How to Reduce Your TDS Liability with Proper Planning
Tax Deducted at Source (TDS) is a critical component of India’s taxation system. It aims to collect tax from the source of income generation. The deductor is responsible for deducting a certain percentage of tax before making a payment to the deductee and then depositing it with the government. Proper planning can significantly minimize your TDS liability, enhancing your overall tax efficiency. This article will explore various strategies for reducing TDS liability, emphasizing the importance of structuring your income wisely and utilizing tax exemptions and deductions.
Understanding TDS
TDS is applicable on various types of income, including salaries, interest on bank deposits, rent, professional fees, and dividends. The rates vary based on the income type and can range from 1% to 30%. The deducted amount is adjusted against the taxpayer’s total tax liability when they file their annual Income Tax Return (ITR).
Here’s how you can reduce your TDS liability effectively:
1. Utilize Section 80C Deductions
Section 80C of the Income Tax Act offers tax deductions up to ₹1.5 lakh annually. Investments in various instruments such as Public Provident Fund (PPF), Employee Provident Fund (EPF), National Savings Certificates (NSC), and Life Insurance Premiums qualify for this benefit. By structuring your investments this way, you can reduce the taxable income on which TDS is levied.
Example Calculation:
– Annual Salary Income: ₹10,00,000
– Investment under Section 80C: ₹1,50,000
Taxable Income = 10,00,000 – 1,50,000 = ₹8,50,000
The lower taxable income results in a reduced TDS deduction from your salary.
2. Submit Form 15G/15H
If your total income is below the taxable limit, you can submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens above 60 years) to your bank. This declaration ensures that no TDS will be deducted from your interest income.
Example:
If a senior citizen earns ₹1,80,000 as interest income from fixed deposits and other exemptions result in a non-taxable status, submitting Form 15H will ensure that no TDS is deducted.
3. Claim HRA Exemptions
House Rent Allowance (HRA) is partially exempt under Section 10(13A). The exemption amount is calculated as the least of the following:
1. Actual HRA received
2. 50% of salary if residing in metro cities (40% for non-metro)
3. Rent paid minus 10% of salary
Proper planning of HRA can lead to a significant reduction in taxable income.
Example Calculation:
– HRA received: ₹2,40,000 annually
– Rent paid: ₹2,00,000 annually
– Basic Salary: ₹6,00,000 annually
Minimum of:
– HRA received: ₹2,40,000
– 50% of Basic Salary: ₹3,00,000 (For metro cities)
– Rent paid – 10% of salary: ₹2,00,000 – ₹60,000 = ₹1,40,000
HRA Exemption = ₹1,40,000
4. Reorganize Your Salary Structure
Restructuring your salary components can considerably reduce TDS. Opt for higher non-taxable subjects such as food coupons, transport allowance, medical reimbursement, mobile bill reimbursement, etc.
5. Use Double Taxation Avoidance Agreement (DTAA)
If you have income from a foreign country, ensure to utilize DTAA provisions. This agreement prevents double taxation and helps to receive tax credit in India for taxes paid abroad.
6. Claim Interest on Education Loan
Under Section 80E, deduction is available on interest paid on education loans for higher education without any limit.
7. Opt for Tax-saving Fixed Deposits
Banks offer fixed deposits with a minimum lock-in period of 5 years under Section 80C. The interest earned from these FDs is taxable, but you can still use the principal investment to reduce your taxable income under Section 80C.
8. Declare Other Incomes & Investments in Form 12BB
Form 12BB allows you to declare HRA, LTA, housing loan interest, and other deductions. By appropriately declaring these, you can reduce your tax liability, hence TDS on your salary.
Disclaimer:
The strategies discussed for reducing TDS liability require personal diligence and careful planning. The tax benefits mentioned are subject to the current taxation laws and may change. It’s advisable for investors and taxpayers to consult a professional tax advisor to understand the implications fully and make informed decisions. Investing in the Indian financial market comes with risks that need thorough evaluation before making any commitments.
Summary:
Reducing TDS liability through strategic planning can result in significant tax savings. Utilizing Section 80C deductions by investing in Public Provident Fund (PPF), Employee Provident Fund (EPF), Life Insurance Premiums, and other tax-saving instruments effectively lowers the taxable income. Submitting declarations like Form 15G or 15H ensures that no TDS is deducted from interest income if your income is below the taxable limit.
Claiming House Rent Allowance (HRA) exemptions, reorganizing salary structures to include more non-taxable components, and using Double Taxation Avoidance Agreements (DTAA) for foreign income are pivotal strategies. Furthermore, declaring investments and exemptions accurately in Form 12BB can prevent excessive TDS from your salary.
Other notable measures include claiming interest paid on education loans under Section 80E, and opting for tax-saving fixed deposits. Each strategic move requires careful consideration and understanding of the prevailing taxation laws. Taxpayers are encouraged to engage professional advice to fully benefit from these provisions and ensure compliance with all tax regulations.
