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.
- Conveyance/travel allowance: It can be exempted up to Rs. 1,600 per month, as per section 10(14).
- 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).
- Telephone Reimbursement: If your job is such that it requires mobile/telephone connection/, you can claim 100% exemption against billed amount by producing the actual bills to employer under the rules of 3(7)(ix) of Income tax Rules 1962.
- Medical allowance: Medical reimbursements as against medical allowance are exempted up to Rs. 15,000 p.a. You can get this benefit by reimbursing your medical bills incurred throughout the financial year.
- 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 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 2017 for tax benefits for FY 2016-17. 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!
|Our Tax Saving Plans|
| ICICI Pru iProtect Smart - Term Plan
Save tax up to `54,075 under Section 80C
| ICICI Pru Heart/Cancer Protect – Health Plan
Save tax up to `25,000 under Section 80C
| ICICI Pru LifeTime Classic - Wealth Plan
Save tax up to `46,350 under Section 80C
| ICICI Pru Smart Kid - Child Plan
Save tax up to `46,350 under Section 80C
|Read More Articles|
|Income Tax Slabs & Rates|
|Income Tax Calculator|
|Tax Saving Life Insurance Plans|
|How to Save Income Tax|