Tax Planning

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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. Tax-planning amounts to making investments or contributions in line with prescribed guidelines that lead to reduction in tax liability. Simply put, the tax liability is computed as a percentage of the income. As per prevailing tax laws, certain investments and contributions have been earmarked for claiming tax benefits. When these investments and/or contributions are made, the same are reduced from the income while computing the tax liability. As a result, the tax liability is reduced. For example- If Mr. X as an individual has an income of 5, 50,000 for the assessment year then the tax that he needs to pay is 70,000. Solution: according to the tax rates of assessment year 2009-2010 the calculation is as follows;

=50,000 x 30% = 15000 (Above 500000 30% Tax) =200000 x 20% = 40000 (Between 300000-500000 20% Tax) =140000 x 10% = 14000 (Between 1, 60,000 – 300000 10 %) =3% education Cess on 69,000 (15000+40000+14000) = Rs. 2070

Tax Payable = 15000 + 40000 + 14000 + 2070 = 71,070

If Mr. X decides to deposit Rs. 70,000 to the Public Provident fund then the tax liability will change because his taxable income comes down to 4,80,000 and his tax liability will come down to 51, 500 this is called the Tax planning. 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. ABOUT TAX PLANNING…

Most of us lack behind in the Tax planning. We always do it at the end of February or March, because of which we end up into wrong decisions. In India, we can save Tax under section 80cc up to Rs.1, 00,000 and apart from that we can also claim income tax exemption for interest on housing loan up to Rs.1,50,000. Mediclaim up to Rs.20, 000 for dependent senior citizen parents. One should always do a proper and careful Tax planning. One should also look Tax planning as protection planning (Life insurance, mediclaim) or as wealth creation (ELSS, FD). First of all you need to find out how much Provident Fund is deducted from your salary. Because that amount will be considered under your One Lakh rupees limit. For example:- If Rs.25,000 yearly has been deducted from your salary then you have to think about only remaining Rs.75, 000. 1.ELSS FUND OR TAX SAVING FUND = This means the Equity Linked saving scheme. This helps you to indirectly invest in the equity market. But it has three year lock in period. So you should invest amount which you will need after three years only. ELSS provides you the benefit of Tax saving as well as Wealth creation. Some Tax funds also provide you the medical benefits. 2.LIFE INSURANCE PLAN = It is always said that one should not look at the Life insurance plan as tax saving. All life insurance plans gives you the tax benefit so you should always go for plan which is suitable to your life and your financial planning. Payout from life insurance policy is tax free. 3.TUITION FEES= The tuition fees are rising and reaching the sky every year thus there is a deduction of 1, 00,000 in under section 80C upto two children. If both the parents are working then only one of them can claim the deduction. This deduction is applicable for recognized educational...
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