Income Tax

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Here we have the famous saying "Everything We Have Is Taxed Including Our Patience".Oh why do we all have to pay taxes? Isn't there a way we can save on these Taxes? ,Here we have the famous saying "Where There Is A Will There Is A Way". Here in India the Government has provided us a way to save on our Income Tax by making use of the tax deductions available to us.

Let us consider the case of Mr Naveen a 65 year old Elderly citizen. He earns 14 Lakhs per annum working as a manager in a retail firm. Mr Naveen is very frugal and not only pays his taxes on time but also studies all available tax deductions which apply to him. The Income Tax Slab Shown below is the one which concerns him. In order to solve our Taxation queries you can leave a missed call for Prajna Capital on 94 8300 8300.

 

Income Tax Slab Rates for Male/Females Between 60-80 Years FY-2012-2013:

	INCOME		TAX RATE
Upto Rs 2.5 Lakhs		NIL
> INR 2.5 Lakhs-INR 5 Lakhs		10%
> INR 5 Lakhs-INR 10 Lakhs		20%
>INR 10 Lakhs		30%

Here Had Mr Naveen Not Been Using His Income Tax Deductions These Would Have Been The Rates Which Would Have Applied To Him:

TABLE 1:

	Heads		% of Income Tax		Income Tax
Up To INR 2.5 Lakhs		NIL		NIL
> INR 2.5 Lakhs – INR 5 Lakhs		10%		INR 25000
> INR 5 Lakhs-INR 10 Lakhs		20%		INR 100000
>INR 10 Lakhs		30%		INR 120000
Total				INR 245000
Educational Cess		3% of total tax		INR 7350
Net Tax Payable				INR 252350

 

Here this would be the Income Tax Rate payable by Mr Naveen had he not used his Income Tax Deductions.

Here Mr Naveen invests a sum of INR 100000 towards Senior Citizens Saving Schemes. This is tax deductible under Section 80C.

 

Senior Citizens Saving Scheme Under Section 80C:

·         Senior Citizens Saving Scheme is the most lucrative scheme among all small saving schemes and is meant only for senior citizens. Interest income is tax chargeable.

·         Current rate of interest is 9% per annum payable quarterly.

Here Mr Naveen undergoes treatment for a disease and claims INR 60000 as tax deductions under Section 80DDB.

 

Tax Deductions Under Section 80DDB:

·         Here we have deductions of INR 40000 or the amount actually paid, whichever is lesser for the treatment of a disease or an ailment of the tax payer or a dependent relative .Here the deductions will be reduced by an amount received under insurance of an insurer or if he is reimbursed by the employer. If he is a senior citizen then INR 60000 or the actual expenditure whichever is less.

Here Mr Naveen suffers from a minor physical disability and avails tax deductions of INR 50000.

 

Tax Deductions Under Section 80 U:

·         Deductions of INR 50000 to an individual who suffers from a physical disability including blindness or mental retardation. If an individual has severe disability deductions of INR 1 Lakh are available.

TABLE 2 :

	Heads				Amounts
Gross Taxable Income				INR 14,00,000
Less Senior Citizens Saving Schemes Under Section 80 C				INR 1,00,000
Less Tax Deductions Under Section 80DDB				INR 60,000
Less Tax Deductions Under Section 80 U				INR 50,000
Total Taxable Income				INR 11,90,000

 

 

TABLE 3:

	Heads		% of Income Tax		Income Tax
Up To INR 2.5 Lakhs		NIL		NIL
> INR 2.5 Lakhs -INR 5 Lakhs		10%		INR 25000
> INR 5 Lakhs – INR 10 Lakhs		20 %		INR 100000
INR 10 Lakhs		30%		INR 57000
Total Tax				INR 182000
Education Cess		3% on Total Tax		INR 5460
Net Tax Payable				INR 187460

 

·         Here we have Net Income Tax Payable INR 252350 (TABLE -1) where Mr Naveen has not done any tax deductions as per the various tax deduction instruments available to him.

·         Here we have Net Tax Payable INR 187460 (TABLE – 3) where we calculate the amount. Mr Naveen has saved when he made use of the tax saving instruments available to him.

·         Here the difference between TABLE 3 and TABLE 1 is the yearly amount Mr Naveen has saved on tax by making use of tax saving instruments available to him.This translates to a sum of INR 64890.

 

Here we have seen how Prudence, Financial Discipline, Frugality and other qualities have helped Mr Naveen save on his taxes. Don't you think we all need to inculcate these qualities in us so that they help us not only in saving our taxes but also in our day to day activities . I would like to end this article with the famous quote: "When There Is Income Tax The Just Will Pay More And The Unjust Less".

Happy Investing!!

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

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