HomePersonal Finance NewsEverything that you should know about tax planning at the start of the financial year

Everything that you should know about tax planning at the start of the financial year

It is pertinent to note that there are pre-determined conditions which have to be satisfied to claim tax benefits for all the deductions/exemptions.

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By Tapati Ghose   | Robin Bose  April 1, 2019, 10:51:18 AM IST (Published)

Everything that you should know about tax planning at the start of the financial year
Several amendments were announced in the interim budget 2019 and subsequently enacted in Finance Act 2019 that provided additional tax relief to individuals. Rebate for taxpayers with net taxable income of Rs 5 lakh is now at Rs 12,500 and standard deduction (for the salaried) has been increased to Rs 50,000. No tax planning is required for this additional relief.


However, with some strategic planning, investments and incurrence of focussed expenditure, an individual with a gross income of Rs 825,000 may not have to pay tax.

All these need serious planning not at the end of the year, but in advance. It is best to start planning now at the beginning of the year for investments to be made and deductions to be availed rather than towards the end.

Investment planning

Investment/contribution to provident fund, public provident fund, unit-linked insurance plan, equity-linked savings scheme, Sukanya Samriddhi Scheme, 5-year tax saving fixed deposit schemes, other specified investments, allows a deduction of up to Rs 150,000 under section 80C. Apart from 80C, individuals may invest in the National Pension Scheme (NPS) and can claim a deduction up to Rs 50,000 under section 80CCD(1B).

Other Miscellaneous Deductions

Of late, individuals have been opting for medical insurance policies on self, family and parents. Under section 80D, individuals can claim deduction up to Rs 25,000 (or Rs 30,000 in case of senior citizens) for health insurance premium paid for self, spouse and dependent children.

An additional amount of Rs 25,000 (or Rs 30,000 in case of senior citizens) can be claimed for health insurance premium paid on behalf of parents. In addition, deduction up to Rs 5,000 can be claimed for the amount paid for a preventive health check-up, but the same would be included while determining the above said limits under section 80D.

Donations made to certain relief funds and recognised charitable trusts can be claimed as a deduction from the total income. Again, the amount of deduction depends on qualifying limits and is restricted to either 50 percent or 100 percent, based on the charitable organisation or fund.

For The Salaried - Declarations And Submissions To Employer

Generally, salaried employees are asked to make a declaration at the beginning of the year on benefits they would like to opt for with the intent of being eligible for tax relief. Examples of the most common benefits provided by employers and corresponding tax reliefs are:

  • House Rent Allowance (HRA): Exemption can be availed by individuals paying for rented accommodation.

  • Leave Travel Assistance (LTA): Exemption can be availed by individuals on the cost incurred on travel for self and his family within India subject to conditions.

  • Telephone reimbursement: Reimbursement of telephone/mobile expenses to the extent bills are submitted are not taxable. The quantum needs to be reasonable and most companies have a maximum cap prescribed taking into account reasonable estimates to be incurred for official purposes.

  • Car perquisite: Relief is available for car running and maintenance expenses subject to conditions prescribed.


Employees must plan for providing documentary evidence as per the company policy to ensure that the benefit otherwise available is not forfeited. The nature/quantum of benefit will depend on expenses to be defrayed for a specific purpose.

Proper estimates are required rather than random numbers to avoid adverse action at the end of the year by the employer or tax authorities. False declarations are to be strictly avoided.

Summary

It is pertinent to note that there are pre-determined conditions which have to be satisfied to claim tax benefits for all the deductions/exemptions. In case the conditions are not met or the supporting documents are not provided, then the exemption/deduction cannot be availed. These deviations result in difference between the declarations at the beginning of the year and actuals at the end of the year, which in turn results in lower take-home pay on account of additional tax deducted on the differential amount or advance taxes to be paid.

In practice, it is observed that individuals invest in tax-savings schemes at the end of the year based on the total tax liability for the relevant financial year. Refraining from this method is advisable since it may result in a huge cash outflow at one time. It is a good practice to estimate the various tax-saving investment avenues well in advance and contribute on a monthly or quarterly basis so that the outflow of funds is spread out.

Tapati Ghose is partner, Deloitte India, and Robin Bose is assistant manager with Deloitte Haskins and Sells LLP.
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