HOW TO MINIMISE THE TAX LIABILTY WITHIN THE BOUNDARIES OF INCOME TAX ACT 1961 TAX AVOIDANCE
Tax avoidance is the legal utilization of the tax regime to one's own advantage, to reduce the amount of tax that is payable by means that are within the law. The term tax mitigation is not however a synonym for tax avoidance. Its original use was by tax advisors as an alternative to the pejorative term tax avoidance. The term has also been used in the tax regulations of some jurisdictions to distinguish tax avoidance foreseen by the legislators from tax avoidance which exploits loopholes in the law. "The legal right of an individual to decrease the amount of what would otherwise be his taxes or altogether avoid them, by means which the law permits, cannot be doubted."
How to reduce the tax liability in case of
These are some options to help you reduce your tax liability: Section 80C
This section of the Income Tax Act 1961 allows income tax exemptions for individuals on specified instruments. The maximum limit on the investment for arriving at tax rebate under this section is Rs 1 lakh. Investors can invest up to Rs 1 lakh in one or more of the specified instruments to avail a tax rebate under Section 80C. Specified investments that qualify for deduction:
Employee Provident Fund Public Provident Fund Life insurance premium (term insurance as well as endowment plan) Pension plan Equity-linked savings scheme (ELSS) of a mutual fund Specified government infrastructure bond Principal repayment on housing loan National Savings Certificate Infrastructure bond
You can invest in specified long-term infrastructure bonds to claim rebate under Section 80CCF. It is important to keep in mind that all infrastructure bonds do not qualify under Section 80CCF. Therefore, investors should pick the bond carefully. The maximum limit for tax rebate under Section 80CCF is Rs 20,000. This rebate is in addition to the Rs 1 lakh under Section 80C. Medical Insurance premium
Any Premium which is paid for medical insurance that has been taken on the health of the assessee, his spouse, dependent children, is allowed as a deduction, subject to a ceiling of Rs 15,000 per annum. A further deduction of Rs. 15,000 is also allowed for buying an insurance policy in respect of dependent parents. The deduction is allowed subject to providing proof of medical expenses. Home loan interest payment
A housing loan brings relief to a taxpayer. The principal repayment on a housing loan attracts a rebate under Section 80C of up to Rs 1 lakh and the interest payment attracts a rebate of Rs 1.5 lakhs. Some other options for salaried individuals:
Leave travel allowance
Salaried persons are eligible for a deduction under Leave Travel Allowance (LTA), if he have applied for leave from the company and have actually traveled. The total travel expenses incurred are covered. Under LTA, assessee and his family are covered. Family includes parents, dependent siblings, spouse and children. Leave travel allowance deduction can be availed twice in a block of four calendar years. Presently, the block applicable is from 2010-13. Investment strategies
These are some important points one should keep in mind while taking a decision on tax- saving instruments: First invest in instruments covered under Section 80C Salaried people can also look at saving tax by planning the expenditure under medical allowance, child education allowance and conveyance allowance Investing in a medical insurance policy is another option to save tax, if your Section 80C limit is already exhausted. However, it is important to note that one should not buy a policy just for the sake of saving tax. Loss in stock market
If assessee had incurred any loss on stock investments. He can book his loss by selling the stock and show the loss in his income tax filing. This will help him in reducing income tax.
Assert tax advantages on house rent paid
If HRA is not included in the...
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