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Income tax tips
As must be clear by now, drawing a straightforward salary will result in the maximum tax liability for an individual. To save taxes, it is important to factor in other components of compensation which might help in saving taxes. So next time you negotiate your compensation with your employer, keep the following points in mind:
* HRA: It is possible to maximise the benefit received through HRA by balancing the figure in such a way that the figure calculated under all three methods is approximately the same.
* PF: The contribution made by an employee to his/her PF is deductible under the overall limit of Section 80C. The most hassle-free way of saving taxes is by increasing the amount of this contribution. This will result in an automatic saving and one will not have to worry about making the necessary investments.
* Other tax-free allowances: You can factor in fully exempt allowance in your compensation such as daily allowance, subsistence allowance, helper allowance, etc.
* Perquisites: Non-taxable perquisites such as free lunch, club membership, company car, etc., can be added to the compensation package.
There are various deductions allowed from the total income of an individual while computing his tax liability. Some of them are as follows: Housing loan interest: The interest paid on any home loan is deductible from the total income up to a limit of Rs 1.5 lakh. However for this deduction, the interest is calculated [...]
The key points to be kept in mind while planning your taxes are as under:
* As far as possible, try to break up your compensation into allowances that are fully or partially exempt from tax.
* Save as much as you can in investments covered under Section 80C.
* Uncommuted pension is taxable, so try to get your pension commuted.
* Have your medical expenses reimbursed instead of taking a fixed medical allowance which is taxable.
* Factor in facilities such as free lunch, telephone, etc.
* Keep in mind that any amount of conveyance reimbursed is exempt if incurred for official purposes.
* Interest paid on home loan loan is a big benefit in tax saving and it can be availed of in addition to any HRA benefits receivable.
* Retirement benefits like gratuity attract lower tax in the beginning of the year. Hence, you should plan retirement or resignation at the beginning of the year.
* There is no limit on the actual LTA reimbursement. Try to maximise this benefit.
* An exemption is available if receipts from voluntary retirement schemes are paid in instalments.
* A chauffeur-driven car is not a taxable perquisite.
* Take advantage of facilities like club memberships being offered by your employer. These are non-taxable.
Let us see how proper tax planning can actually save you money. Ram and Shyam were two salaried employees, both with an annual compensation package of around Rs 7.5 lakh. Ram received the complete compensation in the following manner:
* Basic salary – Rs 4,00,000
* HRA – Rs 3,00,000
* Employer’s contribution to PF – Rs 48,000
* Total compensation – Rs 7,48,000
Tax-saving investments are a basic part of every individual’s annual financial plan. There is a lot of choice that is available when it comes to the tax-saving investments, and these have to be considered while making a final decision. Here are some tips that will help you in this regard.
Make the best use of options present
There is a wide range of options that are present when it comes to the tax-saving field. In case of completion of the investment limit of Rs 1 lakh under Section 80C, you can invest into areas like Public Provident Fund, National Savings Certificates, Equity Linked Savings Schemes, Insurance premium and so on. Ensure that the right mixture of these options is chosen for the purpose of completing your tax-saving investment. There is no need to restrict your investments to just one or two areas, but what is important is to select the most suitable option.