Magic of Zero tax on Rs. 10 Lakhs salary Income

Magic of Zero tax on Rs. 10 Lakhs Income
Item No. Nature Amount
1 Basic Tax Exemption    2,50,000
2 Deduction u/s 80C    1,50,000
3 NPS u/s 80CCD (1B)       50,000
4 Employer’s contribution to NPS u/c 80CCD(2)    1,00,000
5 Health insurance premium (Sec 80D) – self/spouse/dependent children       20,000
6 Health insurance premium (Sec 80D) – Parents       30,000
7 Leave travel concession/allowance       25,000
8 Medical Allowance (reimbursement nature)       15,000
9 Transport Allowance       19,200
10 Home Loan Interest u/s 25(b)    2,00,000
Reimbursement/ Perquisites
11 Travel/fuel Expenses    1,00,000
12 Phone/mobile bill reimbursement       30,000
13 Newspapers/magazines       12,000
14 Meal coupons       12,000
TOTAL  10,13,200

Detailed Item wise Analysis:

 

Item no. 1 – Basic income tax exemption of Rs 2,50,000

Every individual can avail this basic exemption of Rs. 2,50,000

Item no. 2 – Claim Exemption of Rs 1,50,000 u/s 80C

Following List of deposit/investment/payment is eligible deductions u/s 80C:

  1. Life Insurance Premium paid for self/spouse/ children.
  2. Tuition fees of two children. No deduction is allowed for the payment of development fees, donation, Transport allowance, term fees or any other payment.
  3. Amount deposited in Public Provident Fund. Anyone can open PPF account with any post office or at any designated bank.
  4. Amount contributed towards the Employee’s Provident Fund (EPF/SPF/RPF)
  5. Post office term deposit for 5 years / Bank FD scheme of 5 years.
  6. National Saving Certificates (NSC)
  7. Tax saving Mutual Funds.
  8. Principal repayment of Home Loan amount.
  9. National Pension System / New Pension Scheme (NPS)
  10. Amount deposited in Sukanya Samriddhi Account

Item no. 3 Claim additional deductions under 80CCD towards NPS Rs 50,000 u/s 80CCD(1B):

Employees can contribute to New Pension Scheme / National Pension Scheme (NPS) up to 10% of their salary. In such case, an employee is eligible to claim additional Rs 50,000 tax benefits over and above 80C.
Item no. 4 Deduction of Employer’s contribution of NPS u/s 80CCD(2) – Rs 100,000:

Many employers are willing to help employees by contributing to schemes like NPS where employees would get tax exemption. Have you checked with your employer whether they can contribute to NPS and deduct from your total CTC (Cost to the company)? They can contribute up to 10% of your salary. This is a good way to claim tax exemption and get the highest interest rate with this safe investment scheme. But maximum deduction of 10% of salary can be claimed as deduction under this section i.e. u/s 80CCD(2).

Item no. 5 Exemption for Health insurance premium up to Rs 20,000:

Assessee can claim health insurance premium exemption up to Rs 20,000 per annum u/s 80D. Medical insurance premium paid (must be paid through other than cash mode) for self, spouse, DEPENDENT children is eligible for deduction under this section. Maximum Deduction of Rs. 5000 paid (can be in cash) for preventive health check up is also allowed within the limit of Rs. 20,000.

Item no. 6 Medical insurance premium for parents – Rs 30,000:

Assessee can claim health insurance premium exemption up to Rs 30,000 per annum u/s 80D. Medical insurance premium paid (must be paid through other than cash mode) for parents is eligible for deduction under this section. Maximum Deduction of Rs. 5000 paid (can be in cash) for preventive health check up is also allowed within the limit of Rs. 30,000.

Item no. 7  Leave Travel Allowance/concession u/s 10(5) – Rs 25,000:

Many of assessee tend to ignore this LTA (Leave Travel Allowance) which one can spend and claim exemption u/s 10(5). As per rules assessee can claim LTA twice in a period of 4 years. Assuming Rs 50,000 as one time in a 2 year period, hence an allocation of Rs 25,000 per annum is done here. Note that this amount would depend on the employer and may change from employer to employer.

Item no. 8 Medical allowance (Reimbursement Nature) – Rs 15,000:

Assessee can submit medical bills to their employer and claim upto Rs 15,000 as medical allowance (Reimbursement) as part of their total compensation (CTC).

Item no. 9 Exemption of Transport Allowance for Rs 19,200 per annum:

From the financial year 2015‐16, the transport allowance exemption has been increased to Rs 1,600 per month i.e. Rs 19,200 per annume.

 

Item no. 10 Assessee can Claim interest on house property loan upto Rs 2,00,000:

If assessee have taken house loan, assessee is eligible to claim interest on home loan (which is termed as loss from house property) up to Rs 2,00,000 u/s 24(b).

Tax Free Allowances / perquisites

Below are some of the tax free allowances / perquisites which employers are providing these days. They would depend on an employer to employer. You can claim to maximum extend to enjoy tax benefits. (Item no. 11 to 14)

Item no. 11 Fuel expenses reimbursement upto Rs 1,00,000:

Many employers provide fuel expense reimbursement for their employees depending on their grade. While at junior level, it may be at Rs 30,000, for employees who are earning above Rs 10 Lakhs per annum, employers are providing Rs 1 Lakh fuel expenses at a minimum. I have not considered any car schemes here, and this is simply fuel expense reimbursement which could be based on actual.

Item no. 12 Phone / Mobile expenses reimbursement – Rs 30,000:

Many employers provide reimbursement of phone and mobile bills to the tune of Rs 30,00 per annum as part of the CTC structure. I heard in some companies, it is over Rs 50,000 per annum. I have considered Rs 30,000 on the conservative side.

Item no. 13 Newspaper / Magazine reimbursements – Rs 14,000:

Many employers are giving reimbursements of newspaper / magazine to the extent of Rs 14,000 per annum for senior employees earning over Rs 10 Lakhs per annum. Some companies are restricting only to magazine cost reimbursement. One can claim this as part of their CTC. I have taken this average after inquiring with some of my friends who are working in MNC and large companies.

Item no. 14 Meal Coupons / Sodexo coupons – Rs 12,000:

Many MNC companies are providing Sodexo coupons as part of their CTC structure. If you are not encashing such perquisites provided by your employers, you are missing something and paying unnecessary taxes. I have taken this amount on the low side as some are providing this as just Rs 1,000 per month, but some MNC companies are providing Rs 3,000 per month.

Besides these benefits there are certain other benefits also can avail by the employees like Gift vouchers of Rs. 5,000, helper allowances, Group Medical insurance etc.

Regards,
CA Lalit Aggarwal
Connecting CA’s…
9999565491

  • Ashish Agarwal says:

    Very informative and useful details.

    Thanks

    January 30, 2016 at 8:20 am

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