"No worries if investments have not been made till now, its better late than never"

Season of return filing is not far now. Get ready to submit your records to Income Tax authorities and contribute to the tax net of the nation. As the season approaches near, everybody is clingy about shredding less on taxes and saving big, however, we end up paying usual if true advise is not taken. 

Salaried people account for the maximum number of taxpayers in India and it becomes more important to understand the what salary is being earned and what is being paid out.

Details of salary earned during a particular year is captured in Form 16 which has to be given by every employer to his employee by 15^th June of each year i.e.Due date for issue of form 16 for the year ended 31st March 2019 is 15^th June 2019. It is possible that income appearing in Form 16 is higher due to non-submission of investtment proofs but its not over, you can still make claims in your return of income of consulted your Teller well in advance. 

Lets discuss the benefits available to an individual under Income tax:

Deductions/Benefits available to an individual under head Salary:

1. Standard Deduction: Budget of 2018 was one of the landmark budget which took away medical reimbursements and conveyance allowance available and replaced them with the standard deduction available to salaried taxpayers. Now, a standard deduction of Rs. 40,000 is allowed to every salaried individual from the income earned during a particular year. This is a welcome move. There is no need to maintain a record of medical expenses incurred during the year.
2. House Rent Allowance: (HRA) Every employer grants House Rent Allowance as a part of Salary package to an employee so that he/she can claim the tax benefits on rent of house or accommodation incurred from his salary. 

Amount of deduction: Deduction available is limited to lowest of amount received as HRA, rent paid - 10% of salary or 40% of basic Salary+DA (limit is 50% for metro cities).

Example, if you have paid rent of Rs.50,000 in a year, received HRA of Rs. 60,000 and your basic salary is Rs. Rs. 200,000. Maximum eligible deduction will be Rs. 30,000 only and Rs. 30,000 will be taxable.

But nothing comes with all the hands open, one has to offer complete details of landlord, address of the property and nowadays, knowing the duplicity of documents involved majority of employers ask for agreement with house owners to ensure authencity of documents submitted.

3. Leave travel Allowance: This is also one of the benefit which motivates salaried people to travel along with your work. You get a deduction from the taxable income for the expenditure on travel. This exemption is available for the shortest distance to reach farthest point on a trip if an employee visits multiple places in a single journey.  Also, appropriate bills and travel documents are required to be submitted to claim such expense.

Important to note that this facility can be availed only twice in the block of four years. If you were unable to claim the benefits in four year block then you can carry over one LTA in the next block, provided it is availed in the first year of the block itself.

4. Employee’s Contribution to Provident Fund (PF): Provident Fund or PF is a social security initiative by the Government of India. Both employer and employee contribute a 12% equivalent of the employee’s basic salary every month toward employee’s pension and provident fund. An interest of about 8.55% from FY 2017-18 (earlier it was 8.65%) gets accrued on it. This is a retirement benefit that companies with over 20 employees must provide as per the EPF Act, 1952.

5. Professional Tax: Professional tax or tax on employment is a tax levied by a state in addition to the income tax which is a levy by central government. Section 16 of Income tax act provides for deduction of professional tax paid by employer to state government on behalf of employee. As per Article 276(2) of Constitution of India, maximum amount of professional tax that can be levied by a state is Rs 2,500. It is important to note that professional tax is allowed as a deduction from salary income in return of income.

These were the basic deductions available to every salaried individual from hi/her salary income. However, the gist does not end here. In addition to above, there are certain deductions which are available to all Individual/HUF from Gross Total Income as well (i.e. income arrived after including all the sources of incomes)

1. Deductions under famous Section 80C: This is something known to every individual who is filing returns of earning taxable income. 

A few of the options available are as follows:

• • Provident Fund Scheme: Every salaried individual curses the deduction being made every month from their take home amount, however, the benefits available are worth waiting for. This is a statutory deduction to be made by employer to ensure safety of employees which is 12% of basic salary and the amount so deposited by employee as well as employer under Recognised Provident Fund is eligible for tax break under this section upto Rs. 150,000.

One may contribute more amount in PF and can claim more deduction subject to a maximum  capping under this section.

• • Life Insurance Premium: LIC is the most availed benefit in India, however, the assumption that entire premium paid during the year is not correct. Under Income Tax, maximum amount of deduction available on a LIC policy is restricted to 10% of sum assured. It is advised to go through the documents before buying a policy. The eligible deduction was 20% of the sum assured before 1 April 2012.
• • Deposit in Public Provident Fund (PPF): This is one of the lucrative option available for making tax saving investments. The maximum contribution that can be made in a year is Rs. 150,000.Currently the rate of interest on PPF is 8% p.a. (Available only to Residents). The minimum maturity period of the PPF account is 15 years, however it is being considered to allow withdrawal for specific and exceptional purpose before the 15th year. Also, there is a partial withdrawal facility available from 7th year.

Another benefit to that any money received from PPF after years is exempt form tax.

• • National Savings Certificate: This is another scheme available for tax benefits like PPF however, it the period of maturity is restricted to 5 and 10 years. The rate of interest offered is 8% which is equal to PPF. However, if seen compounded growth PPF appears to be a better investment.
• • Equity Linked Savings Scheme: This is another incentive promoting the economy by gaining the confidence of public in mutual fund schemes. Under this, investment can be made in any approved mutual fund schemer a minimum period of 3 years. Mutual Funds under this scheme invest in equities, cumulative convertible preference shares and fully convertible debentures and bonds of companies. Under this return is higher than other options available under section 80C.
• • Principal Amount Repaid on Home Loan: An individual is eligible for deduction of principal paid on construction or purchase of a of a residential house property the income from which is chargeable to tax under the head "Income from house property”.
• • 5 year fixed deposits with banks and post office: This includes 5 year FDs and deposits made with Post Offices. It is to be noted that interest forms such deposit os taxable.
• • Tuition fees paid for children’s education, up to a maximum of 2 children: A deduction is available for tuition fees paid to any university, college, school or other educational institution situated within India for the purpose of full-time education 

Maximum Benefit: Rs. 1.5 Lakhs

Want to invest in PPF? Login here and raise a query under My Advisories

2. Tax Savings on Additional Contribution to NPS (80CCD): This is another tax saving scheme rolled out by Central Government to allow taxpayers reap benefits of investments made, during their retirement period by receiving pensions from such schemes. National Pension scheme is another such scheme which allows deduction of 10% of salary to an employee or 20% of Gross total income to other than employee. This scheme is available to only an Individual assessee. Maximum Deduction: Rs. 50,000
3. Tax Saving on Education Loan (Section 80E): An individual is allowed a deduction of expenditure incurred by way of interest on loan taken by him from any financial institution or any approved charitable institution for the purpose of pursuing his higher education or for the purpose of higher education of his spouse and children of that individual or the student for whom the individual is the legal guardian..
4. Medical Insurance under section 80D: Deduction is allowed for expenditure incurred on health insurance premium of self and family including parents during a particular year. A deduction is allowed for expenses incurred on medical treatment of family and parents. It is important to note that payment should be made by way of cash.

Maximum deduction is restricted to Rs. 60,000: 

(A) Medical treatment + Insurance for self, spouse  and dependent children: Rs. 30,000

(B) Medical treatment + Insurance for parents: Rs. 30,000

5. Medical Treatment of Disabled (handicapped) Dependant Relative (section 80DD): Deduction is available  to a resident individual or HUF for the medical treatment (including nursing), training and rehabilitation of a dependant, being a person with disability subject to maximum of Rs. 75,000. This deduction is available only to an individual or HUF and dependant means as follows:

For individual: spouse, children, parents, brothers and sisters of the individual or any of them

For HUF: a member of the Hindu undivided family

6. Medical Treatment of Specified Disease for Self or Dependent Relative (80DDB): Deduction is available to a resident individual or HUF for treatment of medical treatment of specified disease or ailment upto Rs 40,000. The claim has to be substantiated with the invoices of expenditure and report of  a neurologist, an oncologist, a urologist, a haematologist, an immunologist or such other specialist.
7. Donations/Donations to Political Parties: An individual is allowed deduction of donations made during the year. 

Want to check eligibility of donations or need any advise for making such donation, please Login here and raise a query under My Advisories.

8. Deduction where no HRA is received from employer (Section 80GG): Applicable in case your employer does not give HRA and other conditions of rent are met. If HRA is not part of your salary, the least amount from the below three options can be claimed as a deduction.

• Rent paid minus 10% of the total income
• Rs. 5000 per month
• 25% of total income

Some exemptions available from income without claiming deduction:

(A) Income from Gratuity: Maximum Tax-free Amount: Rs. 20 Lakhs

Gratuity received on retirement or on becoming incapacitated or on termination or any gratuity received by his widow, children or dependants on his death is exempt subject to certain conditions.

The maximum amount of exemption is Rs. 20 Lakhs.

(B) Telephone/Internet Expenses: Your company may not be reimbursing your telephone or internet expenses but may have any policy to make these expenses tax free. You can either get telephone expenses reimbursed or claim tax benefits.

(C) Money under Voluntarily Retirement Scheme – Up to 5 lacs (VRS):  Only applicable for employees of public sector company or of authority established under Centre or State Govt. If any employee takes voluntary retirement then the amount received is non-taxable with the upper limit of 5 lakhs.

It is important to make sure that all the investments or expenditures are incurred before 31 March of the financial year to save taxes. Don’t let your hard earned money spent go unclaimed for taxation purposes. 

TheTaxTellers’ Suggestion: It is suggested to invest in any of the above schemes/benefits before 31 March 2019 to be eligible for tax break. Any schemes purchased after 1.4.19 would not be allowed for deduction in FY 2018-19 but FY 2019-20.

In case of any clarifications/suggestions, please feel free to write to us at info@taxtellers.com

 

Regards,

TheTaxTellers team