TAX PLANNING FOR FY 14-15

  Income Tax Computation

They say there are only two things definite in life—Death and Taxes! You have to plan for your taxes and funerals shouldn't be an exception. 

It is the duty of Taxman to levy and collect the part of your hard earned in the form of cess and it is the duty of Tax Payer to play smarter in every possible opportunity to save his penny.

At the very outset, disclaiming that the below given plans are purely based on professional reading and analysis and application of the same in any circumstances subject to their-own risk.

#1 Compute your tax liability

Endeavor of Tax Planning starts with understanding of Tax Liability for the relevant Financial Year (starts with APR and end with MAR).

Action Required

Ø Chalk-out your Income from Salary/House Property/Business/Gain from sale of Land, Building and Shares/Interest on Deposits and Gift received.

Ø Identify the eligible Exemptions and Deduction for your concern

Ø Google –out and download the IT Calculator for AY 15-16 (for the FY 14-15) in MS Excel form.

Ø Understand the IT Calculator structure and then feed the data in to it.

Ø Get the Tax liability 

Then, re-compute your tax liability by considering deductions which you will get by proposed investment in various tax saving avenues. 

This will give you an idea of what would be your Tax saving by investing in tax saving products, such as Insurance Policy, Med claim policy and Tax Saving Mutual Funds.

 If you do not see too much value in this, you can even skip purchasing such products and simply let your accountant deduct the tax on your package.

Read more about Term insurance: http://www.indiainfoline.com/Research/Articles/What-is-Term-Insurance-Plan-in-India/30322523

#2 Buy only term insurance

Purchase of Insurance product offer you (a) Tax Saving (b) insured, it’s like two birds in one shot. However, expanding the number of Life Insurance policy every few years, would result in out-flow of considerable cash from your pocket but never give back when you are in need. Hence you would rather try your investment in Term Insurance apart from sufficient coverage for Life Insurance, which will ensure 

Ø Tax Saving

Ø Insured

Ø Investment platform

Only thing missing would be (some) returns, which you can definitely compensate with better yielding products. Moreover, there is no best time to buy insurance.

#3 Employee’s PF Contribution beyond Rs 100,000/- pa

EPF has been a popular saving instrument probably because it’s a mandatory deduction. Before choosing any other product for deduction under section 80C, consider your contribution to EPF first. Most of the times, your contribution exceeds the Rs. 1 lakh limit given by the IT department under section 80 C of IT ct ,1961.

 If that is the case, there is no point in even looking out for other deductions such as life insurance, PPF, NSC, etc.

#4 Checks for ELSS Performance

If still you find gab in your deduction box and wants to enjoy the thrill of Market index arrows, you may better go for Equity linked savings scheme (ELSS) which is another popular tax saving investment under section 80C. This is an excellent combination of mutual fund and tax saving. It invests in equity related products. If you are planning to pick one such ELSS scheme, you can surely go ahead. However, do not be under the impression that all schemes are the same. There has been great difference in returns of top and worst performing funds. Know the best performing ELSS funds and then take a call on investing in those. One more point to remember in this investment is that your money is locked for 3 years. If you are doing an SIP, each SIP will be locked for 3 years from the date it starts.

 

#5 Investments in PPF

If you find your risk-appetite for capital market play is low then you may try for PPF. It’s the only financial product which has E³ tax status ie (Exempt Exempt Exempt). It means

Ø the investment gives you tax benefit,

Ø interest is tax free and

Ø the maturity amount is tax free as well. 

If you are planning to invest in PPF for tax saving this year, do it before 5th of the month. PPF interest for the month is calculated only if you contribute to it before 5th of a month. If you invest beyond it, you stand to lose out on the interest for the month. If you are planning to invest in PPF systematically every year, you can do it before the said date.

#6 Check RGESS returns

RGESS is the latest tax saving scheme on board. It helps you save tax by investing in specified stocks or mutual funds. Investment up to Rs. 50,000 is allowed in this scheme with 50% deduction on the investment. Like ELSS, RGESS product also has to be analyzed before investment. 

Not all of them produce the same returns. Assume you invest Rs. 50,000 in this product. The savings would be Rs. 2500 if you are in 10% tax slab, Rs. 5000 if you are in 20% tax slab and Rs. 7500 if in 30% tax slab.

 You will not be eligible for RGESS if you are not a first time equity investor. Also, if you invest in it, you cannot withdraw any units before 1 year of investing in it.

#7 Consider the Rebate u/s 87A

Rebate u/s 87A applicable from A.Y 2014-2015 onwards

1. This rebate is available ONLY to an ‘INDIVIDUAL’ tax payer, resident in India. 
2. This Rebate is available to both Male and Female assesses.
3. 2This new section has been inserted with effect from the 1st April, 2014 i.e, it is applicable for Assessment Year 2014-15 onwards.
4. 3This benefit is available only if Income of An Individual doesn't exceed Rs. 5 Lakhs.
5. 4Tax Rebate u/s 87A of Rs. 2,000/- is also available to a senior citizen, if the total income is Rs. 5 Lakh or less.
6. 5One thing you must remember, that it’s not a deduction under Chapter VIA,
   but this is a Rebate of the Income Tax Act, 1961 which is deducted from the income-tax payable.
7. 6This rebate is restricted to the amount of income tax payable.
8. 7This Rebate u/s 87A is not available to a Non resident Persons. It is available only to resident of India.

E        Ex :
 
1)Suppose Net Taxable income ( after deduction of Chapter via ) Rs ,225520/-
 
So , Normal tax payable Rs 2,552 - Rs 2000 ( rebate u/s 87A ) = Rs 552 + 17 (3 % OF 552, AS EC & SHEC ) = Rs 569/=> ( self assessment tax)

Thanks for reading and Kudos for managing your life in an enterprising way…