Depending on your salary size, you should plan it in a way that your taxable income comes down.
There are people who boast of high salary, but land up with little amount post tax cut. At the same time, there are people who get more money in hand despite low salary income. It may also be possible that two people with same amount of salary have different take-homes, depending on how well they optimise their tax outgo. Therefore, your tax outgo depends on how your salary is structured.
Let’s check some simple ways that can help you optimise your tax outgo.
Structure your salary smartly
While joining a company, you may discuss your salary structure with your employer and request to plan it in a way that your tax outgo is minimised. You need to maintain a correct balance between the basic salary and allowances. For example, the basic salary is fully taxable in the hand of the employee, whereas there are several allowances that allow tax benefit up to certain limits. Also, there are some perquisites which allow tax benefits to some extent. Depending on your salary size, you should plan it in a way that your taxable income comes down. You can also consult with your tax advisor before finalising the salary structure.
Take benefits of investing for deduction under section 80 (C), (CCD), (TTA)
Investments in eligible tax saving instruments are popular ways to reduce the tax liability. Investment u/s 80 (C) allows a tax deduction benefit up to Rs 1.5 lakh and you have options to invest in instruments like PPF, ELSS, tax saving FD, eligible life insurance policy, SCSS, SSY etc. If you are looking for more deduction, above Rs 1.5 lakh, then you can invest another Rs 50,000 in NPS to claim tax benefit u/s 80 (CCD). Interest earned up to Rs 10,000 in a financial year from savings account are also eligible for tax deduction u/s 80 (TTA). There are many banks, which allow high interest on savings account, you can use such accounts to your advantage.
Buy health insurance to claim deduction U/s 80 (D)
You cannot ignore the tax saving benefit available under the health insurance policies. You can get the tax deduction benefit of Rs 25,000 for self and for your family for premium paid against health insurance policy. For senior citizens, the deduction of Rs 30,000 is allowed. So, if you and your parents both are senior citizens, then you can claim a deduction up to Rs 60,000 against the premium paid for health policy under Sec 80 (D). It is important to note that 2018 year Budget has raised the deduction for senior citizens to Rs 50,000, which will be applicable from next year.
Claim tax deduction for home loan interest payment
Interest paid on the home loan subject to a ceiling of Rs 2 lakh in a financial year is allowed as deduction under Sec 24 of I-T Act. Home loan could be for purchasing a property, construction, maintenance and reconstruction.
For claiming deduction u/s 24, it is mandatory to complete or acquire the property within five years of taking the loan.
Set-off capital gain to save tax
People often do not use the capital gain from various instruments to set off against each other to reduce the tax liability. It is important to note here that you are allowed to adjust the short-term capital gain or loss against the short or long-term capital gain. The holding period for instruments varies from one year to three years to be recognised as short term or a long-term investment. Short and long-term losses are allowed to be carried forward to next financial year till eight financial years and adjusted to set off against gains, provided the tax is filed without a break. For example, if you have incurred loss in a particular company’s share during the year and made profit in another company’s share during the same financial year, then you can set off gain and loss of both the companies to reduce your tax liability.
Apart from above mentioned options to optimise your tax outgo, you can also use options like giving money on charity which allows deduction under Sec 80 (G). Donation above Rs 2,000 must be made in no cash mode to claim deduction u/s 80 (G). If you have availed education loan for self or your children from eligible institution for higher education, then you can claim deduction u/s 80 (E) against interest paid for such loan without any ceiling limit. You are also allowed to claim deduction under Sec 80 (C) against eligible expenses such as tuition fees, home loan principal amount paid, etc.The writer is CEO of BankBazaar.com