Tax Planning is a very important component of Financial Planning. Along with saving tax, investors can get better returns as per their risk return profile.
There Are Three Steps In Tax Planning:
Calculate your taxable income under all heads i.e., Income from Salary, House Property, Business & Profession, Capital Gains and Income from Other Sources.
Calculate tax payable on gross taxable income for whole financial year (i.e., from 1st April to 31st March) using a simple tax rate table, given on next page.
After you have calculated the amount of your tax liability. You have two options to choose from.
A. Pay your tax (No tax planning required).
B. Minimise your tax through prudent tax planning.
Most People Rightly Choose Option ‘B’.
Here you have to compare the advantages of several tax saving schemes and depending upon your age, social liabilities, tax slabs and personal preferences, decide upon a right mix of investments, which shall reduce your tax liability to zero or the minimum possible. Every citizen has a fundamental right to avail all the tax incentives provided by the Government. Therefore, through prudent tax planning not only income-tax liability is reduced but also a better future is ensured due to compulsory savings in highly safe Government schemes.
We sincerely advise all our readers and clients to plan their investments in such a way, that the post-tax yield is the highest possible keeping in view the basic parameters of safety and liquidity.
After assessing your tax liability, the next step is tax planning. It involves selecting the right tax saving instruments and making investments accordingly.
Standard Deductions from Taxable Income, Deduction Under Section 80C:
This section allows deduction of up to Rs. 1, 00,000 from Taxable Income in respect of investments made in some specified schemes. The specified schemes are the same which were there in section 88 but without any sectoral caps (except in PPF).
Specified Investment Schemes U/S 80C:
- Life Insurance Premiums
- Contributions to Employees Provident Fund/GPF
- Public Provident Fund (maximum Rs 70,000 in a year) NSC
- Unit Linked Insurance Plan (ULIP)
- Repayment of Housing Loan (Principal)
- Equity Linked Savings Scheme (ELSS)
OTHER TAX SAVING OPTIONS AVAILABLE:
Tuition Fees including admission fees or college fees paid for Full-time education of any two children of the assessee (Any Development fees or donation or payment of similar nature shall not be eligible for deduction).
Infrastructure Bonds issued by Institutions/ Banks such as IDBI, ICICI, REC, and NHAI.
Section 80 CCE
Aggregate Deduction U/S 80 C, U/S 80 CCC And 80 CCD Can Not Exceed Rs. 1, 00,000.
Deduction Under Section 80D:
Under This section, a deduction up to Rs 10,000 (Rs 15,000 in case of senior citizens) is allowed in respect of premium paid by cheque towards health insurance policy, like “Mediclaim”. Such premium can be paid towards health insurance of spouse, dependent parents as well as dependent children.
Accordingly a person who is under/in 30% tax bracket can save income tax up to Rs 3,060 (or Rs. 3366 if annual income exceeds Rs 10,00,000) by paying Rs 10,000 as premium in “Mediclaim” policy in a year
Deduction Under Section 24(B):
Under this section, Interest on borrowed capital for the purpose of house purchase or construction is deductible from taxable income up to Rs. 1,50,000 with some conditions to be fulfilled