TAX planning for trimming out tax

Many people don’t pay the Tax. No doubt tax evasion is crime, but tax reduction is more important so as you can pay your tax. There are some ways and tact to reduce increased tax amount. This can be achieved through judicious tax planning at the beginning of year. Most investors are apathetic towards tax planning. So many salaried people wake up to in the last of the financial year i.e. in January to calculate their tax. It is perhaps, your auditor or accounts department calls you asking for the details of investments made during the year that you scrounge around from the salary to invest and save tax. More often than not these results in mindless investing based on funds available at that point in the time and with sole aim of saving tax overflow. Until about a decade ago, income tax planning was a no-brainer. Government backed instruments like the provident fund, post office schemes or LIC polices and infrastructure bonds, which largely delivered predetermined rates of interest/return, were the optimum avenues for investment. Today personal income tax structures and slabs been rationalized, the investor has a huge options for investment to choose with. While its very childish thing to take advice from auditor, you could help yourself. The trick is to balance the investments in manner that will deliver optimum returns, besides saving tax overflow.

To begin with Union budget 2008 brought in succor by raising exemption limits- it has been increased Rs. 1.1 lakh to Rs 1.5 lacks for men who are below 65 years of age, while for women and senior citizens it has been increased to Rs 1.8 lack & Rs 2.25 respectively.

Well, YES. Anyone whose income exceeds the specified income level for taxation has to file returns, be it a salaried person, professional or a business. However, a person can invest unto 1 lack in various tax saving instruments to lower the net taxable amount. 10, 20 & 30 per cent are the tax slabs with a surcharge of 10 pet cent of the tax amount for those whose annual income is higher than 10 lacks. I addition, load education cess of 3 per cent of the tax amount and tax rate adds up to 10.3 per cent, 20.6 per cent at the three slabs.

Look at the Tax planning instruments:India’s personal tax policy has encouraged investments in a home quite in line with Indian psyche of owning” a roof over the head” for security. Hence, invest payable on your home loan, up to Rs 1.5 lacks per annum can be deducted under section 24 of Income tax. A certificate from bank indicating the interest component for that financial year needs to be furnished as proof. In the latest budget as a boost to good health, medical insurance for oneself, spouse and children up to Rs 15000 & another for parents is eligible for deduction under Section D. Given the high costs of medical treatment, this is good option & is a reflection of Government’s initiative to promote good health in citizens. Health plans offered by non-life insurance companies & critical illness riders for treatment of cancer are also eligible under the same.Investment paid on the education loans for children’s higher education & money given to charitable purposes all take place in 100 % deduction in section E.However, while the above are expenses incurred for 1’s living and well being , 80 C investments which qualify for the deduction up to ! lacks in total per annum are those where you should plan carefully. Here there is a host of products with various risk return profiles that you can choose from.Eg. The public provident fund(a post office saving product), is a safe product which guarantees an 8 % interest per annum which is also tax free. Likewise, there is National saving certificate where the interest is taxable but it can be held for 6 years at the rate of 8 % per annum. There is a upper limit of 70,000 per annum on investment in PPF. Further pension plans like the Jeevan Surakhsha from stable of LIC products are also eligible for section 80 CCC deductions, but gets clubbed with the overall limit of Rs 1 lack. Mutual funds schemes are allowed according to security & exchanges Board of India to invest anywhere 65 – 100 % money in equity market.

Asses your income level and the tax slabs applicable. If required to file returns, then the first step is to have a PAN card and then begin filing returns.

Begin early in the year. If you are a salaried person, remember that compulsory tax deductions from the salary are higher towards the last 3 months of financial year Hence, it may be hard to make all tax-saving investments at the time.

Do not shirk away from tax planning exercise saving that it is complicated. Take the advice of a tax consultant and take cognizance of your long term goals, Always remember to keep your tax file in order.

Receipts on insurance premium payments, home loan deduction statements from the banker, mutual fund dividend remittances etc. should be meticulously filed & kept handily as they are needed as they are needed as proof to claim tax deduction when filing returns.

If your spouse is working, then plan your taxes together.EG.the interest on a joint home loan entitles both of you to tax exemptions. Your auditor can help you plan this judiciously.

File your returns on time .Else there is a penalty for every month of delay. Review past/old investments every year as sometimes there are changes in the annual Budget.