The financial year is
drawing to a close and taxpayers have started looking for options to minimize taxes. However, you will be happy to know that the income tax act offers many
more incentives and allowances, apart from the popular 80C, which could reduce
the tax liability substantially for salaried individuals.
The components
of salary include basic salary, dearness allowance (DA), house rent allowance
(HRA), conveyance, city compensatory allowance, variable incentives and perks.
You can opt for
the following options to get tax benefits.
Salary
restructuring with allowances and perks: Instead of going for a high basic
salary, you can take reimbursements, allowances and perks, which are exempt
from tax. However, your employee provident fund (EPF), gratuity and
superannuation are all a percentage of your basic. So, by reducing your basic
to allow for higher allowances and reimbursements, you will reduce your EPF,
gratuity and superannuation. While EPF is totally tax-exempt, gratuity up to Rs
10 lakh is non-taxable as also the commuted pension portion of superannuation.
Transport
allowance: Transport allowance provided by an employer for commuting between
your residence and your place of work is exempt up to Rs 800 per month (if free
conveyance is not provided by the employer).
House rent
allowance: Individuals living in a rented accommodation should include HRA as
part of salary. The least of the following amount is exempt under Section
10(13A): i) HRA actually received; ii) Rent paid in excess of 10 per cent of
salary; iii) 50 per cent of salary (if rent paid in a metro), or 40 per cent of
salary (other than metro city).
Maximum benefit
of HRA can be derived by having all the above three components to be of more or
less the same amount. Salary for this purpose means: Basic plus DA (forming
part of benefits) +commission on sale at fixed rate. There is no exemption if
you live in your own house or a house for which you don't pay any rent. You
have to provide to the employer a proof of the rent payment. However, if the
HRA is up to Rs 3,000 per month, you don't need to provide a receipt to the
employer.
HRA and home
loan: Suppose you are living in a rented house in the city where you work and
you are repaying a home loan on a property elsewhere. In this case, you can get
HRA deduction as well as take the tax benefit of the home loan. The provisions
dealing with HRA and home loan benefits are separate in the income tax act.
(rental income is taxable after standard deduction of 30 per cent).
Leave travel
allowance (LTA): You can claim your LTA, which is available twice in a block of
four years.
It is based on
expenses actually incurred on travel fare, if (i) the travel is undertaken by
you and can include your family members; and (ii) is for proceeding on leave to
any place in India.
The LTA block
is measured in calendar years; the current block is from January 1, 2010, to
December 31, 2013.
"Family"
here is defined as spouse, children, parents, brothers and sisters. Family
members have to be wholly or mainly financially dependent on you for claiming
LTA. Also, LTA exemption does not apply to more than two children born after
October 1, 1998.
If you cannot
take the benefit of LTA in a block, only one of the two allowed journeys can be
carried forward. It should be carried forward to the first calender year of the
immediately succeeding block. The carry forward has no detrimental effect on
the new block of four years.
Apart from one
journey carried forward from the last block, you will still be eligible for LTA
of the two journeys in the new block.
The exemption
on LTA is subject to limits. For example, if you travel by air, the exemption
will be on economy class air fare of the national carrier by the shortest route
to the place of destination, or amount actually spent, whichever is less.
Where the
places of origin of journey and destination are connected by rail, the
exemption will be equal to AC first class rail fare by the shortest route to
the place of destination or the amount actually spent, whichever is less.
You can also
claim exemption on the following:
Children
education allowance: up to Rs 100 per month per child for maximum two children
Hostel
expenditure allowance: Rs 300 per month per child for maximum two children
Allowance to
meet the cost of travel on tour or transfer, including packing and
transportation of personal items
Allowance on
tour or for the period of journey in connection with the transfer to meet the
ordinary daily charges incurred by employees during absence from their normal
place of duty
Allowance to
meet expenditure incurred on a helper, who is engaged for the performance of
duties of an office or employment of profit.
Allowance for
encouraging academic, research and training pursuits in educational and
research institutions
Allowance to
meet the expenditure incurred on the purchase or maintenance of uniform to be
worn during performance of duties.
Amount of
employer's contribution towards recognized PF (up to 12 per cent of salary);
approved superannuation fund; group insurance schemes; employees state
insurance schemes; fidelity guarantee scheme.
Any allowance
to compensate for the increased cost of living prescribed under Rule 2BB. It
includes city compensatory allowance, border area, hilly area and field area
compensatory allowances, special allowance to members of armed forces, subject
to limits under Section 10(14).
Knowing these
alternative avenues to trim your tax liability will help you avoid last minute
hassles of tax planning. Plan well in advance to file well in time.
Courtesy : Yahoo Finance
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