Refer Matrix on Tax Saving Instruments
1. PPF (Public Provident Fund) - An effective tax-saving instrument as well as a retirement savings instrument
ü Duration - 15 years
ü Minimum Rs. 500 - Maximum Rs. 60 000 p.a. Per person
ü Account can be opened in Post Office, any branch of SBI or it's subsidiaries or in specified Nationalized Banks
ü Investment in the name of spouse, self & children
ü No tax liability at the time of withdrawal
ü Proof: Photocopy of PPF Pass
2. LIFE INSURANCE
ü Standard schemes {Term Insurance, Whole life insurance, Endowment Assurance, Annuities etc}
ü Protection against risk
ü Tax free return
ü Investment in the name of spouse, self & children
ü Liquidity - generally policies accepted as collateral for loans from banks and
financial institutions, after stipulated period
financial institutions, after stipulated period
ü Proof: Photocopy of LIC receipts for all premia / consolidated certificate from Insurance Company
3. NSC (National Savings Certificate) VIII issue – NSC is a time-tested tax saving instrument that combines adequate returns with high safety
ü Minimum Rs. 100/- No maximum limit
ü Lock in period – 6 years
ü Premature encashment possible in exceptional circumstances
ü Interest for first five years is also eligible for a rebate
ü Can be offered as security to loans
ü Can be bought singly/jointly – Rebate allowed to the extent of investment made
ü Can be purchased from any local post office
ü Proof: Photocopy of the certificate
4. Unit Linked Insurance Plan [ULIP]
ü Amount is invested in units linked with a life insurance cover
ü At maturity, total units are repurchased at then prevailing prices
ü Duration: 10 or 15 years. Can be extended in block of five years
ü Investment can be in the name of Spouse, self & children
ü Return is not taxable
ü At maturity, Bonus on the plan amount is granted
ü Proof: Photocopy of the certificate
5. Equity Linked Savings Scheme [ELSS]
ü Subscription to ELSS of any mutual fund
ü Subscription not exceeding Rs. 10000 is eligible for a rebate
ü Lock in period of 3 years
ü Income received in respect of units are fully exempt from tax
ü Investment - only by self
ü Proof: Photocopy of the certificate
6. Housing Loan - Principal Repayment
ü Property & Loan should be in name of the tax payer
ü Installment or part payment of housing loan taken for purchase or construction of new residential property
ü Maximum of Rs. 20000 only
ü Proof: Photocopy of certificate from the financial institution
7. Tuition fees
ü Fees paid to university, college or school in India
ü Does not include distant learning (Should be paid for full time education)
ü For a maximum of two children of the taxpayer
ü Maximum of Rs. 12000 per child
ü Proof: Photocopy of receipt from the educational institution
8. NSS (National Savings Scheme)
ü No maximum limit
ü No Tax liability on withdrawal of deposits from NSS account though interest on deposit is taxable
ü Can be bought singly/jointly – Rebate allowed to the extent of investment made
ü Proof: Photocopy of the certificate
9. Investments in Infrastructure bonds
ü Securities floated by financial institutions like ICICI, IDBI or government for building and maintenance of infrastructure
ü Regular payment of interest in return for money borrowed
ü Lock in period – 3 years
ü Return is taxable
ü Investment - only by self
ü Special feature – Additional rebate on Rs. 30000/ for investing in infrastructure bonds alone.
ü Proof: Photocopy of the certificate / acknowledgement for the investment
Please Note: In case of joint investments, a declaration from the co-applicant stating that he/she has not claimed the same benefit in their tax returns.
You can invest a maximum of Rs. 70,000/- in items 1 to 8, whereas maximum of Rs. 1 lakh can be invested in all the items listed above which means an additional rebate on Rs. 30,000/- is available for investing in infrastructure bonds (9).
TAX on SALARY
Tax Deducted at Source (TDS) – Why is it deducted?
TDS is a compulsory and convenient method of tax payment, during the generation of income itself. Salary for tax purposes is an open-ended definition & includes payments made by an employer to his employee. Payments made in the form of basic pay, incentives, gratuity, arrears, allowances such as house rent allowance, medical allowance, special allowance etc. would be considered as salary.
What is offered, as gross salary is no indication of what you will take home at the end of the month? A hefty gross salary can get sliced at the net level in the wake of a high tax incidence.
Generally Gross salary includes the following:
ü BASIC
ü HOUSE RENT ALLOWANCE
ü MEDICAL ALLOWANCE
ü CONVEYANCE
ü SPECIAL ALLOWANCE
ü INCENTIVES
Sum total of the above are grouped as Gross Taxable Salary. Allowances paid as a part of salary also qualifies for Exemptions, based on certain criteria and submission of bills.
Also refer the Flow of Tax Computation
The employer is under a liability to deposit the TDS to the credit of the Central Government within prescribed time limits and at the end of the year issue Form 16 to the associates for filing their income tax returns.
1. House Rent Allowance (HRA)
The least of the following is exempt from tax:
· Amount equal to 50 per cent of basic salary where the residential house is situated in Metros. Else 40 per cent
· HRA actually received by the associate
· Excess of rent paid over 10 per cent of the salary
For Example
Location | Chennai | |
A | BASIC | 5000 |
B | HRA Received | 3000 |
C | Rent Paid | 2500 |
10% of salary | 500 | |
Excess paid | 2000 | |
Least of the following is exempted: | ||
1 | Actual HRA Received | 3000 |
2 | 50% of Basic | 2500 |
3 | Excess of Rent Paid over 10% of salary | 2000 |
Least of the above | 2000 | |
Those NOT ELIGIBLE for exemption:
ü Who live in their own house
ü Who do not pay any rent or
ü Who pay any amount as rent which does not exceed 10% of salary
2. Medical Allowance:
Exempted to the extent of bills produced subject to a maximum of Rs.15,000 per annum. For those who join in the middle of the year, the exemption amount, based on bills produced will be restricted to the actual allowance earned during the period.
3. Conveyance
For Associates: Exempted to the extent of Rs. 9,600 p.a.
For Senior Associates and above (forms part of Budgeted Business Expenditure Plan) : Exempted as follows
· Can opt for a conveyance of Rs. 9,600 p.a. – Bills not required
· For those who own a car – Bills to be produced for exemption as follows:
o Vehicle less than 1600 cc – Rs. 14400 p.a.
o Vehicle more than 1600 cc – Rs. 19200 p.a.
· For those using company leased cars – Bills to be produced
o Eligible to the extent of Rs 60000 p.a.
4. Leave Travel Allowance:
For Senior Associates and above (forms part of Budgeted Business Expenditure Plan) :
LTA can be claimed twice in a block of 4 years. The following are eligible:
a. 1st class AC train fare.
b. In case of flight, economy fare.
c. If the travel were by any other mode, then it would be restricted to the 1st class ac train fare.
d. The above expenses can be claimed for self, spouse, children (maximum of 2 children), dependent parents, brothers & sisters.
1. Standard Deduction
Extent of standard deduction available to an associate?
Standard Deduction is allowed irrespective of the amount of income earned as salary
Income from salary | Deduction |
Gross Salary is Rs. 5 Lakhs or less | 40% of Gross salary or Rs 30,000/ whichever is lower |
If Gross salary is above Rs. 5 Lakhs | Rs. 20,000/ |
Maximum amount of standard deduction in a year
In case an associate receives salary from more than one employer in the same financial year the maximum amount of deduction cannot exceed the monetary ceiling specified above. (Also refer Previous Employment Details)
2. Professional Tax
In India
For e.g. it is deducted
In Tamil Nadu –@ Rs. 1620 per annum
In Karnataka -@ Rs. 2400 per annum
In Andhra Pradesh -@ Rs. 2400 per annum
In Maharahstra -@ Rs. 2500 per annum
3. Loss on House Property
Loss on house property constitutes the payment made towards the interest portion of the Housing loan. Loss on House Property may bring down your gross salary below the cut off limit; say Rs 1.5 Lakhs or 5 Lakhs. Through this, you may enjoy higher rebate.
Documents to be submitted on this regard: Form 12C and provisional interest certificate from the financial institution to be submitted.
Permissible Deductions | Amount of Exemption | Proofs to be submitted |
Contribution to Pension Fund plan of LIC / HDFC Insurance / ICICI Prudential etc for receiving pension 80CCC | Upto Rs. 10,000/- | Copy of receipt/ policy |
Medical Insurance Premium paid on Medi claim policy of any insurers approved by IRDA. Coverage for associate, spouse, dependent parents and children 80D | Upto Rs. 10,000/- Rs. 15,000/- for senior citizens | Premium receipt issued by the Insurance Co. |
Expenditure for medical treatment (including nursing) training and rehabilitation for a physically challenged dependant or Deposits under LIC, UTI or IRDA approved Insurer's scheme for benefit of person with disability 80DD | Upto Rs 50000/- Rs. 75,000/- for senior citizens | Certificate issued by a physician, surgeon, oculist or a psychiatrist working in a government hospital Copy of the policy. |
Repayment of EDUCATIONAL LOAN, including interest thereon, taken from Financial/Charitable institution for SELF FULL TIME HIGHER EDUCATION for a maximum period of 8 years 80E | up to Rs. 40,000/- for any graduate/PG course in Engineering/Medicine/ Management or for PG course in Applied or pure science | Certificate of payment from bank / Institution |
Note: Following exemptions would not be considered for tax purposes in Form 16:
· Benefits for donations to charities cannot be considered in Form 16. The associate can claim this while filing the returns.
· Benefits for treatment of specified diseases cannot be considered in Form 16. The associate can claim this while filing the returns.
The associate is required to make available the following details to the present employer:
Details of salaries from other employer or employers
Tax deducted by the other employers
Present employer, in turn, has to take into account the above details for the purpose of deducting tax at source.PREVIOUS EMPLOYMENT PARTICULARS
In case an associate joins in the middle of the year, earnings for the period he has worked with the previous employer has to be furnished in Form 12B.
Following details as per Form 12B will be considered for tax calculation purpose.
ü Net Salary Income {Salary after exemption before standard deduction}
ü Tax on employment
ü Gross qualifying amount for rebate
ü Tax already deducted by the previous employer
ü Gratuity received from previous employer/employers & the tax effect on the same.
A certificate issued by the employer, which shows the complete details of earnings and tax deducted. This certificate reveals the following:
Ø That tax has been deducted at source from income chargeable under the head salaries &
Ø That tax is paid by the employer on behalf of the associate
Form 16 includes the following details in a sequential manner that enables computation of tax:
o Gross salary
o Exemptions
o Deductions
o Standard deduction
o Chapter VI A deductions
o Rebate and relief’s
o Tax deducted at source
o Balance tax payable
Also refer Format of Form 16
Form 12B
Particulars regarding salaries received from other employer/employers (i.e. previous employer) to the person responsible for deducting tax (i.e. present employer)
Form 12
Declaration to furnish particulars giving details of any loss under the head income from house property. This shall be taken into account for computing tax deduction from salaries after giving setoff to such loss.
Also refer Format of Form 12C
Glossary (definitions)
Term Insurance: Pays death insurance to the legal heirs of the person insured, if he/she dies during the term of the policy. There may not be survival benefits to the insured. Inexpensive policy.
Whole life Insurance: guarantees death benefit to legal heirs of the insured, throughout the course of life. Premiums are payable for 35 years or till the age of 80, whichever is more.
Endowment Assurance: Pays out either on the death of assured, whenever it occurs or after a fixed number of years.
Annuities: a form of pension, in which Insurance Company makes a series of periodic payments to a person or his legal heirs over a number of years
Financial Year: A financial year is the period, which starts on April 1st of a year and ends on March 31st of the next year. Income tax act talks about two different terminologies viz. Previous Year & Assessment year.
Previous Year is the financial year immediately preceding the assessment year.
Assessment Year is the year in which the income of the relevant previous year is assessed to tax.
Time Limits: Prescribed time limit for remitting the tax deducted at source from the associates of a particular month is before the 7th of the subsequent month.
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