How to Pay Zero Tax for Income up to Rs 12 Lakhs and Get Tax free for Financial Year 2016-17
The budget has been issued and there have been no notable changes made in terms of tax rates for individuals. Individuals who make an income of cash than 5 lakhs will be eligible for a tax rebate of Rs 5000/- under section 87A. There is an increase in surcharge on income tax imposed on individuals whose income is Rs. 1 crore or more from 12 percent to 15 percent. This increase is mainly credited at taxing the rich. The middle class pays various taxes in the form of indirect taxes and also have to cover retirement and savings at the same time. In our article, we have covered how to save tax and make worthy investment along with insurance and medical expenses.
Investment in 80C to get tax deduction of up to 1.5 lakhs
Individual can invest in order to reduce his tax liability. This facility is available for both individuals and HUF. An individual can get a deduction of tax under section 80C up to a maximum of Rs. 1.5 lakhs. The investments should be in Insurance Policy, Post Office Time Deposit Account, Investment in Equity Linked Saving Scheme, Public Provident Fund, National Saving Certificate, Tuition Fees Paid, Bank Fixed Time Deposit, Repayment of Principal of Housing Loan, Sukannya Samriddhi account etc.
Investment up to Rs 2 lakhs in National Pension Scheme
Under Section 80CCD, individuals can invest in New Pension Scheme to avail an income tax deduction of Rs. 50, 000. This extra deduction of Rs. 50, 000 in the name of NPS will increase the total deduction under Section 80C and 80CCD to Rs 2 lakhs. The withdrawals from NPS on maturity have been made tax free in 2016 up to 40%, but it is not alive anymore whereas PPF and EPF withdrawals were tax-free. The 2016 Budget aims at providing an invariable tax to the recognized provident fund, national pension system, and superannuation fund. The main aim is to make NPS Scheme notable and to make it a tough competitor to other EEE pension schemes. It is proposed that 40% of the pension wealth received by an employee from the National Pension System Trust shall be exempt.
Home loan interest and house rent allowance
Employees who are eligible holders of House Rent Allowance (HRA) can use the HRA benefit and save the tax. Employees who do not receive HRA benefits, there is a deduction against house rent from Rs. 2, 000 per month to Rs. 5, 000. This would help cut down the tax between Rs. 3, 708 to Rs. 12, 204. First time home buyers can get additional deduction of Rs 50, 000 on interest for a loan up to Rs 35 lakhs given the house value is not more than Rs. 50 lakhs.
Medical allowance and transport allowance up to Rs 40, 000
Employees can claim medical allowance and transport allowance and can gain tax benefit of up to Rs. 40, 000. The employee needs to submit proof of expenditure to avail the benefit.
Medical Insurance up to Rs. 50, 000
Medical insurance can help get tax benefit other than just health insurance. Employee needs to submit medical expenditure to avail the tax benefit on medical insurance.
Leave travel allowance up to Rs. 25,000
The amount assigned under LTA is tax-free for the employee. LTA has an exemption from tax as per Section 10 of the Income Tax Act.
Reimbursement of expenses for mobile travel, newspaper
An employee can also avail tax benefits on expenses that he/she made on travel, phone, and newspaper bills etc. To avail this, an individual need to submit the proof of expenditure.
Meal coupons up to Rs. 10, 000
Employees can also make use of meal coupons given by the employer to avail the tax benefits up to Rs. 10, 000.
Relief under Section 87A
An employee can also make use of the relief under section 87A that cuts down the tax up to Rs. 5000/- for those whose income is less than Rs. 5 lakhs. If 10% slab rate is considered, there will be an additional benefit of Rs. 50000/-.
Taking into consideration the above-mentioned points, it is clear that individual can benefit a lot in terms of tax savings along with investing in housing.