What is the best income tax saving option for salaried employees in FY 2018-19? The FY 2018-19 has already been started and you need to plan your income tax savings for this year. Read the following article Income Tax planning for salaried employees FY 2018-19 to explore all the ways of income tax deductions.
This year the tax slab has not been changed with respect to the previous year. Only the cess has been revised from 3 % to 4%.
Income Tax Slab
|Income up to Rs 2,50,000*||No tax|
|Income from Rs 2,50,000 – Rs 5,00,000||5%|
|Income from Rs 5,00,000 – 10,00,000||20%|
|Income more than Rs 10,00,000|
Surcharge: 10% of income tax, where the total income exceeds Rs.50 lakh up to Rs.1 crore.
Surcharge: 15% of income tax, where the total income exceeds Rs.1 crore.
Health & Education Cess: 4% of Income Tax.
# House Rent
House Rent Allowance (HRA) is the part of salary one gets from the employer. You can take benefit of income tax on the amount what you pay as house rent to your landlord. There is a rule how much of HRA you can claim as income tax benefit. First, you should satisfy the following conditions to get HRA as exempted from income tax.
- You must be salaried individual. This is not applicable for self-employed individuals
- You get HRA as a part of your salary
- You pay rent regularly for your accommodation.
- The rent which you pay is more than 10% of the basic salary. Here basic salary means the Basic Pay + Dearness Allowance(DA)
You have to provide landlord’s PAN if you are paying rent over Rs 1 Lakh in a year to your landlord. You can provide a signed declaration in case the landlord does not have the PAN. If you are staying with your parent you can take HRA exemption for your HRA of salary. In this case you need to provide the rent receipt from your parents.
You cannot claim on income tax benefits if you pay rent to your spouse. You cannot claim the HRA benefit if you are staying in a self-owned house.
The HRA is exempted from the income which is the minimum of the followings.
- Rent Paid excess to the 10% of basic salary
- Actual HRA received from employer
- 50% of the basic salary for metro cities and 40% of the basic salary for Non metro cities where the person resides.
Mr. A has Basic Pay of Rs 20,000 and DA of Rs 15,000 in his salary. He also gets HRA as Rs 15,000. Also, he pays rent of Rs 10,000 per month to his landlord. He lives in Mumbai. According to the above three conditions we have calculated the followings in chronological order.
- Rent paid – 10% of Basic Salary (Basic Pay + DA)=(10,000×12) – 10%(35000×12) = Rs 78,000
- Actual HRA received = 10,000×12 = Rs 1,20,000
- 50% of basic salary = Rs 2,10,000
Mr. A will get tax exemption for HRA of Rs 78,000 which is the minimum of the above calculation.
# Standard Deduction
A deduction of Rs 40,000 is deducted straight from your annual income this year. This is applicable in place of medical and conveyance allowance. This deduction is applicable for salaried and pensioners.
Earlier the benefit for medical allowance is Rs 15000 and conveyance allowance is Rs 19200. Hence, from this year you will get extra benefit of Rs 5800 (Rs 5800 = (40000 – 19200 – 15000))
If your taxable salary is more than Rs 40,000 in a financial year you will get the benefit of entire Rs 40,000 and you get benefit of Rs 20,000 when your salary is below Rs 40,000 in a year.
# Home Loan
The repayment towards a Home Loan is the great source of tax savings. You can claim the benefit for interest as well as principal part of the repayment amount.
Home loan interest is allowed to deduct from your income according to section 24 of income tax act. The maximum tax deduction allowed under section 24 is Rs 2 lakhs. This limit is for self-occupied property. If the property is not self-occupied there is no limit for tax benefit under section 24.
If the owner of the property is not residing in the self- property because of the profession, the tax deduction under section 24 shall be Rs 2 lakhs only.
This tax benefit is for completed property or the property which got the completion certificate or possession letter from developer. If the property is under construction the deduction can be taken up to 5 years or completion of the project which is earlier.
The principal part of the repayment can be claimed as tax benefit under section 80C of income tax act. This deduction is allowed for a maximum of Rs 1.5 lakhs.
You can get tax benefit of Rs 50,000 on interest of home loan over and above Rs 2 lakhs under section 80EE of income tax act. This deduction is allowed for the following cases.
- The value of the property should be less than Rs 50 Lakhs and the loan taken should be less than Rs 35 Lakhs.
- The loan should be sanctioned in the last financial year i.e. between 1st April 2016 and 31st March 2017.
- This benefit is available till the full repayment of the loan.
So total interest on housing loan deduction for FY 2018-19 is Rs 2.5 Lakhs.
# Education Loan
The amount of interest paid towards repayment of education loan is eligible for tax benefit under the 80E provision of income tax. This deduction is available for individual tax payers only.
There is no limit on the amount of deduction. The entire interest payment of education loan is tax-free. However, you cannot get any benefit on the principal amount of the loan.
You can avail the tax benefit when you actually pay the interest on education loan and the repayment should be from the income.
Education loan can be taken for the higher studies for self, spouse or children. You can also get the tax benefit for higher education of a student whom legal guardian is you.
# Mobile Expenses
Mobile allowance given by employer is tax-free under section income tax act 10 (14).
There is no limit in allowances which can be exempted from income tax. The mobile is to be used for official purpose only.
Some employers take the declaration from employee about the usage of their mobile calls whether it is official or personal.
# Savings Account Interest
You can get a tax benefit of Rs 10,000 from your savings bank account interest in a financial year under section 80TTA. This is not applicable for the interest from fixed deposit.
The interest from savings bank account and Fixed deposits in a bank and post office is exempted from tax up to Rs 50,000 for senior citizens. This can be claimed under section 80TTB of income tax.
# Section 80C
You can claim tax benefit of up to Rs 1.5 Lakh under section 80C. This is the area where all tax-payers concentrate to take benefit to the fullest.
There are various instruments available by which you can save to get the benefit of tax savings. The investments on the followings are applicable in this section.
- Employee’s contribution to Employee Provident Fund (EPF)
- Public provident Fund (PPF)
- Life Insurance Premium
- National Savings Certificate (NSC)
- Home Loan Principal
- Premium of Unit Linked Insurance Policies (ULIP)
- Equity Linked Savings Scheme (ELSS)
- Sukanya Samridhhi Yoajana Account (SSY)
- Five years fixed deposit
- Senior Citizen Savings Scheme
- Children’s tuition fee
- Purchasing of annuity scheme of LIC or others
- Contribution to the selected pension funds
If you deposit money in an annuity plan of LIC or any other insurer for pension funds you will get the tax benefit under section 80CC.
Salaried individuals can contribute to the NPS account under section 80CCD (1). The maximum deduction allowed in this contribution is 10% of the salary (basic Pay + Dearness Allowance) up to Rs 1.5 lakhs.
Moreover, an employer’s contribution of up to 10% of basic salary can be exempted from income tax under section 80 CCD (2)
However, remember that the combined contribution towards 80C, 80CC and 80CCD (1) is up to Rs 1.5 Lakhs.
# Children education allowance
A fixed education allowance of Rs 100 per children for a maximum of 2 children is allowed as exemption from income tax.
If the children reside in hostel you can get maximum of Rs 300 per child as income tax benefit.
Under section 80C(1) you can get the tax benefit of Rs 1.5 lakhs. In addition to this, you can get tax benefit of Rs 50,000 under section 80CCD (1b).
Hence if you invest Rs 2 lakhs in NPS you can have the entire benefit of income tax. People are investing Rs 50,000 on NPS to save income tax only. But is it really worth to invest read the following article.
# Medical Insurance
Premium payment of medical or health insurance is exempted from income tax under section 80D of income tax act.
The maximum sum which can be claimed as income tax benefit s maximum Rs 25,000. The benefit is Rs 50,000 for medical insurance of senior citizens. The premium of the health insurance should be for you, your spouse, dependent children and parents.
# Treatment of serious diseases
A deduction of maximum Rs 40,000 is tax exempted for medical treatment of self or dependents under section 80DDB. This deduction allows up to Rs 60,000 for senior citizen. For very senior citizens the deduction allowed is Rs 80,000 in a financial year.
The medical treatment of diseases such as cancer, chronic renal failure, Parkinson and other specified diseases in the rule 11DD is allowed to be exempted. There is no need to take certificate from a registered doctor in the Form-10. A self-declaration is now sufficient for the purpose.
# Handicapped Dependent
The expenditure incurred for the medical treatment of handicapped dependent is tax exempted under section 80DD of income tax act. The medical treatment costs include nursing and rehabilitation costs for the handicapped person.
There are fixed amount which can be claimed as tax benefit.
Disability between 40% and 80% – Rs 75,000 shall be exempted
Disability more than 80% – Rs 1,25,000 shall be exempted
For above 80% disability, a certificate of disability is required from prescribed medical authority. The certificate can be taken from a specialist from a govt or private hospital where the disabled person is being treated.
A deduction of Rs 75,000 and Rs 1,25,000 is also tax exempted for physical disability up to 80% and more than 80% respectively for an individual. This benefit is under section 80U of income tax.
Contributions made to charitable institutions or relief funds such as Prime Minister’s Relief fund and chief minister’s relief fund are exempted from income tax under section 80G.
The deduction can be 50% or 100% of the contribution according to the organisation where you are contributing.
The contributions of more than Rs 2000 should not be made by cash. You cannot claim more than Rs 2000 as tax benefit if you have paid the fund by cash.
The employees have to claim the return according to the contribution while filling up the income tax return.
# Income Tax Rebate:
There is an income tax rebate of maximum Rs 2500 under section 87A. This rebate is allowed for the individuals whose total taxable income is Rs 3,50,000.
Here the taxable income means the gross income minus deductions under section 80C. The rebate is applicable for total tax before adding education cess. It is also available for senior citizens of 60 to 80 years age.
The rebate is applicable for Indian residents only. It cannot be allowed for NRIs.
From the above article you have understood how to save tax. If you are a salaried employee you should look each and every point by which you can save some taxes. List down all your investments and arrange them according to the type and submit those to your employer.
Note: Have you filed ITR for AY 2018-19? Read which ITR form should you file AY 2018-19 (FY 2017-18).
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