Get an expert at affordable price

Are you salaried individual feeling the pinch of high taxes either in the form of Tax deducted at Sources (TDS) or Advance Tax? Have you ever thought of tax savings in a legal way? Have you avail all the tax benefits allowed in the income tax act?

In this article, SattvaCFO would suggest on the ways to save taxes

Tax Saving Tips for Salaries Individuals

Deduction from Salary
	Section 16(ia)	Standard Deduction
	Section 16(ii)	Entertainment Allowance
	Section 16(iii)	Professional Tax
Deduction from Retirement Benefits
	Section 10(10AA)	Leave Encashment
	Section 10(10B)	Retrenchment Compensation
	Section 10(10)	Gratuity
	Section 10(10A)	Pension
	Section 10(10C)	Voluntary Retirement
	Section 10(12A)	National Pension Scheme (NPS)
	Section 10(12B)	National Pension Scheme (NPS)
Allowances
	Section 10(13A)	House Rent Allowance [read with Rule 2A]
	Section 10(14)	Special Allowances [read with Rule 2BB]
Perquisites
	Section 17(2)	Various perquisites
	10(10CC)	Tax paid by the employer on perquisites
	10(5)	Leave Travel Concession (LTC/LTA)

 

Leave Encashment:

Government Employees: Any commuted pension received by a Government employee is fully exempt from tax. Exemption is available only in respect of commuted pension and not in respect of un-commuted, i.e., monthly pension. [Section 10(10AA)(i)]

Other than Government Employees: Exemption in respect of commuted pension in case of a non-Government employee will be as follows:

• If the employee receives gratuity, one third of full value of commuted pension will be exempt from tax under section 10(10A).
• If the employee does not receive gratuity, one half of full value of commuted pension will be exempt from tax under section 10(10A).

 

House Rent Allowance (HRA) [Section 10(13A) and rule 2A] : In case you are living in a rented premise, you have the options to claim HRA from your taxable salary. Most importantly, do remember to share valid rent receipts at the time of submitting your investment declaration details to your employer [Do read HRA exemption rules for detailed calculations]

Amount of HRA Exemption would be the least of the followings:

(1) 50% of salary, when residential house is situated at Mumbai, Kolkata, Delhi or Chennai and 40% of salary where residential house is situated at any other place;

(2) HRA actually received by the employee in respect of the period during which the rental accommodation is occupied by the employee during the previous year; or

(3) Excess of rent paid over 10% of Salary.

 

Leave Travel Allowances (LTA) [Section 10(5)]: You can claim 2 journey expenses in a block of 4 years is exempt. Exemption is based on actual expenditure. Any kind of fixed allowance will not be allowed as exemption. [Do read Leave Travel Allowance rules for detailed calculations]

Gratuity:

• Government Employees: Gratuity amount paid to Government employee is wholly exempt from tax. [Section 10(10)(i)]
• Employee other than government employee:
  • Covered by Gratuity Act [Section 10(10)(ii)]: Least of the following is exempt from Tax Least of following amount is exempt from tax:
    • (*15/26) X Last drawn salary X completed year of service or part thereof in excess of 6 months.
    • Rs. 20,00,000
    • Gratuity actually received
  • Not Covered by Gratuity Act [Section 10(10)(iii)]:: Least of the following is exempt from Tax Least of following amount is exempt from tax:
    • 1/2 X Average Salary X Completed years of service
    • Rs. 10,00,000
    • Gratuity actually received.

Pension:

Government Employees: Any commuted pension received by a Government employee is fully exempt from tax. Exemption is available only in respect of commuted pension and not in respect of un-commuted, i.e., monthly pension. [Section 10(10A)(i)]

Other than Government Employees: Exemption in respect of commuted pension in case of a non-Government employee will be as follows:

• If the employee receives gratuity, one third of full value of commuted pension will be exempt from tax under section 10(10A)(ii).
• If the employee does not receive gratuity, one half of full value of commuted pension will be exempt from tax under section 10(10A)(iii).

 

Standard Deduction : Standard Deduction has been re-introduced from AY 2019-20 subject to lower of Rs 40,000/- or amount of Salary. [Section 16(ia)] .

This has replaced the existing transport allowance of Rs 19,200, and medical reimbursement of Rs 15,000. As a result, salaried people can avail an additional income tax exemption of Rs 5800 with effect from AY 2019-20.

Employment Tax: Professional Tax or tax on employment levied by State is allowed as deduction [Section 16(iii)]

Interest on Housing Loan : Section 24 & Section 80C:

• Interest Portion: Section 24(b): Interest on borrowed capital is allowable as deduction on accrual basis
• Principal Portion: Section 80C : Any amount towards repayment of housing loan would be allowed as deduction under section 80C subject to maximum celling of Rs 1,50,000/-

 

Deduction under section 80C: Under section 80C, a deduction of Rs 1,50,000 can be claimed from your total income. Investment upto Rs 1,50,000/- is allowed to individuals & HUF in Life Insurance, Provident Funds (SPF, RPF, PPF), Superannuation Fund, National Savings Certificates (NSC), Sukanya Samriddhi Account, Unit-Linked Insurance Plan, Tuition Fees, notified units of mutual funds, Senior Citizen Scheme etc

Contribution to Pension Fund: Section 80CCC: This section provides a deduction to an individual for any amount paid or deposited in any annuity plan of LIC or any other insurer

Contribution to National Pension System (NPS): Section 80CCD:

Employee’s Contribution [Section 80CCD(1)]: Individual contribution to NPS is deductible. Maximum deduction allowed is 10% of salary (in case the taxpayer is an employee) or 20% of gross total income (in case the taxpayer being self-employed). Further contribution to 80C, 80CCC & 80CCD(1) should not exceed the celing of Rs 1,50,000/-

Employer’s Contribution [Section 80CCD(2)]: Additional deduction is allowed for employer’s contribution to employee’s pension account of up to 10% of the salary of the employee.

Additional Contribution upto Rs 50,000/- towards NPS [Section 80CCD(1B)]: An individual assessee can claim additional deduction upto Rs 50,000/- on his investment in NPS.

 

Medical Insurance Premium: Section 80D: An Individual or HUF can claim deduction under this section. Amount of Rs 25,000/- is allowed towards self, spouse & Children. Further, enhanced amount of Rs 50,000/- is allowed is senior citizen parents are included in the policy.

Deduction for loan on higher studies: Section 80E: Entire payment of interest is deductible subject to maximum period of 8 years or till the interest is paid whichever is earlier.

Deduction for Donations: Section 80G : Donation of certain funds, charitable institutions

Deduction for contribution to political party: Section 80GGC : Contribution made by assessee to political party or electoral trust is deductible in case payment made other than by cash.

 

Deduction on Savings Bank Account: Section 80TTA

• Other than Senior Citizen: An Individual or HUF can claim a deduction upto Rs 10,000/- in respect of any income from interest on Savings Bank account held with a banking company, Co-operative bank, Post office.
• Senior Citizen: Amount upto Rs 50,000/- is allowed to senior citizen on interest from bank/co-operative bank/ post office. It is pertinent to note here that interest may be fixed deposit, savings account or any other interest.

 

Transport Allowances: Employee can claim tax benefit of Rs 1600/- per month to meet expenditure on account of travelling between his residence & office. [withdrawn wef AY2019-20]

Meal Allowances: some employers do provide meal coupons like Sodexho to their employees. An amount of Rs 2600/- per month is allowed as deduction. Do remember to opt for this scheme with your employers. Most of the major retailers accept Sodexho & other coupons and there is no charges to payable from the employees end for this type of coupons. [withdrawn wef AY 2019-20]