In case of salary the employer should deduct Tax at the time of disburse the salary. This deduction is known as Tax Deducted at Source (TDS) from Salary. TDS from Salary is not like other TDS such as TDS from Contractors, TDS from interest etc. TDS other than salary is only a certain percentage of the payment is to be deducted. But TDS from salary should be full. The employer should deduct the actual Tax which is liable by the employee regarding salary and any other income disclosed by the employee.
When the Tax liability of an employee is calculated, the employer can deduct all permissible deduction such as certain investments, certain allowances etc. as per the Income Tax rule. The employee should declare his investments which may be deducted from their gross salary. These investments are come under section 80C of income tax Act and other related sections.
Let us see which investments are allowed to deduct from the gross salary or gross income as per income tax rule.
Under Section 80 C there is a list of financial instruments you can invest in for getting exemption. Under this section you can claim the total exemption up to Rs. 100000. It means Rs. 100000 or the sum total of all such investments in a financial year, whichever is less. Let us see which investments are eligible for getting exemption under section 80C.
Employees Provident Fund (EPF, GPF)
Employee’s provident fund (EPF for Private sector employees and GPF for Government employees) is a compulsory deposit as per the provident fund rule. At least the minimum amount must be deducted from employee’s salary by the employer and should be deposited in Provident Fund office or any related trust. (One can allow deducting more as voluntary contribution of provident fund) The provident fund amount may be enough to cover the maximum limit of Rs. 100000 under section 80C for higher salaried employees. The employee can get interest from the deposited amount and the interest is tax free as per the current income tax rules.
Public Provident Fund (PPF)
PPF is another good investment instrument which attracts exemption under section 80C. One can deposit a maximum amount of Rs, 700000 in a financial year in PPF and the interest on PPF also not taxable. This is a safe and good investment method and you can open it any post office or selected national banks. Read more about PPF
Equity Linked Savings Scheme (ELSS)
ELSS or Equity Linked Savings Scheme is a type of mutual fund where there is investing in equity shares and the lock in period is only 3 years. This is also considered as a tax saving instrument. The main advantage is that the lock in period is 3 years and other tax saving schemes has 5 years or more lock in period. This is a high risk investment, because the money is pooled to investing in Equity shares and the return also high.
All life insurance policy also qualified as tax saving scheme under section 80C. The premium actually paid for the financial year is eligible for deduction. But the premium amount in an year must not be more than 20% of the sum assured.
Unit Linked Insurance Plans (Ulips)
Any recognized pension plan including new Pension Scheme is eligible for tax exemption.
NSC or National Saving Certificate
NSC is a post office investment scheme which has a tax saving benefit. It is a secured and safe investment scheme and the risk involved is very less. .Read more
SCS or Senior Citizen Saving Scheme
Senior Citizens Saving Scheme is a deposit scheme introduced by Government of India to provide a good return to senior citizen through a safe investment scheme and also ensure them a good regular income. This is also eligible for tax saving under section 80C.More about senior citizen Saving Scheme
Five year Tax Saving Fixed Deposits
To increase the popularity of Fixed Deposits 5 year special fixed deposits also allowed for tax exemption under section 80C. The lock in period is 5 years and the interest rate is around 8%.
Tuition Fee paid to recognized regular institution
Tuition fee paid for two children in a financial year also attracts tax deduction. Better you should pay tuition fee by cheque and get a certificate from the school or college. Keep in mind that only tuition fee is exempted and all other fee is not included in this exemption. Obtain a certificate from the education institution for availing this exemption.
Principal amount of home loan repayment
If you have taken home loan from a recognized financial institution you can claim the repayment of principal amount in the financial year. The loan and house should be in the name or joint name of the person who claims the exemption and the payment must be given from the bank account of the person who claims the exemption.
All the above mentioned items are for tax exemption under section 80C and the total amount of exemption is the total investment or Rs. 100000 whichever is less.
Other deductions form gross income
Under Section 80CCF you can claim additional exemption up to Rs. 20000 for the investment in Infrastructure bonds of certain recognized institutions.
Under Section 80D you can claim exemption for the medical insurance premium up to Rs. 15000 (Rs, 20000 if any person insured is a senior citizen) for the insurance of self, spouse and children and another Rs. 15000 (Rs, 20000 if any person insured is a senior citizen) for the medical insurance of any parent or parents.
Interest on home loan
If you have taken loan for purchasing a house, you can claim an exemption up to Rs. 150000 for the interest payment of housing loan only if you paid the interest from your income and the loan and house must be in your name or you are the co owner of the house and co borrower of the loan.
Donation to approved institution or approved purpose
If you give donation to any approved institution or any approved purpose, your donation is allowed to get exemption under section 80G.Under section 80G you can claim exemption of 50% or 100% of donation as per the case and the approval and percentage of exemption will be on the receipt.
If you or any of any of your dependents are handicapped you can claim a deduction up to Rs. 50000 for the medical treatment or for the deposit made for the maintenance of such person in any approved schemes. If the person has severe disability the allowable exemption is Rs. 100000. (Certificate required)
Deduction for medical treatment
If you or any of your dependents is suffering from any specified disease you can claim exemption of Rs. 40000 or the actual expense for the expenses of medical treatment and the limit is Rs. 60000 if the patient is a senior citizen. (Medical Certificate is required)
For all the above exemption you should submit a declaration and proof of relevant document to your employer in time. The employer can calculate your tax liability in consideration of this exemption and the TDS will be made accordingly.
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