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Salaried: Save taxes while creating more wealth

Often, investment for most individuals begins and ends with tax planning. Although it is pertinent to avail tax breaks, this should not be the sole focus

Maximising your tax saving

1. Exemptions/reimbursements

Identify the reimbursements available from the company and take maximum advantage of the same. Normal expenses that one incurs could help save tax. Example: Telephone/fuel reimbursements, meal vouchers and company car. A person in lower tax slabs can reduce his tax liability to nil with exemptions alone!

2. Deductions

Section 80C allows a maximum limit of Rs 1 lakh across investments ranging from provident fund, PPF, infrastructure bonds, fixed deposits (5 years or more), NSC, insurance/pension plans, unit linked insurance, equity linked savings scheme etc. It also includes tuition fees of your children and the repayment of principal on your housing loan. The interest component on your home loan has a separate limit of Rs 1.5 lakh. Medical premia upto a maximum of Rs 15,000 qualifies for deduction, with an additional Rs 15,000 for parents.


Exemptions

House Rent Allowance
Minimum of - 1. Actual HRA 2. Rent Paid - 10% of Basic 3. 40a% of Basic (Non-Metros) or 50% of Basic (Metros)

Conveyance Allowance
Rs 800 / Month

Leave Travel Allowance
Two trips in a block of 4 Yrs Amount not exceeding Air Economy or Rail AC I Fare shall be for shortest distance and for a single destination

Medical Reimbursement
Rs 15,000 / Annum

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What is Equity Linked Saving Scheme (ELSS)?

Equity Linked Savings Scheme (ELSS).

What is an ELSS?

An ELSS is similar to a diversified equity-oriented scheme, with the additional benefit of saving tax under section 80C.  Structured as an open-ended equity fund with a lock in period of three years, an investor can invest at any time during the year.

The maximum investment in ELSS that can avail of a benefit under section 80C is Rs. 1 lakh. Accordingly, the maximum tax that one can save through these schemes is Rs. 33,990.

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Comparative Analysis of ELSS and Other Tax Saving Scheme
Particulars	PPF	NSC	ELSS	Infrastructure Fund
Lock-in period	15	6	3	3
Min. Investment	Rs. 500	Rs. 100	Rs. 500	Rs. 500
Max. Investment	Rs. 110000	Rs. 110000	Rs. 110000	Rs. 110000
Risk Level	Lowest	Lowest	Highest	Lowest
CAGR	8%	8%	12-15%	5 - 6%
Taxability of Interest	Tax Free	Interest is taxable	Long term capital gain and dividend tax free	Interest is tax free

* Compounded annually

** Compounded half yearly.

# Taxable but accrued interest available for 80C benefits until 5 years

In conclusion, if you’d like to save tax while giving your portfolio an extra edge while investing for the longer term, ELSS schemes are the way to go for you!