TAX PLANNING AND TAX SAVING OPTIONS
Dilshad Billimoria
Since the full amount invested upto Rs 1,00,000 is eligible for 100% tax deduction benefit. This investment is reduced from your Gross Income and therefore, can reduce your tax slab and therefore tax liability. The benefit is a deduction and not a rebate, so, in effect, the entire amount saved is tax deductible.
Snapshot of Tax rates specific to Mutual Funds
These rates are subject to enactment of the Finance Bill 2011. The rates are for the Financial Year 2012-13.
1.Income Tax Rates
For Individuals, Hindu Undivided Families, Association of Persons and Body of Individuals
For general tax payers
| Income tax slab (in Rs.) | Tax |
| 0 to 2,00,000 | No tax |
| 2,00,001 to 5,00,000 | 10% |
| 5,00,001 to 10,00,000 | 20% |
| Above 10,00,000 | 30% |
For female tax payers
| Income tax slab (in Rs.) | Tax |
| 0 to 2,00,000 | No tax |
| 2,00,001 to 5,00,000 | 10% |
| 5,00,001 to 10,00,000 | 20% |
| Above 10,00,000 | 30% |
For senior citizens (Aged 60 years but less than 80 years
| Income tax slab (in Rs.) | Tax |
| 0 to 2,50,000 | No tax |
| 2,50,001 to 5,00,000 | 10% |
| 5,00,001 to 10,00,000 | 20% |
| Above 10,00,000 | 30% |
For very senior citizens (Aged 80 and above)
| Income tax slab (in Rs.) | Tax |
| 0 to 5,00,000 | No tax |
| 5,00,001 to 10,00,000 | 20% |
| Above 10,00,000 | 30% |
Note : Surcharge is nil and 3% cess will be charged on above tax.
(a) In the case of a resident woman below the age of sixty years, the basic exemption limit is Rs 2,50,000
b) In the case of a resident individual of the age of sixty years or above but less than eighty years, the basic exemption limit is Rs 2,50,000
(c) In the case of a resident individual of the age of eighty years or above, the basic exemption limit is Rs 500,000
(d) Surcharge is not applicable, education cess of 3% on income-tax is levied
(e) Marginal relief may be available
Capital Gains
| Particulars | Short-term capital gains tax rates (a) | Long-term capital gains tax rates (a) |
| Sale transactions of equity shares / unit of an equity oriented fund which attract STT | 15% | Nil |
| Sale transaction other than mentioned above: | ||
| Individuals (resident and non-residents) | Progressive slab rates | 20% with indexation; 10% without indexation (for units/ zero coupon bonds) |
| Firms including LLP (resident and non-resident) | 30% | 20% with indexation; 10% without indexation (for units/ zero coupon bonds) |
| Resident Companies | 30% | 20% with indexation; 10% without indexation (for units/ zero coupon bonds) |
| Overseas financial organisations specified in section 115AB | 40% (corporate) 30% (non-corporate) | 10% |
| FIIs | 30% | 10% |
| Other Foreign companies | 40% | 20% / 10% |
| Local authority | 30% | 10% without indexation (for units/ zero coupon bonds) / 20% (for others) |
| Co-operative society | Progressive slab rates | 10% without indexation (for units/ zero coupon bonds) / 20% (for others) |
(a) These rates will further increase by applicable surcharge & education cess.
Eligible Investments for deduction under Sec 80C
>Public Provident fund PPF upto Rs 100000 p.a -It is recommended investments are made in this avenue, before the 3rd of any month, to ensure, compounding is available for the full month, since calculations are made for interest on the balance lying in the account within the 3rd day of any month for the full month. This option provides for safe and guaranteed returns and a small allocation of savings for tax must be made in this, especially for retirement benefits.
>Equity Linked Savings Scheme (ELSS) in mutual funds. This option provides for market linked returns with a 3 yr lock in period. This is a liquid option and provides for high return with a corresponding higher risk proposition.
>Post Office investments- These investments have lost their attractiveness since the returns have reduced and the same is taxable. The lock in periods in these schemes also are high.
>Principal component of Home loan. The principal component of EMI in the home loan is eligible for deduction upto Rs 100,000 under Sec 80C.
>Tuition fees for child education. This is allowed as an exemption upto a maximum of 2 children.
>Five year fixed deposit in a scheduled commercial bank.
>Other eligible investments under Sec 80C.
>Senior Citizen Savings Scheme 2004- This option has recently been introduced as a savings option . The interest is taxable.
>Employee Provident Fund (EPF) This is the employee contribution made to the provident fund of 12% of Basic and DA. The rate of interest is 8.60% p.a. Only the employees contribution is eligible for tax deduction benefit. Although the employer contributes a similar amount to the EPF fund.
>Voluntary Provident fund: This option is available to salaried individuals who can invest upto the balance 88%(100-12% EPF) of their salary towards VPF. With the new DTC coming in, the amount on withdrawal maybe subject to TDS.
>Life Insurance and ULIP plans-This is an option for persons who would like to save in insurance.
>Pension plans- This is a must for planning for the long term. The younger you are, the lower would be your outflow for a retirement plan. Also, since retirement planning is the longest plan to be planned for which considers pre and post retirement interest rate and inflation rate, this goal must be planned for everyone. Therefore, any contribution made to these plans, is eligible for tax deduction under Sec 80C upto Rs 100000.
>Please note for Salaried Individuals, additional tax benefit can be sought through the following components of the Salary Structure:
1.HRA Deduction.
2.Conveyance Deduction.
3.Medical Benefit Deduction.
4.Leave Travel Allowance Deduction.
Therefore, the above deductions, can help reduce taxable income of an individual to a large extent.
In addition to the above, it is important to plan for your goals, and structure your savings accordingly. A Certified Financial Planner can help you on the same.
(Author is a Certified Financial Planner at Dilzer Consultants)
13 December 2012