10th January 2011-  Efficient tax planning can help you to reduce your total taxes on salary income, by employing and taking advantages of in-built provisions of tax exemptions, deductions, concessions, rebates, relief’s, allowances and other benefits granted by the tax laws so that the incidence of tax is reduced. Read on to find ways to minimise total taxes on salary income

A. Efficient Salary Structuring –Instead of high basic salary one should opt for perquisites which are either exempt from tax or which in some cases, are valued at a lower amount than the actual expenditure, for example:-

(1)               Rent free accommodation or House Rent Allowance should be availed particularly in cases of employees, who do not own house/ flat;

(2)               Expenses on purchases and maintenance of employee’s uniform can be paid/ reimbursed by the employer and the same is not considered as perquisite and not taxable;

(3)               If any allowance is received for education and hostel stay of employee’s children from the employer, exemption can be claimed;

(4)               The employee should avail the facility of motor car (as also its maintenance and running expenses) from the employer. The perquisite value is nominal considering actual expenses on car.

(5)               Reimbursement or payment of medical expenses and medical insurance may also be made by employer.

(6)               Leave travel concession should be availed.

B. Make long Term Investments – Investments should be made in such assets, income from which result in long term capital gain instead of regular accrual of taxable income. It may be pointed out that long term capital gains on sale of shares and units of equity oriented funds, on which securities transaction tax is paid, are totally exempt. In case of LTCG on transfer of other assets, one can avail exemption from capital gains by reinvesting in the manner prescribed by the government.

C. Make Tax saving Investments – One should make investment in such a manner so that the income thereon is either exempted or deduction is allowed under the Income Tax Act. Particularly benefit of section 80CCC for contribution to pension fund, sec 80D for medical insurance should be kept in mind.

D. Make Full Utilisation of 80C – Individuals can claim deduction under section 80C upto a limit of Rs 1lac. Make sure you have utilized the full amount of deduction by investing your money in best investment option available. Planned investment is the key towards smart tax planning. The options include investment in LIC, Unit Linked Insurance Plans (ULIPs), ICICI Prudential , Mutual Funds, Public Provident Fund (PPF)- up to Rs.70,000 per annum,  National Savings Certificate (NSC), 5-year bank fixed deposits, Equity-Linked Savings Schemes (ELSS), payment of school fees, and home loan principal repayment

E. Tax exemptions under Section 80CCF

Deduction up to Rs 20,000 under Section 80CCF for investments in long term infrastructure bonds can be availed. The long term infrastructure bonds will have tenure of 10 years and a minimum lock in period of five years. Bonds issued by Industrial Finance Corporation of India, Life Insurance Corporation of India, Infrastructure Development Finance Company and other RBI classified infrastructure finance companies – would qualify for tax benefits under Section 80CCF.

Tax planning should be done a few months in advance as it gives you ample time to understand and evaluate different options that are specific to your financial situation. The next few months mark an important time to consider how your personal tax liabilities for tax year ending March 2011 can be reduced and provide you the best way to invest in any additional funds for tax benefits. We at Taxmantra.com specialises in individual taxation. We at Taxmantra.com has launched a special offer “Start Now for March 2011”, wherein you can avail –

(i)                 Efficient tax planning for tax year ending March 2011;

(ii)               Full year tax support through mail, phone and live chat; and

(iii)             Filing of your income tax return for tax year ending March 2011.

Come and join us in pursuit of simplifying individual taxation!

Alok Patnia

Founder and Director at Taxmantra.com