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Tax Planning Tips for Employees

Tax Planning Tips for Salaried Employees for during FY 2015-16

Tax Planning Tips for Employees:

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Below mentioned are the ways to save tax in salaried income for AY 2016-17:
1. House Rent Allowance: If your salary includes House Rent Allowance, the same can be made exempt upto a particular limit using the Section 10(13A) of Income Tax Act, 1961.
The least of the following is exempt from the tax-
(a) An amount equal to 40 percent of the Salary (or 50 percent of salary if the residential house is situated in Mumbai, Kolkata, Delhi or Chennai),
(b) House Rent Allowance received by the employee in respect of the period during which the rental accommodation is occupied by the employee during a particular Financial Year.
(c) The excess of rent paid over 10 percent of salary (Rent Paid – 10% of Salary).

• The word “salary” mentioned above consists of Basic Salary and Dearness Allowance only.

Tax Planning Tips for Employees

Tax Planning tips using HRA:
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1. To avail exemption under section 10(13A), there is no requirement that the employee should not own a house. If an employee resides in a rented property, he can claim exemption even if he owns a house (in the same city or different city).
2. The employee should not reside in his own house.
3. The exemption can be claimed even if the house is owned by a close relative (may be wife or husband or father or mother) and for which rent is regularly paid (i.e. the payment of rent to such relative should be made on regular basis through bank entry).
4. The rent should be planned in such a way so that the amount under Point (c) gets equal to or more than the amount of Point (b).

Tax Planning Tips for Employees

2. Transport Allowance: The Transport Allowance received by the employee is exempt upto Rs. 1,600 per month. The taxable amount of transport allowance should be calculated after deducting Rs. 1,600 per month for every month the allowance is received.

Tax Planning Tips for Employees

3. Medical Reimbursement: Most of the time the term “Medical Reimbursement” is used interchangeably with the term “Medical Allowance”. However, in the eyes of law as well as logically, both the term signifies two different meaning.
The “Medical Allowance” is a fixed allowance paid every month to employees irrespective of the fact whether they submit the supporting bills or not. It is 100% taxable under Income Taxation Law.
On the other hand, “Medical reimbursement” is a payment made to employees against medical bills produced by them subject to their entitlement.
• The Medical Reimbursement by an employer on behalf of the supporting bills provided by the employee is exempt upto Rs. 15,000/- for whole year.
Income from House Property
The Income from the house property owned is dealt under this head. The income is computed on each house property owned individually.
• Out of all of the house properties owned by the assessee, the property used for the residential purpose will be considered as Self Occupied Property.
• The house properties except for Self Occupied Property will either be let out or will be deemed let out (even if they are locked and vacant). If the deemed let out property is vacant and not let out, still it is deemed to be let out and its rent will be taxable on the basis of Standard Rent prevailing in the market for such accommodation.

Tax Planning Tips for Employees

Home Loan Benefits
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Home loan in itself is the only kind of loan or debt which brings smile on the face of the taxpayers. It serves you a deduction upto Rs. 2 lac (if the property is self-occupied) for the interest payable on loan, if you fulfil the below mentioned conditions-
(a) The loan is borrowed on or after 1st April, 1999 for acquiring or construction of property.
(b) The acquisition or construction of the property should be completed within 3 years from the end of financial year in which the loan was borrowed.
(c) The person providing the loan certifies that the interest is payable in respect of the amount advanced for acquisition or construction of the house or the interest is on the amount borrowed to pay the earlier home loan outstanding.

Tax Planning Tips for Employees

The following points should also be noted-
• If the loan is borrowed for reconstruction, repairs or renewals of a house property, then the maximum amount of deduction on account of interest is Rs. 30,000.
• There is no stipulation regarding the date of commencement of construction of the house property.
• If the aforementioned three conditions are not satisfied then the interest on the borrowed loan is deductible upto a maximum of Rs. 30,000.

Income from Capital Gain
short-term-capital-gains
In this section, we will know how to save tax on capital gain income on sale of
(a) Residential Property
(b) Non-residential Property

But before that, let us know what exactly the term capital gain resembles,
Capital Gain is the difference between the sales consideration of the property sold less the cost of acquisition (purchased) indexed till the present date using cost inflation index.
Capital Gain are of two types, if the asset transferred was held for more than 3 months, then the capital gain arising on such transaction is Long Term Capital Gain and otherwise its Short Term Capital Gain.

Tax Planning Tips for Employees

Tax Saving on Capital Gain on sale of Residential House Property (Section 54)
– For claiming tax saving on capital gain on sale of residential house property, following conditions should be satisfied:
(i) The house property should be a residential house
(ii) The house property is a long term capital house (i.e. must be held for more than 36 months before sale)
(iii) To avail the exemption, the assessee will have to purchase or construct a residential house (only one house can be purchased or constructed). For this purpose, house can be purchased within a period of one year before the sale (or within 2 years after the date of sale). Alternatively, the house can be constructed within 3 years from the date of transfer.
(iv) The new house property which is purchased or constructed within the time-limit specified above should be situated in India.

Tax Planning Tips for Employees

– If the amount of the capital gain is less than the cost of the new house than the entire amount of the capital gain is exempt from the tax. On the other hand, if the amount of the capital gain is greater than the cost of the new house property, the difference between the amount of the capital gain and the cost of the new house is chargeable to tax.
– The new house property should be hold with the assessee atleast for a period of three years.

Tax Planning Tips for Employees

Tax Saving on Capital Gain on sale of asset other than Residential House Property
(Section 54F)
– The assessee should be an individual or HUF
– The asset transferred is any long term capital asset but other than a residential house.
– The assessee has purchased, within one year before the date of sale or 2 years after the date of sale or constructed within 3 years after the date of sale, one residential house.
– The assessee shall not sell or transfer the new house within 3 years of its purchase or construction.
– In such a case, if the cost of new house is more than the net consideration in respect of the asset sold, the entire capital gain arising from the sale will be exempt from the tax.
– If the cost of the new house is less than the net consideration in respect of the asset transferred, the exemption from the long term capital gain will be granted proportionately. (Cost of New House x Capital Gain ÷ Net Consideration)

Tax Planning Tips for Employees

Section 54EC
– One another way to exempt the capital gain tax is to invest the capital gain amount in bonds of NHAI and REC
– In this case, the sale of residential or non-residential does not matter.
– The maximum limit of investment in one financial year is Rs. 50 Lac
– The investment should be made within 6 months from the date of sale of the asset.

Deductions under Section 80C
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If an assessee invests an amount of Rs. 1.5 Lac in below mentioned options, the same shall be allowed as deduction from the Gross Total Income taxable under Income Tax:
– Life Insurance Premium
– Contribution towards Statutory Provident Fund and Recognised Provident Fund
– Contribution towards 15 years PPF
– Subscription to National Saving Certificates (VIII Issue and IX Issue)
– Payment for notified annuity plan of LIC
– Subscription towards notified units of Mutual Funds of UTI
– Principal amount paid towards instalments of home loan taken for purchase/ construction of residential house in India
– Any sum paid as tuition fees whether at the time of admission or otherwise to any university/college/educational institutes in India for full time education of any two children of Individuals.
– Amount deposited in a fixed deposit for 5 years or more with a scheduled bank in accordance with a scheme framed and notified by the Central Govt.
– Subscription to any notified bonds of NABARD
– Amount deposited under Senior Citizen Saving Scheme
– Amount deposited in Five Year Time Deposit Scheme in post office
– Investment made under Equity Linked Saving Schemes (Section 80CCB)
– Contribution to pension funds (Section 80CCC)
– Contribution to Pension Schemes (NPS) notified by Central Govt.

Tax Planning Tips for Employees

Deduction under Section 80D (for medical insurance)
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Tax Planning Tips for Employees

– The taxpayer should be individual
– Medical insurance is paid by the individual or HUF. The payment can also be made to the CGHS and/or preventive health checkup.
– Payment should be made out of income chargeable to tax.
– Payment should be made by mode other than cash. However payment towards preventive health check-up can be made in cash.
– The amount of deduction for medical insurance is Rs. 25,000, and an additional deduction of Rs. 5,000 if the policy is taken on the life of a senior citizen).
– The policy should be for the benefit of the assessee, spouse, dependent children and parents (whether dependent or not).

Tax Planning Tips for Employees

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Tax Planning Tips for Employees

Tax Planning Tips for Employees

Tax Planning Tips for Employees

 

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