The Budget has made no significant change in Tax Rates for Individuals. The Individuals who earn the income of fewer than 5 Lakhs rupees will get Rs 5000/- as Tax rebate under section 87A. There is increase surcharge on income tax levied on individuals earning the income of Rs 1 crore or more from 12 percent at present to 15 percent. This move is aimed at taxing the rich. The Middle Class always pay effective more tax including indirect taxes and have to plan their retirement and savings at the same time save on overall tax outgo. The Article gives you brief idea on how to save tax and at the same time make proper investment and cover insurance and Medical expenses risk.
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- Investment in 80C for Purpose of taking full benefit of 1.5 Lakhs + Additional benefits NPS U/s 80CCD(1B) Rs. 50,000/- total Rs. 2 Lakh.
Deduction under 80C is related to the deduction that an individual can deduct from his gross taxable income in order to reduce his tax liability by investing in specified investment. It is applicable to individuals and HUF. An assessee can get deduction under section 80C up to a maximum of Rs.150000.The qualifying investments and expenditure as the deduction under 80C are an investment in Insurance Policy, Post Office Time Deposit Account, Investment in Equity Linked Saving Scheme (Mutual Funds), Public Provident Fund, National Saving Certificate.Tuition Fees Paid, Bank Fixed Time Deposit, Repayment of Principal of Housing Loan, SukannyaSamriddhi account.
2.Investment in National Pension Scheme up to Rs 1.5 Lakhs
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Finance Minister ArunJaitley in Budget 2015-16 introduced an additional income tax deduction of Rs. 50,000 for contribution to the New Pension Scheme (NPS) under Section 80CCD. NPS is a voluntary pension scheme, which is regulated by the Pension Fund Regulatory and Development Authority.This extra deduction U/s 80CCD(1B) of Rs. 50,000 on NPS will increase the total deduction allowed under Section 80C and 80CCD of Income Tax Act to Rs. 2 lakh. In Budget 2016, the finance minister has made withdrawals from NPS on maturity tax-free up to 40% of the total corpus accumulated. Currently, none of the withdrawals were tax-free unlike other competing instruments such as PPF and EPF where the total withdrawal was tax -free. This is a major step towards making the NPS scheme more attractive and bringing it on par with the other EEE pension schemes. The Budget 2016 proposes to provide a uniform tax treatment to the recognized provident fund, national pension system, and superannuation fund.
It is proposed that 40% of the pension wealth received by an employee from the National Pension System Trust shall be exempt.
It is proposed that 40% of the pension wealth received by an employee from the National Pension System Trust shall be exempt.
3.Home Loan Interest and House Rent Allowance (up to Rs 2 Lakhs ) U/s 24B,.Employees get HRA as a part of Salary. If the Employee is living in rented accommodation they can Claim HRA benefit and save on taxes. If the Employee is staying with parents in that case too they can pay rent to parents and Claim HRA benefit.
For employees who don't get HRA benefits, the FM raised the deduction against house rent from Rs 2,000 per month to Rs 5,000. This would result in tax savings in the range of Rs 3,708 to Rs 12,204, depending on the income slab.
Further in Budget 2016 First time home buyers to get additional deduction of Rs 50,000 on interest for the loan up to Rs 35 lakh U/s 80EE. This additional deduction has been given on interest for the loan up to Rs 35 lakh, provided the house value doesn't exceed Rs 50 lakh. For, the 2016-17 Budget proposes tax relief on interest payment on a home loan if the property bought, or under construction, is completed within 5 years from the end of the financial year in which the loan was availed instead of the current 3 years. Assuming a loan of Rs 35 lakh to be paid over 20 years, the annual deduction comes to around Rs 2.5 lakh, including the Rs 2 lakh.
4.Tax-Free Medical Allowance and Transport Allowance up to Rs 40 Thousand
Medical reimbursement and Transport Reimbursement can be claimed by the employee and it will be taken care in form 16 itself. For Medical Bills Employee needs to submit proof of expenditure incurred.
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5.Medical insurance for Self Rs 25 thousand & Parents who are above 60 years of age can get Rs. 30 thousand, Total Rs. 55 thousand U/s 80D.
Payment of premium on life insurance policy and health insurance policy not only gives insurance cover to a taxpayer but also offers certain tax benefits. Medical insurance premium paid by an assessee, being individual/HUF by any mode other than cash. The sum paid by the assessee, being individual on account of preventive health check-up. Medical expenditure incurred by the assessee, being individual/HUF on the health of a very senior citizen person provided that no amount has been paid to effect or to keep in force an insurance on the health of such person.
6.Leave Travel Allowance Up to Rs 25000
An LTA is a remuneration paid by an employer for Employee’s travel in the country when he is on leave with the family or alone. Amount from LTA is tax-free. Section 10(5) of the Income-Tax Act, 1961, which provides for the exemption and outlines the conditions subject to which LTA is exempt.
7.Reimbursement of Expenses for Mobile, Travel, newspaper as actuals
Many employers provide reimbursement of Travel Expenses, Mobile, and Phone Bill and for News Paper. The employee has to submit proof of expenditure.
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9.Relief under Section 87A
The budget has increase the relief under section 87A from Rs 2000/- at present to Rs 5000/-. So effectively if taxable income is less then Rs 5 Lakhs an individual can Claim relief of Rs 5000/- in taxes paid. If we consider 10% slab rate it turn out to be Rs 50000/- as additional benefit which can be claimed in this Section
From the above Picture, it is clear that if the Individual plan in the proper manner for the year 2016 -17 financial year he can not only save taxes but can also plan an investment in Resident Property if he is not owing one. For Retirement benefit NPS seems to be the better option considering current changes in Budget 2016.
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