Get Ready For The Taxing Exercise

Now that the festivities of Xmas and New Year are over, it is time to get back to work. And with January, there comes the end of the financial year in sight, i.e. time to file your income tax returns. Therefore, if you haven’t made a provision during the year, it is the time to do it for all your investments and savings. Remember, to claim any benefit or exemption under Income Tax act, you have to make the transaction before March 31, 2011, be it your insurance premium or PPF or even your housing loan interest or principal amount.

Gather Information To Assess The Situation
Before you start planning for the investments from an Income Tax perspective it is vital to assess your current financial position. “Tax planning should be done with utmost care and the first step should be to gather all your incomes and expenses details,” says Sujeet Singh, chartered accountant and tax consultant. For this, there should be a clear understanding about the Income Tax slabs for FY 2010-11 and in which slab you fit into as per your income. Also, there are many investments and payments that qualify for the income tax benefits, so keeping a record for them is very important. In this, first and foremost is the payments made towards repayment of housing loan. Dual benefits are available for this repayment as up to Rs 1,50,000 tax benefit is available for the interest portion of the repayment and the principle amount also qualifies for a deduction under section 80CCC subject to a maximum of Rs 1 lakh. Considering this, it is vital to have your provisional loan statement from the bank before going for tax planning.

Also, contribution towards EPF, GPF, PPF, etc. qualifies for deduction under section 80CCC and hence it is important to remain very clear about the amount deducted from the salary. Other documents worth importance are the TDS (Tax deducted at source) certificates, mediclaim policy premium receipts, donation receipts, rent receipts for claiming an exemption from HRA and infrastructure bonds receipts.

Invest To Save Tax
Under the Income Tax Act, there are various tax benefits given to an individual for FY 2010-11 for different kinds of investments. Considering that, one should take full benefit of the same while doing tax planning. “In FY2010-11, a person can easily get an income tax deduction of Rs 1,20,000 (unlike Rs 1 lakh in the past) under section 80CCC with Rs 20,000 extra deduction available on investment made towards infrastructure bonds (80 CCF),” informs Tulika Raj, income tax consultant. Also, a deduction of up to Rs 1 Lakh is available for investments made towards National Saving Certificates, life insurance premium, PPF, ELSS (Equity linked saving scheme), tax-saving FDs, etc. A deduction of up to Rs 35,000 is also available for the mediclaim policy premium for your family that includes premium for parents.[PAGE BREAK]

Expenses Also Qualify For Tax Benefit
Besides investment, some kinds of expenditures and allowances also qualify for tax benefits. First is the children allowance that is available up to a maximum of Rs 1,200 per child for not more than 2 children. Apart from this, tuition fees for 2 children are also allowable as a deduction under 80CCC up to Rs 1 lakh. Also, medical allowance (if paid by the employer) is allowable as a deduction up to Rs 15,000. Another very important deduction available to a salaried employee is in terms of HRA (House rent allowance). In this after satisfying certain conditions an employee can claim HRA and the maximum exemption available is the actual rent paid by the employee during the year. “In this, there is also a deduction available for rent paid to self-employed person under section 80 GG up to Rs 24,000,” says Shivkant Vaish, income tax expert. “Also, there is again a benefit to students under education loan scheme. Under that, the interest paid on the loan is allowable as a deduction under section 80E,” adds Shivkant. This deduction is not only available to the student but also to his parents or the spouse. A donation made towards charitable organisations is allowable as a deduction under section 80G. Therefore if you have donated any sum then don’t forget to have its receipt as it may be important for claiming the deduction.

Pay Premium And Make Investment On Time
For claiming any deduction it is very important that a person should pay his life insurance premium on time as it is allowable under income tax only on a paid basis. “If any person fails to pay his life insurance premium till March 31, but pays it in the month of April then he cannot claim a deduction u/s 80CCC for the current year. However, he can claim the deduction in the succeeding year when the payment is made,” informs Sujeet Singh. Also, all the investments should be made in the financial year itself to claim the benefits of those investments. In case of a long-term capital gain arising out of selling of any property, if the capital gain is again reinvested into property then it is exempt from Income Tax but only if it is invested within a stipulated period. “There is also a provision of depositing the capital gain into a capital gain account scheme, if that amount cannot be used for acquiring any capital asset in the stipulated time,” says Shivkant. By doing that no tax will be levied on that capital gain and that sum can be used afterwards to acquire the capital assets.

Housing Loan Means Benefits Unlimited
From the Income Tax perspective, a housing loan is the best instrument to get maximum benefit even in the present era of rising interest rates. In fact, in totality it can give a maximum benefit of Rs 2,50,000 to a person. First, it is the interest on housing loan up to Rs 1,50,000 that is allowable as a deduction from the total income of the assessee under the head Income From House Property as ‘negative income’. Also, up to Rs 1 lakh is allowable as a deduction under section 80CCC for the repayment of the principal amount. Another benefit that can be drawn from a housing loan is that if you have a house at a place other than your place of work then you can claim an HRA for the rent paid along with the benefits of housing loan. Considering this, it is always beneficial to have a housing loan. If you already have a property then you can also take a loan for the renovation of that property as that too comes under housing loan for the purpose of income tax.

Another benefit from a housing loan is towards the second home loan for acquiring a second house. “In that, if the assessee rents out the second house, then he can claim interest on home loan without any ceiling of Rs 1,50,000, i.e. he can claim whatever the interest accrued and paid during the financial year on that house,” informs Shivkant. This certainly can be a great savior in terms of income tax.