As soon as the tax filing season begins, people begin to look for ways to minimise their income tax outgo for that financial year. This last-minute frenzied search for ways to minimise tax outgo and maximise savings does not always throw up desired results. So, it's wise to begin tax planning at the beginning of the financial year and not get desperate towards the end. Income tax rules provide a number of tools and opportunities to reduce the total taxable income.
First, it is important to understand your tax slabs and what each component of your salary structure means. This will help you in claiming maximum benefits through the year. Let's have a look at the tools on which you can claim tax benefits.
House Rent Allowance (HRA)
Those who live in a rented accommodation can claim HRA to lower tax outgo while filing income tax returns. The HRA component of your salary is partially, and in some cases fully, exempted from taxes.
Leave Travel Allowance (LTA)
Another component of your salary that allows you to claim tax deductions is expenses on vacations. This exemption is valid for travel only within India with your family and for the shortest route taken during the trip. You can claim this exemption by submitting the expense bills to your employer.
Employee Contribution to Provident Fund (EPF)
A social security initiative, the employer and the employee contribute an equal amount (12 per cent of the basic salary) every month. The current interest rate on the deposited amount is 8.50 per cent. On maturity, the returns are exempted from tax. Also, EPF contributions can be claimed for tax exemption under Section 80C.
It was reintroduced in the 2018 Budget. Taxpayers can now claim a flat deduction of Rs. 50,000 from the total income, thereby reducing the tax outgo.
Exemption Under Section 89(1)
According to Section 89(1), any salary received as arrears or advance is tax-free.
A retirement benefit provided by an employer if the employee has worked with the organisation for five continuous years, it is exempted from tax. However, the amount is paid after retirement or resignation.
Expenses Related to Internet or Phone
Expenses incurred in using these devices and facilities are either pre-paid by some employers or can be reimbursed by the employees. Tax benefits can be claimed on these expenses.