Income Tax Savings Tips to help in Tax Planning

Tax planning is a part of financial planning

Though it is difficult to avoid taxes, you can strategies to reduce the tax outgo efficiently

Two Important Steps

1) To choose between the old tax (with deduction) & new regime (without deduction)

One has to careful analyze & comparison of tax outgo and other factors in choosing between the two

2) Inform it to your employer (So they have to deduct TDS on basis your selection)

Tax Saving Tips : –

1. Additional tax saving with NPS under Section 80CCD

In addition to deduction under Section 80C of Rs.1.5 lakhs yearly, you can claim a addition tax deduction under Section 80CCD(1B) by contributing an additional amount of Rs. 50,000 in your NPS account.

Example: –

IF taxpayer falls under the 30% tax bracket, then additional benefits of tax =

50000*30%=15,000 + 4% Education Cess = Rs. 15,600  on amount of Tax.

2. House Rent Allowance

Who are living in a rented house, then you can help you save tax through HRA. Maximum amount of Exemption of HRA: – LOWER of the Following

a) Actual HRA received

b) 40% (Non Metro) /50%(Metro) of (Basic Salary + DA)

c) Actual rent paid less 10% of (Basic Salary + DA)

Note : –  If you have taken a house on rent and are making a payment in excess of Rs 1 lakh annually – remember to provide the landlord’s PAN in order to claim the HRA exemption..

The plain reading of Circular No. 01/2019 dated 1st January, 2019 and Form 12BB suggest that the limit of Rs.1 lakh applies per landlord.

If pay rent for any residential house + do not receive HRA from your employer+ You or your spouse or your minor child do not own any residential house at the place where you currently reside

Then you can claim the deduction under Section 80GG.

The least of the will be considered as the deduction under this section:

a. Rs 5,000 per month;

b. 25% of adjusted total income*;

c. Actual Rent less 10% of adjusted total Income (ATI)

ATI = Total Income Less long-term capital gain, short-term capital gain under section 111A and Income under section 115A or 115D and deductions 80C to 80U (except deduction under section 80GG)

3. Children education allowance:

Exempt for max. of 2 children (Rs 100 per month per child )

4. Free food & beverages provided to the employee:

This can also be given in form of meal/food coupons to employees like Sodexo.

Amount exempt up to Rs 50 per meal.

Example = Assume 25 working days in a month and 2 meals a day

Amount of Exempt = 25*50*2 = 2,500 per month

5. Hostel Expenditure allowance:

Exempt for max. Of 2 children (Rs 300 per month per child )

6. Gift vouchers:

TAX free = Rs. 5000 per year provided by the employer (Gifts in kind or voucher)

7. Leave travel allowance (LTA) : –

Exemption is available only for travelling expense (employee is going anywhere in India along with his family) and NOT for local conveyance, sightseeing, hotel accommodation, food, etc..

The exemption is available only on the actual travel costs i.e., the air, rail or bus fare incurred by the employee.

Exemption is available only on account of submission of bills of expenses incurred.

8. Employer contributions to PF & NPS : –

Employer contribution to NPS & EPF is tax free up to 12% of basic salary.

9. Reimbursement of mobile & Internet bill

Reimbursement of mobile & internet bill is tax free on actual basis.

Note: This is available only on submission of bills of expenses incurred

10. Standard deduction

A standard deduction of Rs,. 50,000 is available to all salaried persons.

11. Employment/Professional tax: –

Amount actually paid during the year is deductible.

Important to note that  if professional tax is paid by the employer on behalf of its employee than it is first included in the salary of the employee as a perquisite and then same amount is allowed as deduction.

12. Deduction under Section 80C

MOST POPULAR  and It allows deduction up to Rs 1.5 lakhs. A taxpayer can invest in PF, ELSS, FD, NSC, NPS, Life insurance. Apart from that one can also claim principal repayment for home loan, tuition fees & payment of stamp duty etc. under this section

13. Deduction under Section 80D

This section provides deduction for medical Insurance premium paid for self, family & Parents.

Individuals below 60 years can claim Rs 25000 as deduction for self & family & Rs 25000 for Parents (if they are too below 60 years).

Further where parents are above 60 years- the deduction increases by another 25000 (for Parents), making a total of Rs 75000

And where both the individual & parents are above 60, a deduction of Rs 50000 (for self & family) plus Rs 50000 (for parents) can be claimed.

Preventive health checkup up to Rs 5000 can be claimed.

But this doesn’t increase the overall deduction limits under sec S0D

14. Deduction for Interest on Education loan Section 80E

Interest paid on loan taken for higher education of self, spouse or children can be claimed on actual basis. There is no upper limit for this deduction.

15. Deduction for Donations 80G

Eligible donations get a deduction of 50-100% subject to conditions.

16. Section 24 – Interest on home loan deduction

This provides a deduction of interest paid on home loan of up to Rs 2 lakhs for self-occupied homes & for house which will be let out, there is no limit to claim the interest deduction.

17. Section 80EEA- for first time home owners

This section provides a deduction of Rs 1.5 lakhs, which means you can technically increase the upper limit to Rs 3.5 lakhs for self-occupied homes (deduction of interest on home loan which would be over & above the deduction available under section 24).

18. Section 80TTA Tax Savings on interest earned on Savings Bank account.

Interest earned- Bank Savings Account Post office Savings Account Savings account of Cooperative Societies.

Note: – Interest on FDs, RDs or other term deposits cannot be claimed for deduction under this section.

The maximum deduction limit under this section is Rs. 10,000

For example, JP has 3 savings bank accounts. He earned interest on saving account of Rs.5, 000, Rs.9, 000 and Rs.11, 000.

The total income from interest is Rs.25, 000.

But he can claim only Rs.10, 000 for tax deduction under Section 80TTA.

This means that the remaining Rs.15, 000 will be treated as income from other sources and will be included in taxable income.

80TTB: – Senior citizens can claim up to Rs.50, 000 as tax deduction.

19. Tax saving on repayment of education loan under Section 80E: –

You get tax benefit on the repayment of the interest component of the loan taken for higher education and there is no limit on it.

Making the repayment of the interest, it could be the parents or the student.

Taxpayers can claim tax deductions up to 8 financial years from the year of commencement of interest repayment of the education loan, or till repayment of the entire interest, whichever falls earlier .

20. Tax saving on medical expenditure of a disabled dependent under Section 80DD

Provided – if he/she takes care of a dependent disabled family member.

Section 80DD defines disabled dependent family members which include wife, children, parents or siblings. In the case of HUF, any member of HUF can be disabled dependent.

Note –  Disabled dependent has not claimed deduction under section 80U

The disabilities covered under this section are blindness, low vision, and loco-motor disability, hearing impairment, mental retardation, mental illness, autism and cerebral palsy. You can claim deduction on the following medical expenses:

  • Expenses incurred on medical treatment
  • Nursing
  • Training and rehabilitation of the disabled dependent.

The premium paid for the insurance policy designed specifically for such cases. The deduction depends on the condition and seriousness of the disability of the dependent person.

If the disability of the dependent person is at least 40% then one can claim a deduction of about Rs. 75,000 in a financial year. If the dependent person is at least 80% disabled, then the taxpayer can claim up to Rs 1, 25,000 tax deduction