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SUBMITTED BY: DEEPIKA PANDEY (28) NEELAM DARBAR (02) NEHAL MEHTA (37) RAHUL PARMAR (14) RAJESH VAJA (53)
TAX PLANNING
In this world nothing can be said to be certain, except death and taxes" Benjamin Franklin
INTRODUCTION
What is Tax Planning? Tax planning is an essential part of your financial planning. Efficient tax planning enables you to reduce your tax liability to the minimum. This is done by legitimately taking advantage of all tax exemptions, deductions rebates and allowances while ensuring that your investments are in line with your long term goals. What tax planning is not? Tax Planning is NOT tax evasion. It involves sensible planning of your income sources and investments. It is not tax evasion which is illegal under Indian laws. Tax Planning is NOT just putting your money blindly into any 80C investments. Tax Planning is NOT difficult. Tax Planning is easy. It can be practiced by everyone and with a very little time commitment as long as one is organized with their finances.
So how does one take the noise out of everything and save income tax in 2012? We list for you some of the avenues available to you today to park your money in to save income tax. Remember to invest in the below products much before filing your income tax returns (ITR forms). Also keep in mind that Direct Tax Code (DTC) might or might not be implemented but dont fret about it yet just invest!
80CCC - Contribution to Pension Plans (Self) 80CCF - Investment in Infrastructure Bonds 24(2) - Housing Loan Repayment of Interest (Self Occupied) 80D Medi Claim Policy Premium (For self, spouse, children & dependent parents)
80E - Payment of interest on loan taken for higher education for a full time course 80DD - Medical treatment of handicapped dependent 80U - Deduction in case of self being totally blind or physically handicapped
The following allowances are fully taxable: dearness allowance, city compensatory allowance, overtime allowance, servant allowance and lunch allowance. Specific exemptions are available for some allowances as shown below. Conveyance Allowance: Up to Rs 800/- a month is exempt from tax. House Rent Allowance (HRA): Hop over the House Rent Allowance article to check on calculation and exemptions available. Leave Travel Allowance (LTA): LTA accounts for expenses for travel when you and your family go on leave. While this is paid to you, it is tax free twice in a block of 4 years.
Medical Allowance: Medical expenses to the extent of Rs 15,000/- per annum are tax free. The bills can be incurred by you or your family. Perquisites: Perquisites (or personal advantage) are benefits in addition to normal salary to which an employee has a right by way of his employment. Examples of these are rent free accommodation or car loan. There are some perquisites that are taxable in the hands of all categories of employees, some which are taxable when the employee belongs to a specific group and some that are tax free. Your employer will give you Form 16 which will contain all the earnings, deductions and exemptions available.
b. Do not blindly invest money with the first agent that you might come across. You might end up making mistakes. A lot of people end up buying insurance policies with minimal insurance coverage or putting money in instruments where they cannot access the money when they need it.
c. Do not make last minute decisions just because your payroll department has reminded you that the internal deadline for submitting proofs is approaching. Tax planning involves planning in advance to avoid the last minute scramble.
None of the above instruments let you withdraw your money quickly, in fact there is a minimum three year lock in for all tax saving investments. Risk and Return: How much risk do you want to take? There is a trade off between the two, some instruments are very low risk, but as a result they give low returns which are capped. Inflation protection: The instruments that give you a low return typically are the worst type of investments regarding inflation. This is important because many of the instruments give you a fixed rate of interest, and lock in your money for a long period. This is not a good protection against inflation. Tax Exemption: All tax saving investments under Section 80C are alike in one respect that they are tax exempt when they are invested. But they differ with respect to the tax on the income you earn from such an investment as well as the tax on the maturity of the investment.
Conversely, if you are only a temporary resident in these nations, you will have to continue paying taxes in India on the income earned here. You will also have to comply with all the reporting requirements under the Indian tax laws, such as filing the annual information report if a property transaction exceeds Rs 30 lakh. You won't need to declare this income in the country where you are residing temporarily.
stamped on the passport. Tax authorities could check your passport to determine the residency status.