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.
Source: www.hrmorning.com
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