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Tax Planning Tips for Salaried Employees for 2016-17
Tax planning for the salaried employees is a matter of planning and discipline. Planning involves
making a set of decisions at the start of the finan cial year and discipline comes in when you are
required to adhere to the plan come what may.
If an Individual has done proper Tax Planning to sa ve tax, such deductions would be subtracted from
the gross total income and income tax would be levi ed on the balance income as per the income tax
slabs in force
USE THESE BENEFITS TO BOOST YOUR TAKE HOME SALARY
Irrespective of whether it is your first job or whe ther you have conquered the corner office, income-t ax
duly deducted from your monthly salary pinches.
The key CTC components which could help reduce your tax liability and boost your take home pay
are outlined below. These apply to all non-governme nt employees.
1. House Rent Allowance (HRA) HRA is the most common CTC component. Those staying in rented accommodation can avail
of an exemption against the HRA received and only t he balance would be taxable. The
exemption is limited to (a) rent paid less 10% of b asic salary or (b) 50% of basic salary where
the house is situated in any of the four cities of Delhi, Mumbai, Kolkata or Chennai, and 40% of
basic salary in other cities or (c) actual HRA rece ived, whichever is the lowest.
If your CTC doesn't contain an HRA component, deduction for rent paid is available from gross
taxable income, subject to various limits (maximum deduction Rs 5,000 per month or Rs
60,000 per annum).
For claiming HRA exemption, if your annual rent exc eeds Rs 1 lakh, you should obtain not just
the rental receipts but a copy of your landlord's P AN card for submission to your accounts
2. Leave travel concession (LTC):
It's more than a vacation, it's a tax break
Your annual holiday within India can get you a tax break. The tax exemption on any
reimbursement of your travel expense while on leave is limited to the economy class air fare
for the shortest route available to your vacation d estination. No exemption is available for
expenses such as hotel, local conveyance, etc. Keep the travel bill handy to submit to your
accounts department to claim the exemption.
LTC is allowed to you as a salaried employee in res pect of two journeys performed in a block
of four calendar years. The current block of four y ears commenced on January 1, 2014. So if
you haven't taken that much-needed break last year, do so now. Keep proper tabs, retain
relevant travel bills and claim your LTC.
Your travel expenses for a holiday abroad are not e ligible for a tax break. If you are planning a
long vacation covering destinations in India as wel l as a foreign country with one air-ticket, the
tax man may not allow a tax break even for your cos t of journey within India.
3. Medical Allowance:
Medical Allowance is levied up to Rs.15,000 provide d all bills for the same are furnished by the
employees to the employer.
4. Conveyance Allowance:
For conveyance allowance to be made tax free you ne ed to do nothing to prove. Attending
work is good enough we guess!
INVESTING/SAVINGS FOR TAX BENEFITS.
You can plan to maximize your tax savings and reduce income tax liability by availing the benefit of
provisions relating to deduction from taxable incom e under various sections of Income Tax Act.
Income Tax Deductions for FY 2016-17, this list can help you in planning your taxes
1. Section 80C The maximum tax exemption limit under Section 80C h as been retained as Rs 1.5 Lakh only.
The various investment avenues or expenses that can be claimed as tax deductions under
section 80C are as Insurance, PPF, Mutual Funds, 5 years Tax saving Deposits, Tuition Fees,
Housing loan repayments Etc.
2. Section 80CCC Contribution to annuity plan of Life Insurance Comp any for receiving pension from the fund is
considered for tax benefit. The maximum allowable T ax deduction under this section is Rs 1.5
3. Section 80CCD
Employee can contribute to Government notified Pens ion Schemes (like National Pension
Scheme – NPS). The contributions can be upto 10% of the salary (or) Gross Income and Rs
50,000 additional tax benefit u/s 80CCD (1b) was pr oposed in Budget 2015.
Kindly note that the Total Deduction under section 80C, 80CCC and 80CCD(1) together
cannot exceed Rs 1,50,000 for the financial year 20 16-17. The additional tax deduction of Rs
50,000 u/s 80CCD (1b) is over and above this Rs 1.5 Lakh limit.
4. Section 80D Deduction u/s 80D on health insurance premium is Rs 25,000. For Senior Citizens it is Rs
30,000. For very senior citizen above the age of 80 years who are not eligible to take health
insurance, deduction is allowed for Rs 30,000 towar d medical expenditure.
Preventive health checkup (Medical checkups) expens es to the extent of Rs 5,000/- per family
can be claimed as tax deductions. Remember, this is not over and above the individual limits
as explained above. (Family includes: Self, spouse, dependent children and parents).
5. Section 24 (B)
The interest component of home loans is allowed as deduction under Section 24B for up to Rs
2 lakh in case of a self-occupied house. If your pr operty is a let-out one then the entire interest
amount can be claimed as tax deduction. (Read: Unde rstanding Tax Implications of Income
from house property)
6. Section 80EE
This is a new proposal which has been made in Budge t 2016-17. First time Home Buyers can
claim an additional Tax deduction of up to Rs 50,00 0 on home loan interest payments u/s
80EE. The below criteria has to be met for claiming tax deduction under section 80EE.
1. The home loan should have been sanctioned in FY 2016-17.
2. Loan amount should be less than Rs 35 Lakh.
3. The value of the house should not be more than R s 50 Lakh &
4. The home buyer should not have any other existin g residential house in his name.
7. Section 80GG As per the budget 2016 proposal, the Tax Deduction amount under 80GG has been increased
from Rs 24,000 per annum to Rs 60,000 per annum. Se ction 80GG is applicable for all those
individuals who do not own a residential house & do not receive HRA (House Rent Allowance).
It is prudent to avoid last minute tax planning. Do not invest in unwanted life insurance policies
or in any other financial products just to save tax es. It is better you plan your taxes based on
your financial goals at the beginning of the Financ ial Year itself. Plan your taxes now, instead
of waiting until late December 2016 (or) January 20 17.
It is OK to pay some taxes when you cannot save or cannot invest in right financial products.
But, do not invest just to save TAXES. The cost of buying wrong financial products may
outweigh the cost of taxes. Tax Planning is not a g oal but a tool. Remember “Tax Planning
alone is not Financial Planning.”
Also, kindly understand the tax treatment of the se lected investment products across the
different investment stages (i.e., investment, accr ual & withdrawal) and then invest.
I believe that the above list is useful for your Ta x Planning purposes. The above ‘Income Tax
Deductions 2016-17’ are applicable for financial ye ar 2016-2017 (Assessment Year 2017-
The above stated exemptions/deductions for salaried employees are the most useful
exemptions. However, there are various other exempt ions as well but are not commonly used.