As March comes nearer and the current financial year is about to come to an end, people rush to file their taxes. With over-burdened accountants, sometimes the most efficient tax planning is not possible. Hence, it is important that everyone has a basic understanding of how to plan their Taxes.
WHAT IS TAX PLANNING
Tax planning is a way to find out how much money you are paying as tax and also a way to help minimise the tax liability through the use of allowances, deductions, exclusions, and exemptions.
OBJECTIVES OF TAX PLANNING
1. Reduction in Tax Liability: The primary and most obvious reason for tax planning is to figure out how to reduce your overall tax liability. Taxes can remove a significant chunk out of your income, and hence it is useful to see how this liability can be reduced.
2. Economic Stability & Growth: Tax planning helps you find out what you owe in taxes. When these taxes are paid white money circulates in the market, which helps in economic stability & growth of the country and its citizens.
3. Litigation Minimization: Not paying taxes on time or not paying the correct amount could result in litigations and penalties.
4. Productive Investments: A key part of tax planning is to invest in products, funds, and securities that give you tax exemption. Tax Planning gives you the opportunity to research the financial products best suited to your needs.
INCOME TAX SECTIONS FOR EXEMPTIONS
Following are the sections of Income Tax Act that one must know to identify the avenues of tax exemptions:
Sections | Key Instruments where you can invest | Exemption limit |
80C | · Public Provident Fund (PPF) · Life Insurance · Pension Scheme · Contributions made towards Employment Provident Fund · National Savings Certificate (NSC) · Housing Loan · Equity Linked Savings Scheme (ELSS) | 1,50,000 |
80CCD | National Pension Scheme (NPS) | 50,000 |
80D | Medical Insurance investments for self or parents | 25,000/50,000 |
80EE | Interest on Home Loans | 50,000 |
80EEA | Interest on Home Loans | 1,50,000 |
80EEB | Interest on Electric Vehicle Loan | 1,50,000 |
80E | Interest on Education Loan | Full amount |
24 | Interest paid on Home Loan | 200,000 |
10(13A) | House Rent Allowance (HRA) | As per salary structure |
CONCLUSION
Don’t leave it for the last minute: Some people fail to start tax planning on time, and usually keep it for the latter part of the year. This results in missed opportunities in terms of investments, making calculation mistakes, and efficiently planning your finances.
Start planning your taxes early in the year, research about the various investment options that give you tax benefits, calculate your liabilities correctly—take professional help if required, and pay your taxes on time to avoid penalties & litigations.
