Some tips to ensure you avail all the benefits possible in the current financial year
The current financial year has come to an end and it's time for individuals to give the final touches to their income 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. It's time for investors to review their 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
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
Infrastructure bond
You can invest in specified long-term infrastructure bonds to claim a deduction up to Rs 20,000. The tax rebate for infrastructure bonds is in addition to Section 80C.
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 savings
Since it is the end of the financial year, it is advisable for you to review your tax savings and planning, and explore available options to minimise the tax liability.
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.
