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Nitesh Gupta


Owner : CA Nitesh Gupta
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Created : 11-Aug-2011, 04:20:02


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Topic Title

Community : Nitesh Gupta
Topic : tax planning for salary employee

By : CA Nitesh Gupta
  

We believe there is a need for salaried individuals to devote adequate time and effort to the tax planning exercise and be aware of the various benefits that they can avail.

In this article, we present 5 tax-planning tips that can aid salaried individuals minimise their tax liability.

1. Utilise the entire Section 80C deduction

Under Section 80C, the maximum deduction available is Rs 100,000 pa. Ideally, salaried individuals whose gross total income is equal to or more than Rs 250,000 should utilise the entire Rs 100,000 limit.

Following investments/contributions qualify for Section 80C deductions,

  • Public Provident Fund
  • National Saving Certificate
  • Accrued interest on National Saving Certificate
  • Life Insurance Premium
  • Tuition fees paid for children's education (maximum 2 children)
  • Principal component of home loan repayment
  • Equity Linked Savings Schemes (ELSS)
  • 5-Year fixed deposits with banks and Post Office

(The above list of investment/contributions is not exhaustive. For a complete list, please contact caniteshgupta001@gmail.com

2. Think beyond Section 80C

For salaried individuals whose gross total income exceeds Rs 250,000 pa, deductions under Section 80C may not be sufficient to reduce the overall tax liability. In such cases they can consider the following:

Home loan: Individuals intending to buy a house should consider opting for a home loan. Interest payments of upto Rs 150,000 pa are eligible for deduction under Section 24.

Medical insurance: An individual who pays medical insurance premium for self or spouse/dependent children is allowed a deduction of upto Rs 15,000 pa under section 80D.

An additional deduction of up to Rs 15,000 pa is allowed for premium payment made for parents. In case the parents are senior citizens, then the maximum deduction allowed is Rs 20,000 per year.

Donations: Subject to the stated limits, donations to specified funds/institutions are eligible for tax benefits under Section 80G.

3. Restructure the salary

Restructuring the salary and including certain components can go a long way in reducing the tax liability. Unlike eligible investments which lead to an additional cash outflow, restructuring the salary is a more 'efficient' means of claiming tax benefits.

4. 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.

5. Opt for a joint home loanIn cases where the home loan is for a substantial sum, it is not uncommon for the interest and principal repayment to exceed the stated limit. 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. 



By : CA Nitesh Gupta
  

 
Tax Planning Tips
 

A good citizen should always pay tax. But he should not end up paying unnecessary tax. A smart citizen is one who pays tax but also makes maximum use of provisions available in Tax Laws to minimize it. This can be achieved through scientific Tax planning.

An Indian Citizen can save tax under the following sections:

Section 80C of Income Tax Act 1961

A maximum of Rs. 1,00,000 can be claimed as a deduction from your taxable income provided it is invested in any / all of the following:

  • Premiums paid towards Life Insurance Policies
  • Equity Linked Saving Schemes (ELSS)
    ELSS are Mutual Fund schemes having a lock-in period of 3 years. Examples: SBI Magnum Tax Gain Scheme, HDFC Tax Saver, Pru ICICI Tax Plan, etc. 
  • Public Provident Fund (PPF)
  • National Savings Certificate (NSC)
  • Principal paid towards Housing Loan


 
   

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