With the financial year coming to a close in three months, many people are yet to manage their personal tax matters. Here are the key takeaways to consider for the tax planning.
Look beyond Section 80C: It is important to know there are quite a few avenues for tax deductions beyond investments under Section 80C. There are several expenses eligible for deduction, such as interest paid on education loan and mediclaim insurance payments. Donations to charitable organisations also qualify for a deduction. However, a taxpayer needs to do his homework, as all donations do not qualify for 100% deduction.
Medical insurance: A taxpayer could enjoy a minimum deduction of R15,000 while paying for his medical insurance under Section 80D. It is important to note that payment on account of preventive health check-ups subject to a cap of R5,000 is also included but within the overall cap. Further, for a policy taken for senior citizens, an additional deduction of R5,000 is available. In case you do not have a medical insurance, it is recommended to have one, even if you find the same a little costlier.
Taxes on each investment differs: It is important to understand that each tax-saving investment gets a different tax treatment. An exemption is claimed on interest earned on the PPFs. On other hand, income on fixed deposits (FD) and National Saving Certificates (NSC) are subject to taxation. A taxpayer needs to be cautious about this and perform a cost-benefit study ahead of deciding on the nature of investments.
Invest periodically: Most of us consider making the tax investments only when the employer seeks a declaration. It is advisable to plan for investments at the start of the year and periodically contribute to the same. Last minute tax investments may have limited choices and end up in hasty decisions.
Wealth tax filing: As a taxpayer, you must assess whether a wealth tax filing is needed in your case. Though the wealth tax filing date is same as the income tax returns filing date, most of us are unaware of this requirement. If your taxable income exceeds R30 lakh, computed as per the Wealth Tax norms, it would be worth listing out your assets to avoid surprises in the future.
Clubbing income: A taxpayer may have transferred a few assets to his spouse on the assumption her taxable income is comparatively lower. Under the Indian tax laws, if an individual transfers any asset to his spouse without any adequate consideration, the income on that asset needs may qualify to be taxed. One should take a careful look at the situation and may have to be prepared for additional tax liability. It is wiser to pay advance tax on the additional income in such a situation.
Amarpal S Chadha
The writer is Tax Partner, EY India