Aditya is a 25-year-old software engineer living in Mumbai. He spends his free time enjoying his newfound financial freedom. This is his first job and he’s clueless about tax or savings. But it’s almost the end of January and Aditya heard his friends talking about Section 80C and how they pay zero tax thanks to Section 80C. Aditya earns Rs 6,60,000 annually. Here are his salary details.
|House Rent Allowance||15,000||1,80,000|
Aditya looked up his pay slip and found out that his employer has been deducting a TDS on his salary of Rs 2,988 each month. This shall work out to Rs 35,860 for the whole year. While Aditya has been busy enjoying his new life he has no clue how much tax he needs to pay and whether he can save any tax! Let’s help him!
Aditya should first find out his total income from all sources. Besides salary income, Aditya has earned savings bank account interest of Rs 2,500. He found this amount in his bank statement. His father had forced him to put aside Rs 50,000 in fixed deposit and from his online FD statement, he found out he will earn an interest of Rs 3,500 on this FD until 31st March 2020. Aditya is not sure whether any TDS has been deducted on his interest income – so he looks up his Form 26AS. Form 26AS has the details of all the tax deducted and deposited against Aditya’s PAN. He found TDS of Rs 2,988 deducted by his employer each month until January.
Here is Aditya’s total Income:
|Income from salary|| ||Rs 6,60,000|
|Income from other sources|| ||Rs 6,000|
|Savings Bank account interest||Rs 2,500|| |
|Fixed Deposit interest||Rs 3,500|| |
|Gross Total Income|| ||Rs 6,66,000|
|Tax deducted or TDS till the end of January 2020 (Rs 2,988*10) || ||Rs 29,880|
Aditya also revealed he lives in a rented accommodation in Mumbai along with 4 other roommates and his share of rent is Rs 10,000. If Aditya can organize rent receipts from the landlord and get his PAN number, he can claim an exemption on HRA. If Aditya can submit the rent receipts well in time, to his employer – his employer will be able to adjust his tax calculations.
Aditya’s HRA exemption
Now let us see Aditya’s revised tax calculation.
|Aditya’s revised tax calculation|
|Income from salary||Rs 5,76,000|
|Basic salary||Rs 3,60,000|
|Taxable portion of HRA||Rs 96,000|
|Special allowance||Rs 1,20,000|
|Income from other sources||Rs 6,000|
|Gross total income||Rs 5,82,000|
|Deduction under section 80C||Rs 1,50,000|
|Deduction under section 80TTA||Rs 2,500|
|Total income||Rs 4,29,500|
|Tax payable||Rs 8,975|
|Less: Rebate under section 87A (for total income up to Rs 5 lakh)||Rs 8,975|
Did you notice? If Aditya can manage to claim Rs 1,50,000 under section 80C – no tax shall be payable by him on account of rebate claimed under section 87A. With this deduction, his taxable income does not exceed Rs 5 lakh which is eligible for rebate under section 87A for the AY 2020-21.
However, Aditya has to file an income tax return because his gross total income is above the basic exemption limit of Rs 2.5 lakh. Also, Aditya can claim a refund of the TDS of Rs 29,880 which has been deducted on his income. Aditya claims Rs 1,50,000 under section 80C. Deduction on Section 80C is available for PF @12% of Basic Salary, its Rs 43,200 for him. Since this is already deducted from salary, he simply needs to consider this amount – no additional payout is required.
Aditya wants to try his hands in equities and finds the market returns promising so he invests Rs 50,000 in ELSS. He opens a PPF account and deposits Rs 57,580 – all of these add up to Rs 1,50,780. The amount of deduction eligible under section 80C is limited to Rs 1,50,000. Accordingly, Aditya claims a deduction of Rs 1,50,000 under section 80C.
Deduction under section 80C available to Aditya
|EPF contribution @ 12% of basic salary||Rs 43,200|
|Subscription to ELSS||Rs 50,000|
|Contribution to PPF ||Rs 57,580|
|Total ||Rs 1,50,780|
|Eligible deduction||Rs 1,50,000|