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Income Tax Savings Tips To Help In Tax Planning

Tax planning comes under financial planning. It is difficult to avoid taxes, you can strategies to lower the tax outgo efficiently.

Two Important Steps comes under:-

  1. To choose between the old tax and new tax regime

An individual needs to carefully analyze & comparison of tax outgo and other factors in choosing between the two

2. Inform it to your employer (So they need to deduct TDS on basis your selection)

Below are some Tax Saving Tips: –

1. Additional tax saving with NPS

In addition to deduction under Section 80C of INR 1.5 lacs yearly, you can claim an addition tax deduction under Section 80CCD (1B) by contributing an additional amount of INR 50,000 in your NPS account.

2. House Rent Allowance (HRA)

Person who are living in a rented house, then you can save tax through HRA.

Note: – If you have taken a house on rent and are making a payment in excess of INR 1 lac annually – remember to provide PAN card of landlord in order to claim the HRA exemption.

The plain reading of Circular No. 01/2019 on 1st Jan, 2019 and Form 12BB suggest that the limit of INR 1 lac applies per landlord.

If you pay rent for any residential house + do not receive House Rent Allowance from your employer+ You or your spouse or your minor child do not own any residential house at the place where you currently live then you can claim the deduction u/s 80GG.

The least of the will be considered as the deduction under this section:

  1. INR 5,000 per month;
  2. 25% of ATI*;
  3. Actual Rent less 10% of ATI (adjusted total Income)

3. Children Education Allowance:

Exempt for maximum no. of 2 children (Rs. 100 per month per child)

4. Free Food and Beverages Provided To The Employee:

This can also be given as meal or food coupons to employees like Sodexo. Amount exempt upto Rs. 50/ meal.

5. Hostel Expenditure Allowance:

Exempt for maximum no. of two children (Rs 300 per child per month)

6. Gift Vouchers:

TAX free = Rs. 5000/year provided by the employer as gift voucher.

7. Leave Travel Allowance (LTA): –

Exemption is available only for travelling expense (in India along with his family) and NOT for local conveyance, sightseeing, hotel accommodation, food, etc. The exemption is available only on air ticket, rail or bus fare etc. incurred by the employee.

Exemption is available only on account of submission of expense bills incurred.

8. Employer Contributions to PF & NPS: –

Employer contribution to NPS & Employee’s Provident Fund is tax free up to 12% of basic salary.

9. Mobile & Internet Bill Reimbursement: –

Mobile & internet bill reimbursement is tax free on actual basis.

Note: This is available only on expense bills submission incurred

10. Standard Deduction: –

A standard deduction of INR 50,000 is available to all salaried persons.

11. Employment/Professional Tax: –

Amount actually paid during the year is deductible.

Important to note that  if professional tax is paid by the employer on behalf of their employee than it is first included in the employee’s salary as a perquisite and then same amount is allowed as deduction.

12. Deduction U/S 80C: –

Most important point and it allows deduction up to Rs. 1.5 lacs. A taxpayer can invest in PF, FD, NPS, Life insurance etc. Apart from that under this section, an individual can also claim principal repayment for home loan, tuition fees & stamp duty payment etc.

13. Deduction U/S 80D: –

Section 80D provides deduction for medical Insurance premium paid for self, family & Parents.

Individuals below 60 years can claim INR 25,000 as deduction for self & family & INR 25,000 for Parents (if they are too below 60 years).

Further where parents are above the age of 60 years- the deduction increases by another Rs. 25000 (for Parents), making a total of INR 75,000.

And where both the individual & parents are above 60, a deduction of INR 50,000 (for self & family) plus INR 50,000 (for parents) can be claimed.

Preventive health checkup up to INR 5000 can be claimed.

14. Deduction for Interest on Education Loan: –

Interest paid on education loan taken for higher education of self, spouse or children can be claimed on actual basis. Deduction under education loan interest come sunder 80E. There is no upper limit for this deduction.

15. Deduction for Donations 80G: –

Eligible donations to avail a deduction of 50-100% subject to conditions.

16. Interest on Home Loan Deduction: –

This provides a deduction of interest paid on home loan of up to INR 2 lacs for self-occupied homes & for house which will be let out, there is no limit to claim the interest deduction.

17. Section 80EEA- For First Time Home Owners: –

This section provides a deduction of INR 1.5 lacs, which means you can technically increase the upper limit to INR 3.5 lacs for self-occupied homes (deduction on home loan interest which would be over and above the deduction available under section 24).

18. Tax Savings on Savings Bank Account Interest: –

Interest earned on Savings bank Account, PO Savings Account, and Savings account of Cooperative Societies. This comes under Section 80TTA

The max. deduction limit under this section is INR 10,000.

19. Repayment of Education Loan under Section 80E: –

Tax saving also available under this, you get tax benefit on the repayment of the interest component of the loan taken for higher education and there is no limit on it.

Taxpayers can claim tax deductions up to 8 FY from the year of commencement of the education loan interest payment, or till repayment of the entire interest, whichever falls earlier.

20. Tax saving on Medical Expenditure of a Disabled Dependent U/S 80DD: –

Provided – if an individual takes care of a dependent disabled family member.

Section 80DD defines disabled dependent family members which include parents, wife, children or siblings. In the case of HUF, any member from that can be disabled dependent.

Note – Disabled dependent has not claimed deduction u/s 80U

The disabilities covered under this section are:-

  • Blindness
  • Low Vision
  • Loco-Motor Disability
  • Hearing Impairment
  • Mental Retardation & Mental Illness
  • Autism & Cerebral Palsy.

An individual can claim deduction on the following medical expenses:-

  • Expenses incurred on medical treatment
  • Nursing
  • Training and rehabilitation of the disabled dependent.

The insurance policy’s premium paid designed specifically for such cases. The deduction depends on the condition and seriousness of dependent person’s disability.

If the dependent person’s disability is at least 40% then one can claim a deduction of about INR 75,000 in a FY. If the dependent person is at least 80% disabled, then the taxpayer can claim up to INR 1.25 lacs tax deduction.