With the days of this year’s ITR filing coming to a close, we are here to update you on what your planning should look like! If you’re a salaried employee, tax planning can prove to be one of the most stressful times of the year. The truth of the matter is that tax planning is an integral part of your investment plan along with managing your finances. At the end of the day, let’s face it – no one likes to pay excessive tax and any suggestions on how to minimise overall tax liability are certainly welcome. 

If you have ever felt that you are paying too much tax, then the good news is that, with the help of some tax planning tips, you can make a significant difference to the tax amount you pay. After all, saving money is equally as important as earning money, and that's something which is achievable through proper tax planning.

If you have been on the lookout for a quick reference guide to help you minimise your tax liability by making the best use of the various tax exemptions, deductions, benefits available, look no further, just read on!

1. Medical bills tax exemption

From FY 2018-19, a standard deduction of Rs 40,000 in place of travel, medical expense reimbursement has been proposed for salaried employees and pensioners. Thus, to claim this standard deduction, there is no need to safely keep hold of medical bills or submit them to your employer.

2. Make Optimum Use of Section 80C.

Under Section 80C, the maximum deduction available to salaried individuals is Rs. 1,50,000 p.a, and you should make it a point to utilize the entire Rs. 1,50,000 limit.

If you’re trying to figure out where you need to invest in order to maximize your deduction under Section 80C, take a look at the below-mentioned investment options:

• Public Provident Fund (PPF)
• National Saving Certificate (NSC)
• The principal component of home loan repayment
• Contribution to employee’s provident fund (EPF)
• Life Insurance Premiums
• Tuition fees paid towards your children's education (up to 2 children)
• Equity Linked Savings Schemes (ELSS)
• 5-Year fixed deposits with Banks or the Post Office

3. House Rent

As a salaried person, chances are that you have come across a term called HRA, i.e. House Rent Allowance. Accordingly, you are eligible to claim a tax exemption if you live in a rented apartment. However, even if your organisation hasn't made a provision available for HRA, you're still eligible to receive tax benefits under Section 80GG.

Tax exemption on HRA can be claimed if it is the least of the following:

• The actual amount allotted by the employer as the HRA.
• Actual rent paid less 10% of your basic salary.
• 50% of the basic salary, if you live in a metro city, 40% if in a non-metro city.

4. Leave Travel Concession

In certain organisations, employees are eligible for Leave Travel Allowance (LTA), which forms a part of your salary structure. Also known as Leave Travel Concession (LTC), LTA is usually included in your Cost-to-Company (CTC) and its benefits are available for exemption under section 10(5) of the Income Tax Act, 1961.

Under LTC, you're eligible to claim a reimbursement of expenses incurred on travel for yourself and your family members for any journeys undertaken within India on the actual travel costs, i.e., air, rail or bus fare. However, you need to keep in mind that LTA exemptions can be claimed only for two journeys in a block of 4 calendar years.

5. Donations

If you have made any donations towards a specified charity or an NGO that is eligible for tax deduction, make sure to avail it. 100% or 50% (whichever is permitted for that specific entity) of the amount donated is eligible for deductions Under Section 80G. However, from FY 2017-18 onwards, any donations made in cash exceeding Rs 2,000 will not be allowed as deduction. The deduction can be claimed only when the contribution has been made via a cheque/draft/cash. However, deduction is not allowed from donations made in cash exceeding Rs 10,000.

6. Health Insurance

You need to keep in mind that Section 80C covers Life Insurance premiums, not health or medical related premiums. While investing in life insurance is a must, when it comes to financially safeguarding your family and yourself from any medical eventualities, investing in a Health Insurance policy is equally important. Moreover, it also allows you to claim an income tax exemption under Section 80D, thus making it one of the must-have financial products. Here’s how you’re eligible for tax deductions under Section 80D:

• A deduction of Rs. 25,000 per annum can be claimed for medical insurance purchased for self, spouse or children and Rs. 25,000 for parents (dependent or not). Thus, if you pay an annual premium of medical insurance, you can claim the amount paid as tax exemption.

• The tax exemption allowed on medical insurance has been raised to Rs. 50,000 per year for FY 2018-19 for senior citizens.

• Besides, you can get a tax deduction on preventive health check-ups yearly. Inside the limit of Rs. 25,000, you can also claim a deduction up to Rs. 5,000.

7. Home Loan

Comprising of two components- the principal and the interest, the good news is that you can get a tax benefit on both elements. Under Section 24 of the Income Tax Act, you are eligible to get a deduction on home loan interest repayment up to Rs. 2,00,000 (Rs. 3 lakh for senior citizens) or the actual amount that you have repaid. However, it needs to be mentioned that in case you opt to rent out your property, then you aren't eligible to make use of this exemption.  Additionally, as discussed above, you can also claim a deduction on the principal amount under Section 80C up to a maximum of Rs. 1,50,000 (Rs 2 lakh for senior citizen). You can also claim additional exemption of up to Rs. 50,000 on interest paid for loans upto Rs 35 lakh with cost of home upto Rs. 50 lakh.

8. Pension Funds

Pensions funds are not only a good way to plan for your retirement, but under Section 80CCC, you can also reduce your tax burden when you contribute to specified pension funds up to Rs. 1,50,000 per annum. Additionally, you are also eligible to avail tax benefits on withdrawal if you withdraw up to 1/3rd of your accumulated pension funds.

To Conclude:

If you were unsure of how to begin your tax planning journey, we hope you now have a definite idea of where to kick-start your tax planning initiatives. By getting an in-depth understanding of all the investment avenues available to you, you can not only save tax but also achieve your investment goals.

(All care has been taken to maintain the accuracy of the information detailed in this blog. Aviva, however, assumes no responsibility about the accuracy of the blog or of the actions taken based on it. Please do refer to the Income Tax Department’s online tax filing site, https://www.incometaxindia.gov.in/Pages/tax-services/file-income-tax-return.aspx, for any further clarifications)

AN Feb 55/19

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