Tax Planning

Tax Planning India is an application to reduce tax liability through the finest use of all accessible allowances, exclusions, deductions, exemptions, etc, to trim down income and/or capital profits.

Salaried individuals in India are not fully aware of the tax planning exercise which is why they rush at the end of the tax-planning season and make investments to reduce their tax liability. This has negative effect on tax payable by them and they eventually end up paying more taxes than they are required to.

Tax-planning tips that can assist salaried people to reduce their tax accountability

1. Make full use of the entire Section 80C deduction - The maximum reduction available in Section 80C is ` 100,000 and salaried citizens whose gross salary is ` 250,000 or more are entitled to use the full ` 100,000 limit.

Individuals who make monetary infusions of over ` 100,000 in Section 80C in selected areas fail to understand that the advantages are limited. In spite of investing ` 70,000 and ` 40,000 in Public Provident Fund and ELSS respectively, the amount entitled by the investor is only ` 100,000.

Following investments/contributions meet the criteria for Section 80C reduction:

• Public Provident Fund
• Accrued interest on National Saving Certificate
• Life Insurance Premium
• National Saving Certificate
• Tuition fees paid for children's education (maximum 2 children)
• Principal component of home loan repayment
• 5-Year fixed deposits with banks and Post Office
• Equity Linked Savings Schemes (ELSS)

2. Reduction of tax liability beyond Section 80C deductions - If your salary surpasses ` 250,000 pa and the reductions under Section 80C are not enough to minimize the general tax liability consider the following:

• Home loan: Interest payments of upto ` 150,000 pa are entitled for reduction under Section 24.
• Medical insurance: A deduction of upto ` 15,000 pa under section 80D is applicable under this.
• Donations: Tax advantages under Section 80G entitle the donations to particular funds/institutions.

3. Assert tax advantages on house rent paid - If HRA is not included in the salary structure then the salaried individuals can asset rent paid by them for residential lodging. This reduction is accessible under Section 80GG and is smallest amount of the following:

• 25% of the total earnings or,
• ` 2,000 every month or,
• Surplus of housing charge paid over 10% of total salary

4. Reorganize the salary - Reorganizing the salary and incorporating certain apparatus can help in the long run in minimizing the tax liability. In order to assert tax benefits salary reform is a more competent measure. The following can be included in an individual's salary structure:

• Food coupons can release up to ` 60,000 per year from tax.
• Medical expenses which are compensated by the employer spare up to ` 15,000 per year.
• House Rent Allowance (HRA) should be incorporated in the salaries of individuals who stay in rented houses
• Transport allowance discharge upto ` 800 per month.

5. Go for a combined home loan - The primary reimbursement on a home loan is entitled for a reduction of up to ` 100,000 pa and the interest rewarded is entitled for a reduction of up to ` 150,000 pa. When a home loan is for a considerable amount then the interest and chief reimbursement surpass the allotted limit. A salaried individual can go for a combined joint home loan with his parent, spouse or sibling, to guarantee the best utilization of tax advantages.

In this way both the owners can assert tax reductions in the percentage of their stake holding in the loan.

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