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How to Save Income Tax in India
Learn more on how to save income tax in India by knowing more on various deductions available for tax saving. Invest in different heads of Section as per Income Tax Rule and get deduction in Income Tax. This resource will help you to understand what are the different heads of section under which you can claim deduction for Tax.
How to save income tax in India is like a million dollar question for many individuals. Tax Planning in India starts from January to March. Almost 80% of the people do their tax planning in India in this period only. Tax Planning can never be a one day job and hence most of us lack behind in the Tax planning and end up into wrong decisions. In this resource I will try to help you to identify Tax saving investments as per your requirement. by effective Tax Planning in India, we can save Tax in many instruments under different section of Income Tax India. Let’s see what the different Sections that allow Tax Exemption are.
Heads of Deduction for Tax Planning in India
Section 10 Exemptions: House Rent Allowance (HRA)
Chapter VIA deductions
-----80D Medical Insurance
-----80DD- Maintenance /Medical treatment of Handicapped dependents
-----80E– Education Loan Interest Benefit
-----80U-Deduction in case of Disability-Self
Loss on House Property
Section 80C deductions (Maximum Deduction capped to Rs.1.00 Lakh inclusive of PF / VPF)
-----PF-Deduction thru’ salary
-----80CCC (Pension Policy)
-----Life Insurance Premium
-----Fixed Deposit in a Scheduled Bank
-----Mutual Funds / ELSS
-----Children Education fees
-----Deposit under Senior Citizens Saving Scheme
-----Five Yr Time Deposit Scheme in Post Office
-----Registration/ Stamp Duty
2009-2010 Tax Planning Rates in India
After providing for necessary exemptions and deductions as per rules defined above, ‘Net Taxable Income’ is arrived. On the ‘Net Taxable Income’ the following tax rates are applied to arrive at the ‘Tax Payable’ for the year.
Up to Rs.1, 60,000----------NIL
1, 60,001 - 3, 00,000--------10%
3, 00,001 - 5, 00,000---------20%
Above 5, 00,000--------------30%
Up to Rs.1, 90,000----------NIL
1, 90,001 - 3, 00,000-------10%
3, 00,001 - 5, 00,000-------20%
Above 5, 00,000------------30%
Tax planning should never be taken as lightly and can not be done in a day or two. One must do it with a good plan so that over a period of 3 to 5 years you need not required investing new money for tax planning purpose. You must carefully chose the investment avenues from the above list so that in future the current investment when gets matured the same will be utilized again for that years tax planning. Now let us see all above instruments in brief as what they comprise of.
House Rent Allowance (HRA): As per Rule 2A read with Section 10(13A), you can claim your HRA under tax exemption if you are leaving in a rented house and you do not have your own house in the same locality. The exemption criterion is 1. Actual HRA earned by the assessee for the year. 2. Rent paid minus 10% of Basic salary 3. 40% of Basic or 50% of basic (in case of Metro cities) Least of the above is Exempt for Tax
80D Medical Insurance: The medical insurance policy called as mediclaim policy, the premium paid for this is exempted limited to: 1. Rs.15000- In case of Individual, Spouse & Children and 2. Additional benefit of 15000/- in case of parents below 65 years and Rs.20000 in case of parents above 65 years (Senior citizens)
80DD- Maintenance /Medical treatment of Handicapped dependents: If you have any dependents who is handicapped and getting medical treatment, then amount spent on treatment, training or rehabilitation of the handicapped dependent, or receipt of the amount paid to LIC/UTI for the policy can be taken as exemption for tax limited to Rs.50000 (<=80% disability) or Rs.1.0 Lakh (>80% disability).
80E– Education Loan Interest Benefit: If you have taken an educational loan from bank or Financial Institution, then amount of interest paid on the loan in the current financial year is eligible with no capping of maximum limit – Actual interest paid by the employee during the financial year is allowed in full as deduction.
80U-Deduction in case of Disability-Self: This is the case if the assessee himself/herself is having disability then the amount spent can be claimed limited to 1. Rs.50000 (<=80% disability), 2. Rs.1.0 Lakh (>80% disability)
Loss on House Property: This is applicable to those who have taken home loan. If the property is self occupied then the interest paid upto a maximum of Rs.1, 50,000/- p.a can be exempted from Tax. In case of let out property computation of Loss / Income as per rule is mandatory. If the premises is left vacant / occupied by family, as per Section 23 (1) (c), Notional Rental Income has to be arrived and then, the net loss has to be arrived will be declared for tax exemption. For property where the date of occupation is before 01/04/1999, the benefit would be restricted to Rs.30, 000/- per annum.
Section 80C deductions (Maximum Deduction capped to Rs.1.00 Lakh inclusive of PF / VPF): In this section under different heads a tax benefit total of 1Lakh can be claimed. Let’s see what the different ways it is planned are.
PF-Deduction thru’ salary: Provident Funds are deducted from the salary so it is automatically considered for tax computation. If you have opted for PF then you must find out the yearly PF deducted so that balance amount from 1L only you require to invest. For ex.: if Rs.25, 000 yearly has been deducted from your salary then you have to think about only remaining Rs.75, 000.
80CCC (Pension Policy): Policy from any approved company by IRDA(Insurance Regulatory & Development Authority) having in the name of assessee can be considered in this section. Note that the late fees paid will not be considered as premium paid.
Life Insurance Premium: Life Insurance policies taken in the name of individual, spouse, & children are eligible here. Policy from any approved company by IRDA(Insurance Regulatory & Development Authority). In this also late payment fees charged will not be considered as premium paid. Examples of Life Insurance policies are any Endowment, Term Plan or Children Policy applicable here.
PPF: Public Provident Funds are the one which an individual saves voluntarily in a Government PPF account. Public Provident fund can be in the name of individual, spouse & children. Maximum contribution allowed under this scheme is Rs.70000/- per annum.
Fixed Deposit in a Scheduled Bank: Fixed Deposits having locked in period of 5 years are considered under this section for tax exemption. The interest earned from this is a taxable amount.
ULIP/ Mutual Funds (ELSS)/ Infrastructure Bond/ NSC: ULIPs are market linked insurance policies which are locked in for 3 years, Mutual Funds ELSS schemes are locked in for 3 years and Government Infrastructure Bonds and post office NSC certificates are considered as tax exemption.
Children Education fees: if you have child going to school/colleges then only the Tution Fees paid for the education of child is considered as tax exemption. Donations, Capitation fees, Uniform fee, Sports fee etc are not allowed.
Deposit under Senior Citizens Saving Scheme: This is applicable if the employee is a Sr. Citizen who has invested amount deposited under senior citizen saving scheme.
5 yr Time Deposit Scheme in Post Office: Time deposit for a period of 5 years with a post office is eligible for deduction.
Housing Principal/Registration/ Stamp Duty: If you have purchased home then the housing loan principle component from your EMI will be taken as deduction under this section and the Registration and Stamp Duty paid if the purchase is in the current financial year taken as deduction.
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|Author: Sudipta Shekar Roy 28 Dec 2010||Member Level: Silver Points : 1|
|Good article. But not be able to understand the limits in details for House Rent Allowance (HRA), Chapter VIA deductions & Loss on House Property. Please inform the maximum limit of this also.|
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