Which are the Best Tax Saving Options for 2018-19? What are the Best Tax Saving Options for Salaried for 2018-19? Financial Year 2018-19 already started. However, many of us sadly get up at the end to look for best tax saving options. Instead, it is always best to start tax planning for the first day of the financial year. Hence, let us look at the options available.
Tax Planning or Tax Saving is not a bad concept. But the bad concept is to invest JUST FOR SAVING TAX. Instead, you have to first identify your financial goals. Based on the time horizon of the goal, do the asset allocation between debt and equity. Within debt or equity, while finally investing, you may choose the product which also gives you an option to save tax.
However, many of doing the reverse. We all in the asleep mode for the whole financial year. We get up during the financial year-end. In a hurry to save tax, we invest in bad products which in no way may help us to reach our financial goals.
Tax Planning or Tax Saving must start from the first day of the financial year. This will give you the advantage to plan well and save tax.
What is the difference between Exemption and deduction?
If an income is exempt from tax, then it is not included in the computation of income. However, the deduction is given from income chargeable to tax. Exempt income will never exceed the amount of income. However, the deduct may be less than or equal to or more than the amount of income.
Allowances available to save tax for 2018-19
# Standard Deduction of Rs.40,000
Actually, I have to put this under Deductions. However, this standard deduction replaced the existing allowances. Hence, I placed it here for better understanding.
Earlier you used to claim Rs.15,000 under Medical Allowance and Travel Allowance. However, with effect from FY 2018-19, you can claim the direct Rs.40,000 deduction instead of these two allowances.
This deduction obviously for salaried and pensioners. This is irrespective of the amount of taxable salary you will be receiving to get a deduction of Rs.40,000 or taxable salary, whichever is less.
Hence, let us assume for FY 2018-19, you worked only for a few days. Your salary is taxable salary is Rs.50,000. In such a scenario, you can directly claim the deduction of Rs.40,000. However, if your salary is less than Rs.40,000 (say Rs.20,000), then you have to claim only Rs.20,000 but not Rs.40,000.
# Mobile/Telephone Reimbursement
If your employer offering you the mobile/telephone connection or internet connection which requires for work, then you can claim 100% of such cost. However, you have to produce the bill. Only the postpaid connections are allowed for reimbursement.
# Leave Travel Allowance
The bills for your travel against LTA can be claimed for exemption. It is allowed to be claimed twice in a block of four years. The current block is from 2014 to 2017. You can carry forward your unclaimed LTA to the next year. You can request your employer to not deduct tax on it and allow you to claim it next year.
# Entertainment Allowances
You may be getting this allowance. However, the exemption is available only for Government employees. The amount of exemption is least of the following.
a) Rs 5,000
b) 1/5th of salary (excluding any allowance, benefits or other perquisites)
c) Actual entertainment allowance received
# House Rent Allowance (HRA)
This is the famous exemption which is used by many salaried individuals. However, the wrong belief is that whatever the rent they pay is actually exempted from their income. The reality is different. The amount of exemption is least of the following.
a) Actual HRA Received
b) 40% of Salary (50%, if house situated in Mumbai, Calcutta , Delhi or Madras
c) Rent paid minus 10% of the salary
(Salary= Basic + DA (if part of retirement benefit) + Turnover based Commission)
Download Automated H.R.A.Exemption Calculator U/s 10(13A) in Excel
# Children Education Allowance
Download Automated H.R.A.Exemption Calculator U/s 10(13A) in Excel 
# Children Education Allowance
If your employer providing this allowance, then you can take exemption up to Rs.100 per month per child (maximum of up to 2 children). Therefore, monthly you can save Rs.200 from this allowance. The exemption may seem so low. But why to pay the tax?
# Hostel Expenditure Allowance-If your employer providing this allowance, then you can take exemption Up to Rs. 300 per month per child up to a maximum of 2 children is exempt. Therefore, you can save around maximum of Rs.600 from this allowance.
# Conveyance Allowance
This is the different allowance than transport allowance. It is the expenditure granted to an employee to meet the expenses on conveyance in performing his official duties. There is no limit to this. If such conveyance allowance is Rs.5,000 a month, then the whole allowance is exempt. Hence, you may this may be exempt to the extent of expenditure incurred for official purposes.
# Any Allowance to meet the cost of travel on tour or on transfer
Here also no limit. The employee can claim exempt to the extent of expenditure incurred for official purposes.
# Allowance to meet the cost of travel on tour or on transfer
Here also no limit. The employee can claim exempt to the extent of expenditure incurred for official purposes.
# Daily Allowance
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# Daily Allowance
If you are not placed in normal duty place, then your employer may provide you such allowance. The employee can claim exempt to the extent of expenditure incurred for official purposes.
These are the major allowances, which can be utilized to save tax on salary income. There are few other allowances also to claim the exemption. But many of such allowances are not so famous. Hence, I left them to list.
Best Tax Saving Options for 2018-19
Now let us discuss the deductions available for 2018-19. Using these deductions you can save the tax.
# Section 80C
This is the famous section which often used by all of salaried. The maximum limit for the current year is Rs.1,50,000. Therefore, up to Rs.1,50,000, you can save tax on salary income from this section alone. The different investments you do and can also be claimed under Sec.80C are listed below.
- Life Insurance premium (Paid by an individual, spouse, and child. In the case of HUF, on the life of any member of HUF).
- EPF-Employee contribution can be claimed for deduction.
- Public Provident Fund (Paid by an individual, spouse, and child. In the case of HUF, on the life of any member of HUF).
- National Savings Certificate (NSC).
- Sukanya Samriddhi Account
- ELSS or Tax Saving Mutual Funds.
- Senior Citizen Savings Scheme.
- 5-Years Post Office or Bank Deposits.
- The tuition fee for kids.
- Principal payment towards home loan.
- Stamp duty and registration cost of the house.
# Sec.80CCC
Deduction under Sec.80CCC is available only for individuals. Contribution to an annuity plan of the LIC of India or any other insurer for receiving the pension. Do remember that the amount should be paid or deposited out of income chargeable to tax.
The maximum amount deductible under Sec.80CCC is Rs.1.5 lakh. Do remember that this is also the part of the combined limit of Rs.1.5 lakh available under Sec.80C, Sec.80CCC, and Sec.80CCD(1).
80C PICTURE
# Sec.80CCD1
- The maximum benefit available is Rs.1.5 lakh (including Sec.80C limit).
- An individual’s maximum 20% of annual income (Earlier it was 10% but after Budget 2017, it increased to 20%) or an employees (10% of Basic+DA) contribution will be eligible for deduction.
- As I said above, this section will form the part of Sec.80C limit.
# Sec.80CCD2
- There is a misconception among many that there is no upper limit for this section. However, the limit is least of 3 conditions. 1) Amount contributed by an employer, 2) 10% of Basic+DA and 3) Gross Total Income.
- This is additional deduction which will not form the part of Sec.80C limit.
- The deduction under this section will not be eligible for self-employed.
NPS Tax Benefits under Sec.80CCD (1B)
- This is the additional tax benefit of up to Rs.50,000 eligible for income tax deduction and was introduced in the Budget 2015
- Introduced in Budget 2015. One can avail the benefit of this Sect.80CCD (1B) from FY 2015-16.
- Both self-employed and employees are eligible for availing this deduction.
- This is over and above Sec.80CCD (1).
Explained all three sections of NPS (Sec.80CCD1, Sec.80CCD2 and Sec.80CCD(1B) in below image for your reference.
