How you can save tax if your income is up to Rs 18 lakh

Almost all taxpayers in India look for measures to minimise tax on their income. Proper tax planning can help you veer from this situation. In order to pay zero tax or pay minimum tax, it is very essential to have a perfect structuring of salary break-up to make sure you use all tax exemptions and then utilise all the tax deductions. Some exemptions are based on actual expenditure incurred by the employee, while others are fixed.

Here is a list of seven such must-have exemptions:

1. HRA OR HOUSE RENT ALLOWANCE

If you are staying in rented accommodation, the employer usually provides House Rent Allowance (HRA) to compensate for the rent. However, the whole of the HRA is not exempt. Least of the following is exempt:

• Actual HRA received.
• 40% of salary (50% in case of metro city)
• Rent paid minus 10% of salary

Tip: Even if you are staying in a house owned by parents, you can pay rent to them and save tax provided all the transactions are genuine which are made through modes other than cash and the income is included in the income of parents.

2. EDUCATION ALLOWANCE

You can make an education allowance a part of your salary structure since you get an exemption of Rs 100 per child, maximum for two children. The total exemption will be Rs 2,400 per annum.

3. HOSTEL ALLOWANCE

Similar to the education allowance, one can also claim a hostel allowance of Rs 300 per month per child for a maximum of two children. The total exemption, in this case, would amount to Rs 7,200.

4. MEAL COUPONS

Income tax allows a tax deduction on meal vouchers provided by employers to employees up to Rs 50 per meal for two meals per day. Therefore you save tax on Rs 31,200 if you are working for 26 days a month.

5. LTA OR LEAVE TRAVEL ALLOWANCE

Nothing can be better than saving money while being on a leisure trip. You can save tax on two journeys undertaken by you and your family within a block of four years. This exemption can only be claimed on the submission of actual bills for travel within India.

6. GIFT FROM EMPLOYER

Employers can gift their employees an amount of Rs 5,000 in cash or kind which is totally tax-exempt under the Income Tax Act.

7. REIMBURSEMENTS

If you are incurring any expenses in order to fulfil your official duty, you may get certain reimbursements from the employer. All these reimbursements can be deducted from income on the submission of actual bills. These may include mobile reimbursements, books and periodicals, uniforms, or research allowance.

Particulars	Amount (in Rs)
Gross Salary	18,00,000
Less HRA	4,30,000
Less Education Allowance	2,400
Less Hostel Allowance	7,200
Less Meal Coupons	31,200
Less LTA	55,000 (assumed)
Less reimbursements	60,000 (assumed)
Less EPF (Employer Contribution)	1,45,668
Total Salary received from employer	10,68,532

Once you have structured your salary after incorporating all the exemptions stated above, you should now focus on all the deductions allowed under the Income Tax Act. Here are the six most -ommon deductions one can use:

1. STANDARD DEDUCTION

From financial year 19-20 onwards, standard deduction of Rs 50,000 is allowed in lieu of transport allowance and medical reimbursement. This deduction is allowed irrespective of the actual expenditure incurred.

2. SECTION 80C

Section 80C is the most common section which most people are aware of and take the benefit of it up to Rs 1.5 lakh. However, there are many deductions which are covered under this Section which people usually forget to consider such as stamp duty value paid on the purchase of property, tuition fee for maximum two children, apart from PPF, NSC, principal repayment in housing loan, ELLS mutual funds, five-year tax saving FD, ULIP, insurance premium, etc. 

3. SECTION 80D

Medical insurance is the first step in financial planning.

4. SECTION 80CCD(1B) ADDITIONAL NPS

Deduction under the National Pension Scheme is over and above the deduction under section 80C which usually people forget to make a part of their tax planning. You can get an additional Rs 50,000 benefit under this section if you invest in NPS and can save a tax of Rs 15,600. Therefore, the total deduction under Sections 80C and 80CCD (1B) comes to Rs 2 lakh.

5. INTEREST ON EDUCATION LOAN

There is no maximum deduction limit under this section. You can claim full interest paid on loan taken for the higher education of self, spouse, or children. A loan can be taken from any bank or financial institution for higher education within India or outside India.

6. SECTION 24 INTEREST REPAYMENT

Homeowners can claim a standard deduction of flat 30 per cent of rent received as well as a deduction of interest paid on housing loans. In the case of a self-occupied house, this deduction is a maximum of Rs 2 lakh and in case of a let-out house, it is unlimited i.e whole of the interest paid can be claimed as a deduction.

Tip: Even after availing of all these deductions and exemptions, your salary is nearing Rs 5 lakh, you should further bring it down below Rs 5 lakh by donating some amount u/s 80G  because once your income is below Rs 5 lakh, your tax liability will be zero after claiming the rebate under Section 87A. Even a small amount of donation can save a lot of tax at times.

Particulars	Amount (Rs)
Salary received from employer	10,68,532
Less Standard Deduction	50,000
Less Section 80C	1,50,000
Less Section 80CCD	50,000
Less Section 80D	50,000
Less Interest on Education loan	65,000 (assumed)
Less Interest on housing loan	2,00,000
Total Taxable Income	5,03,532
Tax in total Income	13,735

In this example, the taxable income comes to around Rs 5,03,532, and therefore the tax would be Rs 13,735, however, if you donate Rs 3,532 to recognised charitable organisations, this will bring your taxable income below Rs 5 lakh and therefore no tax would be payable on the same.

(Gauri Chadha is a CA, she can be reached at http://twitter.com/gauri_chadha)