For newly employed individuals, it is very important to utilize the benefits available as per Income Tax Act, 1961 to maximise their earnings. A brief example is presented below for reference in respect of Mr A (invests for tax planning) and Mr B (doesn’t invest for tax planning), living in New Delhi:
|
Particulars (in INR) |
Mr A |
Mr B |
|
Cost to Company (CTC) p.a. |
10,00,000 |
10,00,000 |
|
Break up of salary:
Basic Pay
|
5,00,000
|
4,00,000
|
|
Rent Paid |
3,00,000 with proper documents |
3,00,000 without proper documents |
|
Tax Calculation |
||
|
Taxable Salary (Net of employer contribution to PF) |
9,40,000 |
9,40,000 |
|
Less: Standard Deduction |
(50,000) |
(50,000) |
|
Less: HRA not taxable |
(2,50,000) |
- |
|
Less: Employee Contribution to PF |
(60,000) |
(60,000) |
|
Less: Deductions wrt tax planning investments |
(90,000) |
- |
|
Taxable Salary |
4,90,000 |
8,30,000 |
|
Taxes Paid |
0 |
81,640 |
Hence, everybody earning a salary of Rs 5 lacs or more should do proper tax planning.
