Income Tax Saving Techniques

December 23, 2010   ·   2 Comments

www.stockssavvy.comTill now, we learnt how to calculate Income Tax. Now we will concentrate on How to Save Income Tax

Income Tax Saving Techniques:

 

1) Section 80D: Medical Insurance Premiums

Health insurance, popularly known as Mediclaim Policies, provides a deduction of upto Rs. 35,000.00 (Rs. 15,000.00 for premium payments towards policies on self, spouse and children and (read as in addition to) Rs. 15,000.00 for premium payment towards non-senior citizen dependent parents or Rs. 20,000.00 for premium payment towards senior citizen dependent). This deduction is in addition to Rs. 1,00,000 savings under IT deductions clause 80C. For consideration under a senior citizen category, the incumbent’s age should be 65 years during any part of the current fiscal, eg. for the fiscal year 2010-11, the incumbent should already be 65 as on March 31,2011), This deduction is also applicable to the cheques paid by proprietor firms.

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2) Exemption for Home Loan

For self occupied properties, interest paid on a housing loan up to Rs 1,50,000 per year is exempt from tax.(Excluding Rs.1,00,000/p.a. u/s 80c Saving) However, this is only applicable for a residence constructed within three financial years after the loan is taken and also the loan if taken after April 1, 1999. If the house is not occupied due to employment, the house will be considered self occupied.

What’s Important: One Can Increase the Exemption Limit of 1.5 Lacs. Here is How:

For let out properties, the entire interest paid is deductible under section 24 of the Income Tax act. However, the rent is to be shown as income from such properties. 30% of rent received and municipal taxes paid are available for deduction of tax.

The losses from all properties shall be allowed to be adjusted against salary income at the source itself. Therefore, refund claims of T.D.S. deducted in excess, on this count, will no more be necessary

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www.stockssavvy.com3) Exemption for Education Loan (80 E):

Deduction amount: – The amount of interest paid is eligible for deduction and moreover there is no cap on the amount to be deducted. You can deduct the entire interest amount from your taxable income. However there is no benefit available on the repayment of principal amount of the loan. i.e. Only Interest paid to the Bank will come under Exemption.e.g. If the Loan Amount is 1 Lac Rs. & Interest paid is 20,000 Rs. then the Amount for which Exemption can be Taken will be 20,000 Rs. Only.

Loan should be in the name of Individual: – Deductions on education loan can only be claimed if the loan has been taken in your own name. If your parents, spouse or sibling has taken the loan for your studies, then you are not entitled to get tax benefit.

Deduction period: – Deduction shall be allowed in computing the total income in respect of the initial assessment year* and seven assessment years immediately succeeding the initial assessment year or until the interest is paid by the assessee in full, whichever is earlier. i.e. Max. of 8 Years in Total is allowed.

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4)      Exemption for Physically Handicapped (80 U) or Dependents Physically Handicapped(80 DD):

Total Limit for Dependents Physically Handicapped(80 DD) is 75,000 Rs.

a) A deduction of Rs. 15,000 u/s 80DD was allowed to an individual or HUF in respect of expenditure incurred on medical treatment of a handicapped dependent. Similarly, u/s 80DDA a separate deduction to a parent or guardian in respect of deposits upto Rs.20,000 made in specified schemes of Life Insurance Corporation & Unit Trust of India was available to provide for the future needs of the said dependent Making the sum to 35,000 Rs.

b) The old sections 80DD and 80DDA have been merged into a new see. 80DD. Now, w.e.f. 1-4-2000 i.e. for A.Y. 2000-01 and subsequent years, a total deduction of Rs.40,000 will be available to the parent or guardian in respect of either medical expenditure incurred on medical treatment of or for the future needs of the disabled or handicapped dependent.

Exemptions for persons with disability and families:

There are special tax concessions in the Income Tax Act for disabled persons. Section 80 U allows an exception of Rupees 40,000 from the income of the assessee with disability. (Apart from 80DD benifits to parents)

In Case of Physically Handicapped Persons
A person who is suffering from permanent physical disability or mental retardation is entitled to deduction upto Rs. 40,000.
Handicapped must be certified by a physician, surgeon or a psychiatrist who is working in a government hospital.
Under section 80DD and 80U of Income Tax Act, physical disability must be one of the following:
Permanent or more than 50% disability in limb
Permanent or more than 60% disability in 2 or more limb
Permanent loss of voice
Permanent blindness
Mental Retardation in which mental intelligence is less than 50% of normal required intelligence

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5)  Investment Under 80 C & Infrastructure Bonds 80 CCF:

This is going to be our Business Area.

Popular Investment Options

  • PPF (with post offices/banks), statutory Provident fund (deducted and paid by the employees).
  • Life insurance premium (with the LIC or other private insurers).
  • Unit-linked insurance (UTI & ULIPS)
  • Equity-linked saving schemes(ELSS Mutual Funds)
  • National Saving Certificates.
  • Infrastructure bonds (Investment Under 80CCF)
  • Monthly Income Scheme(MIS)
  • Kisan Vikas Patra

I Have given a snap shot what comes under Investment under 80 C. Details on how to Pick Life Insurance, mutual Funds & others will follow soon in another Post:

Public Provident Fund

* PPF (with post offices/banks), statutory provident fund (deducted and paid by the employees).
* Minimum Limit – Rs. 500
* Maximum Limit – Rs. 70,000
* Tenure – Minimum 15 years
* Investment has to be made every year

It can be opened at any branch of the SBI or its subsidiaries, at any post office or at the branches of specially nominated nationalised banks. The withdrawals are restricted to 50 per cent of the balance standing at the end of the 4th year.

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Life Insurance

* Maximum Limit – Rs. 1 lakh.
* Premium paid in any year should not exceed 20% of the sum incurred (issued after 1 April 2003).
* The sum paid in excess of 20% will not be allowed for any deductions.
* The tax-free status is limited to direct taxes and not to the service tax payable on insurance maturity.

ULIP

* It is the combination of investment fund and insurance policy.
* Minimum Limit – Rs. 15,000 with annual contribution of Rs. 1,000.
* Maximum Limit – Rs. 2 lakh with annual contribution of Rs. 20,000.
* Age of the investor – 12 – 55 years 6 months.
* It is also exempt from wealth tax.
* Service tax may be charged since insurance cover is taken.

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ELSS (Equity Linked Savings Scheme)

* Maximum Limit – Rs. 1 lakh.
* It offers investors a window to benefit from the ‘power’ of equities, with tax benefits as a sweetener.
* Lock-in period – 3 years.
* Liquidity option is curtailed.
* It has risk but the return is maximum, even up to 47%.

National Saving Certificates (NSC)

* Offers flexibility like PPF.
* Available at any post office in a denomination as low as Rs. 100.

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Infrastructure Bonds (80CCF)

* Investments are in the form of shares/ debentures/ bonds issues by public Non-Banking financial institutions like LIC,IDFC,LNT
* These are useful for investment made for long run. The Maximun Investment under 80CCF is 20,000 Rs. . The Interest Paid is Non-Taxable.
* Money is returned in a relatively longer period like 5 years or 10 years. After 5 Years, A person get the option to sell the Bonds whereas in 10 Years, No Such Option is gven to the Holdee.
* The interest rate is the prevailing interest rate. For 5 Years, Interest Rate is 7.5 % & for 10 Years, Interest Rate is 8 %

Monthly Income Scheme (MIS)

* 8% of interest.
* Bonus of 5% on maturity.
* Minimum Limit – Rs. 1,000
* Maximum Limit – Rs. 3 lakh (Rs. 6 lakh for joint account).
* Maturity Period – 6 years
* Lock-in Period – 3 years
* Withdrawal before 3 years there is a deduction of 3.5%
* Withdrawal after 3 years but before 6 years, bonus will not be paid

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Kisan Vikas Patra

* Money doubles in 8 years and seven months.
* Available at any post office in denominations of Rs. 100, Rs. 500, Rs. 1,000, Rs. 5,000 and Rs. 50,000.
* Interest is paid only after maturity.

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Rajesh Singla

Rajesh is the founder & CEO of Stockssavvy, Stocks analyst,financial advisor by choice,software engineer by fate,biker,gamer,cricket lover n enthusiastic person. He believes in doing things not just to get by but to get Ahead...

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  • AUM Financial Advisors

    Thanks for detailed description on the vital topic. I do believe to avail Tax deduction from total income as allowable in Income Tax Act is a pivot investment avenues

  • Rajesh

    Thanks for the Compliment. I hope other People reading the article will too find it useful.

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