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How can I save my tax amount and make it Zero

I'm an IT employee and my package is CTC 4,00,000(4 lakh) Rupees. Gross Salary 3,66,600/-, Professional tax 2400, Gross Total Income 3,64,200 deductions under VI-A is 18396, income tax liability is 7580, take home is 28168, my question is how can I save my tax amount and make it Zero (0). Please help me regarding this?

Jan 21, 2016 by Krishna Chaitanya, Hyderabad  |   Financial Planning

You can make your tax liability zero. Your gross taxable income is Rs 364,200. The standard deduction for you is Rs 250,000. The balance amount is taxable at the rate of 10%, after deducting amounts for items under Chapter VI – A. There are various sections under VI – A. Section 80C provides for deduction through various investment options, including Employee Provident Fund, Voluntary Provident Fund, Public Provident Fund, Equity Linked Savings Schemes, Life Insurance Premiums, Unit Linked Insurance Plans, National Savings Certificates etc up to a limit of Rs 1.5 lacs. While, Section 80C is the most well known section under VI – A, other sections provide for additional allowable deductions. For example, an additional deduction of Rs 50,000 is available for investment in the National Pension Scheme under Section 80CCD. If you have bought a Mediclaim policy, you can claim deduction for the premium paid under Section 80D. You can find the details of various Chapter VI – A sections, other than Section 80C, in our article, Tax saving beyond the Section 80C limit. The article is slightly dated and the allowable limits may have changed. To know the latest limits under various VI – A sections, you can go to the Income tax website.

You can make your tax liability zero, by availing the allowable VI – A deductions. You should see whether any of non 80C sections are applicable for you. Even if they are not, you can always make your tax liability zero, by making suitable Section 80C investments. You can choose specific 80C investments depending on your financial goals. To know exactly how much to invest, you should refer to the previous year Form 16, which your employer provides to you. Refer to Part B (Annexure) of the Form 16 for the details of salary paid and tax deducted. Item number 8 will tell you what your gross taxable income was last year and Items 1 through 7 will explain, how the number was arrived at. By going through your pay slip, you can calculate the gross taxable income for the current financial year. Pay attention to exempt allowances under Section 10 (Item number 2, Part B of Form 16), e.g. HRA, LTA, leave encashment etc. Once you have calculated the gross taxable income, subtract Rs 250,000 from your gross taxable income and you will know how much VI – A deductions you need to make your tax liability zero. Again refer to your last year’s Form 16. Item number 9 will tell you what your VI – A deductions were last year. Some of the VI-A deductions are recurring items, e.g. deductions for Provident Fund, Life Insurance Premiums etc. Calculate the recurring items for the current financial year. For example, you can find out your contribution to provident fund from your pay slip. If you follow the steps explained above, you will know the total VI-A deductions needed and the ones that you already have through the recurring items. You can then calculate exactly how much incremental 80C investment you need to make your tax liability zero.

To bring your tax liability to zero, you have to make the required investments before March 31 of the financial year. Some companies may have cut off date, well before the March 31 deadline, for their employees to declare their investments. You should check with your Payroll or HR department, so that you can avoid additional tax deducted at source. If for any reason, you are not able to make your investment before your company’s cut off date for declaring investments do not worry. You can declare these investments when you file your income tax returns, check the TDS in the Form 16 provided by your employer and claim refund on the tax paid.

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