 It
seems odd crafting an article about tax planning at a time when the
budget for the year will probably be presented in June. Still, that
doesn't mean you have to wait till then to plan your taxes, not unless
you wish to cram an entire year's tax saving efforts into nine short
months. It is also likely that the new budget ushers in no changes
in the tax regime: tax laws have remained stable these past few years
and the incumbent Finance Minister indicated recently that they will
probably stay that way for a few more. "Until the new laws are
in place, we have to follow the existing rules," says Hinesh
Doshi, a Mumbai-based chartered accountant. Finally, given the fact
that the retrograde law about tax-saving investments having to be
made from income earned the same year has been scrapped, you can invest
in tax-saving instruments from April 1, and with impunity. Better
still, these investments will now fetch you returns for the entire
year.
So, how much should you invest from the tax-saving PoV (point
of view). If your income is below Rs 500,000, you can invest up
to Rs 100,000 and earn a tax rebate of Rs 15,000. The minimum investment
required for this is Rs 30,000 in infrastructure bonds issued by
ICICI Bank or IDBI. Just remember this: Since the total limit consists
of several normal expenses (like PF contribution, repayment of housing
loan principal, life insurance premium, and tuition fees), there
is no need to invest the entire one lakh. However, the Section 88
benefit isn't available to individuals who earn more than Rs 500,000
a year. Do remember to inform your company about your investments
lest it deducts more tax than it should. If that happens, the only
option open to you would be running around for a refund from the
I-T Department, a process that could take at least a year.
Now that you have decided on the quantum of your investment, what
should you invest in? Go in for tax-free instruments. For instance,
it makes sense to invest in PPF as the returns on it (8 per cent
now, although this may be reduced after the elections) are tax free.
Have more money to invest? Given below are some investments that
will fetch you good returns without adding to your tax liabilities
It makes sense to invest in 6.5 per cent RBI Relief Bonds. So does
investing in mutual funds and having a long term perspective on
stocks. Section 80L of the Income-Tax Act specifies that income
from securities is tax free up to Rs 12,000 (Rs 15,000 in the case
of government securities). "Recently RBI has clarified that
RBI Relief Bonds are securities and, therefore, eligible for 80L
benefit to the tune of Rs 15,000," says Kanu Doshi, a Mumbai-based
chartered accountant. A word of caution here: Do not be swayed by
the promise of higher returns. Although LIC's new pension policy
guarantees an effective return of 9 per cent, this income isn't
tax free.
Finally, a quick tip for pensioners who have taken up a job post-retirement:
you can treat your pension income and salary as two independent
things and avail standard deduction on both. Ah, age has its advantages.
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