Have You Submitted Your Tax Saving Investment Declarations?   Jan 30, 2018


Tax Saving Investment
It's that time of the year again and Rahul is scrambling to find different ways to save on tax.

Employees, like Rahul, have to submit an investment declaration with the HR department of their respective organisation.

Have you submitted your tax saving investment declaration yet?

But, before you submit your investment proofs, read on to understand this procedure in detail.

What is Investment Declaration?

The income declaration form covers certain sections of the Income-tax Act, 1961, but it is not the only route to save tax. It would be prudent to avail the benefits of the other Sections as well, so as to ultimately reduce the tax outgo. It's important to optimally restructure your salary.

At the beginning of the financial year, employers ask for investment declaration from employees. And as per your projected investment declaration, your monthly tax go and salary is calculated.

At this point, you need not make all your investments. You can systematically plan and make investments throughout the year and submit investment proofs at before the deadline.

Tax Savings Investments for FY 2017-18

Particulars Proofs for declaration What to declare
HRA Monthly rent receipt, Landlord’s PAN and Leave and License Agreement*  Actual HRA**
Section 80C deductions PPF, ELSS , Life Insurance Premium, NPS, School Tuition fees, Sukanya Samridhi deposits, NSC, principal repayment of home loan and your EPF contribution Rs 1,50,000
Section 80D deductions Medical Insurance premium Rs 25,000 for self, spouse, children and

Rs 25,000 for parents (Rs 30000 if senior citizens)

Home loan Tax benefit Interest portion of EMI for the financial

year

Rs 2 lakhs for self-occupied property or rented property
Interest portion of EMI (80EE) Rs 50,000
NPS tax benefit Section 80CCD(1B) NPS investment for the year Rs 50,000
Tax benefit on Education Loan Section 80E Interest pay-out for the year No monetary limit
(Source: ACE MF, PersonalFN Research)
*Where the aggregate rent paid during the previous year exceeds INR 1 lakh ** Actual HRA; or Rent paid in excess of 10% of basic salary + Dearness Allowance (DA) if in terms of service; or 50% of basic salary + DA in case of Chennai, Delhi, Kolkata, Mumbai (40% of salary + DA in case of    other cities)

Also Read:

All You Need To Know About Section 80C
All You Need To Know About PPF 

Why do I need to declare investments?

Now you may wonder, ‘if it’s about saving tax, why do I need to submit the declaration to my employer?

Your employer needs this information to calculate your annual taxes and adjusts it in your monthly salary.

How can I benefit from investment declaration?

By declaring your tax saving investments, your net salary will be higher. It will include the requisite amount of deductions available.

But you must plan your investments in advance and avoid last minute tax planning mistakes.

Please note that though you make this declaration at the start of the year, it does not mean you can change it. For instance, if Rahul made a declaration of investments of upto Rs 1 lakh under Section 80C, and by the end of the year he wishes to invest additional amount of Rs 50,000, he can do so.

So, your final tax savings may not be the same. Total adjustment based on final proof submission is made sometime between January and March of next year.

To avail of a complete exemption for the allowances, remember to optimally structure your salary. To understand the different components of the salary structure, read on…

Basic Salary: The basic pay forms the base component for additional benefits such as provident fund, House Rent Allowance (HRA), etc. While a higher basic means higher benefits, on the flip side, it is fully taxable. Therefore, it is necessary to have an ‘optimal’ basic salary. A very high basic salary may result in a higher tax outgo. Therefore, you need to maintain the right balance.

HRA: If you live in a rented house/accommodation and your organisation provides HRA benefits, you could use it to lower your tax liability. Likewise, if you stay with your parents in an accommodation owned by them, you could pay them rent.

The maximum amount that can claimed as an exemption under HRA is the least of –

  • Actual HRA; or
  • Rent paid in excess of 10% of basic salary + Dearness Allowance (DA) if in terms of service; or
  • 50% of basic salary + DA in case of Chennai, Delhi, Kolkata, Mumbai (40% of salary + DA in case of other cities)
Read more on: HRA Tax Implications: All You Need To Know

Leave Travel Allowance (LTA): As a salaried individual, you can claim LTA for any journey made either alone or with dependent family members in India. The maximum amount you can claim is the least of:

  • The amount actually incurred; or
  • The amount of LTA allowed
The exemption extended is for two journeys performed in a block of four calendar years. The current block is 2014-2017. It is vital to note that the exempted amount is restricted only to expense incurred on travelling to the destination and does not include expenses such as hotel bills, food, etc.

Transport allowance: Expenses incurred to commute between your home and work place is also exempt from tax. The maximum amount that is exempt is Rs 1,600 per month.

Medical reimbursement: Expenses you or your family incurred for medical purposes can also help in reducing the tax liability. A maximum of Rs 15,000 can be claimed every financial year on account of medical expenses. But to claim this, you are required to submit, to your employer, the medical bills for the financial year stating the total amount you intend to claim.

If you have claimed all the permissible exemptions of your employer and still have high amount of taxable income. Then, your employer can add a few items from the exemption list in the table below:

Allowance Exemption Maximum limit
Children Education Allowance Rs 100 per month per child up to a maximum of two children Rs 2,400 p.a. for two children
Children Hostel Expenditure Rs 300 per month per child up to a maximum of two children Rs 7,200 p.a. for two children
Conveyance Allowance Allowance granted to meet the expenditure on conveyance in performance of duties of an office Exempt to the extent of expenditure incurred
Research Allowance Expenditure incurred for encouraging the academic research and other professional pursuits Exempt to the extent of expenditure incurred
Meal Vouchers Food in office premises or through non-transferable paid vouchers usable only at eating joints provided by an employer is not taxable, if cost to the employer is Rs 50 (or less) per meal Depends on the number of working days. If a company works 25 days a month, the amount will work out to Rs 2,500 p.m. (Rs 50*2 meals *25 days) or Rs 25,000 p.a.
Gift Voucher Gifts in cash or convertible into money are fully taxable Rs 5,000 p.a.
b) Gift in kind or vouchers up to Rs 5,000 in aggregate per annum would be exempt, beyond which it would be taxable.
Mobile/telephone reimbursement Expenses on telephones including a mobile phone incurred by the employer on behalf of employee shall not be treated as taxable perquisite. Exempt to the extent of expenditure incurred
Newspaper and periodicals Subscription or purchase of newspapers, books and periodicals relating to your profession are fully exempt against actual bills Exempt to the extent of expenditure incurred
Motor Car Allowance The maintenance and running expenses are fully exempt under certain conditions for a car owned by the employer or employee. Out of the total expenses, only a very small portion may get taxed subject to certain conditions
(Source: www.incometaxindia.gov.in  and PersonalFN Research)


You may also like to read: All You Need To Know About EPF

Role of home loan in your tax savings exercise

Our Income Tax Act, 1961 too considers our desire to buy, construct, reconstruct, or repair your house and tax benefits come along with it.

Both, the “repayment of principal amount” and “payment of interest” are eligible for tax benefit.

The “repayment of principal amount”, makes you eligible to claim a deduction upto a sum of Rs 1.50 lakh under Section 80C. This is available irrespective of whether it is a Self-Occupied Property (SOP) or a Let-Out Property (LOP).

Further, a first time home-buyer can avail for an additional tax benefit of Rs 50,000, after satisfying certain conditions which are:

  • Value of the property is Rs 50 lakh or less
  • Loan taken for this house is Rs 35 lakh or less
  • Loan has been sanctioned by a financial institution or a housing finance company
  • Loan has been sanctioned between 01-04-2016 and 31-03-2017
  • As on the date of the sanction of the loan, no other house is owned by you
But the additional tax benefit exemption can be availed of after first exhausting limit under Section 24(b) for the interest portion.

The payment of interest amount (for the loan amount availed) is available for deduction under Section 24(b).

Additionally, if you as “first time home-buyer” satisfy conditions as mentioned above for Section 80EE, the maximum sum, you can avail of to deduct your interest under Section 24(b) is Rs 2 lakh for SOP, plus an additional tax benefit of Rs 50,000 under Section 80EE.

In case, a property is on rent (LOP), the actual interest payable is eligible for deduction under Section 24(b), thereby not being subject to any maximum limit. This applies even in the case where you have two home loans for two different properties, where one is self-occupied and the other is let out on rent.

Similarly, if you have taken a loan for the purpose of reconstructing, repairing, or renewing the property, the amount of deduction under Section 24(b) you are eligible for will be restricted to Rs 30,000, irrespective of whether you want to stay in it or let it out on rent.

And if you are planning to buy a house, then you must use PersonalFN’s Home Loan EMI calculator to plan your EMI outflows.

To Sum-up

We at PersonalFN advise you to use all the permissible deductions to save tax. And submit your investment declaration proofs on time. Avoid procrastinating till the last minute, so you don’t aimlessly invest in tax saving investments. It is important for you to know the various routes to save tax on your income the legal way.

If you are unsure, consult a financial planner. Sometimes, its better to be late than sorry.

You can download our free Tax Planning Guide here. It will help you cross-check whether you are on the right track towards saving on taxes and to take timely action, in case you have missed any benefits.

For further professional assistance, you can directly get in touch with us at PersonalFN on 022-61361200 or write to info@personalfn.com and get your free financial health check-up done today. You can even get in touch with a Certified Financial Guardian in your vicinity.



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