Tax Planning for the FY 19-20 (AY 20-21)

Every year, in the first week of February, Finance minister of the ruling government presents the budget for the upcoming financial year. However, in case of election year like this year 2019, an interim budget is presented because it is not practical for the winning government to taking charge after the election to prepare the budget and pass the bill before the new financial year begins.

So in the election year, the ruling government present the interim budget in parliament and the full budget is presented only after the new government comes to the power.

In February 2019, Mr. Piyush goyal, on the behalf of Our late finance minister Mr. Arun Jaitely Ji, has presented the interim budget in parliament and on 5th July 2019, the finance minister of winning government i.e. Mrs. Nirmala Sitharaman presented the full budget. Generally, the Interim Budget and Full budget are almost the same. 

Tax planning

In this article, we will discuss the benefits given in the budget by the government in the FY 19-20, Income tax deductions and best ways to save tax for the FY 19-20 (AY 20-21).

First, lets me tell give you the highlights of the tax deductions applicable from 01.04.2019:

  • For salaried employees, the standard deduction of Rs. 40,000 has been increased to Rs. 50,000.
  • If the taxable income of any resident individual assessee is up to Rs. 5,00,000/-then he is not required to pay any tax as per Rebate under section 87A.
  • Till last year, if any assessee is having more than 1 residential Self-occupied House Property then he has to pay tax on the notional rent of the other property but from April 2019, as per section 23, Notional rent is not applicable on the second home. That means, an Assesse may have two residential house property and does not have to pay tax on the second house.
  • TDS limit on interest income in bank and post offices has been increased from Rs. 10,000 to Rs. 40,000/-.
  • Limit of TDS under section 194I TDS on Rent” has increased from Rs. 1,80,000 to Rs. 2,40,000/-
  • Exemption limit of Gratuity has been increased from Rs. 20,00,000 to Rs. 30,00,000/-
  • No change made in the Income-tax slab rates for FY 19-20.

Note: the Rebate Under section 87A shall be available only when the income of the assesse is up to Rs. 5,00,000. If the income exceeds even by 1 rupee then he has to calculate the tax without the benefit of this rebate. Let’s understand it with an example:

Particulars Mr. A Mr. B
Total Income 5,00,000 5,05,000
Tax on Total Income 12,500 13,500
Less: Rebate u/s 87A 12,500 NIL
Add: Cess 4% NIL 540
Total Tax Payable NIL 14,040

The tax rates applicable to an individual is as follows:

General Public Resident Senior Citizens Resident Very Senior Citizens
(Below 60 Years of Age) (60 to 80 Years of Age) (More than 80 Years of Age)
Income Tax Slabs Tax Income Tax Slabs Tax Income Tax Slabs Tax
Up to Rs. 2.5 Lakhs  Nil Up to Rs. 3 Lakhs  Nil Up to Rs. 5 Lakhs  Nil
Rs. 2.5 – 5 Lakhs  5% Rs. 3 – 5 Lakhs  5% Rs. 5 – 10 Lakhs  20%
Rs. 5 – 10 Lakhs  20% Rs. 5 – 10 Lakhs  20% Above Rs. 10 Lakhs  30%
Above Rs. 10 Lakhs  30% Above Rs. 10 Lakhs  30%    

NOTE:-Health and education cess @ 4% shall be added on the tax value.

Tax Deductions (Benefit from Income Tax)

Now we will understand the tax deductions available to the assessee under Chapter VI-A. In Chapter VI A, there are many exemptions available to them based on investment, expenditure, etc. Out of all the deductions, Let’s have a look upon the Significant Deductions available to the assessee and their explanations:

Sections Tax Deductions
80C Lots of Options like LIC, PPF, ELSS, FD, Mutual fund and UTI units, House Loan, Post Office Deposit and so many options
80CCC Pension Products
80CCD Central Government Employee Pension Scheme
80CCD(1B) Additional exemption for investment in NPS of Rs 50,000 
80 D Medical Insurance for Family and Parents
80E Interest payable on Education Loan
80G Donation to certain charitable funds, charitable institutions, etc.
80GG For Paying Rent in case of no HRA
80TTA Interest received in Saving Account
80TTB Interest Income for Senior Citizens only Upto Rs.50000

Section 80C:

The deductions shall be available in the following investments:

  • The amount deposited in Public provident fund by the Assessee for himself or spouse or children.
  • Employee’s Contribution to the statutory provident fund or Recognised Provident Fund.
  • Repayment of Loan amount taken from banks or financial institution for the purchase or construction of the house. 

Note: Stamp duty and registration fees for the acquisition of property also include in this investment.

Also, the amount of interest amount shall also be exempted to 200000 under section 24.

  • Fixed Deposit amount in the scheduled bank or post office for at least period of 5 years.

Note: the interest earned on Fixed Deposit is taxable in the hand of the assessee as and when it accrued.

  • Tuition fees paid for the education of children.

Note: Maximum tuition fees of 2 children are eligible for the deduction under 80C  Also, the course should be a full-time course.

  • Amount deposit under Senior citizen saving scheme by senior citizens.

Note: The interest under SCSS is taxable.

  • Equity Linked saving scheme which is also known as a tax saving mutual fund. The investment amount is exempted under 80C and any long term capital gain shall be exempted under section 112AA and above that 10% tax shall be levied on such LTCG.
  • Sukanya Samriddhi Account (SSA) is a new scheme implemented by the government in the previous budget. It can be open for any girl child below 10 years of age. It requires a minimum investment of Rs. 1,000 per year. The interest under this scheme is also tax-free.
  • Life insurance Scheme: The assessee can take the deduction for himself or spouse or children. If the policy is issued on or after 01.04.2012 then the deduction amount shall be lower of the following:

Premium Paid or 10% of the Policy Value.

  • National saving certificate: Like Fixed deposit, it is also a fixed deposit scheme in which assessee has to invest in the Indian post for 5 years or 10 years.

Note: The interest earned in this scheme is taxable.

Section 80CCC

Contribution to the pension fund made by an individual to the Life insurance Corporation or any other insurance company. Such individual shall be eligible for the tax deduction up to Rs. 1,50,000.

Section 80CCD

Like 80CCC, the individual can contribute to the pension scheme of the Central government or New Pension Scheme or Atal Pension Yojna.

The number of deductions shall be maximum up to Rs. 1,50,000 which would be calculated as follows:

Salaried Employee Other Employee
Lower of following Lower of following
Employee Contribution Assesse Contribution
10% of Salary 20% of GTI

Section 80CCD(1B)

Additional Deduction of Rs. 50,000 shall be allowed other than covered under section 80CCD.

For Example: Assesse contribution is Rs. 1,40,000 towards NPS and his GTI is 550000. In this case assesse can claim the following:

80CCD: 20% of GTI i.e. 20% * 5,50,000 = 1,10,000

80CCD(1B): 30,000 as additional deduction

Hence entire contribution would be tax free.

Section 80D

Deduction under Section 80D shall be available for the Premium paid for Health/Mediclaim Insurance for Self, Spouse, Children, and Parents 

Assessee can claim the maximum deduction of Rs 25,000 in case age is below 60 years and Rs 50,000 above 60 years of age.

An additional deduction of Rs 25,000 can be claimed for buying health insurance for his parents (Rs 50,000 in case of either parent being senior citizens)

This deduction can be claimed irrespective whether the parents are being dependent on assesse or not.

Note: This deduction is not available for health insurance of in-laws.

The said deduction is also available to the HUF in which the HUF can pay the premium for the health insurance of their member.

Budget 2013 introduced deduction of Rs 5,000 is also allowed for preventive health checkup for Self, Spouse, dependent children, and Parents. It continued to this financial year too.

Section 80E

The entire interest amount paid on education loan in a financial year is eligible for deduction u/s 80E

The deduction shall be available only on the interest amount and not on the principal amount.

The loan is available for the education of self, spouse or children.

The Education loan should be taken for full-time courses only.

The deduction shall begin from the year in which the assesse starts the payment of its interest amount for the consecutive 8 years.

The loan must be taken from any financial institution only.

Section 80G

Under this section, deductions are available of the amount of a donation to certain relief fund and charitable institutions made by the assessee. 

This deduction can be claimed only when the donation has been made through cheque or draft or in cash. That means if any person is making donations in kinds like contributions of clothes or food material, shall not qualify for deduction under section 80G.

Some donations are exempted for 100% of the amount donated while for others its 50% of the donated amount

Also for most donations, the maximum exemption you can claim is limited to 10% of your adjusted total income.

Assesse shall be eligible to get the deduction of the donation only when he quote the PAN number of the institution in his ITR.

Section 80GG

If any assesse has not received his HRA (House Rent Allowance) in the salary component, he can still claim house rent deduction u/s 80GG

Conditions for claiming the deduction under this section:

  • Tax Payer may be either salaried/pensioner or self-employed
  • No one in the family of the assesse including spouse, minor children or self shall own a house in the city in which assesse is living.
  • If Assesse owns a house in a different city, he may have to consider rental income on the same.

The number of deductions shall be lower of the following:

  • Rs. 5,000 per month 
  • 25% of the adjusted total income
  • Rent Paid – 10% of the adjusted total income.

Also, the assesse has to file Form 10BA along with tax return form.

Adjusted total income = GTI – income taxable at a special rate – All deductions under chapter VI-A except 80GG.

section 80GGC

If the donations are made to any Political party then its deductions can be claimed under section 80GGC. But Donation must be in other than Cash, meaning that if donation paid in cash then deduction shall not be available

Section 80TTA

It allows the deduction to the individual assessee other than a senior citizen, of interest amount on his saving bank account up to Rs. 40,000 which has been increased in this year from Rs. 10,000.

Section 80TTB

This section is similar to 80TTA, the only difference is, it allows the deduction of interest amount on saving bank account to the resident senior citizen and the amount of deduction shall be limited to Rs. 50,000/-.

Now we will discuss the other tax deductions available to the salaried assessee in his salary component:

Standard Deduction

Up to the employee get the deductions of a number of allowances like medical allowance or transport allowance but the from FY 18-19 Government has introduced a new standard deduction in lieu of the allowances in which assesse shall get deduction under section 24 of Rs. 50,000 which has been increased in this financial year from Rs. 40,000.

House Rent Allowance

The HRA can be claimed as the deduction of the least of the following:

  • Actual house rent allowance received or
  • 40% /50%  of salary*
  • Rent paid (-) 10% of SALARY*

salary* here means, BASIC SALARY +DEARNESS ALLOWANCE 

Note: if the Rent amount is more then Rs. 1,00,000, then the assessee is required to give the PAN number of the landlord.

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Reimbursement of Mobile and internet bills

The reimbursement of mobile and internet bill amount which the assessee had paid for company purpose, is tax-free

There is no limit set on the amount of reimbursement and it is fixed by the company depending on the work profile of the assessee.

In this article, I tried to cover most of the investment-linked deductions because one should not only try to save tax but also have a good investment plan. I hope this article may help the taxpayer to make a good financial plan in a better way and save his taxes for the financial year 2019-20 (the Assessment Year 2020-21).

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