In most such cases, it is possible to reduce the IT liability to nil with proper planning. The provisions to this effect are contained in Section 88 of the Income-Tax Act, 1961. The special feature of this proposed provision is that the benefit of special tax rebate on certain investments is permissible to all categories of employees, private or public sector.

As per Section 88 of the IT Act, 1961 tax relief is provided to salaried employees by granting them relief @ 20 per cent on the investments made. With a view to providing greater incentive to low-paid salaried employees, it has been proposed to grant IT rebate u/s 88 @ 30 per cent instead of the normal rebate of 20 per cent. To be eligible to claim this benefit, the employee must have 90 per cent of his gross total income from all sources by way of salary and to be eligible to claim this rebate, the gross salary should not exceed Rs 1 lakh. This upper limit has been kept to benefit the low-paid salaried employees and encourage them to save and invest.

However, one important thing employees must keep in view is that the benefit of enhanced tax rebate would be permissible only to those who have gross salary of maximum Rs 1 lakh. The term ``gross salary'' indicates salary before allowing any deduction u/s 16 (i), like standard deduction, etc.It is interesting to note that salaried employees having gross salary of Rs 1 lakh are required to pay IT either at 10 per cent or 20 per cent depending on their income slab. These would now be eligible to claim 30 per cent rebate. Due to the proposed amendment, it would not be possible for most of the low-paid salaried employees drawing a gross salary income of Rs 1 lakh to substantially save tax by taking advantage of the provisions of tax deduction and tax rebates.

As per Section 80CCC, it is also possible for an employee to claim deduction of Rs 10,000 if the payment is made for pension plan of LIC or other insurer etc. If the investment is made in such a plan, then the taxpayer gets a deduction @ 100 per cent on the investments made subject to an maximum amount of Rs 10,000. However, the rebate is permissible for making investments either in LIC. PF, PPF, NSC repayment of housing loan, infrastructure bonds, etc. Thus, by making small investments in these schemes, the low-paid salaried employees drawing a gross salary income of Rs 1 lakh virtually does not payment income tax.

It is also possible for the salaried employee drawing gross salary of Rs 1 lakh to make payment of house rent and get tax deduction thereof as per Section 80GG of the IT Act, 1961. It may be noted here that if salaried employees do not get either house rent allowance or rent-free accommodation from his employer, he can well stay in rented premises and in view of Section 80GG can claim a deduction from his salary of 25 per cent subject to a maximum of Rs 2,000 per month. The question now is which investment will reap the best fruits.

The best optimum planning of investment can be achieved by salaried tax payers having gross salary income for the financial year 2001-2002 up to Rs 1 lakh p.a. by making investment of approximately Rs 14,000 in LIC, PF, PPF, NSC, etc. so that the full advantage of the tax rebate can be achieved with minimum funds to be invested. Reversely, it is seen that if the investment is made in pension plans and also in instruments as per Section 88, then the net outgo of funds is higher and moreover, when the money is received from pension plan at a future point of time it becomes taxable. The conclusion, therefore, can clearly be that for most of the salaried employees having gross salary income up to Rs 1 lakh it would be better if s/he takes full advantage of the new provisions granting tax rebate u/s 88 by making investment in LIC. PF,PPF etc. From the point of view of tax planning, it is suggested that the investment made may be in PF or PPF, so that tax-free income is received on the investment so made.

It is also better if a salaried employee invests in a self-occupied residential house by taking a loan so that the entire interest on loan is deducted from the salary income.