Tax Saving Hacks 2017 - Personal Loan Blog - Tata Capital

Tax Hacks That You Will Thank Us For

Feb 28, 2017

Arvind Krishnan seems to get into a tizzy in June every year. He's 32, has a great job and draws a handsome salary. Why then would he be confronted with this annual phenomenon at a time when the monsoon is setting in and the weather is getting appreciably better?

The answer is far more mundane than you might expect; the season coincides with the period for filing of your annual income tax returns. Like Arvind, you too may find yourself in stormy weather if you haven't planned well to save on tax.

Are you paying a large portion of your income as tax? Are you looking for options to save tax because of this?

Thankfully, the Income Tax Act of India has made provisions for taxpayers to save tax. If tax planning is done carefully and in advance, you can save a substantial amount. Incorporate these hacks while doing your tax planning:

Restructure your salary

Your salary comprises multiple components. Each of these offer different tax benefits and some are taxable while others are exempt. Your basic pay is fully taxable whereas conveyance and other allowances are exempt. Depending on your grade in the organization, you are eligible for certain allowances. Discuss with your HR department to restructure your cost to company (CTC) so as to reduce your tax liability.

Paying house rent

When staying in a different city from your permanent home, rent is an expenditure you incur. Your salary includes a House Rent Allowance (HRA) which is exempt from tax. But the amount eligible for exemption is based on some conditions. The minimum of the three options is deductible:
a. Actual HRA
b. 50% of basic salary if you are located in a metro and 40% of basic salary if you are based in non-metro
c. Actual house rent paid after deducting 10% of basic salary and dearness allowance
Remember- You are expected to provide rent receipts at the end of the year to avail this benefit!

Claim leave travel allowance (LTA)

Love to travel? Your traveling expense can also be exempt from tax. You may claim LTA two times in a block of four years. If you fail to claim, you are also entitled to carry forward the claim allowance to the next block, so get packing!

Medical expenses and medical insurance

Another expense that offers you a tax benefit is the cost of maintaining your health. Medical expenses up to Rs. 15,000 are tax-free. On providing actual bills, for yourself and dependents, you can get the tax benefit.
Premium paid towards getting a health insurance is exempt from tax. It includes insurance for you, your spouse, children and dependent parents. Money spent on treatment of immediate family and parents is usually allowed a deduction up to Rs. 40,000.

Invest in tax-saving instruments

You can invest your income, earn returns and get a tax rebate under Section 80C of The Income Tax Act which allows you to invest up to Rs. 1.5 lakh. You can deduct this investment amount from taxable income and thus, reduce tax liability. Some of the most popular tax-saving instruments are EPF, PPF, ELSS, NSC, LIC premium, etc.

Enjoy benefits on home loan and personal loan

Every loan comprises of principal and interest. If you have availed a home loan you can claim tax benefit on principal repayment as well as interest payment. You can claim tax benefit up to Rs. 1.5 lakh for principal repayment. You can enjoy deduction on interest payment up to Rs. 2.5 lakhs.
Tip: you can double the advantage of this by availing a joint loan and both borrowers can enjoy the deduction separately!

In the case of personal loans, you can avail deduction only if the loan amount is used for generating income. If you have taken a personal loan for housing purpose, the interest payable is eligible for deduction.

Donate for a cause

Charity given to specified institutions is eligible for tax benefits. Donating to PM relief fund or some NGOs can give you up to 100% tax benefit! So do some good!

REMEMBER: Declare your tax-saving plan in advance

At the beginning of the year, you are expected to submit a declaration with your tax-saving plan. If you do not declare your investments and expenses properly, Tax Deducted at Source will be cut every month from your salary. If you are unable to declare, you must ensure you file your Income Tax Returns before the 31st of July of the year, or else your take-home salary will reduce!

And so..

To make the most of these tax-saving tips, be smart and plan investments and expenses in advance. Go ahead, use these hacks. And yes, you're welcome!