Taxation of salaried persons
inf by Ashok Hindocha M-94262 54999
By
| 25 Jul, 2016, 05:14AM IST
Salary
earners constitute large proportion of total taxpayers in India and
contributes significantly to government treasury throughout the year
without much efforts by the government due to mandatory monthly TDS
deductions to be made by the employer.
Salary
earners have no scope to manipulate their income to avoid tax
liability. However, there are certain provisions in Income Tax Act to
reduce their tax liability through allowances, exemptions and
deductions.
Deductions for tax saving instruments
One
prime provision which comes to the rescue of salaried persons to
maximize take home salary, legally reduce income and lower tax liability
is section 80C. This section allows a maximum limit of Rs 1.50 lakh
across tax saving instruments ranging from Employees Provident Fund,
Pension and Annuity Schemes, Life Insurance Premium, Tax Saving Mutual
Funds (ELSS), Home Loan Principal Payment, Sukanya Samridhi Account,
Public Provident Fund Account, National Saving Certificate VIIIth issue,
interest accrued on NSC certificates, Tax Saving Fixed Deposits,
tuition fees of children.
Each of these options has their own merits depending primarily on your financial goals, risk taking ability and income level.
In
case salaried person does not own his residential house, it is
advisable to have one with borrowed funds. This has triple advantages of
emotional security to the family, appreciation in asset value and tax
benefit of deduction of interest of home loan with separate limit for
salaried person to have their own residential house which has triple
advantages of appreciation in value better than any other class of asset
emotional security and tax benefit of deduction of interest component
on home loan with a separate limit of Rs 2 lakhs U/s 24(b)
You
can arrange pension for you after retirement by contributing upto Rs
50,000 every year to New Pension Scheme u/s 80CCD (1B). This is tax
deductible.
One
should have medical health policy to take care of hospitalization
expenses of your family which is getting prohibitive day by day. Premium
paid upto Rs 25,000 is tax deductible. Additional deduction of Rs
30,000 is available if senior citizen parents are covered. Every year
you can have health checkup for your family by making payment of Rs
5,000 within this limit.
In
case you are taking care of any dependent relative suffering from
physical disability, expenditure from Rs 50,000 to Rs 1,00,000 can be
claimed depending on severity u/s 80DD.
You
can provide good higher education to your children by taking loan from
financial institution. Entire interest is deductible u/s 80E. Note that
loan repayment is not tax deductible.
If
your employer provides you with rent free accommodation or car for
personal use, same is liable for tax as perquisites which are valued as
per Income Tax Valuation Rules.
Those
who don’t get HRA from their employer and are staying in rented house
can claim deduction upto Rs 5000 per month subject to conditions. To
avail this benefit he should not get house rent allowance and should not
own residential accommodation.
Deduction for special allowances
Salaried
employee can avail benefit of exemption under section 10 of IT Act in
respect of various specific allowances provided by his employer during
tenure of service as component of salary package such as House Rent
Allowances, Leave Travel Allowances, uniform allowances, helpers
allowance for official purpose, academic allowance to pursue academic
and research pursuits, travel allowances for official duties, medical
allowances upto Rs 15,000, reimbursement of telephone charges for office
use. House Rent Allowance and Leave Travel Allowances are subject to
certain terms and conditions. To avail these exemptions, the employee
should actually spend the amount and produce proof.
A
ridiculous provision exists in I-T Act to provide education allowance
of Rs 100 per child for maximum 2 and hostel allowance of Rs 300 per
child upto 2 children, introduced long ago. Mandarins in Finance
Ministry seem to have forgotten huge inflation taken place over the
years.
Conveyance
and transport allowances for commutation of employees upto limit of Rs
19,200 pa (Rs 1,600 pm) is tax exempt, irrespective to of actual
expenses. No need to produce proof. However, this is permissible only if
this allowance is part of the pay package.
If
you wish to make charity for any noble cause, you should contribute to
an institution which holds certificate u/s 80G. Deduction for eligible
donations is upto 50% of the tax due and in some cases 100% is
available.
Employers
should structure pay package of the employees by suitably incorporating
the allowances, to reduce tax burden of the staff without any loss to
them since these are tax deductible.
Relief for Salary Arrears
Receipt
of arrears of salaries of past years are included in the year of
receipts due to which total income assessed at higher rate than that at
which it would otherwise have been assessed. In such a situation,
section 89 comes to the rescue. Under this section, arrears of salaries
can be spread in the respective years to calculate additional tax dues
at each year in form 10E. The employer after taking this into account
will deduct tax at source at lower amount. Government employees who
expect to get benefit of tax arrears under 7th Pay Commission should
take note of this.
A
salaried person can set off income from salary against loss under other
heads of income such as house property, business in the same year
except capital gains.
Employers
are required to deduct tax at source from your salary every month. The
TDS is deducted according to estimated tax liability for that financial
year. If you give your projected tax saving instruments to claim
deductions late then employer may deduct more TDS than required which
you may have to claim by way of tax refund by filing your income tax
returns. It is advisable to make tax saving investment from beginning of
the year to avoid big burden of investing at the end of the year or
have big tax cut.
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