As soon as the filing season begins salaried people are in frenzy about taxes they must shell out for the said financial year. It is important to develop certain strategies to shrink off the taxes.Tax saving can be easy if done in correct manner.There are various strategies to stay away from paying excess of taxes and save as much as possible.
Because Money speaks only one language-"If you save me today, I will save you tomorrow"
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First take a look how your monthly income is distributed i.e a complete breakup of your salary.
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The first component is the "Basic" which is not applicable for any tax deduction.Below mentioned are list of components forming part of your salary structure that are exempted/allowed for tax saving.
1) House Rent Allowance
Salaried employee having a rented accommodation can get the benefit of HRA.it can be fully or partially exempted.However if you are not living in rented accomodation and still you receive HRA then its taxable
Least of the following can be claimed as exemption
a)Rent paid less 10% of Basic salary+DA
b)Total HRA received
c)40% of salary for non metro city and 50% of salary for metro city.here salary means Basic+DA
2)Leave Travel Allowances
This is restricted to travel expenditures incurref during leaves. However the exemptions doesn't include cost incurred such as shopping,food expenses, entertainment and others
You can claim LTA twice in a block of four years.In case an individual doesn't use this exemption within a block then same should be xarried to next block
3)Mobile Reimbursement
An employee can claim a tax free reimbursement of the actual bill paid or amount provided in salary package,whichever is lower.
4)Food coupons
Employer may provide employees with meal coupons.Such meal coupons are tac exempt upto Rs 50 per meal.calculation based on 2 meals a day for 22 working days sums upto a benefit of 2200 a month and 26400 yearly exemption
5)Books and periodicals
The income tax allows an employee reimbursement of expenses on books,newspapers,periodicals,journals and so on.The reimbursement is lower of the bill amount or amount provided in the salary package.
6)Medical Insurance
A medical insurance policy allows you to avail tax deduction under section 80D.The deduction allowed are as follows:
a)Self and family-The maximum deduction available is Rs.25000 per year however if you are a senior citizen then same gets extended to Rs.50000.
b)Parents-The maximum deduction available is Rs.25000 per year however if they are senior citizen then same gets extended to Rs.50000.
Additional Deduction:
A deduction of Rs.5000 can be claimed every year on expenditure related to health check-ups.This limit includes the check-up expenses of all members in a family, including spouse,kids and parents
7)Relocation allowamce
There may be chances that you are required to shift to a different city for business reasons.Such relocation can cause shifting expenses,transportation cost.These expenses are to be borne by employer
8) Notice pay and joining bonus
Few companies ask you to sign a bond or agreement stating that you will serve the company for a specific duration.If yoy leave the organization before completing this period,the organization may recover the joining bonus or notice pay paid to you initially.The same can be claimed as TDS refund on the notice pay and joining bonus
9)Gifts or vouchers provided by employer
Gifts or vouchers given by an employer in cash or in kind are exempt upto Rs 5000 per year.
Medical expenditure incurred outsids India on employee
In case where employees incurs expenditure on themselves or any member of the family of such employee where family means spouse and children of the individual,parents,brothers and sisters of the individual or any of them wholly or mainly dependent on the individual. The above expenditure will be exempt from tax provided to the limit exempt by Reserve Bank of India.
Expenses that people dont know can help you save taxes under sec 80 C
1)Payment for purchase/construction of residential house property
1)Payment for purchase/construction of residential house property
There are certain charges that are required to be paid apart from cost of house.According to income tax act any stamp duty,reg fees and other expenses incurred for the purpose of buying a house can be claimed as a deduction in the financial year in which such expenses were incurred.here other expenses include any statutory expenses similar to stamp duty or registration charges (if any applicable on transfer of property.
It does not matter whether individual has taken loan or not to acquire the property.
2)Tax saving FD's
You can invest in tax saving fixed deposits and claim maximum tax deduction upto Rs 1.5 lacs.The interest is the prevailing FD rate and the lock in period is five years.You can only make a one-time lump sum deposits,while premature withdrawl of amount is not allowed.you can reinvest the interest or payouts on monthly or quarterly basis.
3)Five year post office Time Deposits (POTD) Scheme
POTDs are similar to bank fixed deposits.They are available for durations like 1 year,2year,3 and 5 year but only five-year POTD qualifies for tax saving.They offer on an average 7.8% a year.However the interest earned is entirely taxable.
4)National Saving Certificates (NSC)
Investment in NSC are eligible for tax deduction under section 80 C.It has a five year lock in period and rate of interest is also fixed.there is no maximum limit for investment however the minimum investment is Rs 100.It can also be kept as collateral to get loan from bank.
5)Home Loan Principal Repayment
The Equated Monthly Installments (EMI) that you pay every month consisting of two components- Principal and Interest.The principal component qualifies for deduction.However the interest component can also save tax but under Section 24 of the Income Tax Act.
The list is endless however it depends how smartly you plan. Finally I'll end my article with a funny but meaningful proverb - "The best way to teach your Kids about taxes is by eating 30% of their Ice-cream"
Thank you!!
