Tax is a complicated subject to understand, what is tougher than this is paying it. Well everyone wants to save the amount of tax they shell out to the government.
Uptra consultancy services offer some of the tips that you can follow them easily:
House Rent Allowance (HRA)
The HRA paid by your employer is tax free if you pay rent for the house you stay. If the house is your own then you have to shell out taxes over HRA too. The least of the following can accounted as HRA:
- 25 percent of your total income.
- 2,000 per month.
- Excess of rent paid over 10 percent.
If HRA is a part of your salary the least of the following can be claimed as an exception
- 50 percent of income in a metro and 40 percent of income in a non metro
- The actual rent paid reducing 10 percent of the salary.
- The actual HRA received.
Leave travel allowance (LTA)
Employees can use the amount they receive as LTA, twice in a period of 4 years. If a person is not able to take a trip and therefore they will not be able to make a claim. However, they can carry forward their trip to next period of 4 years and claim deduction in the upcoming year, thus enabling three exemptions in that period.
Under section 80 C
Section 80 C offers deduction by investing in the any below mentioned avenues:
- Public provident fund (PPF)
It is a long term saving investment which is best suited for retirement plan. Interest income on PPF and the maturity amount are tax free. The maximum amount of investment that can gain tax exemption is INR 1.5 lakh
- Employee provident fund
The fund is deducted at 12 percent of a person’s basic salary and another 12 percent is contributed by the company. The amount obtained at maturity is completely tax free
- National savings certificate (NSC)
This scheme is issued by the national post office; it has lock in period of 5 years. Tax free returns till maturity are available but the interest earned is taxable.
- Equity linked saving scheme (ELSS)
It is a mutual fund investment with a lock in period of 3 years; the investment is tax free up to INR 1.5 lakh in a given financial year. The interest rates depend upon the performance of the scheme and the maturity amount is also tax free.
- Life insurance
The scheme provides tax deduction for an investment of up to INR 1.5 lakh, the maturity amount is tax free.
Unit link insurance plan (ULIP)
It is a combination of investment and insurance, the premium paid is split between the two and the maturity amount is exempt from tax.
- National pension scheme (NPS)
The contribution to the scheme will get you a deduction of up to INR 50,000 above the INR 1.5 lakh provided under section 80 C. If your employer contributes to NPS any amount will be tax free without any limit.
- 5 year Fixed Deposits (FD) with banks and post offices
A maximum exemption of INR 1.5 lakh for a minimum duration of 5 years is available under this. However the interest earned through this is subject to as an additional source of income and is taxed.
- Tuition fees paid for children for a maximum of 2 children.
The principal amount of your home loan can get you a tax exemption of up to INR 1 lakh under the provision of section 80 C. The interest portion can bring you an exception of up to INR 1.5 lakh.
Section 80 D
A Deduction of up to 15,000 for medical insurance of self, spouse and children and up to 20,000 for parents can be availed under the section 80 D.
Interest of interest, the meaning of this let’s say you invest INR 1 lakh as fixed deposit and gain 10,000 as interest if you invest this 10,000 again as another FD whatever you earn over it is not subject to income tax.
Payment on bonds, securities, annuity certificates, saving certificates and other areas mention by central and state government will not be taxed.
Money obtained through student prime minister’s national relief fund. Or foundations for communal harmony are exempt from tax.
Employee receiving leave encashment at the time of retirement can gain tax exemption over this money if they are government employees.
If they are private employees they can gain exemption up to 3 lakhs per annum.
Apart from HRA and LTA there are minor provisions like maintenance allowance, uniform allowance, research allowance are all tax free.
Agriculture Income earned over farm or money obtained through the sale of farm land is tax free.
Money from friends
If you’re friend is gifting you an amount of INR 50,000 per annum the money is totally tax free and when it crosses INR 50,000 it will be taxed completely. For example you receive INR 60,000 the entire amount is taxed not just the additional INR 10,000.
Are you getting married and you are expecting monetary gifts then feel happy because they are not going to be taxed. There is no upper limit to the amount you earn it can be anything as high as INR 1 crore.
Money to parents
If you are going to give your parents money and then they deposit it as a fixed deposit, the interest gained over it is considered as their money and you will not be charged tax over it. This is beneficial to as if you deposit the same amount in your name as FD the interest will added to your source of incomes.
Money to your kids
If you make fixed deposits on the name of your kid, the interest earned over it will be considered as their income and will not be clubbed to your income. This is allowed only if your kids have attained the age of 18 and are fall under tax slabs less than those of the parents.
However if you make a fixed deposit over a minor kid(Under the age of 18) the interest earned through it will be clubbed with the parent’s income who is earning the highest.
Note: In all the case of gifting, the gift giver has to pay income tax over the money he is giving away. It is logical since one can gift all the money to others and claim that they have no money and pay no taxes.
Pay rent to your parents
You can claim tax allowance by claiming that you are paying rent to your parents to stay in their home and claim exemption over HRA. This is possible if the property you stay in is registered over your parent’s name.
The exhaustive list of tax saving method ends here. Tax payment is an essential duty of the citizen of the nation and filing (ITR) those serves as proof of income. While you try the above mentioned steps to save tax do have all the details in hand for all your transactions and investments.