Have You Started Planning Your Taxes Yet??

How to Save TAX : 

At the end of every financial year, many tax payers frantically make investments to minimize taxes, without adequate knowledge of the various available options. The Income Tax Act offers many more incentives and allowances, apart from the popular 80C, which could reduce tax liability substantially for the salaried individuals. Here are seven smart tips to help you save more and reduce taxes.
          
1. Salary Restructuring

Restructuring your salary may not always be possible. But if your company permits, or if you are on good terms with your HR department, restructuring a few components could reduce your tax liability.

• Opt for food coupons instead of lunch allowances, as they 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
• Opt for the company car instead of using your own car, to reduce high prerequisite taxation.

 
2. 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. A few of the options are as follows:

•     Public Provident Fund
•     Life Insurance Premium
•     National Savings Certificate
•     Equity Linked Savings Scheme
•     5 year fixed deposits with banks and post office
•     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
Use your home loan efficiently to save more tax. The principal component of your loan, is included under Section 80C, offering a deduction up to Rs. 1,00,000. 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

A Final Word
Keep in mind the below points, to avoid the hassles of last minute tax planning.

• Give your employer details of loans and tax saving investments beforehand, to prevent any excess deduction
• Check the Form 16 received at the end of each year from your employer thoroughly
• It is important to start your tax planning well before 31st March, and to file your returns before the 31st of July each year

InvestmentYogi.com is a leading personal finance portal.

Disclaimer: All information in this article has been provided by InvestmentYogi.com and NDTV Profit is not responsible for the accuracy and completeness of the same.

Have You Started Planning Your Taxes Yet??

August is here and one-third of this financial year is almost over. Most companies have started asking its employees to submit the supporting documents & proof’s for tax deductions and exemptions. Many of us are upset over how high the TDS amount is that gets deducted each month from our paycheck. The purpose of this article is to help you start planning for your taxes for this financial year…

Before we Begin – Why this Article:

   A good friend of mine from the college days happened to chat with me on facebook who had found my book on Indian Income Tax useful. He was very happy over the fact that, the book helped him understand the many unknown aspects of our Indian Tax Laws which can help citizens save tax Legally. In fact he even quoted that by utilizing the various sections explained in the book, he was able to save Rs. 18,000/- Income Tax last year. So, I thought, why not remind our blog readers that it is time to start planning your Taxes so that you too can reduce your tax liability… 

Saving Tax the Legal Way

The Indian Tax Laws are very simple and easy to understand. Though India is one among the countries with a high taxation rate, as citizens we also get a lot of options to reduce your tax liability. Most people are unaware of all these options and end up concealing their income to avoid taxes. If they knew all the options to save tax legally, I am pretty sure a big portion of people wont need to resort to illegal ways to reduce their taxes.

There are two major aspects of reducing our tax liability:

Utilizing Deductions From Income

As per our tax laws, there are certain deductions that are allowed on the income earned by an individual. These amounts can be subtracted while arriving upon the net taxable salary of an individual. For ex: If your total salary is 5 lakhs and the deductions that we are going to cover in this section total up to 1.5 lakhs, your net taxable income will be only 3.5 lakhs. 

Those Deductions are: 

1. House Rent Allowance or HRA
2. Leave Travel Allowance or LTA
3. Medical Allowance
4. Transportation Allowance
5. Interest Paid on Housing Loan

Utilizing Exemptions From Income: 

Just like the various deductions that we covered in the previous section, the Indian Tax Laws allow many exemptions that help the tax payer reduce his tax liability. These exemptions are categorized as sections with numbers followed by alphabets to help us identify them easily. 

Those Exemptions are: 

1. Section 80C - Exemptions for Qualified Investments 
2. Section 80D - Exemptions for Medical Insurance 
3. Section 80DD - Medical Treatment of a Physically Disabled Dependent
4. Section 80DDB - Medical Treatment of Self/Dependents for Major Diseases:
5. Section 80E - Exemption for Education Loan Repayment 
6. Section 80U - Exemption for Disabled Tax Payers:
7. Section 80G - Exemptions for Charitable Donations 
8. Section 80CCG - Exemption for Investing in Rajiv Gandhi Equity Savings Scheme "RGESS"
9. Section 80TTA - Exemption for Interest Income Earned from Savings Accounts 
10. Section 80GG - Exemption for Individuals Living in Rented Houses 
11. Section 80GGC - Donations Made to Political Parties
12. Section 80CCD - Contribution to National Pension Scheme (NPS)

Each of these sections, be it the deductions or exemptions have a certain limit up to which we can avail our tax benefits. They also have some preconditions that we must satisfy in order to be eligible to utilize them. However, if we utilize all these sections, we can easily bring down our tax liability by a considerable amount.

Income Tax on Salary – Slab Rates

Income Tax is calculated on a Slab System. In India, there are 3 tax rates i.e. 10%, 20% and 30%.

Given below is the chart of Income Tax slabs for FY 2014-15 for all those who are aged up to 60 years. (Both for male and female tax payers)

For Senior Citizens aged 60 years, but below 80 years, the first slab of no tax goes up to Rs. 3 Lakhs and for Very Senior Citizens aged 80 years and above, the first slab of no tax goes up to Rs. 5 Lakhs.

There is an Education Cess of 3% on the Income Tax in all cases. The tax credit of Rs. 2000 announced last year is available for the current year too, if your income is up to Rs. 5 Lakhs. Also, there is a surcharge of 10%, if the income is above Rs. 1 Crore.

Income Tax on Salary – Exemptions

All of us plan for tax exemptions under Section 80C of the IT Act. Let us see “what are the exemptions on Income Tax on Salary in India?”

1. HRA Exemption

House Rent Allowance (HRA) received will be eligible for deduction as per the following formula. You can claim the least of the following as a deduction.

(a) Actual HRA received

(b) Rent Paid – 10% of Basic + DA

(c) 40% of your Basic + DA (50%, if you are staying in a metro city)

2. Medical Expenses

Medical Expenses will be exempted up to a maximum of Rs. 15,000 in a year. You can claim this by production of the bill. But, if it is paid along with the monthly salary, it will be taxable.

3. Conveyance Allowance (Transport Allowance)

Transport Allowance up to Rs. 800/- per month is exempted from tax.

4. Interest paid on Housing Loan

Loan Interest paid on your Home Loan will be eligible for deduction from the taxable income under Section 24 of the IT Act. The limit per year is Rs. 2 Lakhs for the loans taken after 01.04.1999.

5. LTA Exemption

Leave Travel Allowance can be claimed as tax-free twice in a block of 4 calendar years. The amount is limited to the economy airfare for the family to any destination in India through the shortest route.

6. Interest on Education Loan

The actual interest paid on an Education Loan taken for higher studies for self, spouse and children will be exempted from taxable income under Section 80E of the IT Act.

7. Health Insurance Premium

Health Insurance Premium paid for buying a health insurance policy for self and family will be exempted up to Rs. 15,000 in a year under Section 80D of the IT Act. You can claim another Rs. 15,000 as deduction for health insurance premium paid for a policy for dependant parents.  This limit is Rs.20,000, if they are senior citizens.

8. Section 80C

Under this most popular section, you can claim exemption up to Rs. 1.5 Lakh in a year. PF, PPF, Principal repayment of Home Loan, Tuition fees paid for 2 children, Life Insurance premium, VPF, Tax Saving Mutual Funds (ELSS), NPS, Tax Saver FD of 5-year term, NSC etc will qualify in this.

Income Tax on Salary – What is Salary by moneycontrol

Let us work out the Income Tax liability on salary with some examples:

1.   Taxable income for Rs. 4.25 Lakhs

You need not pay any tax up to Rs. 2.5 Lakhs. For the amount in excess of Rs. 2.5 Lakhs (4,25,000 – 2,50,000 = 1,75,000), you have to pay tax at the rate of 10%. Your tax will be Rs. 17,500 in this case. Also, add 3% Education Cess on the Income Tax of Rs. 17,500. With this Rs. 525/-, your total tax outgo will be Rs. 18,025/- in this case.

2.   Taxable income for Rs. 8.5 Lakhs

Here too, there is no tax up to Rs. 2.5 Lakhs. Then for the income between Rs. 2.5 Lakhs and Rs. 5 Lakhs, your tax rate will be 10% and for the amount above Rs. 5 Lakhs, the tax rate will be 20%. The calculation will be as follows:

First Rs. 2.5 Lakhs = Nil; Rs. 2,50,001 – 5 Lakhs = Rs. 25,000; Rs. 5,00,001 – 8.5 Lakhs = Rs. 70,000

So, the total tax will be Rs. 95,000. Also, add 3% Education Cess on Rs. 95,000. With this Rs. 2,850, the total tax outgo will be Rs. 97,850.

3.   Taxable income for Rs. 13 Lakhs

Here, the tax calculation will be as follows:

First Rs. 2.5 Lakhs = Nil; Rs. 2,50,001 – 5 Lakhs = Rs. 25,000; Rs. 5,00,001 – 10 Lakhs = Rs. 1,00,000; Rs. 10,00,001 – 13 Lakhs = Rs. 90,000

So, the total tax will be Rs. 2,15,000. Also, add 3% Education Cess on Rs. 2.15 Lakhs. With this Rs. 6,450, the total tax outgo will be Rs. 2,21,450.

Tax on Salary – Conclusion

The taxable income is the income after allowing permissible deductions under various sections like Section 80C, Section 80D etc.  If you plan in advance and avail various tax exemptions, you may get tax benefits by lowering your Income Tax Slab for Salary. An updated knowledge on Income Tax Slab for Salary is a must to get the best out of it year after year.