The financial year 2007-08 is coming to an end in the next couple of weeks. This is the last chance for investors who have not planned their tax savings this year to invest and save taxes. There are certain investments and expenses that are exempt from income tax under the Income Tax Act. Investors can review their tax planning and see if they missed out on something good. This can lead to a 33 percent savings on the amount invested through the reduction in their tax liability.
Here are some ways for an individual to reduce tax:
Tax rebate under Section 80C
Section 80C of the Indian Income Tax Act allows income tax exemptions to individuals on certain investments and expenditures. The maximum exemption allowed under this section is Rs 1 lakh.
Investors can invest Rs 1 lakh in one or more of these instruments to avail tax rebates under Section 80C:
- Provident fund or public provident fund (PPF)
- Life insurance (term insurance as well as endowment plans)
- Investments in pension plans
- Investments in equity linked savings schemes (ELSS) of mutual funds
- Investments in specified government infrastructure bonds
- Principal repayment of housing loans
- Investments in National Savings Certificates (interest of past NSCs can also be added to the Section 80 limit)
- School, college tuition fees paid for children (allowed only for two children)
Tax rebate under Section 80D
Investments in medical insurance (Mediclaim policies) are eligible for tax exemptions up to Rs 15,000. This deduction comes under Section 80D and is in addition to the Rs 1 lakh rebate allowed under Section 80C. The deduction allowed for senior citizens is Rs 20,000. An individual can avail this for medical insurance premiums paid for himself, spouse, parents and children.
Other avenues for salaried individuals
Medical reimbursement:
Salaried individuals can avail a deduction of up to Rs 15,000 per year against medical reimbursement.
This deduction can be claimed if the employer pays medical reimbursement as a component of salary as the employer will have to pay fringe benefit tax on this amount. The deduction is allowed only on providing proper medical expenses proofs.
Leave travel allowance (LTA):
Salaried persons can avail income tax deductions on travel expenses (family travel expenses can also be covered if family travels along with tax payer).
As per income tax norms, leave travel allowance can be availed twice in a block of four calendar years. Presently, the block applicable is from January 1, 2006 to December 31, 2009. 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).
Last minute planning
We are very close to the financial year end. However, there are some ways for you to review your tax profile and make some last-minute adjustments.
First of all, check if you have already exhausted your Section 80C limit of Rs 1 lakh. If the limit is not completely exhausted, you can look for some investments under the Section 80C category. If a long-term and safe investment is the objective, you can look at investing in PPF or pension plans. You can invest in infrastructure bonds or tax-saving mutual funds if your investment horizon is bit shorter.
Salaried people can check their medical reimbursement limit. If the limit of Rs 15,000 is not already exhausted they can plan health check-ups and save tax on their medical bills.
Investing in a medical insurance policy is another option to save tax, if your Section 80C limit is already exhausted. But, don't just invest for the sake of saving taxes.
Many companies provide medical cover to their employees, their children and dependant parents. In case you already have medical cover provided by your employer, think and make a case before investing in a new medical insurance policy.
