This is the cruelest month in some poor soul’s life who bungles on their tax planning every year. Mostly, they get a pay cheque which is a fraction of its usual size in April as they always delay in submitting a list of their tax-saving measures to the office.

First, do a review of your tax liability, to ascertain what and how much. You actually need to save as much tax as legally possible. It may be quite possible that the life insurance premiums that you are paying along with the PF deductions may be enough to take care of tax saving!

An individual can reduce its tax liability in two ways.

A. Maximizing exempted income in salary structure.

B. Prudently opting for the tax saving instruments.

A. Overview of exempted income

House rent allowance (HRA)

House Rent Allowance can be claimed if one lives in a rented premises and the rent exceeds 10 per cent of the salary. The actual HRA exempted from tax is least of the following:

• The actual amount of HRA received.
• 40 per cent of salary. This increases to 50 per cent if you are renting out the house in Delhi, Mumbai, Chennai Kolkata.
• Rent paid minus 10 per cent of salary

Example :-

Bitu’s annual salary = Rs 1,20,000
HRA = Rs 42,000
Monthly rent = Rs 3,000
Rental accommodation situated at: Udaipur
Bitu will be eligible for exemption on HRA to the extent of Rs 24,000 being the least of the following:

• Rs 48,000 (being 40 per cent of salary since rented house is at Udaipur)
• Rs 42,000 (being HRA actually received)
• Rs 24,000 (annual rent of Rs 36,000 – Rs 12,000 which is 10 per cent of salary)

Telephone allowance
An amount of Rs 12,000 per annum is tax free if the phone is used for official purposes and bills submitted.

Conveyance
For conveyance, up to Rs 800 per month is allowed as deduction without providing any bills.

Medical allowance
Bills have to be provided; up to Rs15,000 per annum is allowed as deduction. This can be claimed for self, spouse, children, parents and siblings who are dependent on the assessed.

Leave and travel allowance:

Two trips in a block of four years is allowed and only travel within India can be claimed as deduction. It can be claimed for self, spouse, children, parents but only if the employee (assessed) is traveling along with them. There is no maximum limit on this, but the unutilized amount will be paid once the block is completed (after deducting taxes).

Education allowance
An amount of up to Rs 2,400 per annum is tax-free.

Qualification allowance
An amount of Rs 24,000 per annum is tax-free.

B. Overview of tax saving options (deductions from taxable income):

Very simply there are 4 basic sections under which you can save on tax:

Section 80C – Investments in the following up to a limit of Rs.100,000 are deductible from Taxable Income:

1. Life insurance premium payments

2. Contributions to Employees Provident Fund

3. Public Provident Fund (maximum Rs 70,000 in a year)

4. National Saving Certificates. [NSC]

5. Unit Linked Insurance Plan (ULIP)

6. Repayment of Housing Loan (Principal)

7. Equity Linked Mutual Fund Scheme (ELSS)

8. Tuition Fees including admission fees or college fees paid for Full-time education of any two children of the assessee (Any Development fees or donation or payment of similar nature shall not be eligible for deduction).

9. Infrastructure Bonds issued by Institutions/ Banks such as IDBI, ICICI, REC, PFC etc.

10. Tax-saving fixed deposits (FDs) of scheduled banks with tenure of 5 years are also entitled for section 80C deduction (investments in a 5-Yr post office time deposit (POTD) scheme are included)

11. Senior Citizen Savings Scheme 2004 (SCSS)

Section 80D – You can claim a deduction of Rs.15,000 (Rs.20,000 in case of senior citizens).

-for medical or health insurance–popularly known as mediclaim policy–premia paid on the health of yourself, spouse and dependent children.

-Additionally, (from 1st April, 2008) you’re also allowed a further deduction of Rs 15,000 for buying health insurance policy for your parents (Rs 20,000 if either of your parents is a senior citizen.

Section 80G – Donations / Charity made subject to certain conditions

Section 24(b) – The interest component of your home loan is allowed as a deduction under the head ‘income from house property’ under Section 24(b) up to a limit of Rs 1.5 lakhs a year in case of a self-occupied house and 3 lakhs incase of rented house. The claim can be made even on loans taken for repair, renewal or reconstruction of an existing property.

Above are few things one need to understand while declaring investments to HR department and thereby maximizing there pay cheques.

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