Tax Planning deals with making investments for the purpose of reducing the tax liability and increasing returns.
Let us know the key to tax planning here in detail now.
All individuals should try to plan his taxes to increase his income by decreasing his amount of taxes.
The key to Tax Planning —
The amount of tax payable has direct relation with the sources of income. What you earn from your salary, from your business, from your house property, your income received from bank interests, etc. and the amount and kinds of investments made, decides your tax liability. The tax rate is different for different sources of income. Some of the incomes are exempt and there are many deductions provided to the total income and from its total tax.
The deductions are available for the variety of tax saving instruments but the rate of deduction offered is different. Tax planning refers to selection of the kinds of tax saving instruments for investing the extra income by keeping in mind the source of your income, time period for investments, kind and quantity of tax benefits that are available, etc.
Chapter VI A of the Income Tax Act deals with the deductions available.
Incomes not part of your total income:
Section 10 of the Income Tax Act deals with the types of incomes which are not part of total income. Examples of such allowances are Conveyance Allowance, Regular Allowance, Uniform Allowance, etc.
Tax saving schemes:
- The deposits in Public Provident Fund accounts are allowed exemption as per the provisions of section 80C of the Income Tax Act. The interest earned from them is totally exempt from tax and such an account cannot be attached by virtue of a decree of a court.
- The investment under Special Term Deposit Scheme of Bank is allowed exemption as per the provisions of section 80C of the Income Tax Act.
- The investment in National Savings Certificates is also allowed exemption as per the provisions of section 80C of the Income Tax Act though its interest is taxable.
- The investment under Deposit Scheme in Post Offices is also allowed exemption as per the provisions of section 80C of the Income Tax Act from the financial year 2007-08.
- The repayment of home loan up to a limit of Rs. 1, 00,000/- is allowed exemption as per the provisions of section 80C of the Income Tax Act.
- The investment in health insurance of self or family members is given exemption according to Section 80D of the Act up to Rs. 20,000/- in case of senior citizens and up to Rs. 15,000/- in case of other people.
- The premium paid by people towards life insurance of oneself or his spouse or child is allowed deduction from income as per the provisions of section 80C of the Income Tax Act up to a maximum of Rs. 100,000/-
- Deduction is allowed as per section 80E of Income Tax Act for any amount paid towards interest on education loan taken by an individual from any financial or charitable institution for the education of his relative like spouse or children.