The Income Tax Act allows you to reduce your tax liability by way of exemptions and deductions under a variety of sections. For example, for the year 2016-17, you can reduce your taxable income to a certain extent by investing in life insurance policies (allowed under section 80C of the Income Tax Act). Rule 3 of the Income Tax Act allows you to claim a benefit of Rs 15,000 per annum if you receive medical expense reimbursement from your employer. Given the multitude of benefits available under the Income Tax Act, it is difficult for most employees to know/remember the many avenues that are available for tax saving. Also, the extent of benefits keeps changing across years as per changes in tax rules. Wouldn't it be useful if there is an online tool that provides you information on the tax benefit available under different sections of the Income Tax Act?
TaxGenie is that online tool.
Your annual income tax is calculated on the basis of your annual salary and the investment declaration you make in HRWorks. As and when you make the declaration online, you can see how much you can save on tax by following the suggestions provided by TaxGenie.
Where to find TaxGenie?
You can locate the TaxGenie icon on top-right of the investment declaration screen.
Click the TaxGenie icon to open the TaxGenie window. Of course, you can choose to submit your investment declaration without clicking on the TaxGenie icon.
How to read the TaxGenie window?
TaxGenie presents the avenues for tax saving by way of tables (representing each avenue) one below another. All the data provided in the TaxGenie window are annual figures. Please scroll down the TaxGenie window to see all the tax saving avenues.
The table pertaining to each tax-saving avenue contains 3 columns.
a. Max Benefit
"Benefit" refers to the extent to which your taxable income can be reduced. When the taxable income gets reduced your tax liability too gets reduced. The term Max Benefit refers to the maximum extent to which your taxable income can be reduced as per the Income Tax Act.
In the screenshot above, the maximum benefit (or the maximum extent to which the taxable salary can be reduced for the purpose of calculating tax) available as per the Income Tax Act under sections 80C, 80CCC and 80CCD(1) is Rs 150,000 for the year.
b. Benefit Provided
"Benefit" refers to the extent to which your taxable income can be reduced. When the taxable income gets reduced your tax liability too gets reduced. The term Benefit Provided refers to the extent to which your taxable income has been reduced as per the investment declaration you have made. The Benefit Provided amount cannot exceed the Max Benefit amount.
In the screenshot above, the employee's Public Provident Fund contribution and life insurance premium paid for the year have been considered by HRWorks for tax saving. In other words, while the Max Benefit amount is Rs 150,000 (under sections 80C, 80CCC and 80CCD(1)), the employee has availed a benefit of Rs 99,000.
c. Benefit Remaining
"Benefit" refers to the extent to which your taxable income can be reduced. When the taxable income gets reduced your tax liability too gets reduced. The term Benefit Remaining refers to the extent to which your taxable income can be further reduced after considering the Benefit Provided amount.
In other words, Benefit Remaining = Max Benefit - Benefit Provided.
In the screenshot above, the employee can avail additional tax benefit to the extent of Rs 51,000 (under sections 80C, 80CCC and 80CCD(1)), since the employee has availed a benefit of only Rs 99,000. In other words, the employee can invest up to Rs 51,000 in avenues available under sections 80C, 80CCC and 80CCD(1) in order to reduce her tax liability.
d. TaxGenie is linked to investment declaration
The TaxGenie window is linked to information on an underlying investment declaration window. Whatever you enter on the declaration screen gets reflected in TaxGenie.
For example, in the TaxGenie window shown above, the amount of Rs 85,000 against "Deposits in Public Provident fund" under "80C, 80CCC and 80CCD(1) Investments" on the TaxGenie window comes from the "Deposits in Public Provident Fund" amount entered on the underlying investment declaration screen. Similarly, the amount of Rs 14,000 against "Life Ins. Premia" under "80C, 80CCC and 80CCD(1) Investments" on the TaxGenie window comes from the screen under the "Life Insurance" tab on the underlying investment declaration screen.
e. TaxGenie is linked to the heads of pay you are entitled to
TaxGenie calculates your annual tax on the basis of the heads of pay which are there in your pay structure. For heads of pay such as Medical and Leave Travel Allowance - which provide you with tax benefits if you submit bills - TaxGenie will consider them only if you have such heads of pay in your pay structure.
In the above screenshot, the employee receives salary under the head "Medical reimbursement" and hence TaxGenie considers the same. Since the employee has not submitted any declaration amount, the "Benefit Provided" amount is zero on TaxGenie.
How to use TaxGenie?
1. Check the scope for tax reduction on TaxGenie
On the TaxGenie window take a look at your annual tax liability at the bottom under the column "Earlier Tax". If the amount under "Earlier Tax" is zero, it means that you have no tax liability for the year (maybe on account of your salary being in the zero tax slab).
If your annual tax liability is greater than Rs 0, TaxGenie may be of some help. Let us assume that you have some tax to pay in a year, like the case below.
In the above screenshot, let us assume that your tax for the year is Rs 94,725 and you haven't taken any benefit under Section 80C. Consequently, TaxGenie is indicating that the "Benefit Remaining" under 80C, 80CCC and 80CCD(1) is Rs 1,50,000. This means that you can invest up to Rs 1,50,000 under 80C, 80CCC and 80CCD(1) in order to reduce your tax liability. You can select the checkbox in the "Benefits Remaining" column in order to see how much tax you can save by investing Rs 150,000 under sections 80C, 80CCC and 80CCD(1).
Similar to selecting "Benefit Remaining" under 80C, 80CCC and 80CCD(1), you can select "Benefit Remaining" under other avenues such as 80CCD(1B), 80D etc. to check how much more tax you can reduce by investing in the respective avenue. After taking a look at the extent of tax you can save, you can fill in the details of the additional investment on the investment declaration screen and submit the same in order to avail the benefit.
2. Check the extent of tax reduction on TaxGenie while filling in your investment declaration
While filling in investment declaration, you can simultaneously check how your declaration reduces your tax. When you are on the investment declaration screen just keep the TaxGenie window open in order to see the impact of your declaration on your tax.
As soon as you enter an amount on the investment declaration screen, you can see the tax amount changing, as shown in the screenshot below.
Once you submit the declaration, the tax saving amount will be given effect for the tax deduction.
3. It can also be a tax increase instead of tax reduction
Please note that you may see a negative figure under Tax Saving when you modify your investment declaration. For example, you may remove some of your earlier declarations and that could lead to an increase in your annual tax. The increase in income tax is represented as a negative number under Tax Saving.
Some points to note
- TaxGenie covers many of the popular tax saving avenues. However, it does not cover all sections of the Income Tax Act.
- If you decide to use any suggestion provided by TaxGenie, you need to modify your investment declaration and submit the same on HRWorks for the tax saving to take effect. And needless to say, you need to submit proof (receipts etc.) for the declaration you submit, by the end of the year or when you leave your organization, for the declaration to be considered for the year.
If you have any suggestions for TaxGenie, please send an email to firstname.lastname@example.org.
Happy Tax Saving!