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Tax Planning Tips |
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What is Tax Planning ? |
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Tax planning is an essential part of your financial planning. Efficient tax planning enables you to reduce your tax liability to the minimum. This is done by legitimately taking advantage of all tax exemptions, deductions rebates and allowances while ensuring that your investments are in line with your long term goals. |
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Tax planning is not... |
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Tax Planning is NOT tax evasion. It involves sensible planning of your income sources and investments. It is not tax evasion which is illegal under Indian laws. |
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Tax Planning is NOT just putting your money blindly into any 80C investments. |
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Tax Planning is NOT difficult. Tax Planning is easy. It can be practiced by everyone and with a very little time commitment as long as one is organized with their finances. |
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Save Tax Through Investment - 80C |
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This allows a deduction for specific investment, contribution, deposits or payments made by the taxpayer (individuals and HUF) during the tax year. |
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What is the amount of the deduction ? |
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A total of Rs.1 lakh in aggregate across all eligible 80C instruments. |
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What are the eligible instruments ? |
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Life insurance premium, including premium for a unit-linked insurance plan (ULIP) |
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Contribution to Public Provident Fund or Provident Fund . |
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Investment in pension plans |
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Investment in Equity Linked Savings Schemes (ELSS) of mutual funds |
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Home loan principal repayment |
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Investment in Infrastructure Bonds, National Savings Certificates |
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Payment of tuition fees to for full-time education of any 2 children of an individual |
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Fixed deposit with any scheduled bank or post office for 5 years |
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Senior citizens savings scheme |
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Save Tax with Health Insurance - 80D |
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The general deduction available to each taxpayer is Rs.15,000, for self, spouse and children. An additional deduction for parents is Rs. 15,000. If the amount paid is for a senior citizen, then one can claim an additional exemption of Rs.5,000. All medical insurance policies are eligible for the 80D deduction up to the specified amount. Please remember that the premium towards the policy cannot have been paid in cash. |
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Save Tax through Education Loan - 80E |
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This allows a deduction for payment of interest of loan taken towards higher education. The deduction can be taken by the taxpayer for his/her higher education loan or for any member of the taxpayer’s family. The amount must have been paid using the taxpayer’s income chargeable to tax. The entire payment of interest is deductible. The deduction is available for a maximum period of 8 years or till the principal and interest amount have been repaid, whichever comes earlier. |
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Tax tip for HRA |
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House rent allowance (HRA) is given by the employer to the employee to meet expenses in connection with the rent of accommodation that the employee might have to take for a property that is not owned by the employee
The calculation of HRA is simple. It is the least of the following three limits:
Rent paid in excess of 10% of salary
40% of salary (50% if the property is located in Delhi/Mumbai/Kolkata/Chennai)
Actual allowance received from the employer
Salary for the purposes of this calculation is the sum of the following:
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Basic salary |
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Dearness allowance, if being paid by employer |
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Commission if given as a fixed percentage of the turnover achieved by the employee |
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Tax tip for LTA |
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Leave Travel Allowance is granted to employees to meet cost of travel on leave to any place in India. For LTA it is essential that: |
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You've taken leave from the office |
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The travel is performed to any place in India |
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The exemption is allowed only in respect of the fare. Expenses incurred towards boarding and lodging or on conveyance to and from the railway station/airport do not qualify for exemption. You can claim LTA exemption twice in a block of four calendar years. The current block is 2006-09. Thus, during the period 2006-09 you can claim this exemption for any two years. |
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