Year End Considerations For Smart Income-Tax Planning

Year end tax planning

Tax and financial planning share a close relation with each other given the fact that taxes serve as a huge expense which can bring down your overall income. This is the very reason behind tax-planning serving as an important part of the overall financial planning process. But in most of the cases, we fail to assess our tax liability and thus postpone making tax savings investment up till the last minute. Tax planning is treated with adequate importance in India only during the last two quarters of a financial year which results in taxpayers shelling out unnecessary taxes or investing in tax savings schemes which might not usher in any additional benefit. Keeping such things in mind, you need to consider tax planning as an integral part of your comprehensive financial plan and accordingly optimize the tax planning strategies.

  • Section 80C, 80CCC and 80CCD(1)

Salaried employees often refer to Chapter VI-A for benefitting out of massive tax savings as it allows both individuals and HUFs to claim deduction ranging up to 1.5 lakh INR on making certain specified investments. However, such deductions cannot be claimed by an assessee while filing income arising out of capital gains. Thus, Section 80C becomes completely null and void for people enjoying just capital gains as the solitary source of income. Some of the investment vehicles under 80C are even supported by government for encouraging the savings habit amongst individuals which can be of great assistance during their retirement. We have presented a bird’s eye view of the available investment vehicles which can be availed by assesses u/s 80C, 80CCC and 80CCD(1) to claim the maximum exemption ceiling:

  • Life insurance premium
  • Employee Provident Fund (EPF)
  • Equity Linked Savings Scheme (ELSS)
  • Annuity/ Pension Schemes
  • Tuition fees for children
  • Principal payment on home loans
  • Contribution to PPF Account
  • NSC (National Saving Certificate)
  • Sukanya Samriddhi Account
  • Fixed Deposit (Tax Savings)
  • National Pension Scheme
  • Post office time deposits
  • Interest On Home Loan Under Section 80C And Section 24

This can serve as a key tax saving tool for all salaried employees as they provide the option of claiming deduction ranging up to 2 lakh INR per annum for interest on home loan of a self-occupied property. The deduction is allowed for the entire interest amount pertaining to the home loan if the house property is let out. From FY 2017-18 onward, loss arising out of house property can be set off against other income sources up to the maximum limit of 2 lakh INR. Assesses can also claim the principal amount of their housing loan as a deduction u/s 80C up to the maximum ceiling of 1.5 lakh INR.

  • Deduction u/s 80D On Medical Insurance

This deduction can be claimed in addition to the one availed u/s 80C allowing tax-payers to benefit out of considerable savings arising out of medical insurance premiums on account of self, spouse, children and dependent parents. A deduction ranging up to 25000 INR can be claimed on premium paid for self or family whereas the limit rises up to 50000 INR in the case of senior citizen parents. Health check-ups ranging up to 5000 INR can also be claimed within the comprehensive limit of 25000 INR or 50000 INR depending on the specific case.

  • Deduction u/s 80E on Loan for Higher Education

Exemptions can be availed by taxpayers on interest paid on educational loans provided the same has been taken from a financial institution or bank especially for pursuing higher education whether in India or abroad either by the assessee, his spouse or children. This deduction can be claimed starting from the onset of the year when loan is being repaid and ranging up to the seven following years or prior to loan repayment whichever comes earlier.

  • Deduction u/s 80G on Donation

Income tax exemption can be claimed by an assessee donating to charitable institutions although the quantum of donation varies in accordance with the receiving organisation, Thus, while one might be eligible for 50% exemption, contributions made to another can help you in gaining 100% exemption on the donation amount.

  • Deduction u/s 80TTA on Savings Account Interest

A deduction ranging up to 10000 INR is offered by the Income Tax Act 1961 on income earned via bank interest. Both individuals and HUFs can claim exemption on the same. The entire amount shall be allowed in the form of deduction if income from bank interest is below 10000 INR.

Proper tax planning practices hint at smart payment of taxes by making the most out of the provisions under Income Tax Laws which can actually minimize your tax liability.