Budget 2017 - Income Tax saving investments: Top 5 options available for high-income individuals
The Finance Bill 2017 has proposed a surcharge of 10% of total taxes for taxpayers having income between R50 lakh to R1 crore. The net impact on the taxpayer having income above R50 lakh would be negative. For example, a taxpayer having taxable income of R55 lakh would shell out additional R1,37,763 whereas a taxpayer with taxable income of R75 lakh would shell out additional R1,99,563.
Taxpayers crossing the threshold of R50 lakh by a small margin should evaluate options of tax-free bond/ fund as an alternative to taxable investments like bank fixed deposits. This may help them keep the taxable income lower and avoid falling in the surcharge slab.
The Finance Minister during his budget speech said: “Of the 76 lakh individual assesses who declare income above R5 lakh, 56 lakh are in the salaried class.” If an option is provided by the employer, salaried taxpayers may consider revamping their salary structure to be eligible for following tax benefits if they have not fully utilised these currently.
National Pension System
Salaried taxpayers are eligible for additional deduction of up to 10% of basic salary for employer’s contribution to National Pension System (NPS). If you are not already investing in NPS via your employer, this is one arrangement which may reduce your tax burden. Also, your contribution to NPS would be eligible for additional deduction of R50,000. Both of these deductions are over and above the limit of R1,50,000 under Section 80C. The Budget also proposed to exempt partial withdrawal from NPS to the extent of 25% of the contributions.
House Rent Allowance
In case you are a salaried taxpayer, paying rent for your abode and your salary does not include house rent allowance (HRA), you are losing out on the tax benefit available. Employees receiving HRA are eligible to claim tax exemption of the same calculated on the basis of actual rent paid and salary received.
Company leased car
Employers may provide employees with a company leased car for both official and personal purpose along with reimbursement for fuel and maintenance. This is considered taxable perquisite only to the extent of R1,800 or R2,400 per month depending on the cubic capacity of the car.
Leave Travel Allowance
The travel concession or assistance received from the employer for self and family, in connection with going on leave to any place in India is considered tax free to extent of actual expenditure incurred. Only salaried individuals receiving leave travel allowance (LTA) are eligible to claim this benefit. This relief can be availed only in respect of two journeys in block of four years. The current block (2014-2017) would end in December 2017, hence if your pay-out does not have LTA as a component, this would be the right time to include the same.
As a salaried employee, taxpayers may claim various other small tax reliefs if their salary includes specified benefits viz., medical reimbursement (R15,000), conveyance allowance (R1,600 per month), food/ meal coupons (R13,000 per annum).
Though the available choices are limited, the taxpayers may evaluate these options to minimise additional tax impact proposed by Finance Bill 2017.
The writer is tax partner and India mobility leader, EY. With inputs from Navneet Golchha, senior tax professional, EY. Views expressed are personal.