- Date : 17/02/2020
- Read: 6 mins
As tax planning season comes around, you should be on the lookout for ways to save tax. But remember to look beyond section 80(C)!
The year is drawing to an end. Once again, you are stressing about filing your tax returns. Most people dread this mundane job. But there is some good news. Help is at hand in the form of various expenditures and allowances. You just have to get all your documents together and furnish the details through Form 16.
What is Form 16?
Form 16 is an Income Tax form or certificate applicable under Section 203 of the IT Act, 1961. The Form 16, contains details of your taxable income, all Tax Deducted at Source (TDS) and investment declaration for the financial year that will help you file your Income Tax Returns (ITR)
How can I get Form 16?
It will be your employer who will give Form 16. Employers usually issue Form 16 by May end of the financial year (before June 15), giving you ample time to plan your investments. The employer will deduct TDS based on this declaration. The final proof of investments has to be furnished by January of next year, and adjustment of arrears, if any will happen over the subsequent two months.
What is the difference between Form 16 and Form 16A?
Form 16 is applicable for salary income only, whereas Form 16A is applicable for TDS on all other sources of income other than salary. For example TDS on interest income on fixed deposits, TDS on rental income, or TDS on commission or income is reflected in Form 16A.
Related: Here is what you must know about the changes in Form 16
How to maximise your declaration in Form 16?
The investment declaration in Form 16 can help you efficiently plan your tax liability and save money from your salary in simple ways. Here is how:
1. Leave travel allowance (LTA) (Section 10(5)):
You could fund your dream holiday with the LTA if you get at work. Your LTA is not taxable. So, you can bask in the happy knowledge that you have some extra money on the side. You could either invest it further or just splurge on something you have been hankering for. But remember, it is applicable only on domestic travel. Secondly, it needs to be a part of your salary structure. Moreover, you can claim LTA once every four calendar years.
2. House rent allowance (HRA) (Section 80GG):
Almost everyone cribs about the high house rent these days. But the taxman has decided to give you some reason to cheer.
The deduction for HRA is available basis the lowest of the following amounts:
- Actual HRA received
- 50% of [basic salary + DA] for those living in metro cities (40% for non-metros)
- Actual rent paid less 10% of basic salary + DA
You can also claim HRA at:
- Rs 5,000 per month
- 25% of adjusted total income (Total income less LTCG, STCG and deduction from 80C to 80U)
- Actual Rent less 10% of adjusted total Income
3. Lunch coupons (Section 3(7)(iii)):
Did you think the management was being stingy by doling out lunch coupons? Maybe you wanted a grand feast instead for all your hard work. Think again. Your meal vouchers or lunch coupons are exempt from the tax axe. Keep these vouchers and coupons safe and furnish them when needed for escaping the tax axe.
Related: 5 things to check in your Form 16 while filing ITR
4. Conveyance (Section 17(2)(iii)):
Did you burn a lot of petrol to attend a client meeting at the other end of the city? There is no need to stress. Your office conveyance allowance is non-taxable. Keep your cab bills handy and ensure you furnish them when you want to make a tax claim.
5. Medical insurance premium (Section 80D):
Do you pay medical insurance for yourself, as well as for your children and spouse? Be secure in the knowledge that you can easily claim an income tax deduction on this amount up to Rs. 25,000 for your spouse and self, and Rs 50,000 if you are a senior citizen. In case you paid for your dependent parents, then you can claim another tax deduction of Rs 25,000 on their health insurance premium too! This goes up to Rs 50,000 if parents are senior citizens as well. This means, cumulatively, you can claim a total deduction of up to Rs 1,00,000.
Related: Types of ITR forms that every taxpayer should know about
- Medical treatment of handicapped dependents: This is definitely not on the taxman’s radar. So, if this is a recurring expense for you, store all bills as per a new rule introduced this year. You can claim a maximum deduction of Rs 75,000. Section: Section 80DD
- Yearly health check-up: Preventive health check-up is catching up in India and you can claim a deduction of Rs 5,000. This means this consolidated amount can cover the health check-ups for you, your parents, spouse and children too. This includes all the medical tests you or your family may have conducted. Section: 80D
- Treatment for specified diseases: You can ask for tax deductions on your medical bills too! You can do this under two special categories. One is a generic category, where all your medical bills are approved. This is called Medical Allowance. It’s part of your salary structure. In this case, you need to submit bills up to Rs 15,000 a year to your employer. And then there’s a special section for specified diseases like cancer, kidney failure, etc. In this category, you can claim a deduction on the medical treatment (not just bills) up to Rs 1,40,000 (Rs 60,000 for senior citizens and Rs 80,000 for extremely senior citizens). If you are a senior citizen or are claiming for treatment meant for your senior parents, then you can ask for a deduction up to Rs 60,000 or Rs 80,000 depending on the actual age. Section: 80DDB & 10
Related: How to use the new ITR form
6. Education loan (Section 80E):
Did you decide to pursue your MBA while still working? Pay for your course fees with an education loan. Whatever you pay as interest can help you lower your taxable income. This benefit is also applicable if you take a loan for your children’s education at school, or for higher studies in India or abroad.
The bottom line:
The tax system is friendly if you think about it. Yes, it’s a little tedious. But it offers a lot of support and opportunities to reduce tax. Eventually, though, it depends on whether you know about it and use it in the right way. So, this tax season, ensure you use every means available in the Tax book to your betterment. To get a head start to your income tax returns filing, you will have to submit your investment declaration, To learn more on Form 12BB which aids in investment declaration, check this article here.
The year is drawing to an end. Once again, you are stressing about filing your tax returns. Most people dread this mundane job. But there is some good news. Help is at hand in the form of various expenditures and allowances. You just have to get all your documents together and furnish the details through Form 16.
What is Form 16?
Form 16 is an Income Tax form or certificate applicable under Section 203 of the IT Act, 1961. The Form 16, contains details of your taxable income, all Tax Deducted at Source (TDS) and investment declaration for the financial year that will help you file your Income Tax Returns (ITR)
How can I get Form 16?
It will be your employer who will give Form 16. Employers usually issue Form 16 by May end of the financial year (before June 15), giving you ample time to plan your investments. The employer will deduct TDS based on this declaration. The final proof of investments has to be furnished by January of next year, and adjustment of arrears, if any will happen over the subsequent two months.
What is the difference between Form 16 and Form 16A?
Form 16 is applicable for salary income only, whereas Form 16A is applicable for TDS on all other sources of income other than salary. For example TDS on interest income on fixed deposits, TDS on rental income, or TDS on commission or income is reflected in Form 16A.
Related: Here is what you must know about the changes in Form 16
How to maximise your declaration in Form 16?
The investment declaration in Form 16 can help you efficiently plan your tax liability and save money from your salary in simple ways. Here is how:
1. Leave travel allowance (LTA) (Section 10(5)):
You could fund your dream holiday with the LTA if you get at work. Your LTA is not taxable. So, you can bask in the happy knowledge that you have some extra money on the side. You could either invest it further or just splurge on something you have been hankering for. But remember, it is applicable only on domestic travel. Secondly, it needs to be a part of your salary structure. Moreover, you can claim LTA once every four calendar years.
2. House rent allowance (HRA) (Section 80GG):
Almost everyone cribs about the high house rent these days. But the taxman has decided to give you some reason to cheer.
The deduction for HRA is available basis the lowest of the following amounts:
- Actual HRA received
- 50% of [basic salary + DA] for those living in metro cities (40% for non-metros)
- Actual rent paid less 10% of basic salary + DA
You can also claim HRA at:
- Rs 5,000 per month
- 25% of adjusted total income (Total income less LTCG, STCG and deduction from 80C to 80U)
- Actual Rent less 10% of adjusted total Income
3. Lunch coupons (Section 3(7)(iii)):
Did you think the management was being stingy by doling out lunch coupons? Maybe you wanted a grand feast instead for all your hard work. Think again. Your meal vouchers or lunch coupons are exempt from the tax axe. Keep these vouchers and coupons safe and furnish them when needed for escaping the tax axe.
Related: 5 things to check in your Form 16 while filing ITR
4. Conveyance (Section 17(2)(iii)):
Did you burn a lot of petrol to attend a client meeting at the other end of the city? There is no need to stress. Your office conveyance allowance is non-taxable. Keep your cab bills handy and ensure you furnish them when you want to make a tax claim.
5. Medical insurance premium (Section 80D):
Do you pay medical insurance for yourself, as well as for your children and spouse? Be secure in the knowledge that you can easily claim an income tax deduction on this amount up to Rs. 25,000 for your spouse and self, and Rs 50,000 if you are a senior citizen. In case you paid for your dependent parents, then you can claim another tax deduction of Rs 25,000 on their health insurance premium too! This goes up to Rs 50,000 if parents are senior citizens as well. This means, cumulatively, you can claim a total deduction of up to Rs 1,00,000.
Related: Types of ITR forms that every taxpayer should know about
- Medical treatment of handicapped dependents: This is definitely not on the taxman’s radar. So, if this is a recurring expense for you, store all bills as per a new rule introduced this year. You can claim a maximum deduction of Rs 75,000. Section: Section 80DD
- Yearly health check-up: Preventive health check-up is catching up in India and you can claim a deduction of Rs 5,000. This means this consolidated amount can cover the health check-ups for you, your parents, spouse and children too. This includes all the medical tests you or your family may have conducted. Section: 80D
- Treatment for specified diseases: You can ask for tax deductions on your medical bills too! You can do this under two special categories. One is a generic category, where all your medical bills are approved. This is called Medical Allowance. It’s part of your salary structure. In this case, you need to submit bills up to Rs 15,000 a year to your employer. And then there’s a special section for specified diseases like cancer, kidney failure, etc. In this category, you can claim a deduction on the medical treatment (not just bills) up to Rs 1,40,000 (Rs 60,000 for senior citizens and Rs 80,000 for extremely senior citizens). If you are a senior citizen or are claiming for treatment meant for your senior parents, then you can ask for a deduction up to Rs 60,000 or Rs 80,000 depending on the actual age. Section: 80DDB & 10
Related: How to use the new ITR form
6. Education loan (Section 80E):
Did you decide to pursue your MBA while still working? Pay for your course fees with an education loan. Whatever you pay as interest can help you lower your taxable income. This benefit is also applicable if you take a loan for your children’s education at school, or for higher studies in India or abroad.
The bottom line:
The tax system is friendly if you think about it. Yes, it’s a little tedious. But it offers a lot of support and opportunities to reduce tax. Eventually, though, it depends on whether you know about it and use it in the right way. So, this tax season, ensure you use every means available in the Tax book to your betterment. To get a head start to your income tax returns filing, you will have to submit your investment declaration, To learn more on Form 12BB which aids in investment declaration, check this article here.
