16/05/2016
Salaried? Here are some tax saving tips for you
Salaried class often thinks that they do not have much scope to save tax. However the various allowances and reimbursements that they receive as a part of their salary actually provide an opportunity to save taxes. Even owning multiple house properties offers an opportunity to save on taxes.
Here are some other provisions that can help you minimise the pinch on your pocket.
House rent allowance (HRA)
If you are staying in a rented accommodation, you can avail of an exemption against the HRA you earn. But do bear in mind that this exemption is limited to the lowest of
(a) Actual HRA received by you or
(b) 50% of basic salary if the house is situated in any of the four metros, and 40% of basic salary in any other city or
(c) The actual rent paid by you minus 10% of your basic salary.
If you pay a rent of more than Rs 1 lakh annually, remember that producing the rent receipts will not be sufficient to claim HRA exemption. You will also need to provide your landlord's PAN number.
Even if your gross salary package does not contain an HRA component, deduction for rent paid is available from gross taxable income. It is subject to a maximum deduction Rs 5,000 per month or
Rs 60,000 per annum.
Leave travel allowance (LTA):
Planning an annual family holiday? If you plan to travel within the country, you can get a tax break. Therefore, keep the travel bills handy to submit to your accounts department to claim the exemption.
You can get a tax exemption on reimbursement of your travel expense while you were on leave. There are some conditions to be fulfilled in order to claim this exemption. The maximum amount that can be claimed is the economy class airfare for the shortest route available to your destination, AC first class rail fare or first class or deluxe fair for recognised transport. No exemption is available for expenses such as hotel, local conveyance, and so on. Foreign travel is not eligible for a tax break. Not even if you travelled in India and then headed abroad in the same trip.
LTA is allowed to a salaried individual for two journeys in a block of four calendar years. The current block is from 1 January, 2014 to 31 December 2017.
Exemption for investments:
Investing in instruments listed under Section 80C of the Income Tax Act can fetch you a total annual deduction of up to Rs 1.50 lakh. A few of the popular instruments under this section are as follows -
Employee Provident Fund (EPF)
Public Provident Fund (PPF)
National Savings Certificates (NSC)
Life insurance
Bank 5-year fixed deposits
Equity-linked saving schemes
Home loan’s principle repayment
Sukanya Samridhhi Yojana
Tuition fees paid for full-time education of two children
New Pension System (NPS)
The new investment schemes that qualifies for deduction under Section 80C is Sukanya Samriddhi Yojana. This is a deposit scheme framed for encouraging education of girl child and gets you a tax break. You can open an account in the name of your girl child up to the age of 10 years for up to two girls (unless you have twins) either in a post office or authorized bank. Investment in this account earns you 8.6% tax-free income and the maximum deposit in a financial year allowed for deduction is Rs 1.50 lakh. The interest rate is subject to a quarterly review.
Gratuity:
If you hop jobs or retire after working for 5 consecutive years, you are entitled to a gratuity payment. While there are detailed rules to calculate exemption, the maximum amount of gratuity that is tax exempt in a lifetime is Rs 10 lakh. It will be reduced by the tax-free exemption claimed from any previous employment.
ESOPs:
Companies offer ESOPs to retain talent. The scheme typically enables an employee to purchase shares of the company in the future, at a discounted price. The life cycle of an ESOP has three key stages – grant, vesting and exercise.
ESOPs are taxed at two stages – 1) at the time of allotment of shares post a valid exercise, the difference between Fair Market Value (FMV) of the shares and exercise price is treated as perquisite and taxed as salary income. 2) at the time of sale of shares, the difference between sale price and FMV on the date of exercise is taxed as Capital Gains. The gains can be either long term or short term depending on how long the shares are held.
Repayment of housing loan:
For the young salaried class, it makes sense to borrow in order to buy their dream home as they have many years of employment ahead of them. Tax laws provide for benefits for repayment of both the interest and the principal amount.
Interest payable on home loans for 'self-occupied' property is subject to a maximum deduction of Rs 2 lakh. Under Section 80C you can claim a deduction of up to Rs 1.50 lakh for principle repayment of home loan.
Additionally, from this financial year, an additional deduction of Rs 50,000 annually on account of interest repaid on housing loan is available under Section 80EE for first-time home buyers. The deduction is available for loans sanctioned by a bank between April 1, 2016 and March 31, 2017. The value of this loan should be up to Rs 35 lakh and the value of the house should not exceed Rs 50 lakh.
If you’ve booked an under construction apartment then you can claim the total interest repaid during the pre-construction period as a deduction in five equal instalments starting from the financial year in which the construction was completed or the apartment was acquired. The maximum you can claim as deduction per year would remain Rs 2 lakh if the loan is taken before April 1, 2016 or Rs 2.5 lakh if the loan is taken on or after April 1, 2016 by a first-time home buyer who fulfils all other conditions as specified above. To claim deduction, it is essential that the acquisition or construction is completed within 5 years from the end of the financial year in which the loan was taken; else the deduction allowed will be limited to Rs 30,000.
Health insurance & medical expense:
Health insurance premiums and medical expenses can also give you some great tax benefits. Under Section 80D, premiums paid for insuring health of self, spouse or dependent children are allowed deduction of up to Rs 25,000 each. The same for insuring elderly parents can fetch you a deduction of up to Rs 30,000 each parent. Preventive medical expenses are also allowed to be deducted up to Rs 5,000 within this limit.
This apart, you can get tax-free reimbursement for medical expenditure of up to Rs 15,000 from your company that is tax exempt up to the extent of bills produced.
Allowances and perquisites:
Apart from this, you can save taxes by claiming exemptions on certain perquisites like company provided car depending on the cubic capacity, transport allowance up to Rs 1,600 per month, children’s education allowance up to Rs 300 per month and meal reimbursements up to Rs 2,000 per month.
Education Loan: The entire interest paid by you in a year on educational loan for higher education of self, spouse, children qualifies for a deduction from your gross total income. Such deduction on interest payment is available for eight years starting from the financial year in which you first paid the interest.
Interest earned on savings bank account (not your fixed deposits) with a bank or post office of up to Rs. 10,000 can be claimed as a deduction from your gross total income.
Leave encashment:
In case you haven't availed of all the annual leaves you are entitled to, you may be allowed to get it encashed. Most employers permit such encashment only on retirement or resignation, which is when it is tax-free. Income from leave encashment while being employed is taxable.
The maximum exemption available is Rs 3 lakh. This limit is a lifetime exemption limit, if you have changed jobs and availed the exemption then it will be reduced to that extent by the current employer.
