This action might not be possible to undo. Are you sure you want to continue?
All of us engage in some economic activity and work hard to make a living. But as you start doing so you tend to attract the attention of the Income Tax Department, as they too are doing their economic activity of taxing your income, as you earn. And thus as we work hard to make a living, it becomes imperative for us to work a little more harder and smarter to save our taxes (the legal way) too, so that it can help us make our dreams come true - A dream of buying a better car, bigger house etc. But, remember in the quest of attaining the same, if you keep your tax planning exercise pending till the eleventh hour, then it would be merely a “tax saving” exercise leading to sub optimal gains. This guide on Tax Planning has been written with the purpose of helping you plan your taxes smartly. If one incorporates the financial planning aspects such as your age, income, ability to take risk and financial goals to tax planning exercise, then one can wisely complement tax planning to investment planning as well. Also, realisation will dawn on you that there’s more to tax planning than the mere Rs 1 lakh limit under Section 80C, of the Income Tax Act, 1961. There are many other provisions that can provide you tax benefits. A simple thing like taking a loan for buying a house can make you eligible to get tax benefits. So, read on and wish you all VERY HAPPY TAX PLANNING!! Team Personal FN
Section I: Introduction Tax Saving Vs. Tax Planning Section II: Mistakes which you have been doing while saving tax Section III: Your small steps (to “Tax Planning”) can take you leaps Steps to “tax planning” Parameters for prudent tax planning Section IV: Optimal tax planning with section 80C Tax planning with market-linked instrument Tax planning the assured return way Section V: Thinking beyond section 80C Section VI: Your home loan and tax planning Section VII: House Property and taxes Section VIII: Save tax on your hard earned salary Section IX: Conclusion
09 12 17 18 22 30 38 43 47 52 05 06
I - Introduction
“All men make mistakes, but only wise men learn from their mistakes.”- Sir Winston Churchill. The above proverb is very much relevant to our daily lives - be it handling finances or even in any other facets of life. Moreover the famous author John C. Maxwell has also quoted “A man must be big enough to admit his mistakes, smart enough to profit from them, and strong enough to correct them.” But again this is conveniently forgotten by most, which often leads to failure to learn from mistakes, the arrogance to admit it and which thus leads you to repeat the same mistakes again. While undertaking your tax planning exercise too, you tend to repeat the same mistake of waiting till the eleventh hour and are arrogant enough to admit it. As the financial year draws to a close, we all start feeling the heat and realise that yes, now we have to invest in order to save tax. But have you ever wondered whether it is the prudent way for tax planning? Remember, waiting till the eleventh hour to undertake your tax planning exercise will often drive it towards mere “tax saving” rather than “tax planning”; which in our opinion is a suboptimal way to undertake a tax planning exercise. Unlike “tax saving” which is generally done through investments in tax saving instruments/products, under “tax planning” we take into consideration one’s larger financial plan after accounting for one’s age, financial goals, ability to take risk and investment horizon (including nearness to financial goals). And by adapting to such a method of “tax planning”, you not only ensure long-term wealth creation but also protection of capital. Hence, please remember to commence your “tax planning” exercise well in advance by complementing it with your overall investment planning exercise.
rather than tax planning. Unnecessarily Buying Unit Linked Insurance Plans: At the end of the financial year. But do you ever wonder whether you have done the right thing? 6 . caused by the sheer attitude of delay. many of you might have attended telephone calls of insurance agents pestering you to buy an investment cum insurance plan – typically market linked i. ability to take risk and financial goals (explained further in this guide) thus guiding you to not complement your tax planning exercise with investment planning. Unit Linked Insurance Plans (ULIPs). Waiting till the eleventh hour. And many of you realising the need to save your taxes.e. And this in return is a sub-optimal way of saving taxes. which eventually leads to mere tax saving. which would destroy the essence of holistic tax planning. the same will enable you to save more and fulfil all your dreams in life. in your economic activities intended to make a living. income. 1. But if you show the same dedication in your tax planning exercise. even entertain these calls and eventually tear a cheque for buying one.www. Remember waiting till the eleventh hour.PersonalFN.Mistakes which you have been doing while saving tax We recognise the fact that many of you are too busy throughout the year. 2.com II . Doing your tax planning at the last moment: The root of all mistakes in tax planning lies in waiting till the eleventh hour to save taxes. Our experience reveals following 4 mistakes which individuals do while saving taxes. will often lead you to forgetting or ignoring the facets of financial planning such as your age. is just going to lead you to a path of sub-optimal tax planning exercise.
permit you to take equity exposure one should not ignore the same. the insurance cover offered under these plans is far less (usually 10 times of your annual premium) when compared to pure term life insurance plans. 7 . while doing your tax saving investments. income. And thus. and thus given that you should be ideally buying only pure term life insurance plans. role of equity as an asset class cannot be ignored in one’s tax saving portfolio too. income ability to take risk and financial goals) is not maintained.PersonalFN. you absolutely rule out the concept of power of compounding to your portfolio. Ignoring power of compounding through tax saving mutual funds: Many of you despite the fact that age. you need to beat the rate of inflation. which leads the tax saving portfolio to give sub-optimal returns. But if your age. where for a lesser premium amount you get a greater life cover – which precisely what a life insurance plan is intended for. And that’s because of the ignorance and / or arrogance (of not admitting your mistakes) which you have. it should purely mean protecting your life against any contingent events. ability to take risk and financial goals. ability to take risk along with financial goals support you to take risk.www.com The answer in our opinion is a sheer “No”. Remember when you think of insuring yourself. It is noteworthy that if you want to meet and / or elevate your standard of living going forward. 3. income. which gives due importance to your human life value. While some do consider the tax saving mutual funds in their tax saving portfolio the ideal composition (depending on your age. It is noteworthy that being risk averse is well appreciated by us. It is noteworthy that ULIPs are investment-cuminsurance plans where for the premium paid.
1961 also considers humane side of our life and also gives deduction for contributions you make on such developments.which enunciates investment instruments for tax saving. incur expenditure on the medical treatment of a “dependant” handicapped. But investing only in these investment instruments would not lead to optimal reduction of your tax liability. 8 .www. taking into account the urge to buy your dream home by taking a loan. contribute in monetary form to political parties or electoral trusts. donate to specified funds for specified causes. thus optimally reducing your tax liability.com 4. Not optimizing all options for tax saving: For many tax planning starts as well as ends with Section 80C . take a loan for pursuing higher education or if you are an individual suffering from “specified” diseases. Moreover. then all this too can help you effectively plan your tax obligations. in case if you pay your medical insurance premium. So. To bring to your notice our Income Tax Act. the Act also extends tax saving benefits to you.PersonalFN.
” which in our opinion applies even to your “tax planning” exercise. Income from salary Income from house property Profits and gains from business & profession Capital gains (short term and long term) and Income from other sources. so that you effectively undertake your tax planning exercise which in turn would deliver you the objective of long-term wealth creation along with capital protection. But. in order for you to undertake your tax planning effectively. in terms of your Gross Total Income and Net Taxable Income. it is vital for you to step-by-step ascertain where you stand.PersonalFN. so that you can plan within the sources of income (by using the relevant 9 . “It is better to take many small steps in the right direction than to make a great leap forward only to stumble backward. Steps to “tax planning”: Step 1 . And it is vital to know the same. and helps you to judge where you stand.com III . Remember.Your small steps can take you forward by leaps There is an old Chinese proverb which says. never mind. please learn from them and don’t repeat the same mistakes again.Compute the Gross Total Income The process of tax planning begins with computation of your Gross Total Income (GTI). Hence. Adopt the prudent steps while doing your tax planning. 1961. This step enables you to ascertain the total income earned by you during a financial year. GTI is the total income earned by one before availing any deductions under the Income Tax Act.www. In the past if you have taken your tax planning decisions at the eleventh hour. from various under-mentioned sources of income.
These deductions enable you to enjoy reduction in tax liability. Under NTI from the GTI. Now. as it covers Sections under the Income Tax Act for: Investing in tax saving instruments (your most loved and sought after Section 80C. the various deductions allowed under the Income Tax Act. along with the recently introduced RGESS . subtracted from your GTI). which would thus reduce your taxable income.Rajiv Gandhi Equity Savings Scheme) Donations Expenditure on handicapped dependent Premium payment for your medical insurance Interest paid on loan taken for higher education Rent paid for residential accommodation Expenditure incurred on a specified diseases suffered by you 10 . along with all this please do not forget to do your self-study to carry out effective tax planning exercise.Compute the Net Taxable Income After having done with computation of GTI by using the relevant provisions of the Income Tax Act for each source of income.www. or use the convenience of the new and updated tax portals that have emerged in more recent times. Step 2 . as well as by availing deductions to GTI.com provisions of the Income Tax Act applicable to the aforementioned sources of income). which directly have an impact on your finances. should be accounted for (i. ask your CA / tax consultant to do it. the next step is to compute your Net Taxable Income (NTI). one may ask – “how do I undertake this activity if I’m a novice?” Well. One must note that it’s vital to know at least those provisions of the Income Tax Act.e.PersonalFN. the answer is pretty simple! You can either get it done at your office (many organisation do offer this facility). But.
000 # Rs 5.000 10% 30.00.00.00.com Remember.700 (Source: Personal FN Research) 11 .000 Tax payable (in Rs) 1.90.000 taxable @ 10% Moreover you would also have to pay an education cess @ 3% on your tax liability computed.00. Step 3 . The income tax rates for Individuals and HUFs for FY 2012-13 are as follows: Net Taxable Income (in Rs) Upto Rs 2. So.000 Upto 2.PersonalFN. say if your net taxable income (NTI) after availing for all deductions available is Rs 10. Personal FN Research) Rate Nil 10% 20% 30% # For senior citizens (age 60 but less than 80 years).001 to Rs 500.95.00.00.001 to Rs 5. and thereafter file your tax returns.000 Rs 10.00.000 Nil Rs 2.00.50.000 (Source: Finance Act 2012.001 to Rs 10.000 Rs 500.00.www.000 then your tax liability will be computed as under: Computation of tax liability (2012-13) Taxable Income (in Rs) 12.00.000 (for general tax payers – male and female) Upto Rs 2. it will enable you to achieve the long-term objective of wealth creation.700 Total Tax (in Rs) 1.000 Education Cess 3% 5.000 (for senior citizens) Upto Rs 5. if you use the respective provisions effectively to do tax planning.000 (for very senior citizens aged 80 and above) Rs 2.00.000 Above Rs 10.00.00.000 20% 1.001 & above 30% 60.50. with NTI between Rs 2.Calculate the tax payable After having effectively saved tax in the prudent way mentioned above.00.001 to Rs 10. the next step is to compute your tax liability based on the present income tax slabs.00.001 to Rs 5.
PersonalFN. 12 . which enables one to make more aggressive investments and create wealth over the long-term to meet your financial goals.com Parameters for “prudent tax planning”: A Prudent exercise of tax planning also extends to appropriate investment planning. The younger you are more risk you can take and vice-a-versa. Unit Linked Insurance Plans (ULIPs) and National Pension Scheme (NPS). One may also consider taking a home loan when you are young as. • Age Your age and the tenure of your investment play a vital role in your asset allocation. you must also consider the following parameters as these will enable you to optimally reduce your tax liability. Hence after you have utilised the tax provisions within each head / source of income for effective reduction in GTI. as at a young age the willingness to take risk is high. the greater is the tenure you get while investing in an investment avenue. Let’s understand this much better with the help of an illustration.www. number of years of repayment is more along with your willingness to take risk being high. Also a noteworthy point is the earlier you start with your investments. for prudent tax planning too. Hence. you should allocate more towards market-linked tax saving instruments such as Equity Linked Saving Schemes (ELSS). which also takes into account your ideal asset allocation by considering the under-mentioned factors. if you are young.
He begins investing at age 35.87. note the difference between the 2 corpuses here. 13 . the late bloomer of the lot. and invests the same amount in ELLSS scheme (through SIPs) until retirement (also at age 60).466 Mahesh 30 60 30 7.com An early bird gets a bigger pie Particulars Present age (years) Retirement age (years) Investment tenure (years) Monthly investment (Rs) Returns per annum Sum accumulated (Rs) Suresh 25 60 35 7.000 10% 2. the same amount monthly in an ELSS Scheme as Suresh and Mahesh. we have Sandesh.415 Sandesh 35 60 25 7. a meagre Rs 92 lakh.000 10% 92.www. His corpus builds up to approximately Rs 1. Mahesh starts at age 30.23.000 per month in an ELSS scheme through SIPs (Systematic Investment Plans) until retirement (age 60).58.834 (Source: Personal FN Research) The above table reveals that.76. a mere 5 years after Suresh. and invests up to his retirement (also at age 60).65.000 10% 1.65 crore. His corpus is. His corpus at retirement is approximately Rs 2.PersonalFN. in comparison. and invests Rs 7. Suresh starts at age 25.58 crore. And lastly.
PersonalFN. your willingness to take risk is high. • Income Similarly. for generating higher returns and creating a good corpus for your financial goal(s). This thus can work in your favour.com (Source: Personal FN Research) One can also consider donating an affordable amount towards a noble cause. But there may be a case you do not have enough corpus (funds) garnered by you. you need not worry. Yes. the interest paid by you on such loan taken will be eligible for tax benefit (under section 80E of the Income Tax Act – which is discussed ahead in this guide). which can also help you to optimally reduce your tax liability. I can straight away go ahead and buy! 14 . as there are several banks willing to offer higher education loan. However. if your income is high. For some of you young people. pursuing higher education may be a priority. as you have sufficient annual GTI which allows you to park more money towards market-linked tax saving investment instruments. and if you avail the same. then why I need a home loan.www. Also. on account of the higher GTI your eligibility to take a home loan also increases. as doing so will make you eligible for a tax benefit (under section 80G of the Income Tax Act – which is discussed ahead in this guide). one may say if I have a high income.
expenses. if your willingness to take risk is high (aggressive). then your tax saving investment portfolio will be also less skewed towards market-linked tax saving instruments. 5 Yr Post Office Time Deposits and Senior Citizen Savings Scheme (provided you are a senior citizen).www. and if you are a moderate 15 . the Income Tax Act provides you the tax benefit for repayment of principal amount along with the interest of loan taken. you can also consider donating some of your money towards a noble cause. • Risk Appetite Your willingness to take risk which is a function of your age. as you are quite near to your goal and your regular income will stop. Similarly. will be an important determinant while doing your tax planning exercise. National Savings Certificates (NSCs). • Financial goals The financial goals which one sets in life. if your income is not high enough (i. income. which can also enable you to enjoy a tax benefit (under section 80G of the Income Tax Act – which is discussed ahead in this guide). Similarly. and you do not want to put your money to risk. you can invest in tax saving instruments which provide you assured returns. say for example your goal is retiring from work 5 years from now. These instruments can be Public Provident Fund (PPF). Likewise if you are many years away from the financial goal. which you will miss.PersonalFN. you can do so but. Also given that you are financially strong. also influences the tax planning exercise. So.com Sure. you should ideally allocate maximum allocation to market linked tax saving instruments and less towards those instruments (tax saving) which provide you assured returns. So. you can skew your tax saving investment portfolio more towards the market-linked instruments. if your willingness to take risk is relatively low (conservative). it is low).e. 5 Yr Bank Fixed Deposits. your tax saving investment portfolio can be skewed towards instruments which offer you assured returns. nearness to goal.
But please note the fact that it’s an annual activity which every tax payer has to go through – and if you start early and plan properly.PersonalFN. procrastination will only ensure that you invest at the last moment and not in line with the parameters discussed above. Remember. the task becomes easier. we reckon the fact that “prudent tax planning” exercise can be a time consuming and complex.www. Yes.com risk taker you can take a mix of 60:40 into market-linked tax saving instruments and assured return tax saving instruments respectively. If you are hard pressed for time. 16 . consider hiring a competent tax consultant along with an investment advisor.
a. By doing so you would be able to ascertain which 17 . you would qualify for deduction under this section subject to the maximum of Rs 1. in order to optimally reduce your tax liability. Now you may ask “how”? Well. including accrued interest 5-Year fixed deposits with banks and Post Office Senior Citizens Savings Scheme (SCSS) National Pension Scheme (NPS) Unit-Linked Insurance Plans (ULIPs) Equity Linked Savings Schemes (ELSS) Tuition fees paid for children’s education (maximum 2 children) Principal repayment on Housing Loan Hence. But we think rather than just merely investing in any of the above tax saving instruments.e. and this is seen as one of the most sought after sections when it comes to tax planning.www.000 p.e. if you invest in any or all of the aforementioned instruments. financial goals and risk appetite. one can also can use these tax saving instruments for prudent tax planning by recognising your age.Optimal tax planning with section 80C Section 80C of the Income Tax Act enables you to effectively invest in tax saving instruments.com IV . market-linked instruments) and those offering fixed returns (i. assured return instruments). It offers a host of popular investment instruments mentioned below which qualify you for a deduction from your Gross Total Income (GTI): • • • • • • • • • • • Life Insurance Premium Public Provident Fund (PPF) Employees’ Provident Fund (EPF) National Saving Certificate (NSC) . it’s simple! In the aforementioned list you can classify the tax saving instruments into those offering variable returns (i.PersonalFN. income.00.
no doubt about that. Yes. but in order to even out the shocks of volatility in the equity markets you can adopt the SIP route of investing here which will provide you the advantage of “compounding” along with “rupee-cost averaging”. You can either make lump sum investments or investments through the Systematic Investment Plan (SIP). Tax Planning with market-linked instrument: If you are young. It is noteworthy that. then this tax saving instrument can give you luring returns. but the minimum application amount in most of them is as little as Rs 500. in the long-term if you intend to create wealth by hedging the inflation risk. with no upper limit. A distinguishing feature about them is that they are subject to a compulsory lock-in period of three years. which are 100% diversified equity funds providing tax saving benefits. Well. you may say – “but there is risk involved”. then this category would suit you.PersonalFN. Following tax saving instruments are available for investment. and therefore willingness to take risk is high along with your financial goals being far away. Equity Linked Savings Schemes (ELSS): These are mutual fund schemes. giving you variable returns. income is high. Under this category you are investing in the capital markets. And these are popularly known as Tax Saving Mutual Funds.www. Let’s discuss in detail the classification into market-linked tax saving instruments and assured return tax saving instruments. 1.com suits you best (taking into account the factors mentioned above) and will also extend your tax planning exercise to investment planning too. 18 .
a. 19 . quarterly or half yearly) should complete the minimum lock-in period of 3 years. Deduction: The maximum tax benefit which you can enjoy under section 80C is Rs 1.PersonalFN. Personal FN Research) However a noteworthy point in SIP investing for ELSS is that your every SIP installment (which can be monthly.www.com SIPs provide cushion against market volatility (Source: ACE MF. then you would not have to pay any Long Term Capital Gains Tax (LTCG) too.00. if you make any long term gains at the time of exit any time after the end of the lock-in period. Personal FN Research) Get wealthy Sip by sip (Source:ACE MF.000 p. Moreover.
as available under Section 80C. Moreover. risk profile and financial goals. Unit-Linked Insurance Plans (ULIPs): These are typically insurance-cum-investment plans which enable you to invest in equity and / or debt instruments depending on what suits you as per your age. “moderate or balanced” (which invests in debt as well as equity) and “conservative” (which invests purely in debt instruments). and also have a minimum premium paying term of 5 years. All you simply need to do is. Hence apart from the insurance cover (which is 10 times your annual premium) offered under these plans. These policies have a minimum 5 year lock-in period. And in order for you to track such plans the NAV is declared on a regular basis. In case of any eventuality the beneficiaries would be paid the sum assured or fund value. income.com 2.000 p. thus enabling you to have the optimum insurance coverage and the right investment instruments for longterm wealth creation.PersonalFN.a. while some well selected ULIPs may add value to your portfolio in the long-term.www. Deduction: The premium which you paying for your ULIP would be eligible for tax benefit. But a noteworthy point is.00. the returns which you would get would be completely market-linked as your premium amount (after accounting for allocation and other charges) is invested in equity and debt securities. subject to the maximum eligible amount of Rs 1. The overall term of the policy would vary from product to product. your insurance and investment needs should be dealt separately. a positive point is that at maturity the amount which you or your beneficiary would receive is tax free (exempt) as per the provisions of Section 10(10D) of the Income Tax Act. whichever is higher. 20 . Generally they are classified as “aggressive” (which invests in equity). select the allocation option as provided by the insurance company offering such a plan.
if you open an account in the last quarter of the financial year. For NPS. You will be required to maintain a minimum balance of Rs 2.e. Even if you hold both the above accounts under NPS.com 3. and you can invest in any of the two under-mentioned accounts: Tier-I Account: In this account your minimum investment amount is Rs 500 per contribution and Rs 6. The minimum number of contributions is 4. 2009 also introduced for people in the unorganised (private) sector.000 at the end of the financial year. Tier-II Account: For opening this account you will have to make a minimum contribution of Rs 1. premature withdrawals upto a maximum of 20% of the total investment is not permitted before attainment of 60 years. private sector). if you (eligibility age: from 18 years to 60 years) belong to the unorganised sector (i. In case you don’t maintain the minimum balance in this account and do not comply with the number of contributions in a year. subject to a minimum contribution of Rs 250.000 per annum. as need for deeper participation in the pension contribution (through this product) was felt.000 per year. without any limits. only the Tier-I account will be eligible for tax benefits.PersonalFN. Under this account. National Pension Scheme (NPS): National Pension Scheme which was earlier available only for Government employees was later on May 1. you first need to have a Tier-I account. the contributions done by you towards the scheme would be voluntary. 21 . Moreover. however the balance 80% of the pension wealth has to be utilised by you to buy a life annuity. a penalty of Rs 100 will be levied. in order to have Tier-II account. However. you will have to contribute only once in that financial year. Tier-II account is a voluntary account and withdrawals will be permitted under this account. and you are required to make minimum 4 contributions per year.www.
Rather. E (Equity). At your age of 60 years. if your age. your money will be invested in the aforesaid asset classes in accordance with predetermined asset allocation. the return on your investment is not guaranteed as it is market-linked. as available under Section 80C. at the age of 60 it is taxable. when one withdraws money. which comprises Basic + DA. In our opinion this product is not very appealing for creating a substantial corpus to meet your retirement need. In case of Auto Choice. then the corpus which you would be able to create will be substantial enough to meet your retirements needs. But remember. Under the “Active” choice asset class. and then as your age progresses balance the asset allocation between equity and debt instruments).e. your money will be invested in various asset classes viz. you can exit the scheme. Also under this scheme.com While investing money in NPS. Deduction: If you are an employed individual. In case you are a self-employed individual. Tax Planning the “assured return” way: Unlike the case presented above (i. if you chalk-out a prudent financial plan with the help of a financial planner.00.e. “Active” or “Auto” choice.PersonalFN.www.a. the restriction up to which you can claim tax benefit under Section 80CCD is capped at 10% of your gross total income. would be eligible for tax benefit but subject to the maximum eligible amount of Rs 1. tax planning with market-linked instruments). C (Credit risk bearing fixed income instruments other than Government Securities) and G (Central Government and State Government bonds).000 p. you can claim deduction under Section 80CCD up to 10% of your salary. you have two investment choices i. where you will have an option to decide your asset allocation into these asset classes. income. but you are required to invest a minimum 40% of the fund value to purchase a life annuity. risk profile and financial goals do not permit you to invest in market-linked 22 . and invest wisely as per the plan laid out (which would mostly recommend you equity allocation at younger age. And the remaining 60% of the money can be withdrawn in lump sum or in a phased manner upto your age of 70 years. So the contributions which you make to the NPS account.
subject to the maximum eligible amount of Rs 1.www. Investment-cum-insurance plans on the other hand.00.PersonalFN. you pay a high premium which gets invested. Moreover. Pure term life insurance plans are authentic in nature. Such insurance plans can be offered in various forms such as ULIPs (as discussed above). a positive point is that at maturity the amount which you or your beneficiary would receive is exempt (tax free) as per the provisions of Section 10(10D) of the Income Tax Act. But here your insurance coverage is far lesser. as they cater to the need of only protection and not investment. then you should plan investing in tax saving instruments which offer you assured returns. 15. money back plan. endowment plans. 25 or 30 years. Deduction: Over here too the premium which you paying for your such non-ULIP life insurance plans would be eligible for tax benefit. Under these instruments there is zero risk of erosion to your capital. Non-Unit Linked Life Insurance Plans: Life Insurance plans can be broadly classified as “pure term life insurance plans” and “investment-cum-insurance life insurance plans”. We think that while you are considering your insurance needs. but insurance coverage on the other hand is meagre. 20. as available under Section 80C. thus keeping your insurance needs separate from investment needs. Following are the tax saving instruments available under this category: 1. than the one provided under pure term insurance plans. pension plans etc.000 p. Hence such plans offer a high life insurance coverage at low premiums. 23 . So. you should ideally look at only pure term life insurance plans. Generally the term insurance plans offer a policy term of 10.a. as the name suggest offer you an investment option as well as an insurance option.com instruments (for your tax planning) along with the fact that your risk taking ability is low.
However. and will be credited to account on 31st of March. each year. Your each deposit in the PPF account should at least be Rs 500. However. The account so opened will have an expiry term of 15 years from the end of the year in which the initial investment (subscription) to the account is made.00. your withdrawal will be restricted to 50% of the amount which stood to the credit of your account in the immediate 4th year immediately preceding the year of withdrawal or at the end of the preceding year. You can invest in the account ranging from a minimum of Rs 500 to a maximum of Rs 100. and the amount to the credit of your account will be entitled to a tax-free interest at 8. The interest to the account will be calculated on the lowest balance to the credit of the account between the close of the 5th day and the end of the month. you can nominate them. If you do not wish to open a separate account in the name of your wife as well as children. In order to invest in PPF.com 2. and also in the name of your wife as well as children.8% p. As regards withdrawal from the account is concerned. 24 . but joint application is not permissible.PersonalFN. preceding the month in which application for withdrawal is made.000 in a financial year in order to enjoy the tax saving benefit under Section 80C.000) amount. you can withdraw the entire amount together with the interest accrued till the last day of the month. Public Provident Fund (PPF): The PPF scheme is a statutory scheme of the Central Government of India. And in case if your term of 15 year is over. it is permitted any time after the expiry of 5 years from the end of the year in which initial investment (subscription) to the account is made. whichever is lower.www. a noteworthy point is that it is not necessary to deposit every month and the amount too can be any amount subject to the minimum (Rs 500) and maximum (Rs 1.a. and one has the convenience of depositing in either lump sum or in installments not exceeding 12 such installments. You can open the account in your name. you are required to open a PPF account (which is irrespective of your age) at your nearest post office or public sector (nationalized) bank providing this facility.
6% p. The minimum amount which you can invest is Rs 100. thus giving you an effective interest rate of 8. Premature withdrawals are permitted only in specific circumstances such as death of the holder. Moreover.00.a. 3. and has a tenure of 5 years or 10 years.a. and 9. and one can invest in the same through your nearest post offices. it also offers you an appealing tax-free return of around 8% p. under Section 80C. Furthermore. would be eligible for tax benefit but subject to the maximum eligible amount of Rs 1.www.PersonalFN.e. without having the compulsion of putting any further deposits in case of extension. compounded half-yearly. Deduction: Your investment in NSC is eligible for a deduction of upto Rs 1. It is noteworthy that if you are risk averse. then this product is best in its class for tax planning.9% p. National Savings Certificate (NSC): The NSC is also a scheme floated by the Government of India. 5 or 10 years) or until the date of premature withdrawals. jointly by two adults.09% p. NSC maturing in 5 years offers interest @ 8. compounded half-yearly whereas NSC maturing in 10 years offers interest @ 8. The interest income accrues annually and is reinvested further in the scheme till maturity (i.a. (compounded annually).a. as the scheme is available only with the India Post. The certificates can be made in your own name. The withdrawal in case of extended accounts is permissible once in every financial year. with no maximum limit to the same.78% p.000 p.com After your term of 15 years is over if you wish to renew your account. the accrued interest which is deemed to be reinvested qualifies for 25 . Deduction: The contributions which you make to the accounts mentioned above. you can do so for a period of another 5 years at the rate of interest prevailing then. or even by a minor (through the guardian).a.00.a. as available under Section 80C. But the total withdrawal should not exceed 60% of the balance accumulated to the account at the commencement of the extension period (of 5 years).a.000 p.
75 8.00 9.00 8. Personal FN Research) However.25 8. making it detrimental for your tax planning.000 in a financial year. then in order to avoid Tax Deduction at Source (TDS). The account can be opened by you either in single name or jointly or even by a minor (through a guardian) who has attained the age of 10. the interest income which you will fetch would 26 .www.25 9.PersonalFN. the investment amount over Rs 1. ICICI Bank Ltd. say if deposit an amount Rs 10.00. you can submit a declaration in Form 15-H (for general) or Form 15-G (for senior citizens) as applicable.a. The minimum amount that you can invest is Rs 100 with an upper limit of Rs 1. State Bank of India (Source: Respective bank’s website. The interest rates offered by some of the popular banks are as under: Interest Rate(s) (%) Senior General Citizens 8. The minimum investment amount is Rs 200. But in case if you have no other income apart from interest income. However.25 Bank Name Axis Bank Ltd. the interest income is chargeable to tax in the year in which it accrues.5% p. IDBI Bank Ltd.000.000 will not be eligible for any tax benefit. A 5-Yr POTD earns a return of 8. Hence. and there isn’t any upper limit.com deduction under Section 80C. (compounded quarterly). However. HDFC Bank Ltd. but again you can submit a declaration in Form 15-H (for general) or Form 15-G (for senior citizens) as applicable for not deducting tax at source. Bank Deposits and Post Office Time Deposits: The 5-Yr tax saving bank fixed deposits available with your bank is also eligible for a deduction under Section 80C and comes with a lock in period of 5 years. Similarly 5 Yr Post Office Time Deposits (POTDs) also offer you a tax benefit under Section 80C.75 9.25 9. 4. but paid annually. the interest earned here would be subject to tax deduction at source.75 9.00.50 9.
But as mentioned above. As regards premature withdrawals are concerned. But in case if you have no other income apart from interest income. In order to avail the benefits of this scheme.e.000 in SCSS are entitled for a deduction under Section 80C.00. 1.000. you can submit a declaration in Form 15-H (for general) or Form 15-G (for senior citizens) as applicable. in case if you are over 60 years old. If you withdraw between 1 and 2 years. 1.PersonalFN. Senior Citizens Savings Scheme (SCSS): Well. then too you are eligible to enjoy the benefits of this scheme. on March 31. So. the interest earned by you would be subject to tax deduction at source. they are permitted only after 6 months from the date of deposit with a penalty in the form of loss of interest.000 p.5% of the initial amount invested will be deducted. Moreover. And in case if you withdraw after 2 years. However. payable on a quarterly basis (i. you are eligible to invest in this scheme. then in order to avoid Tax Deduction at Source (TDS). premature withdrawals are permitted. in case if you have no other income apart from interest income. then in order to 27 . After one year from the date of opening the account. Deduction: Your investment in the both these schemes are eligible for a deduction of upto Rs 1. or jointly along with your spouse) at your nearest post office or any nationalised bank. under Section 80C.0% of the balance amount is deducted. the interest earned on your investments will be subject to tax deduction at source.a. You can do a onetime deposit under this scheme subject to the minimum investment amount of Rs 1.a. if you have attained 55 years of age and have retired under a voluntary retirement scheme. you are required to open an SCSS account (either in a single name. June 30.www. However.000 and a maximum of Rs 15. Deduction: Your investments upto Rs 1.com approximately be Rs 877 p. 5.00. September 30 and December 31) every year from the date of deposit.00.30% p.a. the SCSS is an effort made by the Government of India for the empowerment and financial security of senior citizens. The maturity period provided for this scheme is 5 years offering a rate of interest of 9.
28 . so they can separately claim deduction (upto Rs 1. (payable quarterly) Sum Assured (i.5%. and is limited to Rs.e. Options Galore .Rs 100.000 Rs 100 .000 and a maximum 2 children. then husband and wife both enjoy a separate limit of two children each. (compounded quarterly & paid annually 9. Insurance Cover) Tax planning the "assured return" way 15 years 5 years 10 years 5 years Rs 500 .000) for 2 children each. 80C 80C & 10(10D) 80C Tax planning with market-linked instruments Term: Ongoing Market-Linked Returns Rs 500 .4%. 5-YR: 8. school or other educational institution situated within India for your children’s education is also eligible for deduction under section 80C. 2-YR: 8.No upper Limit Lock-in-period: 3 years Market-Linked Returns Market-Linked Returns Term: 10 .Rs 15. Tuition fees paid for children’s education (maximum 2 children): The tuition fees that you pay to any university.75% p.PersonalFN.000 Premium depends upon the insurance cover Yes Varies from policy to policy 80C 80C & 10(10D) 6.a.9% (compounded half-yearly) 8.2%.a. you can submit a declaration in Form 15-H (for general) or Form 15-G (for senior citizens) as applicable.25% to 9.a. However the fees paid towards any coaching center or private tuition may not be eligible. 3-YR: 8. 1. college. 8. Lock-in-period: 5 years 30-35 years Premium varies from scheme to scheme Rs 6.8% p. Also you need to note that this deduction is available only to Individual Assesse and not for HUF.00.No upper Limit No upper Limit Yes No No No 80C 80C 80C 80C Post Office Time Deposit Fixed Deposit 1-5 years Rs 200 .00.3% p. If someone has four children.00. subject to the amount they have actually paid.No upper Limit Rs 100 .www.3%.Snapshot of section 80C Schemes Tax Saving Funds/ ELSS Unit Linked Insurance Plans (ULIPs) National Pension Scheme Type Growth Growth Growth Interest Rate Term Min – Max Investment Premature Withdrawal No Yes Yes Section No.20 years.000 Public Provident Fund National Savings Certificate – 5 Yr National Savings Certificate – 10 Yr Bank Deposits Recurring Deposit Deposit Fixed Deposit 8.6% (compounded half-yearly) 8. 1-YR: 8.000 .No upper Limit Yes 80C Senior Citizens Savings Schemes Non-ULIP Insurance Plans Deposit 5 years 5-40 years (Source: Personal FN Research) Rs 1.com avoid Tax Deduction at Source (TDS).
com 7. and that benefit is available with you immaterial of the fact whether you stay in the same property (Self Occupied Property .www.000 under section 80C. You can also claim tax benefit on the interest you pay on your housing loan. Principal repayment on Housing Loan: You always wanted to have your dream home and now you have been able to get it with the help of housing loan from a bank or financial institution. makes you eligible to claim a deduction upto a sum of Rs 1. But after you have got your home through this loan.SOP). you have the obligation to repay the principal amount of the loan on time. or have let it out on rent (Let Out Property LOP). but under a separate section (this is covered in detail at the later stage in the guide) 29 . The “repayment of principal amount”.PersonalFN.00.
then all this too can help you effectively plan your tax obligations. Further.www. 1. for example. incur expenditure on the medical treatment of a “dependant” handicapped. spouse and dependent children. So. contribute in monetary form to political parties or electoral trusts. So. the maximum deduction gets extended to Rs 20. 1961 also considers the humane side of our life and also gives deduction for such expenditure. So. take a loan for pursuing higher education or if you are an individual suffering from “specified” diseases. 30 . you can claim an additional deduction of upto Rs 15. Premium paid for medical insurance (Section 80D): The premium paid by you on medical insurance policy (commonly referred to as a mediclaim policy) to cover your spouse and you. while paying the premium you need to ensure that the payment is made in any mode other than cash. if you pay a premium of Rs 15. let’s understand how each of the above expenses for a cause or an investment. if you pay medical insurance premium for your parents (irrespective of whether they are dependant or not on you). donate to specified funds for specified causes.000 under this section. in case if you pay for yourself. dependent children and parents against any unexpected medical expenses. The maximum amount allowed annually as a deduction (from your GTI) is Rs 15. qualifies for a deduction under Section 80D.000 for yourself and Rs 15. Our Income Tax Act.Thinking beyond Section 80C Well. thus optimally reducing your tax liability. you will be eligible for a total deduction of Rs 30. most people think that tax planning ends with Section 80C. in case if you pay your medical insurance premium.000.000.000 for your parents. Herein below is the list of some major ones. However. but please note that there’s more to tax planning than just investment instruments specified under Section 80C. can help you in effective tax planning.000.com V . And if you are a senior citizen.PersonalFN.
000. training and rehabilitation for a handicapped “dependent” suffering from disability.www. 80% of any disability). parents. brothers and sisters. also qualifies for a deduction under Section 80DD. in order to claim the deduction you need to submit a medical certificate issued by a medical authority along with your return of income. for maintenance of the “dependent” being a person with disability. 1955]. if you have deposited a sum of money under any scheme framed in this behalf by LIC (Life Insurance Corporation of India) or any other insurer or administrator or a specified company (approved by the Board).PersonalFN.e. Moreover.000 p. your “dependent” cannot claim a deduction under Section 80U in case he’s (handicapped dependent) filing his tax returns separately. from your GTI irrespective of the expenditure incurred or amount deposited. Maintenance including medical treatment of a handicapped dependent (Section 80DD): If you have incurred any expenditure in the form medical treatment (including nursing). children. if the “dependent” is suffering from severe disability (i. The quantum of deduction here depends upon the severity of the disability suffered by the “dependent”. It is noteworthy that over here the term “dependent” being a person with disability means your spouse. Hence. then the expenditure so incurred by you qualifies for deduction under Section 80DD of the Income Tax Act.com 2. Similarly. Protection of Rights and Full Participation) Act. then you claim a higher deduction of fixed sum of Rs 100. Similarly. 31 . then you would be entitle to a deduction of a fixed sum of Rs 50. Also if you are claiming a deduction in your tax returns for such an expenditure incurred or amount deposited. from your GTI irrespective of the expenditure incurred or amount deposited. if the “dependent” is suffering from 40% of any disability [Specified under section 2(i) of the Person with Disability (Equal Opportunities.a.
whichever is earlier.000 or the amount actually paid. 32 . children. Sure. to the extent of the interest paid on such a loan taken. 4. parents. urologist. the Income Tax Act offers you deduction (from your GTI). whichever is lower. immunologist. And if you are a senior citizen. or any other specialist) working in a Government hospital. The deduction from your GTI. Also. Expenditure incurred on your medical treatment (Section 80DDB): If you have incurred expenditure on your medical treatment or for your “dependents”. It is noteworthy that over here the term “dependent” means your wholly or mainly dependent spouse. Repayment of loan taken for pursuing higher education (Section 80E): While pursuing a personal goal of enrolling for “higher education” in order to be competitive enough to meet your financial goals. whichever is lower. you can also take an education loan for your wife’s or children’s education or for any person (minor) for whom you are the legal guardian. But that makes you eligible for deduction under Section 80E of the Income Tax Act.PersonalFN. to simplify it further. when you take a loan to fulfil such dreams. whichever is earlier. in order to claim a deduction under this section.www. which you are entitled to. and the seven immediately succeeding financial years or until the interest is paid in full. So. oncologist. haematologist. is Rs 40. you are required to submit a medical certificate from a doctor (neurologist. brothers and sisters.com 3. then too the expenditure so incurred.000 or the amount actually paid. the deduction is available from the year in which you start paying the interest on the loan. makes you eligible for deduction under Section 80DDB of the Income Tax Act. The deduction is available for a maximum of 8 years or till the interest is paid. then you are eligible for a deduction of Rs 60.
For example.com It is noteworthy that. Donations to certain funds and charitable institutions (Section 80G): As mentioned earlier that our Income Tax Act. donations to “National Defence Fund” set up by the Central Government are allowed 100% deduction. approved educational institutions etc. 1961 considers the humane side of our life. if you make donations to any of the host of notified funds and / or charitable institutions. charitable institutions. But from the Finance Act of 2011 its scope is extended to cover all fields of studies (including vocational studies) pursued after passing the Senior Secondary Examination or its equivalent from any school. you are eligible for deduction under Section 80G. However. while for “Prime Minister Drought Relief Fund” are allowed at 50%. The deductions allowed can be 50% or 100% of the donation. management or for post-graduate courses in applied science or pure science including mathematics and statistics. 33 . the donation amount qualifies for deduction under this section.www. subject to the stated limits as provided under this section. and so if on humanitarian grounds you donate to certain specified funds. medicine. board or university recognised by the Central or the State Government or local authority or any other authority authorised by the Central or the State Government or local authority to do so. Under the Income Tax Act.PersonalFN. here the term “higher education” means full-time studies for any graduate or post-graduate course in engineering (including technology / architecture) . no deduction is available for part-time courses 5.
and is paying a rent for an accommodation (irrespective whether furnished or unfurnished) occupied for residential use.PersonalFN. But as a pre-condition for availing deduction under this section.com Funds / Charitable Institutions National Defence Fund Prime Minister’s National Relief Fund Prime Minister’s Armenia Earthquake Relief Fund Africa (Public Contributions – India) Fund National Foundation for Communal Harmony Any approved university or educational institution Maharashtra Chief Minister’s Relief Fund and Chief Minister’s Earthquake Relief Fund Any fund set up by Gujarat State Government for providing relief to earthquake victims Jawaharlal Nehru Memorial Fund Prime Minister’s Drought Relief Fund National Children’s Fund Indira Gandhi Memorial Trust Rajiv Gandhi Foundation (Source: Personal FN Research) Amount Deductible 100% 100% 100% 100% 100% 100% 100% 100% 50% 50% 50% 50% 50% Note: There are also other funds and charitable institutions that are eligible for deduction under Section 80G.000 per month or. Rent paid in respect property occupied for residential use (Section 80GG): If you are a self-employed or a salaried individual who is not in receipt of any House Rent Allowance (HRA). Excess of rent paid over 10% of total income 34 . then you can claim a deduction under this section. 6. you are required to attach a proof of payment along with your return of income. In order to claim deduction under this section. Rs 2. you or your spouse or your minor child must not own any residential accommodation either in India or abroad.www. And the deduction which will be available to you under this section is the least of: • • • 25% of the total income or.
But if the disability is severe in nature (i. then one is entitled to flat (i. Contributions made to any political parties or electoral trust(Section 80GGC): Say.e.PersonalFN. 80% or above).e. one needs to file copy of certificates issued by the medical authority. not suffering from not less than 40% any specified diseases given below. immaterial of the expenditure incurred. then you would be eligible for deduction under this section.000.00.e. Specified disability(s) (Section 80U): As said earlier. 35 .com 7. if you have some nepotism for any political party or electoral trust as you appreciate the work done by them. 8.000. and therefore decide to make a monetary contribution to the party or electoral trust. However in order to avail of the deduction. that our Income Tax Act. 1961 considers the humane side of life. so if you as an individual resident in India is suffering from any specified disability i. fixed) deduction of Rs 1. Specified disabilities: Blindness Low vision Leprosy-cured Hearing impairment Locomotor disability Mental retardation Mental illness The deduction available under this section is flat (i. then the amount so contributed would be eligible for a deduction under this section. at the time of filing returns.www.e. fixed) Rs 50.
besides the top 100 stocks (BSE 100 or CNX 100) listed on the stock exchanges are considered under RGESS. For this Rajiv Gandhi Equity Savings Scheme (RGESS) has been introduced as a tax saving scheme only for the novice investors who are entering the equity markets for the first time and hence. by investing in eligible stocks. not only to provide security but also ensure liquidity. RGESS eligible close-ended Mutual Fund schemes and RGESS eligible Exchange Traded Funds. mutual fund houses shall communicate list of RGESS eligible MF schemes / ETFs to the stock exchanges. The argument for proposing investments only from the large caps and PSU domain is.com 9. but his account will be converted into an ordinary demat account only on completion of 3 years. In order to device safety measures for new investors investing in direct equity through the RGESS. the stock exchanges shall furnish list of RGESS eligible stocks / ETFs / MF schemes on their website. the Finance Act 2012 has introduced a new section 80CCG on ‘Deduction in respect of investment made under an equity savings scheme’ to give 50% tax break to new investors who invest up to Rs. The money invested under RGESS is subject to an overall lock-in period of 3 years. 10 lakhs. Further. 50. Navaratna and Miniratna. but he cannot withdraw the money before 3 years. though one can sell / pledge / hypothecate their securities after the expiry of the mandatory lock-in period of 1 year. The first time investors can take benefit of RGESS.e.000 and whose gross total annual income is less than or equal to Rs. 36 . To make it convenient to identify the eligible stocks and mutual funds. The objective of the scheme is to encourage flow of savings in the financial instruments and improve the depth of the domestic capital market. Investors may be allowed to churn their portfolio after completion of fixed lock in period of 1 year. this benefit is like a once in a life time benefit. Rajiv Gandhi Equity Savings Scheme (RGESS): The Union Budget 2012-13. i. the list shall also be forwarded to the depositories at monthly intervals and whenever there is any change in the said list.PersonalFN. For this purpose.www. the stocks of Maharatna.
80DD Maintenance including medical treatment of a handicapped dependent who is a person with disability 80DDB Expenditure incurred in respect of medical treatment 80E Repayment of loan taken for pursuing higher education 80G Donations to certain funds and charitable institutions 80GG 80GGC Rent paid in respect of property occupied for residential use Contribution made to any political parties or electoral trust Person suffering from specified disability(s) 80U 80CCG Rajiv Gandhi Equity Savings Scheme (RGESS) Maximum deduction allowed is 50% of investment upto Rs 50. Excess of rent paid over 10% of total income Amount donated to political party is fully exempt Rs 50. Actual incurred.000. subject to the stated limits as provided under this section Maximum deduction allowed is least of the following: Rs 2.Snapshot of deduction under other 80s Section 80D Quick Description of Deduction Premium paid for medical insurance Limit Maximum upto Rs 15. with a ceiling of up to Rs 40.000 is allowed.000 shall be allowed. irrespective of the amount incurred or deposited. whichever is earlier Maximum deductions allowed can be 50% or 100% of the donation.000 in case of senior citizen. However in case of disability of more than 80% a higher deduction of flat Rs 100.000 or Rs 60. whichever is lower Maximum deduction for interest paid for a maximum of 8 years or till such interest is paid. However in case of disability of more than 80% a higher deduction of flat Rs 75. (Source: Personal FN Research) 37 .000 in case of senior citizen Rs 50. 25% of total income.000.com Options Galore .www.000. irrespective of the amount incurred or deposited. only for first time investors having total income of less than or equal to Rs 10 Lakhs.000 or Rs 20.PersonalFN.000 per month.
Yes. But again just to reiterate please don’t rule out the financial planning aspect of number of years left with you for repayment of your home loan. For some. 1961 too considers our desire to buy or construct or reconstruct or repair or renew our dream home and gets a little benevolent. as it provides you with tax benefits (that come along with it). it’s also important to consider the tax angle when we decide to do any of these activities. the amount of wealth they have created allows buying or constructing or reconstructing or repairing or renewing homes from our own funds . However. then the actual interest payable is eligible for deduction.i.PersonalFN. Both.000 under section 80C. or has let it out on rent (Let Out Property LOP).00.a. our Income Tax Act. “repayment of principal amount” and “payment of interest” are eligible for tax benefit. but again doing so precludes you to avail of the tax benefit. to do the aforementioned activities (for your home) with a loan.000 p. if you have let out the property on rent (LOP). without opting for a “home loan”.Your home loan and tax planning While all of us have a dream of buying a dream home or constructing or reconstructing or repairing our homes. thus not being subject to any maximum limit.www.com VI .SOP). and that benefit is available with you immaterial of the fact whether you stay in the same property (Self Occupied Property . it’s available for deduction under section 24(b). makes you eligible to claim a deduction upto a sum of Rs 1. So.e. which are attached if one takes a home loan for such activities. 38 . if one avails of a loan to fulfill these desires for one’s dream home. if you buy or acquire a house and decide to stay in the same (SOP) then the maximum sum Rs 150. The “repayment of principal amount”. can be availed by you as a deduction for interest. The Act encourages you to buy. As far as the payment of interest amount (for the loan amount availed) is concerned.
( % ) EMI (Rs) Annual Interest Paid (Rs) Principal paid in the 1st year (Rs) Contributions towards tax-efficient instruments (Rs) Tax paid without availing home loan benefits (Rs) Tax paid after availing home loan benefits (Rs) Tax Savings (Rs) (*tax calculated after giving effect for education cess) (Source: Personal FN Research) 650. irrespective whether you want to stay in it or let it out on rent. Let’s assume you earn Rs 6. Let’s understand with an example how home loan taken for “buying” your dream home to stay in it (SOP) can reduce the total tax payable by you. if you have taken a loan for the purpose of reconstructing.989.000 20 9.000 p.000.600* 30.600.50.a.000 41. Tax savings on account of home loan Gross Annual Salary (Rs) Loan Amount (Rs) Tenure (yrs) Rate of Interest p. and the Equated Monthly Installments (EMI) is Rs 35. thus saving you Rs 20.a. the amount of deduction under section 24(b) which you’ll be eligible for will be restricted to Rs 30. The same with a home loan works out to Rs 20.PersonalFN.989 356.00.908 1.www. The total tax payable on your income without a home loan works out to Rs 41.0% p.0 35. 39 .00. The home loan is for tenure of 20 years and the rate of interest is 9.900* The above table clearly shows the benefit of availing a housing loan if you are contemplating buying a house. repairing or renewing the property. by way of salary and have taken a home loan of Rs 40.200* 20.com Similarly.000 for buying your dream home and you have decided to stay in it.200.a.600.000 4.000.960 74.
now the next question is how do you claim maximum available deductions to minimise your tax liability? The answer lies in taking a joint home loan. it takes away a big chunk of the amount eligible under Section 80C and leaves you with little (i. 40 .com Maximise your tax benefits Now. let’s delve deeper into the benefits available. Your principal repayment amount of Rs 74. ELSS.00. you have invested in the following manner under Section 80C. And as said earlier your portfolio should always comprise of a mix of assured return and marketlinked return instruments.000 10. Rs 25. However. ignoring these investment avenues may not be prudent from financial planning perspective.092) to claim towards other tax saving instruments such as PPF. Particulars Principal Repayment Life Insurance PPF EPF NSC Total Claim deductions under Section 80 C Contributed but can't claim tax benefit Amt ( Rs) 74. in a composition which is in accordance to your financial goals and willingness to take risk.e.50.960 which is much more than the maximum amount of Rs 1.000 134. NSC. Your interest amount in the first year is Rs 356.908 100.908 (Source: Personal FN Research) The amount eligible is more than what you can claim.908 is within the Rs 1. And now consider. Yes.000 20. you have an option of not investing in PPF. POTDs. POTDs or NSC but these are assured return schemes with attractive returns.000 limit allowed under Section 80C.000 allowed as a deduction.www. Hence.000 20.PersonalFN.908 10. So. Life Insurance. A joint home loan can be taken with your spouse or relative.000 34.
EMI (Rs) Annual Interest Paid (Rs) Principal paid in the 1st year (Rs) Life Insurance (Rs) Other contributions towards tax-efficient instruments (Rs) Total amount contributed under section 80C & 24(b) (Rs) Amount which cannot be claimed to reduce tax liability (Rs) Tax Paid when: (Rs) 1. Joint home loan benefit availed Total Household Tax Savings (Single Home Loan) (Rs) Total Household Tax Savings (Joint Home Loan) (Rs) You Your Spouse 650. Assumption made that home loan and the EMI paid by you and your spouse are in the ratio 50:50 (Source: Personal FN Research) Now since your spouse is a co-owner and has contributed towards repayment of the loan she too would be eligible for the tax benefit (both principal and interest component).454 37.0% 35. Single home loan benefit availed 3.480 37.480 49.www. as indicated in the table above.840 57.440 49.454 28.000 247.862 Note: * calculations on the done assuming the spouse here is a woman.000 650.454 for principal repayment and Rs 178.a. No home loan benefit availed 2. So.480 for interest payment.600 20. if the principal and interest amount is shared equally between your spouse and you.000 10. At the same time it reduces the tax liability to a significant extent and leads to a household saving of upto 41 . the contribution per person comes to Rs 37.000 50. Particulars Gross Salary (Rs) Home Loan Amount (Rs) Tenure (yrs) Rate of Interest p.156 50.862 28.989 178.com Let’s understand with an example how a joint home loan with your spouse can help reduce your tax liability.480 178.000 247.440 20.454 10.000 20 9.000 4.454 28.440 20. Assume your spouse and you decide to take a joint home loan of the same amount as mentioned above and share the loan in ratio of 50:50. The principal amount is now half of what was earlier which allows you to claim deductions towards other contributions.480 49.000.PersonalFN.
www.PersonalFN. a Joint home loan leads to a saving of Rs 28.com Rs 57. it is vital to ensure that the higher earning member pays higher portion of the home loan EMI. This will result in higher tax saving in addition to boosting your loan eligibility. especially if your spouse’s income is taxable. As compared to a Single home loan.316. it makes sense to include your spouse as a coowner. From the tax planning point of view. So. remember if you plan to buy a house.156. 42 . This is because the tax benefit accrues in proportion to your contribution towards loan repayment.
Now you may ask – “How can the income tax authority tax me. that’s because “annual value” of your property after providing for deduction available under Section 24(b) is taxed under the head “income from house property”.PersonalFN. if I have not let out my property on rent”? Well. term “house property” includes building(s) or land appurtenant (i. And this applies especially when you have an income from let out property.House Property and taxes After showing benevolent side by providing you with the tax benefit. A noteworthy point is. *Owning a farm house. then the annual value of your property would be calculated by adopting the following steps: a) Find out the reasonable expected rent of the property (which is municipal rent or fair rent.com VII . the Income Tax Act then eyes the *house property owned by you for taxing the same. Let Out Property (LOP) In cases where you are enjoying a regular income from the property in the form of rent. which forms a part of your agriculture income. And now the next question which may be popping on your mind is – “What is “annual value of the property and which deductions are available?” Annual Value: To understand that better let us take a case where you have let out the property (LOP) and then DLOP. or in case where you have more than one property which aren’t let out on rent. for availing a home loan (to buy or construct or reconstruct or repair or renew).e.www. attached) thereto also. but which are vacant (known as Deemed to be Let Out Property – DLOP). is not brought under the tax net. whichever is higher) b) *Consider rent actually received / receivable 43 .
But to avail the deduction for municipal taxes. will be your “annual value” – which is here referred to as the “Gross Annual Value” (GAV) Now when we go one step further and minus the municipal taxed paid by you (on the property) from “step e)” you’ll arrive at the “Net Annual Value” of your property. 44 . if you as the landlord are paying any municipal taxes towards these properties. say you have 4 such DLOPs then you should ideally select the property with the highest GAV as an SOP property. over here in case you have multiple DLOPs. Self-Occupied Property You need not worry here if you are occupying the property. residential use) and thus the NAV of the property will be considered as Nil. as this optimise your tax planning exercise.www. then the other house property(s) would be considered as a “Deemed to be Let Out Property(s)” . then you have an option to consider one of property as an SOP and the rest would be considered as DLOPs as the present Income Tax law. So. which will be calculated in the same way as for LOP.e. they have to be paid by the landlord only. as the remaining properties available with you will have a lower GAV. *Note: Rent earned by you from the property is calculated after subtracting unrealised rent from the tenant (i. in case if he defaults to pay) Deemed to be Let Out Property (DLOP) In case you own more than one house. then those would be subtracted to obtain the Net Annual Value (NAV). Thereafter. and the other house(s) apart from the one where you are staying are vacant throughout the month.e. in case if the property is vacant for period(s) during the financial year) e) The difference between step c) and step d).DLOPs.e.com c) Take whichever is higher from a) and b) d) Calculate loss due to vacancy (i. here rent would be the standard rent calculated as per the municipal laws. Moreover. Remember. throughout the financial year for your stay (i. you would be liable to pay tax on such property(s) after having calculated the Gross Annual Value (GAV). But the only difference being that.PersonalFN.
PersonalFN. LOP and DLOP the income from house property will be positive. In case of SOP the income from house property will be negative income. Deductions: After having calculated the Net Annual Value (NAV) as seen above. and the rest of the year you have earned an income by letting it out. 45 . In case other properties – i. LOP or DLOP.. But irrespective of the fact whether you have incurred any expenditure or not to do so. which further reduces your taxability under this head of income. irrespective whether the house property is SOP. if one wisely takes an home loan for buying a house property then the interest so paid on the borrowed capital will make you eligible for deduction under Section 24(b). the calculation of “annual value” would be applicable as that of LOP.e.www. In case if the property is SOP. then proportionately for the rest of the year when the property was let out. Interest on borrowed capital [Section 24(b)] As reiterated above too (in the home loan section). And this deduction is of specific use if one’s property is LOP and / or DLOP. which will enable you to reduce your overall Gross Total Income (GTI). but would be reduced to the extent of standard deduction and interest paid. then you are not eligible to claim any deduction as the NAV of your SOP is Nil. (if interest is paid on capital borrowed by you to buy or construct or reconstruct or renew or repair the house).com But if you are occupying the property for some part of the year. you will be eligible to claim a flat deduction of 30% calculated on the NAV of the property. You broadly get the following deductions: Standard Deduction [Section 24(a)] Owning a home and maintaining the same costs you money. you are eligible to claim deductions under Section 24(b).
in case you have taken a loan for the purpose of purchase or acquisition of the house which is an SOP. construction.e whether for the purpose of purchase.www. and off course enjoy the fruits of your investment made too and / or enjoy the comfort of your dream house too. reconstruction. irrespective of the usage – i. repair or renewals. Hence.com The quantum of deduction depends upon the purpose for which you take a loan – i. LOP or DLOP. then eligible deduction is restricted to Rs 30. 46 . while everyone buys house property(s).e. repair or renewals. Now if the property is LOP or DLOP.PersonalFN. Remember. construction. wisely as this would enable in optimally saving your tax liability. renewal.50. it is important to avail the benefits available under the Income Tax Act.50. But if the loan is taken for the purpose of repair. and also the type of property – i. or reconstruction.000.e. then you will be eligible for a maximum deduction of a sum of Rs 1. SOP.000. purchase. then you do not have any maximum restriction for claiming interest – so it can be above the otherwise limit of Rs 1. reconstruction.000.
it is important that you have your basic salary set right. which will allow you to streamline your finances well and also help you buy physical assets such as your dream house and a dream car.www. But it should be noted that you cannot pay rent for the house which you own and if you are residing in it. The vital component of salary.Save tax on your hard earned salary While many of you in employment take enormous efforts to earn a salary. And mind you if you do so you’ll have a greater “Net Take Home” (NTH) pay.com VIII . where restructuring can be required is as under: Basic Salary: While this is the base of your head of income – “income from salary”. Many of you today get a big fat pay cheque. it is also equally important in our opinion that you restructure your salary well. then you would lose out on the other benefits such as Leave Travel Allowance (LTA). now on the other side if you are staying in a rented house and you are the one paying the rent. 47 . So. House Rent Allowance (HRA): If you are paying rent for an accommodation. in order to save tax on your hard earned salary. then this is another vital component which can help you to reduce your tax liability. Hence. then HRA exemption [under Section 10(13A)] can be availed for the period during which you occupy the rented house during the financial year. This is because the basic salary constitutes 30% – 40% of your Cost-to-Company (CTC).PersonalFN. and if your organisation extends you HRA benefits. But similarly if you reduce your basic salary considerably. having a very high basic component may lead to having a high tax liability in absolute Indian rupee terms. but it is important that one restructures the vital components of salary well in order to be saved from being taxed. House Rent Allowance (HRA) and superannuation benefits associated with your salary.
as this company leased accommodation would constitute to be the perk value and would be taxed @ 15% of your gross income.PersonalFN.000 per month. children. And the current block of four calendar years is from 2010 to 2013 (i. if you as an employee is drawing an HRA less than Rs 3. The maximum exemption which you can enjoy for HRA is as under: In Chennai/ Delhi/ Kolkata/ Mumbai Least of: Actual HRA Rent paid in excess of 10% of salary* 50% of salary* In other cities Least of: Actual HRA Rent paid in excess of 10% of salary* 40% of salary* (Source: Personal FN Research) *Salary for this purpose includes basic salary + dearness allowance (if in terms of service) Here a noteworthy points is. brothers and sisters who are mainly or wholly dependent on you).com However in order to obtain an exemption. your spouse. the perk value is taxable but it still works out to be more effective for tax planning. 48 .e. then it would be wise to pick a company leased accommodation (if the company in which you work in offers so). The exemption extended to you under the Act is for two journeys performed in a block of four calendar years. 2013). from January 1. parents. if your rent is very high and if you are not fully covered by the HRA limit. The Income Tax Act provides you tax concession if you have actually incurred expenditure on your travel fare anywhere in India either alone or along with your family members (i.e. 2010 to December 31. Leave Travel Concession (LTC): While you may be fond of opting for a leave and travel with your family for a holiday. you are required to submit appropriate and adequate proof of payment of rent for the entire period for which you want to claim exemption. But. than opting for a HRA than doesn’t fully cover your rent. don’t forget to assess what tax benefits are extended to you for doing so. you are not required to provide a rent receipt to your employer.www. Sure.
then do not refrain from availing it. then you are allowed to carry-over the concession to the first calendar year of the next block. and if your employer is providing with education allowance. but for only one journey. whichever is less. totally). whichever is less. Air-conditioned first class rail fare by the shortest route (as if > Where no recognised public transport system exists the journey is performed by rail) or the amount actually spent. whichever is less.e. whichever is less.com As per the present Income Tax Rule. Amount of air-conditioned first class rail fare by the shortest route to the place of destination or amount actually spent. (Source: Personal FN Research) In case you have not availed of a LTC and have not travelled in any of the four calendar year of the block period.a. Air-conditioned first class rail fare by the shortest route to the place of destination or amount actually spent. It is vital that you utilise your leaves wisely and travel to any of your loved holiday destination in India. but also help you in reducing tax liability. if your children are staying in 49 . Education allowance: If you are married with kids. After you have returned from your journey.400 p. whichever is less. the exemption would be available to you in the following manner: Particulars Where the journey is performed by air Where the journey is performed by rail Where the places of origin of journey and destination are connected by rail and journey is performed by any mode of transport other than air. Similarly. as this will not only de-stress you. First class or deluxe class fare by the shortest route or the amount spent.www. Where the place of origin of journey and destination (or part thereof) are not connected by rail > Where a recognised public transport exists Amount exempt Amount of "economy class" airfare of the national carrier by the shortest route to the place of destination or amount actually spent. in an excitement please do not tear your travel tickets / boarding pass (for air travel) as you need to submit them to your employer so that your tax liability can be reduced. as this can again help you in reduction of your tax liability. in other words Rs 2.PersonalFN. The exemption extended to you under the Income Tax Act is Rs 100 per month for a maximum of two children (i.
500 per month for a food voucher / card value.www. This is because effective utilization of the same will enable you to effectively reduce your tax liability along with getting the feeling of being pampered by your employer.PersonalFN. As per the Income Tax Act.200 per month). So remember. Rs 7. if your employer is providing you food coupon / card don’t refrain from availing the same for a maximum voucher value of Rs 2. The exemption limit in this case is restricted to Rs 2. medical bills for the financial year stating the amount in total which you intend claiming. The exemption amount which you can enjoy is Rs 50 per meal available only in respect of meals during office hours. if your employer provides one. Food Coupons / Cards: While you may be tempted to increase your NTH (in the cash form) you should not ignore to avail the food coupon / card benefit.500 every month. Similarly. the exemption is also available in case your employer provides you food vouchers / cards of value of which can be used at eating joints. Also if your employer is providing medical 50 . would help you in reducing your tax liability.e.000 for every financial year. However. the maximum amount of deduction available with you is Rs 15.com a hostel then a maximum of Rs 300 per month per child but subject to a maximum of two children will be available to you as an exemption (i. and to claim the same you are required to submit to your employer. then that too will not be subject to tax. it is noteworthy that if your medical insurance premium is paid by the employer or reimbursed. Medical reimbursement: During the year if you and / or family members have visited a doctor or bought medicines from a chemist. then all the expenditure incurred by you and / or your family members during the year for medical purpose too.
com facility in hospital or clinic owned by him. local authority. 51 . next time when you get your pay cheques in hand please evaluate the aforementioned points.www.PersonalFN. would not be subject to any tax. So. Central Government or State Government then medical expenditure incurred under such a hospital too. and assess whether every component in your salary is structured well – and to do so you can certainly talk to the human resource department. as they too may help you on this.
Conclusion In the previous pages of this guide we have seen that your extra step towards the tax planning way would enable you to wisely reduce your tax liability.000 (Source: Personal FN Research) ELSS (Rs) 55.000 20.55 Life insurance Premium (Rs) only term plans 20.000 35.00. which in a way will help you buying all the comforts and luxuries in life.000 and still find it insufficient to reduce your tax liability.000 45.000 20. It would just lead to “tax saving and not “tax planning”. ability to take risk and investment horizon is going to make your tax saving portfolio look more prudent even from a financial planning perspective. we also think that a self-study approach on your tax planning exercise is quite necessary as one should be well versed with at least those tax provisions which affect us directly.www. Moreover.000 EPF/PPF/5-Yr Bank FDs 25.000 100. Model Asset Allocation Age < 30 30 . is not going to help in a big way.000 45.000 20. And with that note we wish you all Happy Tax Planning!! General Disclaimer: This communication is for general information purposes only and should not be construed as a prospectus. in accordance to your age. offer document.000 100. following an asset allocation model (for your tax planning exercise).000 Also one needs to look beyond the ambit of section 80C.PersonalFN. offer or solicitation for an investment or investment advice. as you may exhaust the limit of Rs 1. 52 . while you are working hard with an organisation to make a living. while you have host of tax-saving investment options available under Section 80C. Just to reiterate. you should access the other deductions available under section 80 (as mentioned above) too.40 41 .000 60. We think that while you must take help of your tax consultant while filing your returns and seek opinion from him. So.com IX . remember to effectively know and structure each component of your salary income in order to effectively save more tax.000 Total (Rs) 100.000 100. Remember waiting till the eleventh hour to do your tax planning exercise.000 35.000 20.50 51 .
Free Press Journal Marg.400 021. Raheja Chambers.PersonalFN.com 53 . 213. Nariman Point.www. Mumbai . Tel: +91-22-6136 1200 Fax: +91-22-6136 1222 Email: firstname.lastname@example.org Contact us Head Office Mumbai 101.