Soon, the financial year 2016-17 will end. And some of us are going to be worried about the tax we’re paying. Is it possible to lower your tax outgo on salary income? There is still time and here are some ways to make the most of saving in FY 2016-17.
Submit medical bills on time – Almost everybody gets medical reimbursements of Rs. 15,000 as part of their CTC. By submitting doctor consultation, medicine bills or lab test bills, you will be able to avoid tax on this amount. Remember to submit bills on time to your employer, since this tax benefit can be claimed only through your employer.
Ask for transport allowance as part of salary – You employer can structure your salary in such a way so as to provide you transport allowance. This allowance is given to support your expenses of the commute between office and residence. Transport allowance of Rs 1,600 per month or Rs 19,200 annually is exempt from tax.
Claim tax benefits on rent payments – Salaried individuals who live on rent can claim tax benefit on HRA. HRA can be fully or partially exempt from tax. If you don’t live in a rented accommodation but still get house rent allowance, the allowance will be fully taxable. HRA exemption is also available if you live with parents, you can pay them rent. But your parents must include this rental income in their tax return. Don’t worry if you could not submit rent receipts to your employer in time, claim HRA exemption at the time of filing your tax return. Do remember to keep rent receipts safely and maintain details of payments made towards rent.
Ask for food coupons – Your employer can pay a portion of your salary as food coupons. These are exempt up to Rs 55per day. So you can receive a part of your salary in coupons at Rs 55 per day for 22 workings days for up to 2 meals. This works out to Rs 26,400 per year.
Submit vacation bills on time – LTA or Leave Travel Allowance can be used to save tax on fare expenses for a trip made within India. LTA is not a mandatory benefit, your employer decides your pay structure, which may or may not include LTA.
Exemption on LTA is the fare for the shortest distance between two places. It is allowed for the shortest route from the start point to the farthest point reached. In the case of travel by air, the exemption should not be more than economy fare of Air India by the shortest route to the destination. This tax benefit can only be claimed via your employer so remember to submit LTA bills on time. Two journeys can be claimed in a block of 4 years and we are currently in the 1st Jan 2014 to 31st Dec 2017 block.
Maximise Section 80C deduction – Claiming the entire Rs 1.5lakhs deduction available under section 80C can reduce your tax outgo by Rs 45,000 (for someone in a 30% tax bracket, calculation without considering cess). Several expenses can be claimed under section 80C such as life insurance premium paid, school fees, your contribution to EPF. You can even claim principal repayment towards your home loan. If there is any remaining balance of 80C, you can choose investments such as ELSS or PPF. PPF continues to offer better returns that fixed deposits, but ELSS stands out as the most efficient 80C investment choice. It has the lowest lock-in of 3 years and returns can be much better than traditional instruments. Returns from ELSS are fully tax exempt too. Don’t worry if you haven’t gone the SIP route, find out how much you should invest to fully claim 80C and make a lump sum investment now. You can begin SIP in the same ELSS fund starting April 2017. Do remember that section 80C deductions can be directly claimed in your tax return, these don’t have to be mandatorily claimed via your employer. But of course, investments should have been made by 31st March 2017 for tax benefits for FY 2016-17.
Buy medical insurance for your family – You can purchase a medical insurance to secure yourself, your spouse and your children and claim a deduction of maximum Rs 25,000. This is allowed under section 80D. You can also secure your parents and claim additional Rs 30,000 for their insurance. If you purchase a policy now, the entire premium can be claimed under section 80D in FY 2016-17 itself, even though the insurance plan may be valid until 2018.
This article has been published in Times Of India Business.