In India every individual who earns or gets an income is subject to income tax, including non-residents of India. So tax planning is a very crucial and irrefutable activity that everyone has to dig into for managing the outflow of money towards taxes. People’s incomes are grouped into blocks called tax brackets or tax slabs. And each tax slab has a different tax rate. How to save tax and at the same time make proper investment is what we are discussing here.
While investing in a tax-saving instrument or any investment for that matter, it is important to keep an eye on the taxability of the income. If the income earned is taxable, the scope to make money over the long term gets constrained as taxes will eat into your returns.
|Deduction, Exemption and Reimbursement of Expenses For FY 2017-18||Amount|
|PPF, Insurance, ELSS, FD, NSC, etc. (section 80C, 80CCC & 80CCD (1))||150000|
|Investment in NPS (Section 80 CCD 1B)||50000|
|Contribution of NPS by Employer (Section 80 CCD 2)||150000|
|Home Loan Interest (First Time Buyer )||250000|
|Tax Free Medical Allowance||15000|
|Tax Free Transport Allowance||19200|
|Medical Expenses for Self and Parents (80D)||50000|
|Leave Travel Allowance (Section 10(5))||25000|
|Travel and Fuel Reimbursement — Office Travel||120000|
|Phone and Communication (Tele and Internet Expenses)||36000|
|News Paper and Periodicals||24000|
|Meal Coupons (up to Rs. 50 Per Meal is Tax Free)||12000|
|Tax Relief under Section 87A of 2500/- (i.e. 5% of Taxable Income)||50000|
|Section 80 TTA: Deduction from Gross Total Income for Interest on Savings Bank Account||10000
|Section 80GG: Deduction for House Rent Paid Where HRA is not Received||60000|
The above table holds good for a non-senior citizen, so let’s go through each aspect in a sequential manner:
1. Exemption up to 2.5 lac:
Individuals will get a basic exemption till 250000 i.e. no tax upon this income.
2. Deductions on Section 80C, 80CCC & 80CCD (1):
Under section 80C, 80CCC& 80CCD, a deduction of Rs. 1,50,000 can be claimed from total income. This could be deduction to an Individual for any amount paid or deposited in any annuity plan of LIC or any other insurer, PPF, ELSS, FD, NSC, etc.
3. Deduction for self-contribution to NPS – section 80CCD (1B):
A new section 80CCD (1B) has been introduced for an additional deduction of 10% of basic salary or Rs. 1,50,000 whichever is lower for the amount deposited by a taxpayer to their NPS (National Pension System) account. Here, contributions to Atal Pension Yojana are also eligible.
4. Deduction for Employer’s contribution to NPS – Section 80CCD (2):
Additional deduction is allowed for employer’s contribution to employee’s pension account of up to 10% of the salary of the employee limited to Rs. 150000. On this deduction there is no monetary ceiling. Self-employed cannot claim this deduction.
5. Housing Loan Principle and Interest Component/ Loss on House Property:
Deductions in income tax can be availed against principal and interest payments that one makes towards repayment of home loans. Tax benefit to be claimed only on possession of house property.
|Housing Loan Principal Component||80C||NA||NA|
Section 80EE: Deductions on Home Loan Interest for First Time Home Owners only. Under 80EE section, an additional deduction of Rs 50,000 can be claimed on home loan interest. This is in addition to deduction of Rs 2, 00,000 allowed under section 24 of the Income Tax Act for a self-occupied house property. The loan amount should not be more than Rs. 35 lacs. The value of the property should not exceed Rs. 50 lacs. The loan should be availed after 31/3/2016.
6. Medical Reimbursement:
If a company provides the medical reimbursement of Rs. 15,000 towards medical expenses, one must submit bills to the employer to claim this medical expense. These expenses could be incurred towards doctor consultation, medicines, pathological tests etc. The medical expenses of your dependents like spouse, children and parents can also be claimed.
7. Tax free Transport Allowance:
Conveyance allowance is given to the employees to meet travel expenses from residence to work in some companies. The conveyance allowance for up to Rs 9,600 per annum is exempt from tax. This limit has been increased up to Rs 19,200 per annum from FY 2015-16.
8. Deduction for premium paid for Medical Insurance:
Under section 80D, Deduction is available up to Rs. 25,000/- to a taxpayer for insurance of self, spouse and dependent children. If individual or spouse is more than 60 years old the deduction available is Rs 30,000. An additional deduction for insurance of parents (father or mother or both) is available to the extent of Rs. 25,000/– if less than 60 years old and Rs 30,000 if parents are more than 60 years old. Therefore, the maximum deduction available under this section can be extent up to Rs. 60,000/-. (From AY 2016-17, within the existing limit a deduction of up to Rs. 5,000 for preventive health check-up is available). Deduction under the above section is available to an individual or a HUF (Hindu Undivided family).
9. Leave Travel Allowance (LTA):
Under this section 10(5), salaried employees can avail exemption for a trip within India under LTA. The exemption is only for the shortest distance on a trip. This allowance can only be claimed for a trip taken with your spouse, children, and parents, but not with other relatives. Note that only 2 journeys can be claimed in a block of 4 years.
10. Reimbursement of Expenses for Mobile, Travel, newspaper etc.:
The reimbursement of Travel Expenses, Mobile and Phone Bill and for News Paper is paid to employee if one submits proof of expenditure.
11. Rebate against Food Coupons:
Food coupons like sodexo, food cards etc. are given by employers to employee is exempt up to Rs. 12000/ year.
12. Relief under Section 87A:
For FY 2017-18, the Finance Minister has provided a maximum Rebate of Rs. 2,500 under Section 87A. Your Total Income Less Deductions (under Section 80) should be equal to or less than Rs 3,50,000. So, if we consider 5% slab rate it turnout to be Rs 50000/- as additional benefit which can be claimed in this Section.
13. Deduction from Gross Total Income for Interest on Savings Bank Account:
Under Section 80 TTA, A deduction of maximum Rs 10,000 can be claimed against interest income from a savings bank account. Interest from savings bank account should be first included in other income and deduction can be claimed of the total interest earned or Rs 10,000, whichever is less. This deduction is allowed to an individual or an HUF.
14. Deduction for House Rent Paid Where HRA is not received:
The Tax Deduction amount under 80GG is Rs 60,000 per annum. Section 80GG is applicable for all those individuals who do not own a residential house & do not receive HRA. Under this Section 80GG, Deduction available is the minimum of :
- Rent paid minus 10% of total income
- Rs 5000/- per month
- 25% of total income
By using these deductions / exemptions one can nullify the taxes to be paid.
Before making any decisions do consult your Professional / tax adviser. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on.