Friday, March 8, 2013

Ways to save on Taxes in fy 2013-14

Ways to save on Taxes


Now that the new financial year is round the corner, it’s good to see what options are available to us to save on our taxes. Not many, we all know, but let’s look at what little there are!


Let us first talk about the famous Section 80C.  Under this section you are allowed to deduct up to Rupees one lakh from your total income.  The tax you will save of course depends on your marginal rate – if you are at the highest rate, you will save about 30% of this amount.  To get something you always have to give up something – in case of 80C investments you agree to lock-in periods.


Some of the items allowed under this section, you may have already “spent” on or it may have been done for you.  Add up your contribution to PF for the year ; add any contribution to Voluntary Provident Fund with your employer if you have opted for it; tuition fees for your children; and principal repayments on your home loan. Add the premium you pay on your life insurance policies or ULIPs. If you have paid any amount on your own towards cost of purchase or construction of a residential property, add that too.


Now that you have done all that, if the sum exceeds Rupees one lakh you can stop, since the limit for Section 80C investments has been reached. If you have some money left from the limit, you have some options.


You can look at investment in Equity Linked Savings Schemes (ELSS) with a lock-in period of three years.  This comes with a good potential upside but has market risk attached. Or you can invest in Public Provident Fund (PPF) that will yield you around  8.5% p.a. currently – this is highly safe since it carries the guarantee of the Government of India. You can spend on insurance (I shall not use the word invest here – insurance is not an investment) – you would be well advised to stick to pure term insurance plans – the premium is deductible under Section 80C. You can invest in five-year (locked-in) Fixed Deposits with a Bank.


That’s all there is to it! There are a couple of other options like National Savings Certificates (no real advantage here – you can skip this option) and Post Office Savings scheme (too much hassle – skip this too).


Over and above the tax deductions available under Section 80C you have some other sections that you could take advantage of.  You have the new Rajiv Gandhi Equity Savings Scheme where if you are a first time investor in equity or mutual funds, and your annual income is less than twelve lakhs, you can invest upto Rs.50,000 for three consecutive years. You will be able to deduct 50% of the amount invested from your total income for tax purposes. Under Section 80D, Medical insurance for self, spouse or children up to Rs.15,000 is allowed as a deduction – you get an additional Rs.15,000 for premium paid for insuring parents. Section 80E allows a deduction for interest paid on loan taken for self, spouse, or children for the purpose of higher education.


The interest you earn on PF or PPF is fully exempt from tax – other interest is not.


You can also avoid paying taxes on capital gains from sale of long-term capital assets in certain cases. That is outside the scope of this article, but do check the provisions if you are selling any capital asset.



Unknown said...

I like the way that you are showing the latest information about tax saving under Section 80c. I get to know that person can can invest of Rs 1 lakh. Thanks for sharing the best information.

Katy said...

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