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How to make sure you don’t face tax cuts in your salary?


Rahul Mehta is works as a senior associate with an IT firm. He earns an annual salary of ₹800,000 and often finds himself in a tough spot come tax-filing season. When the tax season finally comes around, he is confused about the right tax-saving investment instruments and end up making investments that don’t add any real value. But if Rahul planned his taxes in advance, he would have reaped enormous benefits. Unlike Rahul, his friend Anand, went about planning taxes in such a way that he didn’t face any tax cuts from his salary. Here’s what he does.

Anand claims HRA benefits: Anand utilises his HRA benefits. HRA can be partially or completely tax exempt. While he lives with his parents, he still becomes eligible for HRA. He pays rent to his parents who include this rental income when they file their own taxes. Anand doesn’t submit rent receipts to his employer but claims HRA exemption when he files his taxes. He simply shows the details of his payments made towards house rent.

Anand maximises his 80C deductions: At the start of the financial year, Anand decides how he will invest ₹150,000 i.e. the legal tax exemption limit. He divides his investments in various tax-saving instruments. While his Employer Provident Fund is auto-debited when his salary is credited, he invests his remaining sums in ELSS mutual funds and his Public Provident Fund accounts.

Anand purchases health insurance policies for his family: Anand receives a ₹25,000 tax deduction on the insurance he purchases for his spouse and children. He also pays the medical insurance premiums for his parents that allow him to claim an additional tax deduction of ₹50,000, maximising his deductible to ₹75,000 per annum.

Anand Claims LTA Allowance: An avid traveller, Anand often takes off on vacations with his wife and two children. His company offers him LTA or leave travel allowance benefit, which allows his to claim exemptions on the travelling tickets (by air, sea, rail or bus) twice in a 4 year block. He saves his and his family’s travel tickets which he furnishes to claim his LTA allowance. This also allows him to save taxes on his salary.

Anand opts for food coupons: Anand is aware that his company pays a portion of his salary in the form of food coupons. So instead of spending his own money on meals every day, he opts for food coupons which allow him to get an exemption of ₹55 per day. Anand has chosen to receive a part of his salary in coupons at ₹55 per day, for two meals, counting 22 working days in a month. This helps him save a lot on what he would actually spend on two meals in the entire year.

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