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Check your tax liability

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In the last three months of a financial year, all we think about is tax saving.

We make most of our investment in those three months, for the sole purpose of saving taxes. Therefore, it is no surprise that most of us go overboard with our tax- saving endeavours. And, then, we end up not only carrying this burden for many more years to come but adding to it each tax season. This is the case with all types of taxpayers.

If you are wondering how to avoid this, here's the solution.

Know your tax liability for the year and you will not get into this trap of wrong investments.

Many pay advance tax by September each year ( say 2012) and any excess tax payment is refunded only by March or April, two years later (by 2014), making the refund process painful.  If delayed, interest payment on the refund starts only after April ( of 2014). Therefore, knowing the tax liability and paying accordingly helps. Second, investment instruments qualifying for tax exemptions aren't high- yielding ones and if one over invests in one, s/ he loses tax benefits on another, thus lowering the net benefit in the other instrument. While many might have heard of tax liability, they might not know how to calculate it. Here's some help:

Calculate total income

We take the example of a salaried individual ( 35- year old male). He also earns by way of interest income ( from savings bank account or fixed deposit or any other debt instruments) like most of us do. First, he should add all his incomes, that is, salary, interest income and annual payout( s), if any, like bonus and leave travel allowance ( LTA). This would give his total income on which he will be taxed.

Deductions from income

Not all his income is taxable. That part can be reduced from the total income before calculating tax liability. Of course, he will need to spend/ invest to avail of some of the deductions/ exemptions. For instance, show rent receipts to claim deductions under the house rent allowance ( HRA) head or show medical bills for reimbursements or making housing/ education loan repayment.

The popular deductions are available under Section 80C, under which some specified instruments can be invested in for deductions from the taxable income like employee provident fund ( EPF), public provident fund ( PPF), life insurance and so on.

You can also claim deductions under certain other sections such as section 80D ( payments towards health insurance for self and dependent parents), section 80DDB ( medical treatment of a dependent who is a person with disability), section 80G ( donations) and so on.

The remaining income after these deductions are made is the one on which you have to calculate and pay income tax.

Calculate taxable income

Income tax is applied in a has contributed ₹ 3,000 every month towards EPF and pays ₹ 5,000 every year as premium towards life insurance. He also donates ₹ 5,000 to a charity.

Therefore, his total income would be ₹ 5.76 lakh a year [( 25,000+ 10,000+ 5,000+ 7,500 +500) X 12].

Now, deduct the exempted incomes from the total income. The monthly transport allowance (₹ 500) is exempt from tax. The HRA would also be exempt from income tax. Thus, the taxable income comes to ₹ 5,76,000 – ((₹ 500+₹ 8,000) x 12), which is ₹ 4,74,000.

The donation made is also deductible by 50 per cent.

Thus, the taxable income would stand at ₹ 4,74,000 – ( 50 per cent of ₹ 5,000) = ₹ 4,71,500. After considering Section 80C deductions, that is, contributions towards EPF and life insurance premium, the taxable income would stand at ₹ 4,71,500 – [(₹ 3,000 X 12) + tax- related websites.

But these can be equally tedious income on the fixed deposit.

Apart from this, he could be paying advance tax every quarter by self- assessing his tax liability. Thus, the tax payable by him at the end of the year would be equal to the amount left after deducting TDS and advance tax from the tax amount calculated above.

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

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You can write back to us at PrajnaCapital [at] Gmail [dot] Com

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Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax PlanInvest Online
  2. HDFC TaxSaverInvest Online
  3. DSP BlackRock Tax Saver FundInvest Online
  4. Reliance Tax Saver (ELSS) FundInvest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) FundInvest Online
  7. SBI Magnum Tax Gain Scheme 1993Invest Online
  8. Sundaram Tax SaverInvest Online
  9. Edelweiss ELSS Invest Online

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Best Performing Mutual Funds

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      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
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      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
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      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
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      4. IDFC Premier Equity Fund
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      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFundsInvest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

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