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Tax saving declaration

Posted @ April 14, 2014, 7:18 am under (Payroll Outsourcing & Taxation)

Points to remember while making tax saving declaration


Every employee is expected to submit the Tax saving declaration in a specified format with their employer either at start of the financial year (i.e. April) or joining with new employer during the mid of the financial year.


It is not only the responsibility of the employer but employees are equally responsible to give proper income and investments details to compute correct tax on income from salary. While filing tax saving declaration following points should be kept in mind.


1.      New Joining: In case of shifting from one employer to other during the mid of the financial year, it is responsibility of the employee to declare the salary details of the previous employment with proof in Form 12B of Income Tax Forms. It is also required to disclose along with proof the Tax deducted by the other employer.


2.      Deduction for principal repayment and interest on home loan:


a.      Deduction for Interest will be claimed U/s 24(b) and principal portion will be claimed under Sec. 80C.


b.      If your house is under construction, then interest will be accumulated till you get possession. Thereafter, deduction will be allowed in five equal installments for next five years, along with the interest of that financial year.


c.       Ownership and possession is a must to claim deduction on home loan interest.


d.      Employees can declare claim for interest on housing loan U/s 24(b) of Income Tax Act. While declaring loss from house property do remember to collect the provisional interest certificate from the lender with details interest & principal, it will be helpful in accurate tax calculation.


e.      The deduction for interest is allowed by employer only in case of house property which is owned and is in the occupation of the employee for his own residence. Deduction of interest on rented house should be claimed by employee while filing his tax return.


f.        You have to report income/loss from property ONLY if you are the owner of that property.  An owner is a person who owns the legal title of the property and has the right to receive income from it. In case of jointly-owned self-occupied property, both you and the other owner can separately claim home loan interest deduction up to 1.5 lakh in your respective income-tax returns.


g.      Extra benefit for first-time home buyers: First-time home buyers can get some additional tax savings of Rs. 1 Lakh on the interest paid on that loan under section 80EEE. Conditions are the loan amount has to be under Rs 25 lakh, the value of the residential house should not exceed Rs 40 lakh. In addition, the deduction is available, only if the assessee does not own any residential house property on the date of sanction of the loan. Moreover, if interest paid during the year is less than Rs 1 lakh, the unclaimed deduction can be utilised in the subsequent year. 


3.      House rent claim: For calculating House rent allowance exemption u/s.10 (13A) employee need to submit the rental receipts. Following points need to remember before claiming HRA exemption


a. If your monthly rent is more than Rs 8,333, it is mandatory to quote the PAN of landlord. If the landlord doesn't have a PAN, a declaration to stating this along with the name and address of the landlord should be filed.


b. Only rent for employee working place and staying house can be claimed under HRA, no other house rent is eligible for exemption


c. While staying in own house, HRA exemption cannot be claimed


c. Housing interest deduction u/s.24(b) as self occupied and HRA exemption is not allowed at same time, unless both houses are located in different cities.



4.      Leave travel allowance: Under Section 10 (5) of the IT Act, you can claim tax exemptions using your leave travel allowance (LTA).

The LTA exemption rule stipulates that such exemption from tax can be claimed by an individual twice in a block of four years. One requires to produce domestic travel bills evidencing the fact of having undertaken a single journey.


Many individuals are unable to go on any vacation and, hence, end up losing the benefit of tax exemption on LTA. Such individuals can claim an additional exemption in the next block of four years. Here’s an example to illustrate this point:


Suppose X, an employee, did not travel in the block of 2010-13 and, so, could not claim any exemption in this block. However, he can carry forward one journey to the succeeding block (2014-17) and can claim it in the first calendar year, i.e., 2014. Thereafter, he can also claim the remaining two journeys of the block 2014-17. Accordingly, he may be eligible to avail three exemptions in the block 2014-17.


If both spouses are getting the LTA benefit in their respective places of work, they can both claim the separate exemptions for separate journeys for travel with their respective set of dependent parents.


5.      Deduction for Medical insurance premium paid for family, including parents, and Deduction for Preventive health check-up:

Section 80D of the Income-tax Act provides a deduction in respect of premium paid on health insurance of self, spouse and dependent children up to a maximum of Rs. 15,000 in aggregate. Further additional deduction of Rs. 15,000 (enhanced to Rs. 20,000 if parents are senior citizen) is also allowed for buying a health insurance policy in respect of parents.

From F.Y. 2013-14 payments made on account of preventive health check-up of self, spouse, dependent children or parents (s) during the previous year is also eligible for deduction which shall not exceed in the aggregate Rs. 5,000 prescribed in the section.

The above Rs. 5,000 deduction is included in overall limit of 15000/- or Rs. 20,000/- (as the case may be) of section 80D for health insurance and if you have already exhausted used this limit for health insurance then you cannot claim additional deduction for preventive health check up.

6.      The loan taken for higher studies from any financial institution or approved charitable institution. Personal loans from individuals, relatives and friends, are not eligible for this deduction, as is the case with home loan.


You can claim deduction for interest for up to eight years from the start of the assessment year when you begin repaying your education loan. There is no limit on the amount of interest on which deduction is allowed for education loan.  Payment should be made from taxable income only.


7.      Tax benefit on donations 

Deduction for donation not given by employer except an employee who makes donations towards Prime Minister’s National Relief Fund, the Chief Minister’s Relief Fund or the Lieutenant Governor’s Relief Fund through their respective employers, is eligible to claim deduction under section 80G on the basis of the certificate issued by the Employer in this behalf - Circular No. 2/2005, dated 12-1-2005.


8.      Contribution to Rajiv Gandhi Equity Savings Scheme (RGESS). The Scheme was meant for those investors who are investing in equity for the first time. Rajiv Gandhi Equity Savings Scheme (RGESS), is a tax saving scheme designed exclusively for the first time retail individual investors in securities market, whose gross total income for the year is less than or equal to Rs. 12 lakhs. The investor would get under Section 80CCG of the Income Tax Act, a 50% deduction of the amount so invested, upto a maximum investment of Rs. 50,000, from his/her taxable income for that year. 

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