You know the struggle is real when it’s the end of financial year, and you face the tax return filing process. The matter becomes worse when you realise you haven’t done your tax planning effectively and you have only procrastinated the cause until you received a mail from your HR to submit the investment details at the earliest.
Although effective tax planning is important to help you save your taxes, multiple options and contradicting advice from your friends and colleagues may leave you confused. This article will list down ten efficient and effective tax saving tips that will help you save your taxes and take maximum in-hand salary home.
Tips to Minimise Tax Liability:
Claim Benefits of Rent Payment
The income tax law lets you claim the rent that you pay to your landlord for accommodation purposes if you receive House Rent Allowance (HRA) from your employer. You need to pay rent for your residential accommodation if you want to claim HRA exemption. The HRA that you receive from your employer is not fully exempt from tax. You can claim the exemption on the following conditions, whichever is the lowest.
- Actual HRA received
- Actual amount of rent paid less 10% of salary
- 50% of your basic salary if you are residing in a metro city, 40% if you are residing in a non-metro city
Here Salary means “Basic Salary + DA”. For claiming HRA exemption, one should submit Rent slips to the employer. In case one has taken a house on rent and are making payment more than Rs 1,00,000 per year, he also has to submit landlord’s PAN for claiming HRA exemption.
Submit Travel Bills for LTA
If you are eligible for Leave Travel Allowance (LTA) as a part of your CTC, you can claim reimbursement of the incurred expenses on travel. Subject to some limits and conditions, this reimbursement is not included in your taxable income. You can claim LTA tax break for travel of self as well as family members for journeys that you undertake within India. Also, it only includes actual expenses made on bus, air or rail fares only.
Claim Transport Allowance
If you are receiving a transport allowance from the employer, you can claim a minimum of up to Rs 1,600 per month as tax-exempt before you arrive at the taxable income. The exemption limit is up to Rs 3,200 per month in case of deaf, blind and handicapped employees. You also don’t need to submit a bill to claim this allowance. However, you can only enjoy the benefit of this allowance if you are not getting free conveyance from your employer.
Note: From AY 2019-20 (FY 2018-19) onwards, transport allowance and medical allowance/reimbursement get replaced by a standard deduction of Rs 40,000.
Children Education Allowance
If you receive Children Education Allowance (CEA) from your employer, you are eligible to claim tax exemption for the same under the Income Tax Act. You can claim an exemption of Rs 100 per month or Rs 1200 per annum for a maximum of 2 children. Apart from this, you can also claim deductions under Section 80C for the tuition fees you pay for your children.
If you receive an allowance for meeting the expenses incurred on maintaining or purchasing uniform wear for performing your duties in the office you can claim tax exemption on this.
Tax Deduction on Education loan
If you have taken an education loan and you are in the process of repaying it, you can claim the interest paid as a tax deduction from total income under Section 80E. This rebatement is also available on education loan is taken for spouse and children. Also, you can claim tax deductions on education loan taken for funding higher education.
Get Health Insurance
Section 80D allows a tax deduction of up to Rs 25,000 per financial year for the medical insurance premium. This premium should be for you, your spouse and your dependent children. In case you or your spouse is a senior citizen the deduction limit goes to Rs 30,000.
Medical Allowance and Medical Reimbursement
It is an allowance that is fixed and paid to you by your employer on a monthly basis regardless of whether you submit the bills to justify the expenses or not. Since medical allowance is not treated as a tax-exempt allowance under the Income Tax Act, 1961, it is fully taxable. However, subject to entitlement, medical reimbursement is paid to you against medical bills that you submit to your employer. You can claim a tax benefit of up to Rs 15,000 per annum under medical reimbursement.
Therefore, it is recommended that you avoid acceptance of medical allowance and instead take medical reimbursement.
Note: From AY 2019-20 (FY 2018-19) onwards, medical allowance/reimbursement and transport allowance get replaced by a standard deduction of Rs 40,000.
The Income Tax Act encourages donations and charitable deeds, and hence they provide you with tax benefits to the donors under Section 80G. You are, therefore, eligible for tax deductions on your income for the amount that you have donated. The deduction limit is 50% or 100% depending on the charitable institution to which you are donating. For claiming the deduction, you should have a receipt from the institution with your name and the amount that you have donated.
File your Taxes on Time
Filing your tax returns well within time is always recommended because there are certain benefits which you cannot avail on a belated tax return filing. The main benefit is that you may start receiving interest if you are liable to receive refunds from 1st April of the Assessment Year. In case of a belated tax return, you can be penalised with an interest of 1% per month from the due date of tax filing to the actual date of filing your tax returns.
You can also take benefits of different investment options described under Section 80C. If you need help e-filing your tax returns and save maximum taxes, you can file it through H&R Block India, where highly qualified tax experts assist you in filing your tax returns.