Knowledge Centre for Tax Planning
Tax Planning tips that can assist salaried people to reduce their tax liability.
Make full use of the entire section 80C deduction:
Under Section 80C, the maximum deduction available is Rs 100,000 pa. Also, at times, individuals make investments of over Rs 100,000 in Section 80C designated avenues, since they fail to understand that the benefits are capped and the amount eligible is only Rs 100,000. For making investments in this section you will have to decide on the ideal debt vs. equity mix that is right for you based on your age, risk-return profile and goals.
Following investments/contributions meet the criteria for Section 80C reduction:
- Public Provident Fund
- Accrued interest on National Saving Certificate
- Life Insurance Premium
- National Saving Certificate
- Tuition fees paid for children's education (maximum 2 children)
- Principal component of home loan repayment
- 5-Year fixed deposits with banks and Post Office
- Equity Linked Savings Schemes (ELSS)
Think beyond Section 80C
- Home loan: Interest payments of upto Rs 150,000 pa are entitled for reduction under Section 24.
- Medical insurance: A deduction of upto Rs 15,000 pa under section 80D is applicable under this.
- Education loan: Salaried individuals who plan to pursue higher education should avail of an education loan as the entire interest is eligible for deduction under Section 80E. The loan can be for self, spouse or child from an approved charitable institution or a notified financial institution.
Claim tax benefits on house rent paid
Salaried individuals can claim rent paid by them for residential accommodation, if HRA doesn't form part of their salary. This deduction is available under Section 80GG and is least of the following
- Actual HRA Received
- 40% of your Salary (i.e. Basic + DA). If you are in Mumbai, Delhi, Chennai or Kolkata then it is 50% of your salary.
- Rent Paid in excess of 10% of your salary
Opt for a joint home loan
The primary reimbursement on a home loan is entitled for a reduction of up to Rs 100,000 pa and the interest rewarded is entitled for a reduction of up to Rs 150,000 pa. To ensure that the tax benefit is optimally utilised, an individual can consider opting for a joint loan with his spouse or parent or sibling. This will ensure that both the co-owners can claim tax deductions in the proportion of their holding in the loan. The co-owner falling in the higher tax bracket should hold a higher proportion of home loan to ensure that the tax benefits are maximised.