A good understanding of requirements, benefits available, how to claim them and importantly how to plan to utilize the benefits under the IT act will ensure that the tax paid is the minimum and thus maximize long-term saving of money.
The Income tax act considers all earnings of a person as income and taxable unless it falls under some heads where people are encouraged to invest and claim a tax benefit. While it is mandatory under the law for the employer/payee, to deduct taxes under the Tax Deductions Scheme (TDS) the person with income is required to file returns under the Income Tax Act,1961.
Most people who are employed are called upon to make a declaration and provide proof of their investments to claim tax deductions. Since the tax is an amount deducted from the person’s income, any amount or deduction availed is a form of long-term income that remains with the person. This is why people use instruments like bank fixed deposits, investments under Equity Linked Investment schemes, Public Provident Fund etc. for tax saving.
Normally a person employed is required to provide the accounts department proof in the form of receipts before March 10th. The accounts department of your company computes your taxes, deductions etc. and issues a statement called Form-16. The last date for such returns is on or before March 31st. When proof of investments is not reflected in the calculations, you can still get a refund by disclosing the investments, expenses and other deductions while filing your returns between April 1, 2018, and July 31, 2018, which is the last date for filing tax returns.
Just as the employer needs proof of investment, the income tax department may verify and call on you to provide the same. Hence it is suggested all such receipts be maintained for a period of six years at least.
Important benefits under tax claim
Here is a quick explanation of some important benefits.
Income tax exemptions in respect of leave travel allowance (LTA)
The LTA tax break can apply for a claim on expenses of travel for oneself and the family members for within India. You are eligible to apply for two journeys in 4 calendar years. The block applicable to the current period is the calendar year 2018 to 2022. Any unclaimed expenses can be carried forward. LTA can only be claimed by an employer.
Medical reimbursement of up to Rs 15,000 is tax-free every year. The bills or consultancy receipts must be provided to the employer to claim it. If one omits to furnish them, TDS will be cut by the employer, and tax rebate cannot be claimed while filing your tax returns.
Interest on housing loans and the principal component of loan repayment on the first house purchased is deductible up to a maximum of Rs 1.5 lakhs. To claim full benefit, many people opt to pre-close a part of the loan and claim the benefit.
Income tax exemptions in respect of LTA and medical reimbursements cannot be claimed while filing the return and have to be claimed by the employer. Interestingly, from the next financial year, the Finance Bill 2018 has removed the medical reimbursement and transport allowance which is different from LTA, and instead provided a standard deduction on the salary.
Any tax saving investments, bank deposits, amounts invested in PPF or ELIS, partial payments on children tuition fees, repayment and pre-closure of a home loan where payment shows as credited right up to March 31, 2018, 3 PM can be claimed with a proper receipt to avail the benefit while filing tax returns.
Remember all claims are not refundable and are open to contest in assessment.