Tax Planning – How to save income tax in FY 2016-17 (AY: 2017-18)

This article will help you with your income tax planning by explaining each and every provision that you can use to save your tax.

How to save income tax in 2016-17

The question that I am asked most often is that my income is Rs. XXXXXXX, what tax planning can I do to save tax?

This article is dedicated to answering that question on income tax planning. I have created a comprehensive list of all the provisions that you can utilize to reduce your taxable income.

Income Tax Slabs

Income tax slabs have not been changed this year. The tax slabs are as follows:

1) In Case of General Assesses (Both Male & Female):

Income BracketRate
0 to Rs. 2,50,0000   %
Rs. 2,50,001 to Rs. 5,00,00010 %
Rs. 5,00,001 to Rs. 10,00,00020 %
Above Rs. 10,00,00030 %

2) In Case of Senior Citizens (Age above 60 years but below 80 years):

Income BracketRate
0 to Rs. 3,00,0000   %
Rs. 3,00,001 to Rs. 5,00,00010 %
Rs. 5,00,001 to Rs. 10,00,00020 %
Above Rs. 10,00,00030 %

3) In Case of Very Senior Citizens (Age 80 years and above):

Income BracketRate
0 to Rs. 5,00,0000   %
Rs. 5,00,001 to Rs. 10,00,00020 %
Above Rs. 10,00,00030 %

* On final tax amount, a surcharge of 3 %
**No surcharge above 10 lacs.
***An additional surcharge of 15% will be applicable on persons whose annual income is above Rs. 1 crore.  (The surcharge was 10% last year)

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Income Tax Exemptions: 

1) Section 80 C Limit– Unchanged this year

  • Deduction on premium paid for a life insurance policy, taken after 1 April 2012, will be allowed only if yearly premium is less than 10% of sum assured.  If its more than 10% then it will be not eligible for deduction u/sec. 80C
  • ELSS (Mutual Fund)
  • PPF (upto Rs. 1,50,000)
  • EPF
  • FD for 5 years
  • Pension Plans
  • NSC
  • Post Office SB
  • Infrastructure Bonds
  • Expenditure on Children Education (For upto 2 children only for full time education)
  • Tuition fees (Only Tuition fees excluding Development Fees, Donations, etc. Maximum allowed is Rs. 24,000)
  • Housing loan principal (details here)
  • Deferred Annuity
  • Approved Super Annuation Fund
  • Investments under Sukanya Samriddhi Scheme. Even interest is exempt.

2) Section 80CCD– Unchanged this year

Deduction under this section can be claimed only if the contribution to your NPS account is made by your employer and the deduction is limited to a maximum of 10% of your basic salary. Returns on NPS are tax free, but withdrawal is still taxable. The deduction under sec 80CCD is over and above the deduction available under sec 80C. Max deduction allowed is Rs. 50,000.

3) Section 80 D – Unchanged this year

Deduction under section 80D

  • Deduction of Rs. 25000/- is allowed if the same is paid as premium for Medical Insurance taken for self / dependents or towards preventive health check-up (max Rs. 5000). In case any of self / dependents is a senior citizen, the deduction allowed is Rs. 20000/-
  • Additional Rs. 15000/- is allowed as deduction if the same is paid as premium for Medical Insurance taken for parents. In case the parent is a senior citizen, the deduction allowed is Rs. 30000/-
Age profilesPremium paid for medical insuranceTotal Deduction under Sec. 80D
Yourself, your spouse and kids, if anyParents
Every one is under 60 years25,00025,00050,000
You and your family are less than 60 years & parents are above 60 years25,00030,00055,000
You and your parents are of 60 years and above30,00030,00060,000

4) Section 80DD – Unchanged this year

Deduction under section 80DD

  • Exemption given for expenditure made for a disabled dependant towards Medical Treatment/Training/Rehabilitation. It also includes the LIC/Insurance premium paid towards maintenance of such dependant.
  • Maximum deduction allowed is Rs. 75,000/- in case of normal disability and Rs. 1.25 Lakh in case of severe disability.

5) Section 80DDB– Unchanged this year

Deduction under section 80DDB

  • Exemption given for expenditure incurred on specified disease or ailments such as cancer/aids.
  • Maximum deduction allowed is Rs. 80,000/-

List of ailments covered:

(i) Neurological Diseases where the disability level has been certified to be of 40% and above,

  1. Dementia ;
  2. Dystonia Musculorum Deformans ;
  3. Motor Neuron Disease ;
  4. Ataxia ;
  5. Chorea ;
  6. Hemiballismus ;
  7. Aphasia ;
  8. Parkinsons Disease ;

(ii) Malignant Cancers ;

(iii) Full Blown Acquired Immuno-Deficiency Syndrome (AIDS) ;

(iv) Chronic Renal failure ;

(v) Hematological disorders :

  1. Hemophilia ;
  2. Thalassaemia.

6) Section 80E – Unchanged this year

Deduction under section 80E
Deduction is allowed for repayment of interest component of Higher Education loan. All education after Class 12 is allowed, either vocational or Fulltime. But should be from a school/institute/university recognized by the government.

7) Section 80G– Unchanged this year

  • Contribution to exempt charities – 25/50/75/100% depending on the charity and as per approval
  • 100% exemption on donation to political parties 😉

8) Section 80U– Unchanged this year

  • Deduction upto Rs. 75,000/- is allowed in case of Permanent Disability.
  • In case of Permanent Disability exceeding 80%, maximum deduction allowed is Rs. 1,25,000/-.

9) Section 24(1)(vi) & Section 80EE– Unchanged this year

  • Housing loan interest. Maximum allowed limit raised to – Rs. 2,00,000 (for loans taken after 1 April 1999. For loans before that Maximum Investment Limit was 30,000).
  • Additional deduction of Rs. 1 lac will be applicable to persons taking first home loan of up to Rs. 25 lacs for property worth upto Rs. 40 lac. For such persons, the total deduction will be Rs. 2.5 lacs (Rs. 1.5 lac available under section 24(1)(vi) and Rs. 1 lac available under this new section 80EE).
    More details here.

10) Superannuation– Unchanged this year

Any contribution made by a company to superannuation fund upto Rs. 1,00,000 tax free in the hands of the employee.

11) Conveyance/Transport Allowance– Unchanged this year

Any Conveyance / Transport Allowance given to an employee is tax free upto Rs. 19,200 /- (No Supporting Bills required).

12) Medical Allowance– Unchanged this year

Any Medical Allowance given to an employee is tax free upto Rs. 15,000 /- (Supporting Bills required).

13) HRA– Unchanged this year

Any House Rent Allowance given to an employee is tax free upto the minimum value of the following conditions (subject to – when an employee can produce rent paid receipts from landlord for the period and if the employee has not availed of tax exemptions for home loan interest / principal repayment):

  1. 50% of Annual Basic (40% of Annual Basic in case of non-metros)
  2. Actual HRA received
  3. Rent Paid – (10% of Annual Basic)
    More details about HRA here.

14) Professional Tax– Unchanged this year

Any Professional Tax deducted from an employee’s salary can be reduced from the annual salary income to arrive at taxable salary.

15) Provident Fund– Unchanged this year

Provident Fund contributions (under section 80 C and subject to an overall investment limit of Rs. 1,50,000 ) deducted from an employee’s salary are tax exempt.

16)80CCG – Direct Equity Investment – Unchanged this year

Under ‘Rajiv Gandhi Equity Savings Scheme‘ – a new equity investor will be able to claim 50% of his investment in direct equity as deduction subject to maximum investment of Rs. 50,000 and provided his taxable income is below Rs. 10 lacs. The investment will be subject to 3 years lock-in.  The benefit will be available for 3 consecutive years.

Government has notified this scheme (RGESS). Mutual funds and ETFs that invest in BSE100 or CNX 100 stocks or PSUs which are Navratna, Maharatna and Miniratna will qualify under this scheme. These investments can be traded over stock exchange after 1 year of investment. New equity investor has been defined as someone who has opened a Demat account but has not bought any securities till date of notification of this scheme (22 Sep 2012). More information here.

17) Section 80TTA – Savings Bank Interest– Unchanged this year

No tax will be charged on interest earned on balance in savings bank account subject to a maximum of Rs. 10,000 per year.

18) Section 87A – Tax Rebate – Changed this year

Tax rebate of Rs. 5000/- (as against Rs. 2000/- last year) will be given to all those whose total annual income is up to Rs. 5,00,000.

There is only so much you can do to save money by optimizing your taxes. However, you can also save money by cutting down on your shopping bills. Make sure you compare prices and buy always at the lowest price. ShopperDost.com gives you detailed reveiws and the lowest price of products of all mobile brands. Using discount coupons and offers can also help you reduce the cost of shopping. Ours is a free site that collects all discount coupons and deals. All the discount coupons have been listed based on stores (like Flipkart Coupons, Snapdeal Coupons, Amazon India Coupons, Jabong Coupons, Myntra Coupons, etc.) and categories (like Travel Coupons, Mobile phone coupons, Accessories Coupons, etc.). Hope these discount coupons help you save some additional bucks. You can also subscribe your email (form is on top right side of this page) so that you receive the best coupons and offers every week in your inbox  🙂

Any queries? Have I missed anything? Do you know any other way to save tax? Let me know in comments below.

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