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Sunday, October 16, 2011

Some Tax Saving Strategies



People are always concerned about the Tax and Tax related issues. They don’t like to pay huge amount every year as income tax to the government instead search for alternative ways to save tax. Is there any way to save Tax? Yes, there are many ways to reduce the Tax burden. In this article we are going to discuss about the Tax saving Strategies after the Budget 2011.

Highlights of Union Budget 2011

      1.    The basic tax exemption limit has been increased to Rs 1,80,000 which will provide tax relief of Rs 2,060 to all tax brackets.
      2.    For senior citizen the exemption limit has been increased from Rs. 2,40,000 to Rs. 2,50,000/-
      3.    For senior citizen the qualifying age reduced from 65 years to 60 years.
      4.    New tax slab for senior citizens of over 80 years in age (Super Seniors) who will not be required to pay   taxes for income upto Rs 5,00,000
      5.    The Rs 20,000 exemption limit for investments into Infra bonds continues for this year also
      6.    The Govt. is also thinking of doing away with the requirement of filing returns if salary is your only source of income and TDS is being deducted.


Ways to save Tax
Following are the ways to save tax after the budget 2011. There are so many sections which will help you to save tax in different ways. Here we are trying to point out some of the techniques to save tax.

     ·         Restructuring of Salary
     ·         Section 80C
     ·         Medical insurance
     ·         Medical Treatment
     ·         Infrastructure bonds
     ·         Donations
     ·         House Rent Allowance
     ·         Home Loans
     ·         Leave Travel Allowance
     ·         Tax on Bonus

Restructuring of Salary
Restructuring of your salary may not be possible always. But if your company permits, or if you are on good terms with your HR department, restructuring a few components of your salary could really help in reducing your tax liability. Following are the components which should include in your salary.

     ·         Food coupons
     ·         Medical allowance
     ·         Transport allowance
     ·         Education allowance
     ·         Uniform expenses (if any)
     ·         Telephone expenses 
     ·         Company Cab

Food coupons are exempt from tax up to Rs 60,000 p.a. So opt for food coupons instead of lunch allowances. Opting for the company car instead of using your own car will help you to reduce high prerequisite taxation.

Produce bills of actual expenses incurred for all these allowances to reduce tax.


Section 80C
Section 80C offers a maximum deduction up to Rs. 1, 00,000. You can avail this benefit by investing in different investment options. Utilize this section to the fullest by investing in any of the available investment options. A few of the investments are as follows.
  
      ·         Public Provident Fund
      ·         Employee Provident Fund (EPF)
      ·         Life Insurance Premium
      ·         Unit Linked Insurance Plans (ULIPs)
      ·         Equity Linked Savings Scheme
      ·         National Savings Certificate
      ·         5 year fixed deposits with banks and post office.
      ·         Home Loan principal repayment
      ·         Tuition fees paid for children’s education, up to a maximum of 2 children.

Deductions: Upto Rs. 1,00,000

Infrastructure Bonds (Section 80CCF)
In addition to the Rs 1,00,000 deduction under 80C, a deduction of Rs 20,000 is also available for investments in notified Infrastructure Bonds

Deductions: Upto Rs. 20,000

Medical Insurance (Section 80D)
By taking medical insurance for you, your spouse/ children and parents, you can avail tax benefit. For medical insurance of self spouse and dependent children you can avail a deduction up to Rs. 15,000. If you are taking medical insurance for your parents above 65 years you will get deduction upto Rs. 20,000.

Deductions: Upto Rs. 35,000


Medical Treatment(Section 80DD)
Amount spent for the medical treatment of dependents with a disability qualify for tax benefits under Section 80DD. In this case, deductions up to Rs. 50,000 or 75.000 can be claimed based on the importance.

Deductions: Upto Rs. 75,000

Donations(Section 80G)
Donations to specified funds or charitable institutions

Deductions: There is no upper Limit

House Rent Allowance (Section 80GG)
Are you paying rent, you can get deduction on house rent paid even if you are not receiving any HRA (House Rent Allowance). The least of the following could be claimed as deduction under Section 80GG :-

     ·         25% of the total income or,
     ·         Rs 2,000 per month or,
     ·         Excess of rent paid over 10% of total income
·         
This deduction will however not be allowed, if you, your spouse or minor child owns a residential accommodation in the location where you reside or perform office duties.
·         If HRA forms part of your salary, then the minimum of the following three is available as exemption.
·         The actual HRA received from your employer
·         The actual rent paid by you for the house, minus 10% of your salary (this includes basic + dearness allowance, if any)
·         50% of your basic salary (for a metro) or 40% of your basic salary (for non-metro).

Home Loans (Section 24)
You can use your home loan efficiently to save income tax. The principal component of your loan, is included under Section 80C, offering a deduction up to Rs. 1, 00,000. 
At the same time the interest portion offers a deduction up to Rs. 1, 50,000 separately under Section 24.

Leave Travel Allowance (Section 10(5))
Use your (LTA) Leave Travel Allowance for your holidays, which is available twice in a block of four years. In case you have been unable to claim the benefit in a particular 4 year block, you could now carry forward one journey to the succeeding block and claim it in the first calendar year of that block. Thus, you may be eligible for three exemptions in that block.


We will see few more tax saving strategies in further articles. As DTC is going to change some clauses these may change. Will update it accordingly. Till then any comments are welcome.


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