TAX PLANNING FOR

SALARIED INDIVIDUALS
Conceptually, tax planning for salaried
assesses can be divided in to two broad
category namely :
 Salary Restructuring ; and
 Investment in Tax saving devices.
 Salary Restructuring

 An Employee can structure or restructure his salary so as to reduce the tax

outgo on his total salary by availing of exempt allowances ,benefits and
reimbursement.
 There are certain allowances ,benefit and reimbursement that are either
exempt from tax or valued at a lower rate depending on certion condition.
 The salary can be restructure in a way as to separate the allowance ,benefits
and actual reimbursements from the salary components and avail the tax
benefits allowed on these .
 Normally Employer pays the salary and the employee makes the expenditure
out of that.
 However there are certain expenditures for which the employer makes a
specific payment ,there are tax benefits associated with such payments .
 There fore if an employee is likely to incur such expenditure that
 If taken in the form of an earmarked payment separate from the salary and
paid by the employer ,
 Provides Tax benefit, he could utilized the tax benefit by taking payment for
such expenditure as a benefit, allowance or a reimbursement .
 And separate it from the salary components .
 Examples of such earmarked
benefits(Separate from the salary) ara
below
 Rent Free Accommodation or House rent allowance can be availed in case the
taxable income is low .
 If the taxable income is high the valuation of the perquisites could be high
resulting in greater tax outgo.
 Transport allowance are exempt up to Rs.1,600.00 p.m. against medical
allowance which is fully taxable u/s 10(14)(ii) .(Granted to Employees meet
his expenditure for the purpose of commuting between office and residence)
 Uniform Allowance : Expenses on Purchase and Maintenance of Employees
uniform can be paid or reimbursed by the employer .
 Uniform allowance is not consider as a perquisites u/s 10(14)
 This however needs to be a uniform and any civil dress.
 Education Allowances : If any allowance is received for education and hostel
stay of employee’s children from the employer ,exemption can be claimed
u/s 10(14)(ii)(Rs100.00 p.m. for education and Rs 300.00 for hostel satay per
child up to a maximum of 2 child)
 Telephone facility received by an employee at his resident is not taxable in
the hands of employee as against telephone allowance is fully taxable .
 The Employee can avail the facility of a company car (as also its maintenance
and running expenses ) from the employer
 The perquisites volume is nominal considering actual expenses on car
 Medical reimbursement are exempt up to Rs.15,000.00 p.a. against medical
allowance which is fully taxable .
 These Could be structured as a salary .
 Investment in Tax Saving Device

 The Second method of tax planning is by way of investment in designated

schemes.
 There are many scheme that are listed by the income tax department and
these are to be found in section 80 of the Income Tax .
 The largest in section 80C.There is an over all ceiling for the total investment
under 80C, Which is currently is Rs 150,000.00
 Similarly for section 80D,the ceiling is Rs 25,000.00
 If you make an investment in scheme mention in these section, the amount so
invested is allowed as a deduction from your total income before computing
the tax
 These scheme normally follow the principle of exempt-exempt-tax of exempt-
exempt-exempt at the stage of contribution –accumulation-withdrawal –
respectively .
 Section 80C Products

 Bank Deposit : Term deposit in a schedule bank with a minimum period of

five years notified under the bank term deposit scheme,2006 not only give a
fixed and assured return but also a tax advantages .
 But remember that the entire interest income from such deposit is taxable .
 Employee Provident Fund: This is a forced saving for employees and help
them save for retirement.
 Every month 12% of your basic salary is deducted and put inti kitty maintained
either by government or companies trust.
 Public Provident Fund : This is a self directed investment option. It is
essentially a 15 Yrs Investment that gives a tax free return .
 Repayment of Home Loans : Repayment of home loans ,principal components
only .
 Children Fees : Parents can claim a deduction for tuition fees for a maximum
of two children within the overall limit .
 However payment towards development and any other fee or donation to
institution not consider under 80C
 Life Insurance : Your life cover premium is eligible for a tax deduction within
specified limit under 80C .
 Pension Plan: If any investment is made under this section ,then the
qualifying amount under section 80C stands reduces to that extent.
 Investment in insurance and mutual fund pension plan also comes under this
section .
 National Savings Certificate : These are for those who are less averse to risk.
 This govt. backed security is available at post offices .
 The Interest rate is entirely taxable
 NSCs are good for those in lower tax slabs with an investment horizon of six
years.
 Equity linked Saving Scheme: These are mutual fund product and carry
market risks
 Under the IT act , investor investing in an ELSS claim benefit under 80C.
 Section 80D

 The Deduction allow under 80D is Rs25,000.00 and Rs 30,000.00 for Senior
citizen .
 Section 80E

 The interest on loan taken for higher education is also eligible for deduction
from your total income under section 80E.
 There is no monetary ceiling on the interest you can claim as a deduction .
 The Loan most have been taken from a financial institution or an approved
educational institute .
 Section 80G

 Charity: To avail tax benefit under section 80G,donation must be made only
to specified trust.
 The tax breaks vary according to the trust to trust which you have donated .
Section 80DD

 Any expenditure for medical treatment (including nursing) of a handicapped

person, training and rehabilitation of person suffering from a permanent
physical disability(Including blindness) or from mental retardation ,
 It is essential to note that person must not suffer less than 40% of any of the
above disabilities.
 he income tax deduction which is allowed, under section 80DD is Rs. 75,000
(40% and over disability)
 The income tax deduction which is allowed, under section 80DD is Rs.
1,25,000 (80% and over disability)
 Questions for Revision

 Give 5 ways that you would structure your salary to save tax
 What investment would you make to save tax and why ?Make your portfolio of
tax savings investment? What is the tax savings from your portfolio ?
 Thank You ,
Krushna Prasad Samantaray