The season of saving your income taxes will be gone soon! It’s time for a quick analysis of the investment options, then choose one and park your hard-earned money. By the end of March 2020, you must ensure that all your due taxes are paid and if your tax-saving investments are done aptly.
Any delay or shortfall in tax payment might result in levy of interest or late fee. Also, not availing eligible tax deductions would result in higher tax deduction which could have been avoided with various tax-saving options.
Some people might have liquidity issues and are not in a position to make tax-saving investments this year. But, do not get disheartened! There are certain expenditures that you may have incurred during the financial year which are eligible for a tax deduction. You can claim those expenses and reduce your tax liability instead of making fresh investments now.
Here are some expenses which are eligible for a tax deduction:
1. House rent allowance (HRA)
HRA usually forms a part of the salary. Individuals who stay away from their residential houses for the purpose of employment or do not own a house can avail an HRA exemption based on the actual rent paid by them.
The income tax act provides for an HRA exemption of at least one of the following:
- 40%/50% (in the case of metropolitan cities) of the salary amount
- Actual amount received as HRA
- Actual rent paid exceeding 10% of the salary
The employee would have to provide rent receipts and other details to the employer to claim the exemption amount and reduce the TDS amount. In case the employee could not submit the rent receipts to the employer during the year, he can claim the exemption while filing income tax returns.
2. Standard deduction on salary
A standard deduction of Rs 50,000 is mandatorily allowed to all salaried individuals. This deduction is considered by the employer while computing the taxable income of the employees. Also, the deduction will be auto-populated in the income tax returns.
While planning your taxes for FY 2019-20, consider and reduce the standard deduction from your taxable income and plan your investments accordingly.
Also Read: 7 Personal Finance Lessons You Should Know
3. Leave travel allowance (LTA)
Salaried individuals, with an LTA component in their salary, can claim a deduction of the travel expenses incurred during any family vacation or domestic travel. You will have to submit the proofs of your travel and related expenses to your employer and avail an LTA exemption. This deduction can only be claimed in respect of two domestic journeys in a block of four years.
Submit your travel expenses related proofs to your employer before the 31st of March 2020 and avail the deduction for FY 2019-20. You will not be able to claim this deduction while filing your income tax returns.
4. Deduction towards children’s tuition fees
If you are a parent, you can claim deductions under section 80C. Section 80C provides for deduction of the tuition fees paid to any university, college, school or other educational institution situated in India, for the purpose of full-time education of any two children of an individual. You can claim such deduction up to a maximum of Rs 1.5 lakh on the basis of actual expenditure incurred on tuition fees in a financial year.
5. Deduction of children education allowance
Section 10(14) provides for a deduction to the taxpayer of an amount incurred towards the education of his children. The deduction amount is Rs 100 per month per child, up to two children. Remember that the children education allowance is different from the tuition fees and the deduction will only be allowed if such allowance forms a part of your salary.
6. Employer’s contribution to NPS
Every employee should avail a deduction of the contribution made by the employer towards a notified pension scheme under section 80CCD(2). This deduction is not covered under the overall limit of section 80C.
Under section 80CCD(2), an employee can get a deduction for the employer’s contribution towards his NPS account up to a maximum of 10% of his salary. The term salary includes basic pay, dearness allowance but excludes all the allowances and perquisites.
7. Employee’s Provident Fund (EPF)
EPF is one of the deductions, which is compulsorily made from the salary of the individuals and is considered for the purpose of tax savings. The contribution made by the employee towards a recognised provident fund, which is deducted from the salary on a monthly basis, will be allowed as a deduction under section 80C up to a maximum of Rs 1.5 lakh in a year.
Remember no deduction will be allowed in respect to contributions made towards unrecognised provident fund.
For any clarifications/feedback on the topic, please contact the writer at komal.chawla@cleartax.in
I am an aspiring Chartered Accountant. I spend most of my free time dredging through the various Indian finance subreddits. I am a semi-professional bowler with a high strike rate every time there is a new tax reform!
