Tax saving options for salaried class in fiscal 2019-20

Tax planning for fiscal 2019-20 assumes a lot of significance because you need to plan your tax savings in such a way as to minimize your tax liability to the extent possible.

Jul 04, 2019 10:07 IST India Infoline News Service

Fiscal year 2019-20 is going to be a special year for salaried taxpayers because there are two additional exemptions that will kick in. Taxable income up to Rs5 lakh will be entirely tax-free and any tax liability will be given back as rebate. Secondly, the enhanced standard deduction at the rate of Rs50,000 per year will also take effect. Tax planning for fiscal 2019-20 assumes a lot of significance because you need to plan your tax savings in such a way as to minimize your tax liability to the extent possible.

First, a look at the key changes made to the tax slabs.
 
Changes to taxation on salary slabs

Here are some interesting points you need to know about the salary tax slabs from the fiscal year 2019-20 onwards.
  1. There will be a special rebate under Section 87A which increases the eligibility limit for tax-free income to Rs5,00,000. This will be implemented via a tax rebate of Rs12,500.
  2. The limit of standard deduction stands increased from Rs40,000 to Rs50,000 in lieu of transport allowance and medical reimbursement.
  3. The threshold for deduction of TDS on bank FD/ Post Office FD has been raised from Rs10,000 to Rs50,000.
The above provisions will be only made available to “Resident Assessees” whose total income does not exceed Rs5,00,000. The takeaway for your tax planning is that, wherever possible, you must adjust exemptions in such a way as to bring your taxable income down to Rs5 lakh to avoid paying tax altogether.
 
Key exemptions to focus on 

As a salaried individual, you have a plethora of tax-saving options, which are in the form of investments or outlays. Some of the key tax saving investments and outlays to focus on are as under:
  • Section 80C limit for investments and outlays like Public Provident Fund, Contributory Provident Fund, Life Insurance Premium, ELSS, ULIP, Long Term FDs, home loan principal, etc. The outer limit for these exemptions has been retained at Rs1.50 lakh. It is not known if there could be any relaxation to this limit in the full budget to be presented in July 2019. However, you can claim an additional exemption of Rs50,000 by opting for the National Pension Scheme (NPS), which combines returns and social security.
  • You can take a loan and invest in house property and claim exemption under Section 24 of the Income Tax Act on the interest paid. The principal repayment has to be claimed under Section 80C. The outer limit for Section 24 is Rs2 lakh per year and it has to be backed by a home loan interest certificate issued by the lending bank.
  • Section 80D is an outlay and not necessarily an investment but it is an investment in your health. Health insurance premium up to Rs25,000 for non-senior citizens and Rs50,000 for senior citizens is available as full-tax exemption. If you take a policy on your family and parents (who are senior citizens), you can effectively claim a deduction of Rs75,000. Above all, your health risk is secured.
  • Section 80E is not often used but is very useful considering the rising costs of education. Interest paid on an education loan for higher education is also exempt under Section 80E. There is no upper limit for the exemption with the only condition being that the loan should be repaid fully in 8 years. Beyond 8 years, the exemption is not available. 
Of course, there are other exemptions too that are available, but these are the major benefits for salaried tax payers. If your income is up to Rs10 lakh, you have sufficient opportunities to plan your exemptions in such a way that you bring your taxable income to Rs5 lakh and pay zero tax. Of course, if you are earning more than Rs50 lakh per annum, you have to additionally pay 10% surcharge, which goes up further to 15% if your total income goes beyond Rs1cr. But, for most salaried tax payers, this is actually a good problem to have!

Related Story

Open Free Demat Account (Rs699)