Smart tips to grow your money...

[RAHUL AGRAWAL]

There is some good news for all of us. Most world economies are on the path of recovery and the dreary recession is behind us. Though recession threatened our job, our lifestyle and our existence at one point in time, it nonetheless taught us some basic, yet important, money management lessons. We learnt to stretch our money and survive against all odds. And, now we can continue the process of getting more out of our money with just a little planning.

Here, we will discuss some strategies that will help salaried people maximise their income post tax, with the help of their salary.

Getting more out of your salary

In a salary slip, the total pay is categorised under various heads – base salary (Basic + Dearness Allowance) and allowances like HRA, LTA, Medical, Transport, Telephone and Leave Travel Allowance.

The tax is computed on your total amount or gross pay, after taking into account any investments that you have made under Section 80C of the Income Tax Act. The total limit allowed under this section is up to Rs 1,00,000.

If your tax is more than Rs 30,000, then you have to use the entire limit of Rs 1,00,000. You can effectively condense your tax liability by investing in tax-saving instruments like:

• Employee Provident Fund (PF)
• Public Provident Fund (PPF)
• Life Insurance Premium
• National Savings Certificates (NSC)
• Post Office Time Deposit
• School and College Fees paid for children’s education
• Stamp Duty and Registration Charges for your home
• NABARD rural bonds

But your aim is not just to save money, so you will not rush in and invest the Rs 1,00,000 straight off. Now that you know the law, you will use it effectively to save some money. Let us see how:

1. Tax breaks on allowances: First, meet up with your tax consultant at work and find out your taxable and non-taxable salary. Figure out how you can structure your salary to maximise tax breaks. There are specific heads or allowances – like medical, telephone, transport and meal expenses and leave travel allowance – which qualifies for tax breaks.
2. Reimbursements: Many organisations give allowances as reimbursements against bills. The items listed below are efficient means of claiming tax benefits and increasing your income:
   • Food coupons like Sodexo and Ticket Restaurant – they are exempt from tax up to Rs 60,000 per year.
   • Medical expenses which are reimbursed by the employer are exempt up to Rs 15,000 per year.
   • Individuals living in a rented accommodation should have House Rent Allowance (HRA) as part of their salary.
   • Transport allowance is exempt up to Rs 800 per month.
   • Leave Travel Allowance (LTA) can be claimed twice in a block of four years for domestic travel.
3. PF contribution: Find out your PF contribution at your workplace. Since this amount is exempt from tax, subtract it from the maximum limit of Rs 1,00,000. Now, invest the balance amount in any of the tax-saving instruments (this saves you from over-investing).
4. LIC premium: If you are investing in a life insurance policy, give a thought to the cycle of your premium. Pay annual premium as most policies offer a rebate on it. For more saving, you can keep your premium amount in a recurring deposit maturing just before the premium due date. The premium will be distributed over twelve months. This will help you save money on the premium and earn interest on the deposit. Remember, you also get a grace period to pay the premium. Use it to the full benefit by investing the maturity amount of your recurring deposit for a short-term fixed deposit of 15-20 days and earn more interest.
5. PPF investment: Investments in PPF earn you a tax-free return. PPF accounts have a 15-year lock-in period, but on completion of five years you can withdraw 50 per cent of your balance from the account. You can then re-deposit this money and avail tax benefits. This way you will get dual benefits: you will get tax benefits and you can keep your money free for other investments yielding higher returns.

Tips to save more tax

• Buy medical insurance and claim tax rebate under Section 80D up to Rs. 15,000. If you pay the premium for your senior citizen parents, you can claim additional tax exemption for Rs 20,000 under the same section.
• Contribute to a charitable organisation and get exemption under Section 80G.
• Claim up to a maximum of Rs 1,50,000 from your taxable income if you pay interest on a housing loan for a self-occupied home, under Section 24.
• If you have taken an education loan for your spouse or child, you can claim rebate under Section 80E on the interest paid for the loan for the current financial year. All you need is a certificate from the bank stating the amount of interest paid on the loan

With Regards

Rahul.R.Agrawal
Rahulbhai Agrawal Group
Ahmedabad
India.
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"If you are born as poor , it is not your mistake...But if you die as poor that is definitely your mistake"