The current taxation structure in India has carved out three tax brackets – Rs 2.5-5 lakh, Rs 5-10 lakh and Rs 10 lakh and above that attract tax of 10%, 20% and 30% respectively.
Now, those earning less than Rs 2.5 lakh (Rs 3 lakh if you are over 60 and 5 lakh if you are over 80) do not have to pay any tax. So, for tax payers and their advisors, the aim is always to bring down the taxable income as close to this exemption threshold as possible by maximising tax concessions allowed, thereby minimising the tax outgo.
Even if your income on paper is say Rs 10,00,001, putting you in the highest slab, smart use of some provisions in the tax laws can totally neutralise your tax liability. Read on to understand the tax reliefs that can help you achieve your zero-tax goal.
You are eligible for deductions under this section if you invest instruments like ELSS funds, public provident fund, national pension system (NPS) tax-saver fixed deposits, five-year post office deposits and Sukanya Samriddhi Yojana. Your EPF contribution will also earn you tax concessions under this section. You can also claim the tax relief on your life insurance premiums and children’s school tuition fees paid as also on repayment of your housing loan principal. Remember, the cumulative tax breaks cannot exceed Rs 1.5 lakh.
Introduced in the financial year 2016-17, section 80CCD (1B) allows you to avail of an additional tax break of Rs 50,000 if you have invested in NPS. This is over and above the 80C limit of Rs 1.5 lakh.
In a bid to make NPS more popular, the government has dangled another carrot in the form of tax break on employers’ contribution on behalf of employees. While it is treated as a prerequisite in the hands of employees, you can claim deductions of to 10% of your basic salary. In this case, either your organisation will have to voluntarily switch to this approach or you will have to convince it to do so.
Section 80D entitles you to a maximum deduction of up to Rs 55,000 for health insurance premiums paid. For self and immediate family, the limit is Rs 25,000. In addition, you can lay claim to an additional deduction of the same amount if you are also paying your parents’ health insurance premiums. If they happen to be senior citizens, the cap gets extended to Rs 30,000. However, it would be unwise to buy large or multiple health covers purely with the intention of exhausting the tax relief – you must buy a cover that serves its core purpose of paying your hospitalisation bills. The total health premium here is assumed to be a realistic figure of Rs 40,000 (Rs 15,000 for self and balance for parents).
Interest paid on your housing loan can lower your taxable annual income by up to Rs 2 lakh under section 24. First-time home buyers can avail of an additional deduction of Rs 50,000 if they have taken a loan of less than Rs 35 lakh for a property worth not more than Rs 50 lakh. Those who live in rented apartments can claim house rent allowance (HRA) benefits under section 8. The deduction allowed is the least of the actual HRA, 50% (40% if you are staying in non-metro cities) of your salary and rent paid minus 10% of the salary.
Most salaried tax-payers’ get this allowance, which is exempt from tax under section 10(14). The Union Budget 2015-16 raised the maximum limit to Rs 1,600 from Rs 800 earlier.
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.
Like transport allowance, medical reimbursement, too, is a common component in salaried individuals’ pay packages. Up to Rs 15,000 is exempt from tax, provided employees submit medical bills to back the claim.
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.
LTA does not come with any monetary cap on the maximum permissible deduction, but carries several restrictions, which limit the tax relief. For one, you cannot claim this benefit every year – you can do so only twice in a block of four calendar years. You can travel by air, road or rail, but the exemption is restricted to an amount equal to first class train fare. Moreover, this tax break is not available for international travel. In this case, Rs 30,000 is used as an estimate of expenses one is likely to incur while travelling within the country with family, which includes spouse, kids, parents and siblings, if they are dependent on you. Though you cannot claim this exemption every year but if you and your spouse both are working then both of you can claim the exemption in alternate year to optimize the tax benefit.
The value of food and non-alcoholic beverages or meal vouchers provided by the employer is exempt from income tax to the extent of Rs. 50 per meal. If the value of food and non-alcoholic beverages or meal vouchers exceeds Rs. 50 per meal, the value in excess of Rs. 50 shall be taxable. Depending on the company policy this exemption can range between Rs. 1,000 – Rs. 2,200 p.m.
An allowance to the extent actually incurred to meet the cost of travel on tour or on transfer, expenses incurred on conveyance in the performance of official duties are exempt. Again, the reimbursement figure is not determined by tax laws, but the actual expenses incurred by the employees. Here, Rs 1.5 lakh is assumed to be a reasonable estimate of conveyance expenses an individual is likely to incur in a year.
Actual expenditure incurred by employer towards the mobile or telephone facility provided to an employee including the one provided at his residence is tax exempt in the hands of employee. Assuming a monthly telephone expenditure of Rs. 2,000 if your employer provides this facility, you can claim the benefit of up to Rs. 24,000 just by submitting the actual bills to your employer
Any reimbursement of expenses towards purchase/subscription of books, periodicals for keeping yourself abreast with latest happenings relating to your profession is exempt under income tax act. You can claim this exemption by submitting the actual bill.
Any amount spent & reimbursed by employer for academic research or other professional pursuits including training, short term / online course etc. by an employee is fully exempted from income tax on production of actual bills. Though there is no cap under the Income Tax Act company may have the limit on the amount of reimbursement allowed.
If you are in the process of repaying your education loan, you are eligible for deduction for interest paid on the loan under section 80E. The tax benefit is also extended to those who take loan to fund their spouse’s or children’s education. Many tax-payers tend to donate funds towards various charities but overlook the tax benefits under section 80G as the process of claiming them can be tedious – you typically have to do it at the time of filing returns by entering the details of the charities and government-authorised national funds in your return form. Depending on the charitable organisation, the deduction could be limited to 50% of the donation made, making the process more complex. However, preserving donation receipts and taking time out to reproduce all details in your tax returns can help you reduce your tax outgo.