In the last four years, the government’s efforts to widen the tax base resulted in an 80% jump in the number of returns filed to 6.85 crore in 2017-18 from 3.31 crore in 2013-14. Data released by the income tax department showed a massive gap between the salaried whose taxes are deducted and the non-salaried. Rajesh, a client of ours was unhappy with the Budget 2018 when the finance minister raised standard deduction to ₹40,000 and that too in lieu of travel allowance. He felt worse when he read about some professionals who probably earned three times his income and yet do not pay tax. “Does the government even listen to us? We are the most honest taxpayers and our salaries are deducted at source. What benefits do we get?" he asked. This is when we decided to tell him about the benefits available to salaried employees in the corporate sector.
Car lease: Many corporates offer their employees a car lease option. Here, the employee pays a lease amount to the company equal to the EMI of a loan taken for the car. Say, the employee pays ₹40,000 per month and has been given the car as a perquisite from his employer. This entire amount is deducted from the taxable income of the employee. This way, his taxable income is reduced to the extent of lease amount paid by him to the company. After three to four years, the company provides an option to the employee to purchase the car at the current market value and the car is owned by the employee. In this scenario, in addition to the tax deduction benefit, the employee saves on down payment costs and maintenance costs for purchase of the car.
National Pension System: We asked Rajesh to sign up for the National Pension System (NPS) benefit provided by his employer. Here, the employer deducts 10% of your basic salary plus dearness allowance (DA) and then shows it as contribution to NPS. This will also be shown as a deduction under Section 80CCD(2). The contributions will increase as the salary increases every year and it is completely reduced from one’s taxable income.
House rent allowance (HRA): Rajesh was living in a rented accommodation, and he could claim tax benefit partially on the rent paid too. The least of the following is allowed as the HRA exemption to a salaried employee: actual rent paid; 50% of the salary (basic plus DA) for metros and 40% of the salary (basic plus DA) for non-metros; excess of rent paid over 10% of salary.
Of his salary of ₹2 lakh per month, the basic amount is ₹20,000 and the HRA ₹45,000 per month. The exempted amount from that is ₹1.2 lakh.
Leave travel allowance (LTA): Rajesh wanted to travel on a vacation with his family. We asked him to plan his vacation expenses carefully, so that his employer reimburses the amount to him. He was happy to note that he could travel with his family (for up to two times in a block of four years and can extend the same to another block for domestic travel).
Other tax-saving options
Interest on home loan: Another key tax-saving tool is the interest paid on the home loans. Home owners have the option to claim up to ₹2 lakh as deduction for interest on home loan for self-occupied property under Section 24.
For let-out property also, the overall loss one can claim under the head “income from house property" is restricted to ₹2 lakh only. The deduction can be claimed from the year in which the construction is completed.
An individual can claim tax benefits for both HRA and home loan interest repayment subject to certain conditions.
Health insurance premium: Rajesh had ailing parents and needed to provide for an insurance cover to his family and parents. Medical premiums paid for self are tax-exempt up to ₹25,000 per annum and for senior citizen parents up to ₹50,000 per annum.
Others: There was also the normal 80C tax deduction benefits applicable for him. In addition, there is a deduction available under Section 80CCD(1B) if a contribution of ₹50,000 is made towards NPS.
Other tax deductions include Section 80G, where donations made to eligible institutions are eligible for deduction up to either 100% or 50%, with or without restriction. Section 80E allows for repayment of interest on education loan and can be carried forward up to eight years. Section 80TTA allows for deduction towards interest earned from bank deposits. Deduction under Section 80EE is allowed for first-time homebuyers if the price of the house does not exceed ₹50 lakh.
In the end, we did manage to send Rajesh home happy with the benefits available to him.
Dilshad Billimoria is director, Dilzer Consultants Pvt. Ltd