There are a number of deductions a salaried taxpayer can claim while filing their income tax returns. Not knowing what deductions and exemptions to claim can have a significant impact in the tax one ultimately ends up paying. In such a situation, it’s necessary to diligently declare details of all such exemptions and deductions to one’s employee, to avoid suffering any TDS (tax deduction at source), in excess of one’s final tax liability, says Alok Agrawal, income tax expert and partner, Deloitte India. Agrawal details some things to be mindful of from a tax-saving perspective while filing your ITR:
Generally, details of all tax exemptions and deductions are provided as part of the declaration by employees to the employer through the year. If this process is diligently followed, then there would be no need, and no possibility for the employee to save additional taxes while filing the tax return.
However, on a practical basis, many employees do not give details of donations made by them to the employer during the year which should be considered at the time of filing tax returns. Employees may miss out on claiming some deductions which have been introduced over the last few years, for example, deduction of upto Rs 50,000 for employee’s contribution to the NPS (National Pension Scheme) and deduction of upto Rs 5,000 for preventive health check-up for self, family members and for parents (this is part of the deduction allowed under Section 80D).
Changes introduced in Budget 2017
Apart from the regular exemptions and deductions that can be claimed, these are some changes that were introduced in Budget 2017 which need to be considered in the FY2017-18 tax return to be filed by 31st July:
Slab rate: The applicable slab rate with respect to an individual having taxable income between Rs 2.5 lakh to Rs 5 lakh has been reduced from 10% to 5%.
Rebate: Earlier, an individual with taxable income up to Rs 5 lakh was entitled to a tax rebate. Now, this limit has been reduced to Rs 3.5 lakh. Also the tax rebate has been reduced from Rs5,000 to Rs 2,500.
Capital gains: Immovable property, land/ building or both, will be considered as long-term if it is held for more than 24 months. Thus, indexation benefit and lower tax rate of 20% will be available where the sale of immovable property takes place after 24 months. There is also a change in the base year for indexation purpose from April 1, 1981 to April 1, 2001 which allows taxpayers to substitute fair market value of the capital asset as on 01 April 2001 as the cost of acquisition for the purpose of calculating capital gains. Accordingly, the government has notified new cost inflation indices.
What are the elements a salaried employees should keep an eye on, in their CTC, for tax saving purposes?
Employees may sometimes not be able to claim important exemptions such as HRA at the TDS stage due to not having provided complete details and documents to the employer during the year. In such situations, it is important for them to calculate the exemption and claim the same in the tax return. Such claims would lead to a tax refund in the tax return.
Another significant opportunity for tax savings as part of CTC is employer’s contribution to NPS as this can save tax on upto 10% of basic salary. However, in order to get this exemption, the employer needs to set up NPS contributions as part of the CTC structure of the employees.
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