Basic Tax Planning & Instruments for F.Y. 2011-2012

Today’s guest post is written by a dear friend Prashant Rupani. He likes to watch movies and eat fruits. If he could have his way, he would sell everything he owns just to invest it all in the Stock Market. Also do not get confused by his two names. That’s how he rolls.


 

March end is nearby and everyone is hustled & bothered about Taxes on Income. Many of you having average income say Rs. 6 lac p.a. approx. worry about tax, because almost 10% to 20% of your income gets spoiled in Tax to Government. I am going to give you a quick run-through of the important things which need to be considered for saving taxes. Keep in mind I am mentioning ways to save tax on Gross Total Income.

1)    Section 80C: The most ravishing & lavishing section. Here you can invest and take tax benefits of upto Rs. 1 lac. I would like to give you a small example which would give you a better understanding: i.e. If you are Male/not senior citizen & your Gross Total Income Rs. 6 lac p.a. Then following table shows you how section 80 C becomes effective & fruitful, if you fully utilize it.

 

Particulars

If 80C is Utilised

If 80C is Not Utilised

Gross Total Income

Rs. 6,00,000/-

Rs.6,00,000/-

Less : Benefit u/s 80C

Rs. 1,00,000/-

NIL

Net Taxable Income

Rs.5,00,000/-

Rs.6,00,000/-

Tax Applicable on Income

Upto Rs.1.8 Lacs

NIL

NIL

Rs.1.8 Lacs – Rs.5 Lacs (10%)

Rs.32,000/-

Rs.32,000/-

Rs.5.0 Lacs – Rs.6 Lacs (20%)

NIL

Rs.20,000/-

Tax Before Cess

Rs.32,000/-

Rs.52,000/-

Education Cess (3%)

Rs.960

Rs.1,560/-

Total Tax Payable

Rs.32,960/-

Rs.53,560/-

From above example, you can see that how 80C section works wonder. You can easily save Rs. 20,600/- p.a. & this amount you can utilized or invest in Mutual Funds, FDR, payment for LIC premium or whatever your heart wants.

 Now all of you must be having a question in your mind that how can you utilize this section. The following instruments are available in which you can invest to do the same :

a)     PPF (Public Provident Fund) – Return 8.60% Interest p.a. & main benefit is that even the interest earned is tax free. Normal maturity is 15 years.

b)    Mutual Fund – One of my favorite instrument because of its capacity to defeat the inflation rate. ELSS scheme available invests minimum 65% in Equity Market & 35% in Debt Instrument. 3 years lock-in-period. After 3 yrs gain is tax free.

c)     Life Insurance Premium – Premium paid for Term Insurance but subject to 20% of surrender value. Premium paid by you for yourself, spouse and children can be included.

d)    Home Loan Principal Repayment – The EMI that you pay every month includes two components i.e. Principal & Interest. The principal amount is allowable u/s 80C & interest is allowable under section 24 “Income from House Property”

e)     NSC (National Saving Certificate) – It’s a 6 yr small saving instrument. The rate of interest may be 6% p.a. approx.

f)      Fixed Deposit – 5 yr lock-in-period in any scheduled bank.

g)     Senior Citizen Saving Scheme – A recent addition made in this section & its very ravishing because its interest rate is 9% p.a. payable quarterly.

h)    ULIP (Unit Linked Insurance Plan) – It provides you dual benefit, one investment in equity instrument & second providing you insurance benefit.

i)       Tuition Fees/School Fees (excluding any payment towards any development fees or donation or payment of similar nature) – paid to university, school or other educational institute situated within India for the purpose of full time education for his/her children (max 2 children).

According to me point no. a & b are the most beneficial & powerful instruments to save tax. The aggregate amount of all above instrument upto Rs. 1,00,000/- allowable u/s 80C.

2)    Section 80CCF: This is the newly introduce section. In which upto Rs. 20,000/-  can be invested in Infrastructure Bond & easily save the tax on Rs. 20,000/- over and above the Rs.1,00,000/- allowable u/s 80C. Thus allowing you to save tax on upto Rs.1.2 lacs.

3)    Section 80D: Medical Premium paid by cheque/online e-payment/credit card upto Rs. 15,000/- for Self, Spouse, dependent children & upto Rs. 20,000/- for Senior citizen. But the most salient part is that if you paid the medical premium of your parents then also you can take the extra benefit of Rs. 20,000/- i.e. Total benefit Rs. 15,000/- (for own) + Rs. 20,000/- (of parents).

Above three sections are basic & most powerful tool to save the tax if invest or utilize fruitfully & effective way.

I am providing you the Tax Bracket table for all types of Individual which helps you analysis the Tax on Income.

  • Tax Bracket for Resident Male/NRI

Income                                                                              Tax Rate

Upto Rs. 1,80,000                                                         NIL

1,80,001 to Rs. 5,00,000                                             10%

5,00,001 to Rs. 8,00,000                                             20%

Above Rs. 8,00,000                                                      30%

  • Tax Bracket for Resident Woman Assessee

Upto Rs. 1,90,000                                                         NIL

1,90,001 to Rs. 5,00,000                                            10%

5,00,001 to Rs. 8,00,000                                            20%

Above Rs. 8,00,000                                                      30%

  • Tax Bracket for Senior Citizen above 60 yrs

Upto Rs. 2,50,000                                                         NIL

2,50,001 to Rs. 5,00,000                                            10%

5,00,001 to Rs. 8,00,000                                            20%

Above Rs. 8,00,000                                                      30%

  • Tax Bracket for Senior Citizen above 80 yrs

Upto Rs. 5,00,000                                                         NIL

5,00,001 to Rs. 8,00,000                                            20%

Above Rs. 8,00,000                                                      30%

 

I hope above all information help you to save Tax & if you have any queries/problems/issues regarding Tax matter you can send me a mail on pdrupani@gmail.com. And u can also find/join me on a Facebook as Preet Shah & on Twitter as  @preetvshah2010. I will give you my feedback & try to give you better than the best solution on a weekend.

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By, CA/MBA/CS-Inter  Prashant Rupani

 Next Blog: My next blog will on how Rs. 35/- per day saving gives heavy return – so be ready for that.

7 Comments

  1. Kunal Pawar /

    Thank you Prashant for this article!! Simple and easy to understand.

    I have a doubt about my taxes so will mail you soon.

    BTW looking forward to your next article! The Rs 35 per day one. Write soon

    • Amey Kanse /

      It is always advised to invest in mutual funds in a systematic manner (SIPs) to average out the ups and downs of the market. Considering that these ELSS schemes won’t be included under 80C as per the new tax codes, it doesn’t make sense to invest a lumpsum amount right now for tax saving.

      • Prashant/Preet /

        @ Amey Kanse….yeah i agree ELSS would not be possibly included in DTC. And lumpsum amount investment doesnt make any sense….but u can put ur hard money partly in d ELSS scheme & partly in PPF, bcz after 12 months ELSS will treated as LTCG nd its gain exempt from tax under DTC….Now market is very low & there are tons of potential to grow unit price in future & gv u good return..say 15% to 20%…nd on top of tht u can invest ur little penny on SIP basis (say Rs.1000/- p.m.), due to that u can balance ur portfolio nd reduce the risk of lumpsum investment u/s 80C already made…..nd this is also not taxable undre DTC after 12 month….

        Even if DTC introduced by next F.Y. most of the fund houses hopeful tht the Govt. will extend the tax benefit of ELSS under 80C…The President of one of the well known MF house “Franklin Templeton Investment” Harshendu Bindal says tht If the Govt. wants to encourage long term saving flow into capital market thn “ELSS is d Good option”…He point out tht d MF industry already prepared themselves to made a representation to the Govt. through “Assoc. of MF in India” to consider the continue tax benefit under ELSS scheme.

        Apart from above forecast view nd possibility according to me & as per current market scenario atleast partly lumpsum money hv to be invest in ELSS nd presently take benefit u/s 80C nd from the next year onwards u hv to consider as a monthly saving under SIP nd take the benefit of exempt Long Term Capital Gain (i.e. 10%)….In either cases whether 80C tax benefit available under DTC or not, u can save ur money & get good return within 3 years…The following r the best MFs:
        1) Canara Robeco Equity Tax Saver – last 3 yr return is 35.14%
        2) HDFC Tax saver – last 3 yr return is 34.06%
        3) DSPBR Tax Saver – last 3 yr return is 28.42%
        From the above we can see that almost 30% average return given by the ELSS scheme…even if it would not include in DTC for the purpose of 80C tax benefit, still my point of view is that its advisable to invest in it & go for good return…..Who doesnt want to earn 30% return p.a. without taking too much risk and without paying tax on LTCG (i.e.10%)?……Dual benefit…..

    • Prashant/Preet /

      thanx kunal….i am pleased that u liked it…u can mail me ur problem/issue…i wl try to gv u solution…..

  2. Sameer Bora /

    Also include amount paid for registration and stamp duty for deduction u/s 80C.

    • Prashant/Preet /

      @ Sameer Bhai…yeah iknw that…but i forgot to written….anywyz thanx

  3. (Dr.) B.N. Anand /

    Hello Kunal
    Thanks for posting this. Please advise me how much exemption, if there is any, on the interest earned from the saving bank account. Thanks

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