Tax planning: Donít follow the herd

Nov 12 2012, 09:28 IST
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SummaryThe Income Tax Act allows for several ways to save your tax outgo.

investing in certain financial products. This was provided for by the government to encourage savings in the country. Section 80C investments include life insurance policy, Public Provident Fund (PPF), provident fund (PF), equity-linked savings scheme, home loan principal repayment, New Pension Scheme (NPS), pension products, mutual funds and tuition fee for up to two children. The section offers deduction up to Rs 1 lakh for the taxpayers. Under PPF alone, you are allowed to invest up to Rs 1 lakh per annum. Many experts are of the view that the PPF is one of the best options available for tax planning. This is because, not only the investment in the PPF is tax free, the interest earned is also tax free.

The New Pension Scheme (NPS) is also, what tax experts say, a ďfantasticĒ avenue to put in your money for tax saving purpose as up to 10 per cent of an employeeís basic salary put in the NPS is tax deductible. However, you can avail of the benefit only if the employer has included this benefit in the CTC (cost to company).

Aggarwal says that people often ignore the tuition fee component while working on their tax saving plans. ďThose who donít have enough cash to invest in 80C schemes can easily use this if they have children studying. There is no ceiling on the fee. It is allowed up to Rs 1 lakhĒ. The benefit is available for maximum of two children. The principal repayment on a home loan is eligible for a deduction of up to Rs 1 lakh per annum.

Medical claims: Under Section 80D, if you have a medical insurance, a deduction of Rs 15,000 per annum on premium is allowed while an additional deduction of up to Rs 15,000 per annum is allowed for premium payment made for parents. In this yearís Budget, within the existing limit for deduction for health insurance, the government has allowed a deduction of up to Rs 5,000 for preventive health check-up. You will be able to claim this as well this fiscal year.

Home Loan Interest repayment: Individuals who have bought a house through home loan are allowed to claim a deduction of up to Rs 1.5 lakh per annum on the interest payments. This falls under Section 24 of the I-T Act. This is a good option for taxpayers who are not able to utilise section 80C

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