The Union Budget for the Financial Year 2017 – 2018 proposed some new income tax rates and deductions that have been applicable and in effect since 1st April 2017.
Finance Minister Arun Jaitley brought cheers of joy and relief to the individual taxpayers when he reduced the income rate by half to 5 percent for the people having the income taxable between 2.5 lakhs to 5 lakhs compared to the 10 percent that was applicable before. An additional surcharge of 10% has been added to the 30 percent tax amount for individuals having the taxable income Rs. 50 lakh and Rs. 1 crore.
Even though the income tax exemption limit for the primary income remains at 2.5 lakhs, the Income Tax Act provides many tax exemptions that can be leveraged for the further reduction of your tax liabilities. Here the new income tax slabs for the general category (Up to 60 years of age) as per the Budget 2017.
|Net Income Ranges||Income Tax Rates||Education Cess||Secondary and Higher Education Cess|
|up to 2,50,000||Nil||Nil||Nil|
|Rs 2,50,000 – Rs 5,00,000||5% of (Total Income – 2,50,000)||2% of income tax||1% of income tax|
|Rs 5,00,000 – Rs 10,00,000||Rs 12,500 + 20% of (Total income – 5,00,000)||2% of income tax||1% of income tax|
|Above Rs 10,00,000||Rs 1,12,500 + 30% of (Total income – 10,00,000)||2% of income tax||1% of income tax|
As the new financial year has already begun, one needs to start early with tax planning to make the best use of the various income tax deductions available.
Here are 5 ways to save tax for salaried employees
1) House Rent Allowance
Commonly known as HRA, House Rent Allowance comes under Section 10 (13A) of the Income Tax Act. Salaried employees can make the best use of this deduction as they live on rent. HRA can be both partially and fully exempted from tax. For people that live with their parents can also claim this benefit by paying the necessary rent to their parents depending that their parents include the rental income in their tax returns.
The Amount exempted under HRA is calculated as follows –
- Annual rent paid minus 10% of the basic salary plus dearness allowance
- Actual HRA received
- 40% of basic and dearness allowance (50% in case of metro cities)
2) Section 80C deductions
Income deduction benefits up to Rs 1.5 lakhs is available under Section 80C of the Income Tax Act. The investment options that offer benefits under this section 80C are Public Provident Fund (PPF), Employees’ Provident Fund (EPF), National Savings Certificate, Sukanya Samriddhi Account, and tax-saving fixed deposits (FD). The premium paid for your life insurance plans, National Pension Scheme (NPS) and other tax-saving mutual funds like ELSS also qualify for deduction under Section 80C.
Equity Linked Savings Schemes (ELSS) is one of the most efficient ways of using the 1.5 lakhs limit to your advantage. It offers much better returns than other traditional instruments. And the best part of ELSS is that it has the lowest lock-in period of 3 years.
One can also claim principal repayment on the home loan, registration and stamp duty cost on the house bought and tuition fees paid for up to two children, as deductions under Section 80C.
3) Transport Allowance
An allowance of Rs 1,600 per month or Rs 19,200 annually towards your travel expenses is exempt from tax. Ask your employer to provide you a salary structure in a way that ensures you get travel allowances so that you can get tax benefits under this provision.
4) Medical Reimbursements
Any medical payments have done of up to Rs. 15,000 in aggregate in a year can be used to claim for tax deductions. This benefit can be requested by your employer only so ensure that you submit the relevant medical bills, lab test bills if any as well as the doctor consultation certificates on time.
5) Deduction under Section 80D
Under this section premium paid for the health/medical insurance for self, spouse and children can be claimed as tax deductions. If a person is below 60 years of age, he can claim a deduction of Rs 25,000, and if he is above 60 years old, he can claim Rs 30,000.
An additional allowance is provided to be reduced if one has bought the medical/health insurance for their parents. The conditions are same as above – 25,000 if the ages of parents are less than 60 years and 30,000 if the age is greater than 60.
Last but not the least, always ensure that your tax planning is always in sync with your short term and long term financial goals. By starting your tax plans early on, you get the necessary time to do a thorough research of all the provisions available.
Our experts at Integra Books can further help you to keep a track of your finances and guide you to greater financial growth. Talk to us today.