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How to Save Income Tax?

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Hello friends, looking for tax saving options apart from basic tax limits. In this article I will tell you the basic tax limits and will discuss some good tax saving options available under various provisions of Income Tax Act, 1961.

But Wait, Do you know tax is a backbone of a country and tax is one the primary source of government’s revenue. Development of a country depends upon the revenue collection by its government; Government plans its budget accordingly for the infrastructure, roadways, transport, health, security, forces, etc.

Kautilya’s ‘Arthashastra’ says:

Treasury is the root of administration i.e  Kosh moolo dandah’

This is also the Tag Line of Income Tax Department India

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So question is now We Should pay Tax or Not?

And If yes, Why we should go for Tax Planning and Tax Saving options?

Of course we should pay tax for the nation. Before coming to the 2nd question , I would like to discuss-

What Manu, the ancient sage and law giver, in the Manu Smriti says:

“As the calf and the bee take their food little by little, even so must the king draw from his realm moderate, annual taxes”.

Also Kalidasa in the ‘Raghuvansha” says thus of King Dileepa:

“It was only for the good of his subjects that he collected taxes from them, just as the sun draws moisture from the earth to give it back a thousand fold.”

Now come to the question- Should we go for tax planning?

My opinion is YES if there is any option available for us or which is beneficial for us we should use it.

But be alert, I am talking about to use tax saving options i.e Tax Planning not advising for tax Evasion,

Why Government gives tax saving options?

 

To promote a particular sector, to industry, to state, to area etc government provides many tax saving / investment options and by using that option directly or indirectly  you serve the nation or say revenue for the same purpose as mention above.

For Example in 2010 government had given a tax saving option to invest in “infrastructure bond” to promote infrastructure and real estate sector.

 Basic Tax Limits for Assesment Year

Individual resident aged below 60 years (i.e. born on or after 1st April 1954) or any NRI / HUF / AOP / BOI / AJP*

Income Slabs

Tax Rates

Where the total income does not exceed Rs. 2,00,000/-.

NIL

Where the total income exceeds Rs. 2,00,000/- but does not exceed Rs. 5,00,000/-.

10% of amount by which the total income exceeds Rs. 2,00,000/-.

Less : Tax Credit – 10% of taxable income upto a maximum of Rs. 2000/-.

Where the total income exceeds Rs. 5,00,000/- but does not exceed Rs. 10,00,000/-.

Rs. 30,000/- + 20% of the amount by which the total income exceeds Rs. 5,00,000/-.

Where the total income exceeds Rs. 10,00,000/-.

Rs. 130,000/- + 30% of the amount by which the total income exceeds Rs. 10,00,000/-.

Surcharge : 10% of the Income Tax, where total taxable income is more than Rs. 1 crore. (Marginal Relief in Surcharge, if applicable)

Education Cess : 3% of the total of Income Tax and Surcharge.

* Abbreviations used :
NRI – Non Resident Individual; HUF – Hindu Undivided Family; AOP – Association of Persons; BOI – Body of Individuals; AJP – Artificial Judicial Person

I.        Individual resident who is of the age of 60 years or more but below the age of 80 years at any time during the previous year (i.e. born on or after 1st April 1934 but before 1st April 1954)

Income Tax :

Income Slabs

Tax Rates

Where the total income does not exceed Rs. 2,50,000/-.

NIL

Where the total income exceeds Rs. 2,50,000/- but does not exceed Rs. 5,00,000/-

10% of the amount by which the total income exceeds Rs. 2,50,000/-.

Where the total income exceeds Rs. 5,00,000/- but does not exceed Rs. 10,00,000/-

Rs. 25,000/- + 20% of the amount by which the total income exceeds Rs. 5,00,000/-.

Where the total income exceeds Rs. 10,00,000/-

Rs. 125,000/- + 30% of the amount by which the total income exceeds Rs. 10,00,000/-.

Surcharge : 10% of the Income Tax, where total taxable income is more than Rs. 1 crore. (Marginal Relief in Surcharge, if applicable)

Education Cess : 3% of the total of Income Tax and Surcharge.

II.        Individual resident who is of the age of 80 years or more at any time during the previous year (i.e. born before 1st April 1934)

Income Tax :Calculate Tax Liability for AY 2014-15

Income Slabs

Tax Rates

Where the total income does not exceed Rs. 5,00,000/-.

NIL

Where the total income exceeds Rs. 5,00,000/- but does not exceed Rs. 10,00,000/-

20% of the amount by which the total income exceeds Rs. 5,00,000/-.

Where the total income exceeds Rs. 10,00,000/-

Rs. 100,000/- + 30% of the amount by which the total income exceeds Rs. 10,00,000/-.

Surcharge : 10% of the Income Tax, where total taxable income is more than Rs. 1 crore. (Marginal Relief in Surcharge, if applicable)

Education Cess : 3% of the total of Income Tax and Surcharge.

TAX SAVING OPTIONS 

SECTION

NATURE OFDEDUCTION

80C

Life Insurance Premium

80CCC

Payment of premium for annuity plan of LIC or any other       insurer Deduction is available upto a  maximum of Rs. 10,000/-

80CCD

Deposit made by an employee in his pension account to the extent of 10% of his salary.

80D

Payment of medical insurance      premium. Deduction is available upto Rs.15,000/ for self/ family and also upto Rs. 15,000/- for insurance in respect   of  parent/ parents of the assessee.In case of senior citizens, adeduction              upto Rs.20,000/- shall be available under this Section. Insurance premiume of senior citizen parent/ parents of the assessee also eligible for enhanced deduction of Rs. 20000/-

80DD

Deduction of Rs.40,000/ — In respect of (a) expenditure incurred on medical treatment, (including nursing), training and rehabilitation of handicapped dependent relative. (b) Payment or deposit to specified scheme for maintenance of dependent handicapped relative. W.e.f. 01 .04.2004 the deductionunder this section   has  been enhanced to Rs.50,000/

– Further,  if the dependent is a person with severe disability adeduction of Rs.1,00,000!- shall be available under this section

80DDB

Deduction of Rs.40,000/- in respect of medical expenditure incurred.W.e.f.     01.04.2004, deductionunder this section   shall        be available to the extent of Rs.40,000/- or  the amount actually paid, whichever is less.

In case of senior citizens, a deduction upto Rs.60,000/- shall be available under this Section.

80E

Deduction in respect ofpayment in the previous year of interest on loan taken from a financial institution or approved charitable institution for higher studies.

80EE

Deduction in respect of interest on loan taken for residential house property

80G

Donation to certain funds,     charitable institutions etc.

80GG

Deduction available is the least of(i) Rent paid less 10% of total income

ii. Rs.2000 per month

iii. 25% of total income

80TTA

Deduction in respect of interest on deposits in savings account

Thededuction is restricted to Rs 10,000 or actual interest whichever is lower

80U

Deduction of Rs.50,000/- to an individual who suffers from a physical disability (including blindness) or mental retardation. Further, if the individual is a person with severe disability,deduction of Rs.75,000/- shall be available u/s 80U.W.e.f. 01.04.2010 this limit has been raised to Rs. 1 lakh.

87A

Rebate Of Rs 2000 For Individuals Having Total Income Upto Rs 5 Lakh

80RRB

Deduction in respect of any income by way of royalty in respect of a patent registered on or after 01.04.2003 under the Patents Act 1970 shall be available as :-Rs. 3 lacs or the income received, whichever is less.

80QQB

Deduction in respect of royalty or copyright income received in consideration for authoring any book of literary, artistic or scientific nature other than text book shall be available to the extent of Rs. 3 lacs or income received, whichever is less.

80C

This section has been introduced by the Finance Act, 2005.Broadly speaking, this section provides deduction from total income in respect of various investments/ expenditures/payments in respect of which tax rebate u/s 88 was earlier available. The totaldeduction under this section is limited to Rs. 1 lakh only.

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By CA Manish Malhotra

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