The goal of every Tax payer is to minimize his tax liability by efficient tax planning. This entails utilizing tax exemptions, deductions, rebates and reliefs. Income-tax is payable on the income earned during the previous year from 01 April to 31 March and it is assessed in the immediately succeeding financial year called ‘Assessment Year’. Tax Returns are annually filed by the 31st of July.
Tax payers must consider the various exemptions as provided by the government to minimize tax liability. Sections 80C provides a deduction of 1, 00,000 for investments in Life Insurance Premiums, deferred annuity, provident fund, and specific equity shares. 80CCC permits a deduction of 10,000 for contribution to certain pension funds and 80D Rs 10, 0000 for contribution to Medical Insurance Premium.
Steps for Tax Planning This process of tax planning is achieved as per the steps below.
Calculate Taxable Income: Income is calculated under the five heads: Salaries, House Property, Profit and Gains of Business and Profession, Capital Gains, Income from other sources. The gross total income would be the sum of the incomes under each head. The taxable income is then computed by deducting from the gross total income, deductions permissible under sections 80C to 80U.
Calculation of Tax Payable: The total income tax payable is calculated based on the Income slabs.
Tax Saving Tips
1) Claim all deductions entailed for. The provisions u/s 80CCC and 80D are to be completely availed as they reduce the gross taxable income and also provide for retirement and medical emergencies.
2) Spread taxable income among various members of the family. This makes each member of the family an independent tax payer under the provisions of law.
3) Avoid penalties by filing tax returns on time. Payment of advance tax and filing of Income tax returns promptly, would avoid payment of any interest
4) Tax planning investments should be planned from the beginning of the year so that all deductions are fully availed and the right mix of investments are made.