Tax planning for salaried employees

The first month of the new year is over and slowly we are nearing that time of year when all salaried employees have to submit proof of investments for tax savings. Yes, you guessed it right we are talking about financial year-end famously known as March ending!

Tax planning is a year-long process. In case you have not done it yet worry not you still have some time to save your taxes. Let us see where all you can save your taxes and what proof do you need to your employer to claim the deduction.

• House Rent allowance - Many employees receive house rent allowance (HRA) as part of their salary. To claim this deduction you need to submit rent receipts signed by the landlord to your employer.
• Interest on home loan - Interest on home loan up to Rs. 2,00,000/- is allowed as a deduction. To claim this deduction you will have to submit an interest certificate on home loan to the employer.
• Deductions under section 80C - To promote the habit of investment government allows deductions up to Rs. 1,50,000/-. There are many products in which you can invest and save taxes. Let us see some of these products and also learn what proofs you need to submit to claim these deductions - 

1. Life insurance schemes - One can invest in life insurance policies of LIC or any other company which are eligible for deduction under section 80C. For claiming deduction you are required to submit receipts of premium paid during the financial year.
2. Public provident fund - Public provident fund (PPF) is a long term small saving scheme. The limit for deposit in PPF is a minimum of Rs. 500/- p.a and a maximum of Rs. 1,50,000/- p.a. To claim the deduction you are required to submit the bank statement of the PPF account.
3. Mutual funds - You can invest in mutual funds known as Equity-linked saving schemes (ELSS). This is a safer way of investing in the share market and is also eligible for deduction. To claim a deduction you need to submit proof of purchasing an ELSS
4. Tax saving fixed deposit - Fixed deposit is considered as safest investment. For the purpose of deduction, you need to invest for a fixed period of not less than five years with a scheduled bank. To claim a deduction you need to submit the FD receipt to your employer.
5. Tuition fees - You can claim a deduction in respect of tuition fees paid for any two children. To claim the deduction you are required to submit a receipt of tuition fees paid to any university, college, school or other educational institution situated within India. 
6. Sukanya Samriddhi Yojana - As a part of the government's "Beti Bachao, Beti Padhao" campaign, the government has launched Sukanya Samriddhi Yojana. The limit of deposit for this scheme is a minimum of Rs. 250 p.a. and a maximum of Rs.1,50,000/- p.a. To claim a deduction you need to submit a statement of deposits made during the year.
7. Principal repayment of housing loan - Apart from interest on a home loan up to Rs.2,00,000/- you can claim a deduction in respect of principal repayment of housing loan. 

•  Contribution to National Pension Scheme - One can claim a deduction in respect of contribution to pension scheme of the central government such as Atal Pension Yojana. Deduction under this section can be categorised into three parts:

1. 80CCD (1) – The maximum limit available under this section is 10% of salary. This deduction is included in the overall limit of deduction under section 80C.
2. 80CCD(1B) – An additional deduction up to Rs. 50,000/- is allowed for the contribution made by an individual to the notified pension scheme. This deduction is allowed over and above the total deduction under section 80C. For e.g., if an individual has claimed a deduction of Rs.1,50,000/- under section 80C, he can claim an additional deduction of Rs. 50,000/- under section 80CCD(1B).
3. 80CCD (2) – An individual can claim a deduction of the contribution made by his employer to a notified pension scheme. The maximum limit w.r.t contribution made by the central government is 14% of salary and w.r.t any other employer is 10% of salary.

Documents to be submitted to the employer to claim the deduction – Receipt of the contribution made to the pension scheme.

•  Mediclaim - Apart from claiming deductions under section 80C, one can save taxes by taking health insurance policies. The ongoing pandemic has only underlined the importance of health insurance. Let us learn about limits and conditions for claiming deductions.

Apart from the above, one can claim the following deductions:

Preventive health check-ups – Preventive health check-ups of up to Rs. 5,000/-. However, this is included within the overall limit of Rs.25,000/- or Rs.50,000/- as the case may be.

Medical expenditure – If assessee/spouse/dependent children are senior citizens then an additional deduction on account of medical expenditure up to Rs. 50,000/- can be claimed. However, this is included in the overall limit of Mediclaim which is Rs. 50,000/-.

Medical expenditure incurred on parents who are senior citizens is allowed for deduction up to Rs. 50,000/- However, this deduction is included in the overall limit of Mediclaim which is Rs. 50,000/-.

Documents to be submitted to the employer to claim the deduction:

Mediclaim – Receipt of premium paid

Preventive health check-up – Bill of health check-up

Medical expenditure – Bill of expenditure incurred

• Donations - One can save taxes by making donations to charitable institutions or relief funds. The donation can be made in any mode except cash. However, donations below Rs. 2000/- can be made in cash. The donation should be made to charitable organisations which are qualified for donations u/s 80G.

Documents to be submitted to the employer to claim the deduction – Receipt of donation paid to the charitable organisation.

• House rent paid - An individual who does not receive HRA as a component of salary can claim a deduction in respect of rent paid by him under this section.
• The assessee must submit a declaration form 10BA before the due date and before filing his return u/s 139(1) original return before claiming a deduction under section 80GG. (Name of the assessee with Permanent Account Number or Aadhaar Number)

Conditions for claiming deduction:

• The assessee his/ her spouse, minor child, or HUF of which he is a member shall not own any residential accommodation at a place where he currently resides, is currently employed or carrying on business or profession.
• If the assessee owns any residential property at any other place, then the same should not be assessed as self-occupied residential property.
• The assessee must be paying rent

The deduction will be the lowest of the:

• 5,000/- per month
• 25% of Adjusted Total Income
• Rent Paid Less 10% of Adjusted Total Income

Adjusted total income means income excluding:

• Long-Term Capital Gain
• Short term Capital Gain under section 111A or section 115D
• Deduction under section 80C to 80U
• Also, deduction under section 80GG is to be excluded

Documents to be submitted to the employer to claim the deduction – Rent receipt duly signed by the landlord.

• Interest on higher education loan - If an individual has taken a loan for higher education for himself, spouse or children, then interest on such loan is allowable for a deduction. The deduction is allowed for a total period of 8 years or the entire repayment whichever is earlier. The loan should be taken from any financial institution or approved charitable institution.

Documents to be submitted to the employer to claim the deduction – Interest certificate issued by the bank from which the loan is taken.

• Interest on a savings bank account - Interest on a savings bank account up to Rs.10,000/- is allowed as a deduction.

Documents to be submitted to the employer to claim the deduction – No document is required to be submitted. The deduction is automatically computed.

So, with help of the above information, you can plan your salary and save the maximum possible taxes. myITreturn.com has a team of experts who can help you get the maximum possible refund/reduce your taxes. To avail of services log in to https://myitreturn.com/income-tax-planning and let our tax experts release the burden of tax planning from your shoulders.

You can also check your estimated taxes by using our Income-tax calculator.