A golden rule to follow in tax planning is “The key to smart tax planning is to keep it simple”. One doesn’t have to seek advice from multiple sources and get confused in the process. Plan everything well ahead in the year, instead of the last-minute tricks. You can take advantage of the various exemptions and deductions with simple methods to minimize your tax liability during a financial year.
Use these three steps to make sure that your tax planning is smart. These three steps will ensure that you are on the right track of smart tax planning:

STEPS TO FOLLOW

1. Take advantages from the components of your salary

Some components in your salary structure have provisions of exemptions and deductions under the Income Tax Act. The perks, perquisites or tangible benefits that you are entitled to can be claimed up to some amount as deduction or is exempt in some cases. Few of them have been discussed below:

  • House rent allowance: If you are staying in rented accommodation and paying rent then you can claim exemption with respect to the house rent allowance (HRA) u/s 10(13A). Check how to calculate your HRA exemption here.
  • Education allowance: Any allowance received for education up to Rs. 100 per month up to maximum of two children and hostel stay of employees’ children up to Rs. 300 per month up to maximum of two children from the employer can be claimed u/s 10(14).
  • Leave Travel Allowance: Under this, two trips in a block of 4 years, i. Exemption limit where journey is performed by Air - Air fare of economy class by the shortest route or the amount spent, whichever is less ii. Exemption limit where journey is performed by Rail - Air-conditioned first class rail fare by the shortest route or the amount spent, whichever is less

2. Investment in Deductible Options

  • Section 80C states the most useful options to maximize take-home salary and lower down the tax pay-out. It offers as much as Rs. 150,000 in terms of tax benefit that can reduce tax outgo by Rs. 45,000 for assessees in 30% tax bracket, when calculated without surcharge and cess.
  • Use ‘must-have’ options- Life Insurance and Employee Provident Fund. Expenses like life insurance premium paid and contribution to EPF, school fees can be claimed under 80C.
  • You can claim principal repayment towards the home loan, by furnishing a proof of the same u/s 80C. You can also claim tax benefits u/s 24 towards the interest payment on your home loan up to Rs 2,00,000 in a financial year.
  • You can claim a deduction of up to Rs. 25,000 in a financial year for medical insurance premium, provided the instalments is for you, your spouse, and your dependent children, as per section 80D.(Rs 30,000 if age of insured is 60 years or more)

Tip: Deductions under this section can be directly claimed in the tax return, and not necessarily claimed through your employer. Most importantly, you have to make these investments by 31st March 2019 for tax benefits for FY 2018-19. More about Section 80C deductions here.

3. Tax Filing

Filing your ITR leads to the right outcome in your tax planning. In order to avoid last-minute hassles, file your returns well in advance. You can do so by e-filing your returns on the income tax department website or other ITR portals.

Points to remember in tax planning:

  • Make sure your immediate and mid-term financial needs are covered as most of these investments have a minimum lock-in period of 5 years.
  • It’s important to consider several investment opportunities before making a final decision. Ensure that your need of tax saving is not getting fulfilled at the cost of poor returns from that investment.
  • Be fully aware of the objective of an investment, it’s gestation period and maturity terms and conditions.
  • It’s not an year-end activity so avoid hasty decisions of investing in tax saving schemes that don’t give you benefits in future. Simple management and strategic decisions at the right time is all you need for smart tax planning!

 

1Tax benefit of ₹ 54,600 (₹ 46,800 u/s 80C & ₹ 7,800 u/s 80D) is calculated at highest tax slab rate of 31.2% (including Cess excluding surcharge) on life insurance premium u/s 80C of ₹ 1,50,000 and health premium u/s 80D of ₹ 25,000. Tax benefits under the policy are subject to conditions under Section 80C, 80D, 10(10D) and other provisions of the Income Tax Act, 1961. Goods and Services Tax and Cesses, if any, will be charged extra as per prevailing rates. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for details, before acting on above.

2Tax benefit of ₹ 7,800 is calculated at highest tax slab rate of 31.2% (including Cess excluding surcharge) on health premium u/s 80D of ₹ 25,000. Tax benefits under the policy are subject to conditions under Section 80D, 10(10D) and other provisions of the Income Tax Act, 1961. Goods and Services Tax and Cesses, if any, will be charged extra as per prevailing rates. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for details, before acting on above.

^Tax benefits under the policy are subject to conditions under Section 80C, 80D, 80CCC, 80CCE, 80G, 80GG, 80E,10(10D), 10(10A), 10(13A) and other provisions of the Income Tax Act, 1961. Goods and Services Tax and Cesses, if any, will be charged extra as per prevailing rates. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for details, before acting on above.

3Tax benefit of ₹ 46,800 is calculated at highest tax slab rate of 31.2% (including Cess excluding surcharge) on life insurance premium u/s 80C of ₹ 1,50,000. Tax benefits under the policy are subject to conditions under Section 80C, 80D, 10(10D) and other provisions of the Income Tax Act, 1961. Goods and Services Tax and Cesses, if any, will be charged extra as per prevailing rates. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for details, before acting on above.

Tax benefits under the policy are subject to conditions under Section 80C, 80D, 10(10D) and other provisions of the Income Tax Act, 1961. Goods and Services Tax and Cesses, if any, will be charged extra as per prevailing rates. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for details, before acting on above.

ADVT No - W/II/2636/2018-19

Our Tax Saving Plans
ICICI Pru iProtect Smart - Term Plan

Save tax up to `54,6001 under Section 80C

ICICI Pru Heart/Cancer Protect – Health Plan

Save tax up to `7,8002 under Section 80D^

ICICI Pru1 Wealth - Wealth Plan

Save tax up to `46,8003 under Section 80C

ICICI Pru LifeTime Classic - Wealth Plan

Save tax up to `46,8003 under Section 80C

ICICI Pru Smart Kid - Child Plan

Save tax up to `46,8003 under Section 80C

 

Read More Articles
 Income Tax Slabs & Rates
 Income Tax Calculator
 Tax Saving Life Insurance Plans
 How to Save Income Tax

 

 

 

Back to Top