Plan to increase your tax savings
To derive the maximum benefit from the new income tax rules, submit revised investment details to your employer.
Now that both houses of Parliament have passed the Finance Bill 2014, you can start taking advantage of the new tax proposals of Budget 2014-15. Revisit your tax-saving strategy for the year to maximise your take-home pay.
Reduce your tax outgo
Most organisations have already asked their employees to send revised investment declarations for the year to reassess their tax liabilities following the changes in tax laws. The sooner you do so, the better it will be. If you do not revise your earlier declaration, you will continue facing a higher tax outgo every month. Sending a revised declaration this month will allow you to fetch a higher take home pay right away. Let us illustrate this with an example. Based on her earlier investment declaration, her tax deducted at source (TDS) would be `18,540 annually, or `1,545 per month. However, now that she intends to file a revised tax declaration, making use of the additional `50,000 benefit under the new tax structure, her total liability will work out to `8,240 for 2014-15. Given the fact that she has already paid `7,725--`1,545 x 5 (months)--as tax till date, she will have to pay `515 over the remaining seven months. Therefore, from October, her TDS will be `74 and she will save `1,471 per month.
Refund for some individuals
The revised investment declaration may even entitle some to a tax refund. Your employer would have already cut five months' tax based on earlier calculations. Now, after revising your tax plan for the year, you may find that the actual liability is lower than the one that has already been paid. For instance, if an individual's annual income is `3.5 lakh, and he has claimed Section 80C benefits of `1 lakh in the declaration filed earlier, he would have already seen a tax cut of `2,145 over the past five months of the total annual liability of `5,150 (10.3% of `50,000 net taxable income). With the basic exemption limit adjusted upwards to `2.5 lakh, his revised tax liability will now be zero. If you belong to the higher income tax bracket, but claim the revised `2 lakh deduction towards payment of interest on your home loan, your liability may also come down significantly and you may be entitled to a refund from the Income Tax Department. However, to get the refund, you will have to file your income tax return before the due date next year.
Plan early
You will not have to do anything to get the benefits of the increase in basic exemption limit. However, to get the benefits of additional tax-saving window of `50,000, or the higher deduction on interest payment on home loans, you have to declare your investment details. Finalising your additional tax-saving investments now will also help you avoid last-minute hassle. If you wait till February or March 2015 to make up your mind, you will not only lose out on saving taxes, but are also likely to end up making ill-advised investments. So, start planning now. You need not invest the additional amount right away and can accumulate the extra money required over the next few months and then invest according to your plans. You start saving in tranches now instead of waiting till March, you will avoid being hit by a lump-sum outflow from your savings account at that time.
Individuals start depositing money in tranches to the PPF account, which will also start fetching tax-free interest, besides giving you the additional benefit of tax deduction.
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