How to Save Tax on Salary Income? This question is popping up in the mind of every salaried employee. Since March is fast approaching, HR department has started buzzing employees about the tax savings investment he has made.
Tax Savings investments have to be made before 31stMarch to claim the tax benefit and maximize savings. But before rushing to invest, one needs to and plan out his investment keeping in mind the changes made in the Budget 2014 to maximize his tax savings.
Tax Savings does not necessarily means acknowledging various sections of Income Tax Act, few sections along with your salary slip can very well accomplish the peculiar task of tax planning for you. In this article we will discuss the additional tax benefit and marginal reliefs offered by budget 2015.
The Tax Slab has raised up to Rs. 2.5 Lakh of below 60 years age.
Enhanced limit of Section 80C up to Rs. 1.5 Lakh.
Budget 2015 has augmented the limit of section 80C from Rs.1 lakh to Rs.1.5 lakhs. This enhanced limit gives additional tax relief of Rs.15,450 for the person falling in the tax slab of 30%, similarly Rs.10,300 to person falling in the tax bracket of 20% and Rs.5,150 to the person falling in the lowest tax bracket of 10%.
Maximize tax savings from increased limit of section 80C:
Home Loan Benefit
Budget 2015 has also enhanced the limit of deduction for Home Loan Principal u/s 80C Up to Rs. 1.5 Lakh and Home Loan Interest u/s 24 raised up to Rs. 2 Lakh.
Tax Benefits on Home Loan – Principal Repayment
Principal Repayment of the Home Loan taken from Financial Institutions is eligible for deductions u/s 80C but restricted to the maximum of Rs.1.5 lakhs per annum. Remember this limit of Rs.1.5 lakhs includes all deduction u/s 80C i.e. PPF, Tax Savings Bank FD, NSC, EPF, LIC etc.
Reintroduce Kissan Vikas Patra ( K.V.P.) :-
Amount invested in Kissan Vikas Patra (KVP) doubles in 100 months at the present rates. The certificates can be purchased by an adult for himself or on behalf of a minor or to a minor. It can also be purchased jointly by two adults. A certificate may be transferred from one person to another with consent in writing to an officer of the Post Office or Bank. Under the scheme the transferee has to be eligible to purchase the certificate. The certificate may be prematurely encased any time after two years and a half from the date of purchase, in the event of death of holder or any holder in case of joint holder, on order of court of Law and forfeiture by a pledge. The Government has no proposal to separately tax benefit on KVP. However, income on KVP would be taxable as per existing provisions. Investor will have to undergo Know Your Customer (KYC) modalities at the time of application. In the case of transfer of KVP from one customer to another, a request has to be made in writing to an officer of the Post Office or Bank and the transferee has to be eligible to purchase KVP certification in the first instance. Kissan Vikas Patra (KYP) has been reintroduced and is available in Post Offices. In future, KVP will be available in banks which are/will be authorized for handling small savings schemes.
Tax Benefits on Home Loan –Interest Component Threshold limit of deduction of Interest on the home loan u/s 24 is also increased in budget 2014 by Rs.50,000. Now you can get maximum of Rs.2 lakhs deduction on the accrued interest on Home Loan per annum.
Remember section 24 is applicable for self-occupied house only i.e. capping limit of Rs.2 lakh applies when you hold a self-occupied house. In case the house is not self-occupied than you can claim the actual amount of interest paid which can even exceed Rs.2 lakhs.
Contribution towards Provident Funds
Section 80C comprises for various instruments but contributions towards Provident Fund i.e. Employees Provident Fund or Public Provident Fund are best amongst them. Being EEE scheme (Exempt, Exempt, Exempt) these provide best solution for accumulating corpus for retirement. Point to note is that provident fund is a long term investment scheme, so opt this scheme considering it for post-retirement life.
National Savings Certificate (NSC) and Tax Savings Bank FD
Both National Savings Certificate (NSC) and Tax Savings Bank FD offers same rate of interest and same tax treatment. The only things that makes NSC more lucrative than tax savings bank FD is the method of interest calculation. The interest is compounded annually in case of tax savings bank FD while the interest is compounded half-yearly in case of NSC.
Equity Linked Savings Scheme
ELSS is also enjoys EEE tax treatment as EPF and PPF but it comes with a high degree of risk. Since ELSS is exposed to market the risk involved is similar to any other mutual fund but the quantum is increased due to lock-in period of 3 years.
You can choose any of the four for maximize your tax savings. No need to see any other investment scheme u/s 80C.
Continuation of Section 87A
Last year budget has introduced tax credit system under which person having gross salary up to Rs.5,00,000 can get additional tax rebate of Rs.2,000 from the income tax payable. This year budget did not drop this section and thus letting taxpayer to get benefited this year also.