Taxes In India – A Beginner’s Guide To Saving More | srei

Taxes In India – A Beginner’s Guide To Saving More

Taxpayers find themselves in a predicament at the beginning of every financial year pondering over the best tax-saving investments to make. The multiple options, contradictory advice and a fast approaching deadline result in taxpayers frantically make investments to minimize taxes, without adequate knowledge of the various available options.  In this article we shall take a look the most common investments and ways based on five basic parameters: returns, safety, flexibility, liquidity and taxability. Whether you are a novice or a seasoned investor, this will help you separate the chaff from the grain.

1) Salary Restructuring:
Though this may not always be possible, if your company permits or if you are on good terms with your HR department, restructuring a few components could reduce your tax liability.

 

  • Food coupons are exempt from tax up to Rs. 50 per meal
  • Include medical allowance, transport allowance, education allowance, uniform expenses (if any), and telephone expenses as part of salary. Produce bills of actual expenses incurred for these allowances to reduce tax
  •  To reduce high prerequisite taxation, use the company car instead of your own.

 

) Utilizing Section 80C:
Section 80C offers a maximum deduction of up to Rs. 1,00,000. Utilize this section to the fullest by investing in any of the available investment options:

 

  • Public Provident Fund
  • National Savings Certificate
  • Life Insurance Premium
  • Equity Linked Savings Scheme
  • Tuition fees paid for children's education, up to a maximum of 2 children

 

3) Options beyond 80C:
If you have exhausted your limit of Rs. 1,00,000 under section 80C, here are a few more options:

  • Section 80D: Deduction of Rs. 15,000 for medical insurance of self, spouse and dependent children and Rs. 20,000 for medical insurance of parents above 65 years
  • Section 80G: Donations to specified funds or charitable institutions.

 

4) House Rent Allowance:
Are you paying rent, yet not receiving any HRA from your company? The least of the following could be claimed under Section 80GG:

  • 25 per cent of the total income or
  • Rs. 2,000 per month or
  • Excess of rent paid over 10 per cent of total income

This deduction will however not be allowed, if you, your spouse or minor child owns a residential accommodation in the location where you reside or perform office duties.

If HRA forms part of your salary, then the minimum of the following three is available as exemption:

  • The actual HRA received from your employer
  • The actual rent paid by you for the house, minus 10 per cent of your salary (this includes basic dearness allowance, if any)
  • 50 per cent of your basic salary (for a metro) or 40 per cent of your basic salary (for non-metro).

 

5) Tax Saving from Home Loans:
Section 80C, offers a deduction up to Rs. 1,00,000 for your home loans. The interest portion offers a deduction up to Rs. 1,50,000 separately under Section 24.

 

6) Leave Travel Allowance:
Use your Leave Travel Allowance for your holidays, which is available twice in a block of four years. In case you have been unable to claim the benefit in a particular four- year block, you could now carry forward one journey to the succeeding block and claim it in the first calendar year of that block. Thus, you may be eligible for three exemptions in that block.

 

7) Tax on Bonus:
A bonus from your employer is fully taxable in the year in which you receive it. However request your employer for the following: 

  • If you anticipate tax rates to be reduced or slabs to be modified in the subsequent year, see if you could push the bonus payment to the subsequent year 
  • Produce your tax investment details well before, to prevent your employer from deducting tax on bonus before handing it over