take these allowances. If you have paid professional tax every month to the state government, then also you will get the tax deduction.
Always claim house rent allowance to save income tax
Not all companies offer you accommodation; therefore, you need to rent out. Thus, you should be aware the rent paid should be eligible to get the tax deduction.Most of the employers provide HRA as a part of your salary.However, you cannot fully save your taxes by using HRA.
Least of the following is considered as the deduction from the gross salary:
- The actual sum of HRA received.
- The actual sum of rent paid minus 10% of the basic salary.
- 50/40% of Basic Salary & DA ( 50% for metropolitan cities and rest for 40%)
- If your salary structure includes HRA received from your employer, make sure to get receipts of the rent from the owner of your house. where the annual rent paid is exceeding Rs 1,00,000 per annum,it is compulsory to report the PAN of the landlord to the IT Department. In case the landlord doesn’t have a PAN, then take a declaration from him for his name and address.
Leave travel allowances a good way to save your income tax
Most of the employers offer to leave travel allowance to you which is an effective tax saving tool. It is an allowance for your travel alone or with your family. However, the exemption is available to the extent it is actually incurred by you. Further, the other conditions get LTA exemption is as follows
- It is available for up to two children of the individual born after October 01, 1998.
- you can only two times within a block of 4 years.
- Available for travel within India.
- the shortest route
- For air travel, you can claim only for the economy class, however, for train journey, you can avail AC-1
Standard Deduction and income tax
The budget 2018 has reintroduced much awaited standard deduction in income tax. It is deductible from gross salary irrespective of the expenditure incurred by the employee. Now the employees do not need to submit proofs of their expenses as it provides a flat amount of Rs 40,000. However medical reimbursements (15,000 pa) and transport allowance (19,500 pa) allowed earlier will no longer available from 1st April 2019.
Invest and reduce your taxable income
There are investments that provide various deductions under the income tax Act. You just cannot miss Section 80C if you have invested in various schemes provided under this section. The invested amount gets deducted from your taxable income.
Section 80C offers a limit for maximum deductions. However, this limit has up to Rs 1.5 lakhs only.
List of miscellaneous investments which saves your income tax
1. Deposit in PPF account
PPF account is a public provident scheme of government for the long-term investment. The lock-in period is 15 years. a minimum contribution of Rs 500 per year and maximum of Rs 1.5 lakh per annum is allowed. The limit of Rs 1.5 lakh is applicable to all accounts held under his/her own name or on behalf of a minor. It is highly safe as it is backed by the government. One can open a PPF account in certain nationalized banks, the post office and private sector banks such as ICICI Bank, HDFC Bank etc.
2. Contribution to EPF account
Employee Provident Fund is a retirement benefits scheme when it comes to tax savings for all salaried people in India. After retirement, it is a secured investment and provides guaranteed returns on your savings.The employer contributes equally to their employees EPF account. The contribution of the employer to its employees EPF account is tax-exempt, wherein the contribution made by the employee himself is tax deductible as per section 80C. As your salary increases, your contribution to the EPF fund will also increase. Since your EPF contribution automatically goes to your 80C, you will be able to save more taxes.
3. Equity-linked saving scheme (ELSS)
An ELSS is an equity-linked mutual fund which has a majority of the corpus invested in equities. Due to its equity nature, returns from this scheme will reflect returns from stock markets. This scheme has 3 years lock-in period.
4. Five years fixed deposit
It is a famous and safest financial investment and provides better returns than the savings account, until its maturity. In order to save taxes, you must deposit the FD for a minimum period of 5 years.
5. Sukanya samriddhi account
Indian Government has taken a great initiative for a girl child. This scheme provides the best returns as compared to other small saving schemes. However, the investments with lock-in period until your girl child reaches the 18 age. There shall be no taxes from the maturity amount.
6. National saving certificate (NSC)
National Saving Certificate is a post office saving scheme which is issued for about 5 years. The interest rate of this scheme is 8.5% and tax benefits are provided by NSC under section 80C.NSC and tax saving fixed deposit have some common feature. However, under NSC, the interest compounds quarterly as against FDs which compounds the interest half yearly. Interest earned on the NSC and tax-saving FD, both are taxable in the hands of the investor. However, if you reinvest the interest amount from NSC, then it is again eligible for deduction under section 80C
7. Post-office time deposit scheme
Just like banks’ fixed deposits (FDs), post office time deposits are for those investors who want to deposit a lump sum for a fixed period. Post offices also offer tax-saving time deposit with a maturity period of 5 years carrying 8.50% per annum interest rate. The interest pays annually but compounded quarterly.
8. Senior citizen saving scheme
Senior Citizen Saving Scheme is a highest safety instrument and tax saving tool specially made for senior citizens. This scheme works like a recurring nature as it provides regular income to the senior citizens. The invested amount is minimum 1000 and maximum 15lakhs. There is no age requirement for people retiring from the defense. Currently, this scheme provides the highest return as compared to FDs and PPF.
9. Don’t forget to take the benefits of other sections
(i) Section 80E
The entire interest paid on education loan in a financial year is eligible for deduction u/s 80E.There is no limit on the interest expenditure under this section
(ii) Section 80 GG
In case, you(salaried/pensioner or self-employed)do not receive HRA (House Rent Allowance) as a salary component, you can still claim house rent deduction u/s 80GG.