Page 69 - DCOM301_INCOME_TAX_LAWS_I

Income Tax Laws – I

Notes 3.1.3 Tax Planning Tips that can Assist Salaried People to Reduce
Their Tax Accountability

Tax Planning India is an application to reduce tax liability through the finest use of all accessible
allowances, exclusions, deductions, exemptions, etc., to trim down income and/or capital profits.
Salaried individuals in India are not fully aware of the tax planning exercise which is why they
rush at the end of the tax-planning season and make investments to reduce their tax liability.
This has negative effect on tax payable by them and they eventually end up paying more taxes
than they are required to.
1. Make full use of the entire Section 80C deduction: The maximum reduction available in
Section 80C is ` 1,00,000 and salaried citizens whose gross salary is ` 2,50,000 or more are
entitled to use the full ` 1,00,000 limit. Individuals who make monetary infusions of over
` 1,00,000 in Section 80C in selected areas fail to understand that the advantages are
limited. In spite of investing ` 70,000 and ` 40,000 in Public Provident Fund and ELSS
(Equity Linked Savings Scheme) respectively, the amount entitled by the investor is only
` 1,00,000.

Notes Following investments/contributions meet the criteria for Section 80C reduction:
1. Public Provident Fund

2. Accrued interest on National Saving Certificate
3. Life Insurance Premium
4. National Saving Certificate
5. Tuition fees paid for children’s education (maximum 2 children)
6. Principal component of home loan repayment
7. 5-Year fixed deposits with banks and Post Office

8. Equity Linked Savings Schemes (ELSS)
2. Reduction of tax liability beyond Section 80C deductions: If your salary surpasses
` 2,50,000 pa and the reductions under Section 80C are not enough to minimize the general
tax liability consider the following:

Home loan: Interest payments of upto ` 1,50,000 pa are entitled for reduction under
Section 24.
Medical insurance: A deduction of upto ` 15,000 pa under section 80D is applicable
under this.
Donations: Tax advantages under Section 80G entitle the donations to particular
funds/institutions.

3. Assert tax advantages on house rent paid: If HRA (House Rent Allowance) is not included
in the salary structure then the salaried individuals can asset rent paid by them for
residential lodging. This reduction is accessible under Section 80GG and is smallest amount
of the following:
25% of the total earnings or,

` 2,000 every month or,
Surplus of housing charge paid over 10% of total salary.

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