Plan it - Save it - Income tax saving for 2014-15

The last financial year ended a fortnight ago, and its right time for individual taxpayers to plan their Income and give the final touches to their tax planning and savings.

There are many sections defined under the Income Tax Act that enable individuals to save tax by investing in various qualified instruments. Since your employer must have asked you to submit your investment declaration by now, It’s best time to plan your investments in tax-saving instruments and look at possibilities to save maximum possible tax in the current financial year.

These are some of the major sections that enable you to reduce your income tax liability:

Section 80C – of the Income Tax Act allows income tax exemptions to individuals on investments in certain instruments. The maximum limit to claim deduction under this Section is Rs 1 lakh. You can invest Rs 1 lakh in one or more of these instruments to avail tax rebate under Section 80C.

• Employee Provident Fund and Public Provident Fund
• Life insurance (term insurance as well as endowment plans)
• Pension plans
• Equity-linked savings schemes (ELSS) of mutual funds
• Specified government infrastructure bonds
• Principal repayment of housing loans
• National Savings Certificates (NSC) and interest accruals on previous years’ NSCs can also be added to the Section 80C limit

Home loan benefits

Housing loans provide tax relief. The principal repayment of a housing loan attracts rebate under Section 80C up to Rs 1 lakh and the interest payment attracts a rebate of Rs 1.5 lakhs.

Medical Insurance

In addition to Section 80C, there is Section 80D that enables an individual to claim rebate on mediclaim policies. Payment of premium for medical insurance (mediclaim) is eligible for tax exemption up to Rs 15,000. You can avail this deduction on medical insurance premium paid for yourself, spouse, parents and children.

Other deductions for salaried taxpayers

If your employer provides medical allowance, you can available an income tax deduction of up to Rs 15,000 per year by offering proof of the relevant expenses.

If the employer gives leave travel allowance as a part of your salary, you can avail income tax deduction on travel expenses (family travel expenses can also be covered if family travels along with the taxpayer). Leave travel allowance can be availed twice in a block of four calendar years. Presently, the block applicable is from 2010 to 2013. Leave travel allowance can only be availed on the expenses incurred on domestic travel. However, the travel mode can be anything (taxi, bus, train or air).

Time to review saving

As we mentioned earlier, it is the best time to plan for your investments to submit investment declaration to your employer, these are some factors you should keep in mind while taking decisions on saving tax:

First of all, try to exhaust the quota for Section 80C. You can look at various options to invest and save tax under Section 80C

Salaried people can also look at saving tax by planning the expenditures under medical allowance, child education allowance and conveyance allowance.

Investing in a medical insurance policy is another option to save tax, if your Section 80C limit is already exhausted. However, it is not advisable to take another medical policy just for the sake of saving tax, if you already have one.

EXPERT COMMENTS

Please use the below link to your tax planning 

http://law.incometaxindia.gov.in/DIT/Xtras/income_taxcalc.aspx

Readers should exercise their fine judgment while interpreting this article and this newsletter should not be considered as an advice to anybody to plan or otherwise design their investment pattern.