One should put the various tax deductions, benefits and exemptions to best use to minimise tax liability. Year-end tax planning strains finances if decisions are made in a hurry. Tax-saving investments should depend on financial needs and goals, distributed among assets classes to reap the dual advantage of lowering tax burden as well as building your portfolio. It would be worthwhile to look at the list of possible tax-saving avenues which could be resorted to by the salaried class to minimise the tax outflow. Also, one needs to ensure that the same is communicated in time to the employer to be factored in while computing the monthly withholding tax. If the payroll policy of your employer permits, you can explore the option of revising the compensation package to include tax free components or modify the limits for each of the components and also invest in tax deductible schemes.
Taking a break could also save you tax. Plan a holiday within India, take a leave and save taxes, by claiming tax exemption on reimbursement of your travel expense or Leave Travel Concession (LTC). It is available for two journeys in a block of four calendar years but the amount of exemption is limited to the economy-class airfare for the shortest route available to your vacation destination.
Being a workaholic is not so bad after all; so if you have not taken leaves and have opted for encashing the outstanding leaves, your employer would pay you leave encashment which is exempt from tax as under:
* Leave encashment actually received
* 10 months average salary
* Cash equivalent of unclaimed leave calculated on the basis of maximum 30 days leave for every year of completed service
* Amount specified by the government, i.e., Rs 300,000
Reimbursements of expenses from employer may be claimed as exempt. For example, medical expenses of up to Rs 15,000 per year or reimbursement of your telephone expenses if the phone is used for official purpose and other expenses incurred for office purposes.
Equity-linked savings scheme (ELSS) qualifies for Section 80C deduction and is best suited for individuals who are capable of bearing the instability of the equity market. ELSS also has the smallest lock-in period— three years—amongst all the tax-saving instruments.
Interest on education loan is also available as a tax deduction under Section 80E. Savings for girl child have tax benefits under the Sukanya Samriddhi Scheme. Other investments eligible for Section 80C deduction are life insurance premium, five-year bank fixed deposits, National Savings Certificate, National Pension Scheme, etc.
Health insurance for self and family entails tax benefits. Section 80D provides for deduction of Rs 25,000 for self and Rs 30,000 for dependent parent, for medical insurance premium and medical health check-up up to Rs 5,000.
Buying a home is a dream each of us share; it has tax benefits also attached to it. Additional deduction of Rs 50,000 for interest paid is allowed to first-time buyers. It would be tax sensible to buy the house jointly with your spouse, since each of you would be able to claim the deduction of Rs 2 lakh each on account of interest paid on home loan, against ‘income from house property’.
Charity has a tax angle too and donations made to certain notified/approved institution, are eligible for deduction subject to specified limits under Section 80G. Making timely decisions about your tax savings will help you distribute your investments over 12 months and reduce your burden in the last few months and also let you avoid eleventh-hour hasty decisions.
The writer is executive director, Nangia & Co LLP