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Tax Planning for Salary and Small Income Group

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Every year towards the last quarter of the financial year mostly individual assessee run from pillar to post to make sure they have availed all the options available with them to reduce their tax liability. However many of us are not aware of the various options available with us and end up investing our hard earned money on the advice of the agents of various insurance/ investment companies who just sell their products to us in the guise of advising us.

It is imperative to note here that while tax evasion is illegal, tax planning by way of legitimate means is allowed. This article aims to educate and create awareness among the readers of the different ways and means they can plan the savings and reduce the liability with insignificant burden.

Part [A] INVESTMENTS ELIGIBLE FOR DEDUCTION

THIS BELOW LIST BRIEFLY OUTLINES THE VARIOUS INVESTMENTS ELIGIBLE FOR DEDUCTION FROM GROSS TOTAL INCOME

Deductions available U/S 80C to 80CCD(1):

Each individual is allowed a deduction of Rs. 1,50,000 per annum for investments in specified savings instruments. The gross qualifying amount of Rs.1,50,000 is the aggregate of the following:

  1. Life Insurance Premiums (including contribution to Central Government Insurance schemes).
  2. Notified annuity and endowment plans of LIC and of other Insurance company plans.
  3. Investment in NSC issued by Post offices
  4. Investment in statutory provident fund, recognized provident fund and public provident fund.
  5. Investment in Equity Linked savings scheme either by lump sum or SIP mode.
  6. Investment in ULIP or retirement policy of any insurance company.
  7. Principal portion of the Home loan taken to purchase or construct a new house.
  8. Tuition fees of children paid to acquire any fulltime course at any level. It is limited up to expenditure on two persons.
  9. Contribution made to NPS/Atal pension scheme.

Additional Deduction available U/S 80CCD(1)B:

From the assessment year 2016-17 an additional deduction of Rs.50000 is provided for contribution made in NPS over and above the deduction of Rs. 150000/- as stated above.

Deduction in respect of Medical Insurance Premium (U/S 80D):

An individual/HUF can claim the premium amount paid by it on the medical insurance taken on the life of any member of the family including the assessee. The premium amount must be paid by any mode other than cash and subject to limits prescribed below.

(a) Individual/HUF: Overall limit of Rs.25000 and an additional deduction of Rs. 5000 is available for persons who are senior citizens.

(b) An assessee can claim an expenditure of Rs. 5000 for expenditure on preventive health checkup by any mode subject to the overall limit prescribed at (a).

Deduction in respect of medical treatment U/S 80DDB:

A taxpayer individual (Foreign national or Resident) or HUF is allowed to claim deduction of the following for making expenditure on the treatment of critical illness of any member of the family.

Amount of Deduction:

  1. Rs 40000 or the actual expenditure whichever is less. Deduction of Rs.60000 or the actual expenditure whichever is less incase the expenditure is on the life of a Senior citizen.
  2. From the financial year 2016-17 deduction of Rs. 80000 or actual expenditure is available for deduction in case of a very senior citizen who is of at least 80 Years of age.

Deduction in respect of Interest in savings account U/S 80TTA:

From the assessment year 2013-14 deduction on interest income of Rs. 10000 from savings bank account maintained in a bank, co-operative society and post office. (Interest earned from fixed deposit is not eligible for deduction)

N.B. This deduction is in addition to exemption of Rs. 3500 for single account and Rs.7000 for a joint account earned from a savings account maintained in post office as per section 10(15)(i).

Housing Interest deduction U/S 80EE:

An additional deduction of Rs. 50,000/-fifty thousand is available for the first time home buyers from the assessment year 2017-18 onwards if the following conditions are satisfied:

  1. The loan is disbursed during April 2016 to March 31 2017.
  2. The cost of the house should be in within 50 lakhs and the loan amount should not be more than Rs.35 lakhs.

Interest Deduction U/S 80 E :-

The entire amount of interest on education loan taken for the education of self or any member of the family is allowed for a maximum term of 8 years or till the interest is repaid whichever is earlier. The deduction is allowed from the year in which the assessee starts paying the interest and subsequent seven years.

Deduction in case of a person with disability U/S 80U:

In case a person (assessee) is suffering from any form of disability to the extent of 40%, he/ she shall be allowed a deduction of Rs.75,000 or Rs 1,25,000 in respect of persons with disability of 80% subject to following conditions:

  1. The assessee should be an individual
  2. The assessee should be resident(ordinary or not)
  3. Must obtain a medical certificate from competent medical authority.

Deduction in respect of rent paid U/S80GG:-

In case a person is self employed or salaried but is not receiving HRA then he is allowed the following deduction subject to fulfillment of certain conditions.

Deductions Allowed is least of the following:

  1. Rs.5000 per month.
  2. 25% of total income excluding income from capital gain and after availing any deduction under section 80C to 80U.
  3. Rent paid in excess of 10% of total income.

PART[B] ALLOWANCE ELIGIBLE FOR EXEMPTION

Apart from above deductions, allowed to any assessee who is individual or HUF. An assessee whose income is chargeable under the Head Income from salary must ensure the following main exemptions are allowed to him before arriving at Gross total Income.

House Rent allowance U/S 10(13A):

Every assessee who is in receipt of HRA is allowed least of the following as exemption from gross total income:

  1. An amount equal to 50% of salary in case of metros and 40% in all other places.
  2. HRA received from employer
  3. Rent paid in excess of 10% of salary.

However exemption is not available in case the employee resides in his own house or does not incur any expense on housing.

Transport Allowance U/S10(14) :

An exemption of Rs 1600 per month is allowed as deduction to an employee from the transport allowance granted to an employee by the employer.

Medical Facility Provided by an employee:

The medical facility provided by an employer to its employees is allowed for deduction subject to conditions below:

  1. Any medical facility provided by an employer to its employees in a government hospital, private hospital authorized by government for the treatment of government employees.
  2. Any private hospital subject to condition full filed and approved by employer.
  3. Medical premium insurance paid or reimbursed is not chargeable to tax.
  4. Any other expenditure incurred or reimbursed by the employer for providing medical facility is exempted up to Rs.15000/-.
  5. However any fixed medical facility is chargeable to tax.

Leave Salary U/S 10(10AA)(i):

Leave salary received by government employee is not chargeable to tax. However any leave salary received by non-government employee is exempted subject to least of the following:

  1. Cash equivalent of 30 days leave for each completed year of service.
  2. 10 months Average salary
  3. Leave encashment actually received
  4. The amount specified by government.

The above stated tax saving options are the most exhausted and aims to maximize the savings and reduce the liability of salaried class as well as of the small scale businessmen. However it is mostly observed that many taxpayers feel that if they fail to submit their tax claims in the office and the same is not reflected in their FORM 16, they cannot avail the benefits. It is to enlighten such people that even if they fail to submit the investment proofs in their office due to genuine reasons, or their HR fail to give them the necessary Deductions/Exemptions, they can still make a claim at the time of filling the return and get refund of the excess tax deducted.


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