Guide to start your tax planning in 2020|PNB MetLife

Guide to start your tax planning in 2020|PNB MetLife

Earning your first salary in 2020? Here

If you’re all set to begin your first job in 2020, you’re undoubtedly excited for what the coming year will bring. A few months into 2020, and it’ll be that time of the year when you need to start thinking about your taxes. Without the right kind of financial planning, you could find yourself burdened by high tax rates that could eat into a major portion of your income. Read More

Fortunately, with a little bit of insight, financial planning for beginners gets quite easy. So, if you’re about to earn your first salary in 2020, here’s a guide on basic financial planning to help you get started on the right foot. By using these provisions in the Income Tax Act, you can reduce your tax burden significantly.

  1. Invest in instruments that qualify for deductions under section 80C
    Investing your salary income in tax-saving instruments recognized by section 80C of the Income Tax act is a great way to kick off your financial planning. Using the provisions in this section, you can claim up to a maximum of Rs. 1.5 Lakh as deductions from your total taxable income. A reduction in your total taxable income will in turn lower the amount of tax that you pay. Apart from decreasing your tax liability, these investments also help you plan for the future by allowing you to save your hard-earned money. Here are some of the many tax-saving instruments that qualify for deduction under section 80C.
    • Employees’ Provident Fund (EPF)
    • Equity Linked Savings Scheme (ELSS)
    • Life insurance premium
    • Term insurance plans
    • Public Provident Fund (PPF)
    • Tax saving fixed deposits; they have a 5-year lock-in period
    • Post office time deposits
    • National Savings Certificate (NSC)
    • Unit Linked Insurance Plan (ULIP)
    • Sukanya Samriddhi Account

    Furthermore, section 80CCC of the Income Tax Act also provides you with more avenues to reduce your tax burden. This section deals with annuity or pension plans offered by insurance providers in India. In addition to the above-mentioned instruments, you can also choose to invest your money in either the National Pension Scheme (NPS) or the Atal Pension Yojana (APY) to claim deductions. These two schemes are covered by section 80CCD (1) of the Income Tax act.
    The most appealing part of section 80C is that you are not required to invest all of your money in one single investment vehicle to claim the deduction. You can park your funds in multiple schemes of your choice. For instance, you can choose to park a portion of your earnings in tax-saving FDs and invest another portion of your funds in a life insurance plan or a term insurance policy.
    You can learn more about Term Insurance by browsing the website for the various Term Plans offered by PNB MetLife.
  2. Obtain a health insurance cover
    The Income Tax Act also provides tax benefits for premiums paid on health and medical insurance plans. Section 80D exclusively deals with the deductions of medical insurance premiums. The deductible amount varies based on whether the premium is paid for yourself or your family (spouse and children), or also for your parents. It even varies according to your age and the age of your parents. The table below explains the different scenarios and the maximum amount of premium that can be claimed as a deduction in each situation.

    Your Age

    Your parents age

    Person(s) for whom premium is paid

    Maximum amount of premium (for self/family) that can be claimed

    Maximum amount of premium (for parents) that can be claimed

    Total permissible deduction under section 80D

    Less than 60

    Not Applicable

    Self/family

    Rs. 25,000

    Not Applicable

    Rs. 25,000

    Less than 60

    Less than 60

    Self/family and parents

    Rs. 25,000

    Rs. 25,000

    Rs. 50,000

    Less than 60

    More than 60

    Self/family and parents

    Rs. 25,000

    Rs. 50,000

    Rs. 75,000

    More than 60

    More than 60

    Self/family and parents

    Rs. 50,000

    Rs. 50,000

    Rs. 1,00,000

  3. Make use of tax exemptions available to salaried employees
    When you receive your first salary, you’ll see that salaried employees receive various allowances from their employer. The Income Tax act offers complete or partial exemption on many such allowances. You can make use of these provisions to ultimately reduce your taxable income. Here are some such major allowances that are exempt 
    1. House Rent Allowance (HRA): If you receive HRA as part of your salary, and you reside in a rented accommodation, the amount of HRA you receive is exempt from tax. 
    2. Leave Travel Allowance (LTA): You can claim exemption on the amount you receive as LTA provided you utilize the allowance for travelling within India. The government demarcates blocks of 4 years within which you can claim LTA twice. 
    3. Leave Encashment: The amount that you receive from your employer when you encash your unclaimed leaves can also be claimed as an exemption in the relevant financial year.              

    In order to claim exemption, you will need to ensure that your pay slip clearly specifies the above-mentioned allowances. Also, keeping a record of all the bills, receipts, and invoices can help you claim these exemptions without any trouble.
  4. Take advantage of other provisions that can help you reduce your tax burden
    You can reduce your tax liability even further by utilizing many other provisions of the Income Tax act. Some such provisions are explained below.  
    1. Deductions under section 80TTA: Section 80TTA enables you to claim a deduction of up to Rs. 10,000 on interest income. This particular deduction is allowed only on interest that is earned from either a savings bank account or a post office savings account. 
    2. Rebate under section 87A: Section 87A provides you with a tax rebate of up to Rs. 12,500 (effective from F.Y. 2019-20 onwards) provided that your income for a financial year does not exceed Rs. 5,00,000. This effectively ensures that you don’t have to pay any taxes as long as your income is below the threshold level. 
    3. Standard deduction of Rs. 50,000: Available only for salaried employees, this provision provides you with a flat-rate deduction of Rs. 50,000. The standard deduction of Rs. 50,000 is subtracted from your gross salary, thereby reducing your taxable income.


Conclusion
Financial planning for beginners can help people who have just started their first job manage money better. With these provisions, you can get a head start on the basic financial planning needed to reduce your tax burden. It’s prudent to start tax planning right from the time you earn your first paycheck. This way, you can stay ahead of the curve and remain financially smart.

*Tax benefits are subject to conditions and other provisions of the Indian tax laws and are subject to amendments made thereto from time to time.

Disclaimer: 
The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.

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