Income Tax: Sweeten the Bitter Pill
By Vishesh Sharma |
10/24/2011 12:48 PM Monday
Saving a good part of your income and lowering the tax thereon are like two sides of the same coin, and this is a scenario that is repeated every year for citizens paying taxes. A wise and calculated plan right from the beginning really helps in lowering taxes on income. The Government of India has provided for ways to lower taxes through planned and calculated savings. So, a person should keep in mind all the provisions while taking decisions on saving taxes. The most popular amongst them is Section 80C, which allows income tax exemptions to individuals on making investments in certain instruments. Therefore, first of all, try to exhaust the quota for Section 80C. The maximum limit to claim deduction under this section is Rs 1 lakh.
“Provisions under Section 80C consist of payments/investments in life insurance premiums, PF contributions, ULIPS, five-year tax saving term deposits, tuition fees for children, housing loan repayment on account of principal component of housing loan, NSCs and so on”, says Ajay Goel, Managing Partner, Vijay K Goel & Co. However, the Income Tax Act provides for a number of other deductions in addition to Section 80C, which one can use to save on taxes. These deductions have been provided under sections 80CCF, 80D, 80DD, 80DDB, 80E, 80G, 80U and Section 24(1)(vi).
“Like most other things in finance, tax planning is also important in financial planning. Under the Income Tax Act, 1961, first of all income under each head is computed, and the aggregate is known as ‘gross total income’. Certain deductions are allowed for this gross total income in the nature of investments or for certain personal expenditure”, says Varun Jani, financial planner.
The Ministry of Finance has, in fact, laid out various options for a common man to opt for, as far as saving tax is concerned. These deductions are either for certain savings or for certain personal expenditures. Savings-based deductions are available under sections 80C (investment towards life insurance, PF, etc.), 80CCC (for pension fund) and 80CCD (pension scheme of the central government), while the deductions based on personal expenditure are available under sections 80D (medical insurance), 80DD (medical treatment for disabled dependent), 80DDB (medical treatment for specified diseases), 80E (repayment of loan taken for higher education) and 80GG (deduction for rent paid). There also are certain deductions for social activities like 80G, which is for donations to certain funds, charitable institutions and so on.
Let’s take a look at all these provisions in detail, and see what items they include.
Up to Rs 20000 on investments towards approved infrastructure bonds.
An individual can invest an amount of up to Rs 20000 in infrastructure bonds, and can claim the same as a deduction from his/her taxable income in addition to the Rs 100000 deduction that is available under Section 80C. These bonds are listed on a stock exchange, and come with a lock-in period. Individuals cannot sell them before the lock-in period expires. Examples of such bonds include those issued by IDFC, REC and so on.
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