As the new fiscal year begins start planning your tax now

Planning our taxes needs proper knowledge of all available options and sufficient time. Often we realise it late and end up in inefficient tax planning. March always sees a spike in investments as we have to finish utilise our deductions by 31st March to take advantage of the tax exempt opportunities.

If we start our tax planning early, we will have plenty of time to work on strategies to lower our tax expense for the coming year. We will also have sufficient time to make changes in our strategy in case we have not optimally taken advantage of the available options.

Every individual should have knowledge about personal finance and tax planning. We can take the help of a financial advisor or a Chartered Accountant. However, they usually serve several clients and might not understand your needs as much as you can. They can guide you with your investments but some amount of personal time and energy should be reserved for managing your money.

Recently our Hon’ble Finance Ministry Shri Arun Jaitley presented the Union Budget for 2015-16 where he said that we can have atleast Rs 4,44,200 as tax free income.

Here is how we get there:

Amount (Rs)
Deductions under 80C1,50,000
Deductions under 80CCD for contribution to NPS50,000
Interest on house property loan2,00,000
Exemption with new transportation allowance of Rs. 1,600 per month19,200
New deductible health insurance premiumRs 25,000

Besides there were some extra relief announced for the middle class tax payers with the following concessions:-

  • Health related benefits
    • For senior citizens the limit of deduction in respect of health insurance premium has increased to Rs 30,000 from the existing Rs 20,000
    • For very senior citizens of the age of 80 years or more, who are not covered by health insurance, deduction of Rs.30,000 towards expenditure incurred on the treatment will be allowed
    • The deduction limit of Rs.60,000 towards expenditure on account of specified diseases of serious nature is proposed to be enhanced to Rs.80,000 in case of very senior citizens.
    • Additional deduction of Rs.25,000 will be allowed for differently-abled persons under Section 80DD and Section 80U of the Income-tax Act
  • Pension
    • The limit on deduction on account of contribution to a Pension Fund and the New Pension Scheme is proposed to be increased from Rs. 1 lakh to Rs. 1.5 lakh
    • Additional deduction of Rs.50,000 is proposed to be provided for contribution to the New Pension Scheme under Section 80 CCD
  • Investments in Sukanya Samriddhi Scheme are already eligible for deduction under Section 80C. All payments to the beneficiaries including interest payment on deposit will also be fully exempt
  • Transport allowance exemption is being increased from Rs.800 to Rs.1,600 per month.
  • For the benefit of senior citizens, service tax exemption will be provided on Varishta Bima Yojana

Sections of tax deduction other than 80C

80D: The premium, which is paid for medical insurance policy for self and family members, comes under this section.

DescriptionMedical Insurance premium paid in respect ofTotal Deduction under section 80 D
Self, Spouse & Dependent childrenParents (dependent or not)
No one in the family is 60 years oldRs. 25,000Rs. 15,000Rs. 40,000
Parents of Assessee are above 60 years of ageRs. 25,000Rs. 20,000Rs. 45,000
Assessee and his parents are 60 years and aboveRs. 30,000Rs. 20,000Rs. 50,000

80DD & 80U: If you are paying a premium to any insurance company for the medical treatment of a dependent (spouse, children, parents or sibling) physically disabled person, or you are suffering from any disability, you can avail exemption under the section 80DD & 80U respectively. If the person is suffering from 40 per cent of any disability, a fixed sum of Rs 75,000 can be claimed in a year. Similarly, if the disability is 80 per cent, the fixed sum goes up to Rs 1,50,000 per year.

80DDB: If you have incurred expenses for the medical treatment of self or your dependents suffering from a specified disease, you can claim a deduction of up to Rs 40,000 or the actual amount paid, whichever is less, under the section 80DDB. For a senior citizen and very senior citizen, the maximum exempted amount is Rs 60,000 and Rs 80,000, or the amount actually paid for medical expenses respectively.

80E: The interest paid on loan taken for pursuing higher education of self or any dependent is exempted from tax under section 80E. This deduction is applicable for a period of eight years or till the interest is paid, whichever is earlier. No exemption is applicable for part-time courses.

80G: One often donates on philanthropic grounds to help the destitute. Such an amount can be donated to trusts, charitable institutions and approved educational institutions, and qualifies for deduction under Section 80G. The exemptions can be up to 50 per cent or 100 per cent of the donations made.

80GG: If a salaried or self-employed person staying in a rented house does not receive any kind of HRA, they can claim a deduction under this section. However, you cannot avail any such benefit if you, your spouse and/or your child owns any residential accommodation in India or abroad. You can claim the least of the following under Section 80GG: 25 per cent of the total income, or Rs 2000 per month, or excess of rent paid over 10 per cent of total income.

80GGC: Any monetary contribution to any political party or electoral trust is eligible for tax exemption.

80CCG: Section 80CCG offers 50 per cent tax break to new investors who invest up to Rs 50,000 and whose GTI is less than or equal to Rs 10 lakh. It has been introduced for budding investors entering the equity markets for the first time and is once-in-a-lifetime benefit.

Some tips for proper tax planning

  • Take advantage of all the exemptions and deductions
  • Ensure that income tax is filed for every member of the family even senior and very senior citizens
  • Plan taxes as a couple.
    • Take care of non-clubbing provisions
    • A residential house jointly owned by you and your spouse can get you maximum deduction of Rs 2 lakhs in both the files
  • Plan the tax of your kids
    • Take education loads for major unmarried children
    • For minor children, income is clubbed with the parents and a deduction of only Rs 1,500 pa is available. You can buy Mutual Funds or direct investments in stock market in the name of minor child so that after one year the income received is tax-free
    • You can also create Special 100% Welfare Trust for the minor child so that the income-tax file of your minor child can be started without attracting the clubbing provisions
  • Take out time and think whether you and your family are adequately insured. The actual need for insurance in today’s life goes beyond the tax deduction of 80C. In case you have a loan, get a Term Policy equivalent to the amount of loan outstanding
  • In case you are planning to shift abroad, then shift during 1st April 2015 to 30th September 2015. If you leave after October you will not be considered an NRI in this fiscal year. Non-Resident Indians are not required to pay income-tax for their foreign income.  They pay income-tax only on Indian income
  • Once a year, there should be a physical tally of all your assets
  • In case you are buying a new property, buy it jointly in the name of husband and wife with their individual funds and so that both of them can take the benefit of tax deduction.
  • If you are investing in stock markets, hold your investments for one year so that the profit is tax free.
  • If you have gains from selling assets this year, review your portfolio to harvest losses to offset the profits. You can mix and match, offsetting real estate gains with stock market losses and vice versa

Estimate your taxes midyear to avoid getting any shocks by the end of the fiscal. Your taxes can fluctuate from year to year depending on several factors. Considering previous year’s taxes as an estimate of current year tax might not be the right way; and can result in delays in proper planning.

Utilise this new fiscal year to the fullest!

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