LET PORTIA CHOP OFF YOUR TAX BURDEN

Spring, the much awaited flavour of the year is just around the corner and, ironically, the most feared ordeal too – filing of tax returns! In fact, with the tax-planning approaching its very last spell, individuals are now rushing around to nest eggs, all to play down on their tax liabilities. Result: Most of them (particularly, salaried ones) end up paying more taxes than they are actually required to. Though, inappropriate tax-planning (due to lack of time) is a rationale, largely, this can be attributed to lack of awareness about right saving instruments and, of course, deductions available under the Income Tax Act. So, let’s quickly run-through various options available under the Act that can help one save a lot…

Have you utilised entire 80C & 80CCC deductions?

Under these sections, a total deduction of up to Rs.1,00,000 is allowed from taxable income in respect of investments made in some specified schemes which include life insurance premiums, contributions to Employees’ Provident Fund, Public Provident Fund (PPF), National Savings Certificates, (NSC), Unit Linked Insurance Plan (ULIP), repayment of housing loan (Principal), equity linked savings scheme (ELSS), fees paid for full-time education of any two children, infrastructure bonds issued by certain institutions, interest accrued in respect of NSC VIII issue, pension scheme of LIC or any other insurance company specified under the scheme, and fixed deposit with banks having a lock-in period of five years. In fact, there are no individual caps (except for PPF where one can invest maximum of Rs.70,000 in a year) on investment and the individual is free to invest Rs.1,00,000 in any one or more of the specified instruments.

Think beyond! It’s just not 80C…

Well it’s not just 80C. In fact, deduction of up to Rs.40,000 can be claimed under section 80D of the Act in respect of premium paid towards health insurance policy taken for spouse, dependent parents and other dependents. In fact, an individual falling in the 30% tax bracket can save tax of Rs.12,000 by paying Rs.40,000 as annual premium for a mediclaim policy.

24(1)(vi) and 80E are there too!

While under section 24(1)(vi), 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 satisfied, interest on education loan (for self education) can be deducted in full under section 80E.

Hey! Didn’t you pay your house rent?

Salaried individuals can also claim rent paid by them for residential accommodation, if HRA doesn’t form part of their salary. This deduction is available under Section 80GG and is least of the following: (a) 25% of the total income or, (b) Rs.2,000 per month over the actual rent paid or, (c) excess of rent paid over 10% of total income.

So, these deductions, if utilised fully, can save an individual from a situation where he ends up the financial year just scratching his head and paying up more than he was actually obligated to.

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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