Tax planning for salaried employees

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As the financial year, 2017 -18 is going to end soon, the taxpayers of our country have started thinking about their expected tax liability and the tax saving schemes. There are many tax saving schemes or investments by which a taxpayer can reduce his tax liability. Few tax saving pieces of advice for the salaried class taxpayers by top tax consulting firms are:

Before starting with any tax saving options or schemes we have to understand the major changes introduced by the Union Budget 2017,

1. The tax rate between the slab INR 2.5 lacs to INR 5 lacs has been changed to 5% from 10%,

2. Now the income above INR 50 lacs but up to INR 1 crore will subject to surcharge @ 10%,

3. Rebate under section 87A is now available for INR 2500 for the income up to INR 3.5 lacs,

4. If the taxpayer has a loss amounting more than INR 2 lacs under the head house property then only the loss up to INR 2 lacs is eligible to set off against the income of any other head, balancing loss shall be eligible for carrying forward for 8 subsequent years.

Year-end tax planning options

a.i.1. Investment in equity-linked saving scheme

Deduction under section 80C can be claimed if you invest in Equity Mutual Funds, the maximum deduction can be claimed for this is INR 1,50,000.

a.i.2. Investment in sukanya samriddhi account

This is scheme introduced by the government to promote overall development of girl child, under this scheme parents of girl child below the age of 10 years are eligible to open an account under this scheme subject to a maximum of two children per account, maximum limit to invest in such account is INR1.5 Lacs per annum.

a.i.3. Life insurance premium

This is a well-known investment scheme that every individual taxpayer should consider, the premium paid on LIC scheme is entitled to the deduction under section 80C of the income tax act, further the maximum limit of deduction is restricted to INR1.5 Lacs.

a.i.4. Tuition fee for children

Again a well-known deduction is here, yes the tuition fees paid by parents are eligible for a deduction under income tax act.

5. Investment in national saving certificates

The national saving certificate is another option to get a tax benefit in terms of deduction under section 80C with a maximum limit of INR1.5 lacs.

Do you know your family can also help you to reduce your tax burden; there are ways by which your family helps you in reducing tax burden:

1. Invest in the name of your parents, spouse, adult child

For the purpose of income tax act your parents, spouse, adult child are individual entities for assessing income and paying taxes, any income derived from any investment made in name of parents/spouse/children shall although be clubbed in your income but if the investment is eligible to any deduction or the income from investment falls under the basic slab exemption limit, you can get slab benefit on such income. That income would be treated income of your parents/spouse/adult child which is below the basic slab exemption limit.

2. Pay rent to your parents

If you are living with your parents and the property is registered in the name of your parents then you can pay rent to your investment in order to get a deduction of rent under HRA exemption if you are a salaried employee or in section 80GG in case you are self-employed. This is legal to pay rent to your parents because they are a separate entity for the purpose of income tax, further parents will also get the slab benefit if the rent received by them falls under slab exemption limit.

3. Buy health insurance plan for your parents

Health insurance premium paid for your parents are eligible to be a deduction under section 80D subject to a maximum deduction of INR30,000.

4. Invest on the name of minor child

Income on an investment made on minor child name is clubbed in parent’s income but they will get a maximum deduction of INR1500 per child.

Tax liability is a major concern for salaried class individuals, there are various type perquisites and allowance that a salaried class individual receives during their employment, and here we will discuss the extent to which the value of those perquisites and allowance are exempted.

1. Medical reimbursement is exempted up to INR15000

2. Transport allowance is exempted up to INR1600 per month

3. Uniform allowance is exempted to the amount actually received or spent; whichever is least

4. Telephone allowance is completely tax-free allowance,

As per tax experts from top tax firms, not just the investment saves taxes, but your donation for the help of needful is also eligible for tax deduction under section 80G, but the donation should be made to authorized schemes for claiming it as a deduction.