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How to plan you tax? 5 things to know
March, 06th 2014

Extract maximum tax benefit by planning at the beginning of the year.

Most employee rush to do tax saving investments on the 11th hour, however to extract maximum benefit one must plan their taxes at the beginning of the year. There are many allowances that can help in lowering tax outgo, some common ones and some not so common ones. Some of the uncommon ones that help you take higher net take-home.

In most cases the Interest paid on Home Loan crosses the 150,000/- limit. Working couple can actually define the proportion of the house share according to the tax bracket. This enables that both can avail of tax exemption on the Interest paid towards Home Loan.

The New Pension Scheme (NPS) regulation allows people to save additional tax if the same is contributed by the Employer before it gets paid as Salary. This minor restructuring of salary adds 3% increase to their basic salary.This initiative has to be taken by the HR of the company. However, if the employees choose to contribute separately in NPS then the same will be a part of the existing 80 CC limit of 1 lakh.

The NPS is available to anyone between 18 and 55 years. The Tier – I accounts require a minimum contribution of Rs. 6,000 per annum. This amount cannot be withdrawn until the age of 60. On retirement the investor will have to use at least 40% of the corpus to purchase a life annuity, while the balance can be withdrawn. The tax benefits under Section 80C and 80CCD(2) are available only on investments in tier-I accounts. The Government has provided this sop given increased life expectancy and lack of social security system.

Investment in real estate is nothing new, but most cases people invest in second home without understanding the complete tax implications.

Key Tax Implications:

Deemed rental income gets added to one’s Income even if the property is lying vacant.
You get benefit of Interest Paid on Loan (total interest paid is deductible expense), Municipal Taxes and Standard Deduction of 30%.
One has to pay wealth tax of 1% if the property value is over Rupees 30 lakhs and is lying vacant.
Wealth tax doesn’t apply if 2nd property is on rent for more than 300 days in a year and if it is a commercial property.

Generally the notion is that one can avail of tax relief on House Rent Allowance. You will be happy to know that tax benefit can be availed on the house rent that is paid even if your salary doesn’t factor HRA Allowance. The tax saved is small but nevertheless these small savings making a good sum.

Conditions apply for avail tax benefit under 80GG

To claim tax deduction under this section, it is mandatory that one must not receive HRA for even a part of the year and should have paid rent for the house you live in (rent paid for someone else for instance parents, will not be eligible).
To avail of this benefit YOU (your spouse/ minor children/ HUF) must not own a house in the place in which you live, or work or do any business.
Important Condition – For example, say you rent a house in Delhi where you work and you also own a house in Gurgaon / Noida or Ghaziabad (nearby city) which you occupy as your residence. In such a case, you are not eligible for the deduction.
Last but not the least; one has to file a declaration in Form No. 10BA to claim deduction under this section.

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