Tax


Tax Planning:

Investments to save taxes are one of the commonest and yet one of the least well planned investments. At the start of the career an individual usually starts his saving with tax saving instruments but without any plan. Once he starts to take his financial decisions randomly, it takes a long to come him back on right track. The duality of concerns, first tax and second investment, prevents investors to perfectly understand what they actually need. One must realize that tax saving instruments do much more than only saving taxes. Smart planning with right tax saving instruments adds value to a portfolio. So take a wiser approach and avoid last minute rush for tax saving.

 

Tax planning and financial planning are closely linked, because taxes are such a large expense item as you go through life. If you become really successful, taxes will probably be your single biggest expense over the long haul. So planning to reduce taxes is a critically important piece of the overall financial planning process.

 

Seeking professional tax advice before pulling the trigger on significant transactions is usually money well spent.

 

Tax planning is the analysis of one’s financial situation from a tax efficiency point of view so as to plan one’s finances in the most optimized manner. Tax planning allows a taxpayer to make the best use of the various tax exemptions, deductions and benefits to minimize their tax liability over a financial year. Tax planning is a legal way of reducing income tax liabilities, however caution has to be maintained to ensure that the taxpayer isn’t knowingly indulging in tax evasion or tax avoidance.

In India, there are a number of tax saving options for all taxpayers. These options allow for a wide range of exemptions and deductions that help in limiting the overall tax liability. The deductions are available from Sections 80C through to 80U and can be claimed by eligible taxpayers. These deductions are made against the quantum of tax liabilities. There are various other sections under the Income Tax Act, 1961 that can reduce your tax liabilities such as exemptions and tax credits.

 

When tax planning is done inside the frameworks defined by the respective authorities, it is fully legal and in fact a smart decision. However, using shady techniques to avoid tax payments is illegal and you may get into trouble for doing so. Tax saving practices include tax avoidance, tax evasion and tax planning. Out of these tax planning is the only legal manner of reducing your tax liabilities. The government offers the different opportunities to save on taxes with the intention of reducing tax burden on a taxpayer through legal income tax planning methods.

 

Tax Saving Objectives:

The primary objectives of your tax planning should be the following:

•             Reduction in overall tax liability

•             Economic stability

•             Growth of economy

•             Litigation minimization

•             Productive investment.

 

 

 

 

Tax planning step by step process

 

A handpicked combination of tax saving instruments not only reduces tax liability of the individual but also effectively contributes to meet various life goals.

 

 

Financial security

 

Ensuring secure financial future for dependants are one of the most important needs of one’s life. To meet this essential expenditure, Section 80C & 80D allow deduction to taxpayers for the premium of life and medical insurance policies respectively.

 

 

The possibility of one undergoing some kind of expensive health treatment during the lifetime is much more than a sudden demise. The rising healthcare costs have made people understand the importance of having a health care policy, especially in case of parents. As an individual get older, the medical expenses may increase but the chances of getting a good cover decreases. The wide range of healthcare policies makes it important to select a good plan for a healthy future.

 

 

Retirement corpus

 

A retirement plan aims to build a sufficient corpus for a happy and restful retired life. The need of regular income prioritizes the place of debt in such portfolio. Some of the tax saving investments such as PPF (Public Provident Fund) and SCSS (Senior Citizen Savings Scheme) are great debt oriented retirement products.

 

Section 80 Deductions for Income Tax Rebate 2016 Table:

 

Section

Category of Investment

FY 2016-17

Section 80C

1. Investment in PPF

₹ 1,50,000

 

2.Employee's share of PF contribution

 

 

3. NSCs

 

 

4. Life Insurance Premium payment

 

 

5. Children's Tuition Fee

 

 

6. Principal Repayment of home loan

 

 

7. Investment in Sukanya Samridhi Account

 

 

8. ULIPS

 

 

9. ELSS

 

 

10. Sum paid to purchase deferred annuity

 

 

11. Five year deposit scheme

 

 

12. Senior Citizens savings scheme

 

 

13. Subscription to notified securities/notified deposits scheme

 

 

14. Contribution to notified Pension Fund set up by Mutual Fund or UTI.

 

 

15. Subscription to Home Loan Account Scheme of the National Housing Bank

 

 

16. Subscription to deposit scheme of a public sector or company engaged in providing housing finance

 

 

17. Contribution to notified annuity Plan of LIC

 

 

18. Subscription to equity shares/ debentures of an approved eligible issue

 

 

19. Subscription to notified bonds of NABARD

 

 

 

 

80CC

For amount deposited in annuity plan of LIC or any other insurer for pension from a fund referred to in Section 10(23AAB).

-

 

 

 

80CCD(1)

Employee's contribution to NPS account (maximum up to ₹ 1,00,000 for FY 2014-15)

-

 

 

 

80CCD(2)

Employer's contribution to NPS account

Maximum up to 10% of salary

 

 

 

80CCD(1B)

Additional contribution to NPS

₹. 50,000

 

 

 

80TTA(1)

Interest Income from Savings account

Maximum up to 10,000

 

 

 

80GG

For rent paid when HRA is not received from employer

Least of rent paid minus 10% of total income ₹. 2000/- per month 25% of total income

 

 

 

80E

Interest on education loan

Interest paid for a period of 8 years

 

 

 

80EE

Interest on home loan for fi₹t time home owne₹

Nil

 

 

 

80CCG

Rajiv Gandhi Equity Scheme for investments in Equities

Lower of - 50% of amount invested in equity shares or ₹ 25,000

 

 

 

80D

Medical Insurance - Self, spouse, children

₹. 25,000

 

Medical Insurance - Parents more than 60 yea₹ old or (from FY 2015-16) uninsured parents more than 80 yea₹ old

₹. 30,000

 

 

 

80DD

Medical treatment for handicapped dependant or payment to specified scheme for maintenance of handicapped dependant

 

 

Disability is 40% or more but less than 80%

₹. 75,000

 

Disability is 80% or more

₹. 1,25,000

 

 

 

80DDB

Medical Expenditure on Self or Dependent Relative for diseases specified in Rule 11DD

 

 

 

 

 

For less than 60 yea₹ old

Lower of ₹ 40,000 or the amount actually paid

 

For more than 60 yea₹ old

Lower of ₹ 60,000 or the amount actually paid

 

For more than 80 yea₹ old

Lower of ₹ 80,000 or the amount actually paid

 

 

 

80U

Self-suffering from disability:

 

 

 

 

 

Individual suffering from a physical disability (including blindness) or mental retardation.

₹. 75,000

 

Individual suffering from severe disability

₹. 1,25,000

 

 

 

80GGB

Contribution by companies to political parties

Amount contributed (not allowed in cash)

 

 

 

80GGC

Contribution by individuals to political parties

Amount contributed (not allowed in cash)

 

 

 

80RRB

Deductions on Income by way of Royalty of a Patent

Lower of ₹ 3,00,000 or income received

 

 

 

 

Tip: You can invest in 80C now and pay less tax till March 2017.

 

 

 

We have tried to consolidate all the Income tax rebate options and tax saving schemes under different Sections from 80C to 80U in a more simplified way.  An individual can maximise investment in tax saving schemes to get more deductions from their gross total Income and save good amount of Income tax.