Tax payers are never sure whether the taxes for the coming year will be lowered ,maintained or increased. Also one is not sure whether allowances,deductions and rebates already existing will continue or whether some additional benefits will be granted.However, with proper planning an individual can take advantage of the various tax exemption benefits that are available , thereby reducing the tax one has to pay..
In any country one of the most eagerly awaited economic event of the year is the presenting of the Annual budget by the Finance Minister , since this makes an impact on the life styles of all citizens of the country more so when you are a tax payer paying direct taxes - income, wealth etc;
Tax payers are never sure whether the taxes for the coming year will be lowered ,maintained or increased. Also one is not sure whether allowances,deductions and rebates already existing will continue or whether some additional benefits will be granted. Inspite of these uncertainities , it is possible for individual tax payers to plan and structure their earnings in such a manner that they can derive maximum benefit of the various allowances available to them. Here, we also have to assume that the finance minister , while planning the annual budget will not take away the existing allowances,deductions and rebates available to tax payers.
What can be done ?
Making the most of the benefits available to tax payers. Here I am assuming that most countries have similar benefits like leave travel allowance,medical reimbursement,conveyance allowance etc..Careful planning throughout the year can assist you in reducing the taxes you pay and tax planning is also an important component for any financial planning !
Leave Travel allowance ( LTA )
An employee is eligible for LTA for himself and his family once in a block of two years for travelling to holidays to any place within the country.Where both husband and wife are working and are entitled to this benefit, they can avail LTA in different year and enjoy the benefit jointly every year. If this amount is paid directly as part of your salary you are entitled to get tax exemption.
House Rent Allowance ( HRA)
When an employee lives in a rented accomodation he/she should ensure that his/her salary includes this benefit since one is able to claim a deduction while paying annual taxes.
Most employers provide reimbursement of medical expenses incurred by the employees and their families during the year.There is an upper limit per annum which is exempt from tax.
Children's Education Allowance
An employee, who has school going children can make use of this benefit which is also exempt from tax.Here , it is only the tuition fees paid for the education of the children that is exempt from tax.However,one cannot claim benefit for other expenditure like donations given to schools and colleges as part of fee structure,development fees and bus fare..
If a company vehicle is not provided and if your place of work is far from your residence, most employers give a certain fixed amount of conveyance allowance to their employees which is also exempt from tax.
Other benefits that also help you in your personal finance plan
Contribution to Provident Fund and Life Insurance Premium
This, of course has an upper limit and can be made use of - here one has the added benefit of not only saving tax but also getting into the habit of compulsorily saving a part of one's income which adds up to a large sum at the time of maturity or retirement.Provident funds normally have an equal contribution made by the employers as well after the initial lock in period.
Medical Insurance and Treatment
Medical Insurance premium is exempt from from tax and one can include the entire family in the insurance scheme.One can also claim tax deduction on dertain medical treatments for the entire family including disabilities
Donations given to certain organizations /institutions are eligible for deduction from one's income, hence, one can claim tax benefits for that amount as well.
So, with proper planning an individual can take advantage of the various tax exemption benefits that are available , thereby reducing the tax one has to pay ...