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Tax Planning

Tax planning is an important part of financial planning and it is not limited just to claiming deductions and finding some instruments which are eligible for deduction under Section 80C, 80CCC or 80CCD etc. We know that instruments like PPF, NSE, five year bank fixed deposit, principle amount of your home loan and so on constitute a list which is very big for claiming deductions under these sections.

 

But an important point that I want to point out is that suppose you have bought a house this year and paid stamp duty and registration charges, that is also eligible for claiming deduction under Section 80C. However, the total limit put together for Sections 80C, 80CCC and 80CCD which is the contribution to the National Pension System, totals to a limit of Rs 1 lakh.

 

In addition to that this year the government has introduced a new section called 80CCG which means if you are a new investor in equity and your income is less than Rs 10 lakh in this financial year, you can invest up to Rs 50,000 in Rajiv Gandhi Equity Scheme. So you should also plan for that. You can claim deduction of 50 percent of the amount you invest.

 

Apart from that, in Section 80D when you pay premium for your health insurance policy, you can claim deduction under that section. This year government has added one more thing to this, preventive health check-up. If you are going for preventive health check-up, expense up to Rs 5,000 can be claimed under this section, though the total limit is only Rs 15,000 for you, your spouse and children, plus additional Rs 15,000 can be claimed if you are paying premium for your parents.

 

If parents are senior citizens then the limit is Rs 20,000. There are various sections right from 80C to 80U for claiming deductions. Apart from that if you are a salaried individual and you are living in a rental house, do not forget to claim your HRA benefit. So you can claim the benefit of your rent paid as per the formula. If you are paying interest for home loan, you can claim deduction for that.

 

If it is a self-occupied house, the limit is Rs 150,000, but if it is a let-out property then there is no limit for claiming deduction towards interest paid for home loan and sometimes if the house is bought in a joint name then husband or wife both can claim to the extent of Rs 150,000, if it is a self-occupied house and both are contributing to the EMI.

 

These are basically sections applicable for claiming deductions. Apart from that there are certain tips that I want to give. There is a provision of Clubbing of Income. Sometimes when you invest in your minor child's name, interest earned on that will be added to a higher earning parent. It is not a good idea to invest in a minor child's name from your income because ultimately you will be paying tax on that and if you are giving some money to your spouse, that gift is tax free and there is no tax on that.

 

If the amount is invested, any income or interest earned on that will be added to the income given on that income. In such case, the person who is giving money will be paying tax on the interest amount, but there is no provision of Clubbing of Income if you pay some money to your parents and if it is invested by your parents.

 

If your parents are senior citizens or having a low income and you make one FD in their name or any investment in your parents' name, any interest earned on that will be considered your parents' income. You will not pay tax on that income. When planning for tax savings, you should consider all these things so that you can maximize your returns and minimize your tax burden.


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