“AS FINANCIAL YEAR IS NEAR TO END, WE BRING SOME SMART STRATEGIES TO SAVE TAX FOR YOU”
India is a country where an avenue of earning for a salaried person is limited. Therefore, it is most important for him/her to exercise the tax saving option and get the most out of it.
Consider this as a game and let’s play. We can win the game by doing proper planning and preparation.
If you’re a taxpayer working for an organization that asks for investment proofs, failing which it goes ahead and deducts your tax dues at the source, you’ve got less than two months to work out your tax-saving plan.
But Don’t worry we are here to help.
This year’s Budget has introduced some new tax benefits for individual income tax payers.
- You can now avail a separate tax deduction of Rs.50000 for the National Pension System (NPS) over and above the Section 80C limit of 1.5 lakh.
- The Sukanya Samriddhi Scheme, launched last year is also now eligible for the section 80C deduction.
If Employer allows, Employee can get his salary restructured from employer to avail various Exemptions for following salary heads which can be easily configured in factoHR HRMS and Payroll Solution:
- HRA( House Rent Allowance)
- LTA ( Leave Travel Allowance)
- Medical Reimbursement
- Telephone Reimbursement
- Uniform Allowance
- Children Education Allowance
- Conveyance Allowance
Aniruddh Nagodra Co-Founder & CEO, Version Systems Pvt Ltd, says, “If salary is structured well, tax payer will need to pay “ZERO TAX” even if his/her gross salary is 6,50,000/- In case of Employer/Employee is not aware of how they should do this, they can take the help of factoHR HRMS & Online Payroll Solution or write to factoHR team at firstname.lastname@example.org, he adds”.
Addition to Rs. 1,50,000 under section 80C and 50,000 under section 80CCD(B) for NPS, Rs. 2,00,000 interest on home loan is also deductible under section 24 which in total helps to reduce taxable income of Rs. 4,00,000.
Here are some tips to do smart tax planing:
- Plan your investment with a long-term view so that your financial goal also being met along with your tax goals.
- Please check for Lock-In period and reversal of tax benefits in case of early withdrawal.
- Please consider if any TDS is deducted from the source while planning tax.
- Investment in Debt Market Mutual Fund is better than FD in the bank, as former can be considered for short term or long term capital gain which is maximum 20%, while later is considered directly for tax bracket which may go up to 30%.
WIDELY USED TAX SAVINGS SECTIONS ARE AS BELOW WHICH ARE IN MORE DETAILED WAY MENTIONED IN EMPLOYEE SELF SERVICE (ESS) OF factoHR HRMS AND ONLINE PAYROLL PART :
|Section of the Income Tax Act||Eligible instruments & Expenses||Tax Exemption available||Maximum Tax Exemption|
|–||–||Individual/ dependents||Parents (Whether or not they’re dependents)||–|
|80C||ELSS, PPF, FD, NPS, NSC, EPF, Life Insurance, home loan principle, stamp duty, tuition fees||1,50,000||–||1,50,000|
|80CCD(B)||Individual contribution to NPS||50,000||–||50,000|
|24||Interest paid on loan for self occupied home (no limit for rented house)||2,00,000||–||2,00,000|
|80CCG||50% of investment in RGESS||25,000||–||25,000|
|80D||Medical insurance premium (includes Rs 5,000 limit for preventive health check-up)||25,000||30,000||60,000 (including Rs 5000 for preventive check up)|
|80DDB||Treatment for serious illness for self and/or dependents||–||–||80,000*|
|80DD||Physically disabled dependents||–||–||1,25,000**|
|80U||Physically disabled tax payer||–||–||1,25,000**|
|80G||Donation to charitable funds||40,000||–||40,000|
|80CG00||Donations for scientific research or rural development||1,00,000||–||1,00,000|
|80TTA||Interest received in savings account||10,000||–||10,000|
|80GGC||Donation to parties||60,000||–||60,000|
*(limit of Rs 80,000 for persons above 80yrs., Rs 60,000 for those above 60 and Rs 40,000 for rest)
**Rs 75,000 for 40% to 80% disabled & Rs 1,25,000 for more than 80% disabled
SOME OF THE MOST POPULAR TAX SAVING OPTIONS AVAILABLE IN MARKET UNDER SECTION 80C:
PPF: This remains a popular option as it offers investors a lot of flexibility. Besides, the 2013/14 Budget enhanced the annual investment limit under PPF to Rs 1.5 lakh. Opening a PPF account is simple-it can be done at a post office or a bank. The minimum annual investment is Rs 500. If you fail to deposit Rs 500, a penalty of Rs 50 is imposed. The maturity period is 15 years, but the account can be extended in blocks of five years each. It is a good option for those with a low-risk appetite, self-employed and those not covered by employee provident fund. Remember to invest before the 5th of the month as highest balance, since the 5th of every month, is considered for compounding purposes.
ELSS FUNDS: The most attractive features of ELSS funds is that it has the shortest lock-in period among all tax-saving instruments under Section 80C – just three years. But Niraj Karelia Co-Founder, Version Systems says that “this should not be the only reason for investing in this avenue.”
ELSS funds are known to generate good returns over the long run. Besides, the minimum investment is low, the same as a PPF fund (Rs 500/-), another attractive feature of a non-committal investor looking to just save taxes is that, unlike a pension plan or a Ulip or an insurance policy, you are under no compulsion to continue investing in subsequent years. Unlike FDs Interest, dividends and long-term capital gain on ELSS are also tax-free. Since it gives to option to invest through lump sum or SIP mode “to make the most out of ELSS funds, divide your investments over a period through SIP instead of putting a large sum at one go,” says Niraj Karelia This reduces risk and effects of volatility.
TAX-SAVING FIXED DEPOSITS (FDs): There are five-year-plus deposits with high interest rates. For instance, while regular FDs are paying around 7.50 percent at present, tax saving FDs are paying around 7.75 percent. As the interest income is fully taxable, the post-tax yield is not as high as you expect it to be.
LIFE INSURANCE: Traditional life insurance plans, in spite of being more customer friendly now, are still the worst way to save tax, says Aniruddh Nagodra “Tax saving and in life insurance are two different subjects which need to be dealt separately. Best way to have insurance is to buy Term Insurance which can give very big life cover with the very small amount invested” he says.
NPS: it is a retirement product, regulated by the Pension Fund Regulatory and Development Authority. It was first introduced in 2004 for government employees and was made available for everyone in 2009. The Section 80CCD allows you a deduction for a contribution made by you or your employer towards the NPS account. In addition to this, from this year onward, the tax payer can get additional deduction of Rs. 1,50,000 under Section 80C of the Income Tax Act, 1961.
SUKANYA SAMRIDDHI SCHEME: the scheme, launched in January this year, is part of the government’s effort to help people save for the girl children. Under Section 80C, a contribution of up to Rs. 1,50,000 is eligible for tax deduction. The scheme offers a high interest rate of 9.2 percent against 8.75 per offered by PPF.
HOUSING LOAN: if you have taken a housing loan, tax deductions are possible under three different sections. Under 80C, the component of your EMI that goes towards principal payments is eligible for tax deduction. This is subject to overall Rs 1,50,000 limit. One can also claim a deduction on stamp & registration charges under Section 80C in the year the payments are made. One can avail of a deduction on interest paid under Section 24 up to Rs 2 lakh. This is available only if the house is occupied by the tax payer.
To understand more about other Exemption Sections or Salary Structure, Email us at email@example.com with your query we shall be happy to assist you. You may also follow our facebook by liking the same at http://www.facebook.com/factohr to get such frequent updates.