Tuesday, January 22, 2013

Tax Planning – How to save tax in FY 2012-13 (AY: 2013-14)

ప్రియ మిత్రులారా! చాలామందికి ఆదాయపన్ను, దాని నుండి మినాహాయింపుపొందే అంశములు తెలుసుకోవలసిన అవసరం ఉంటుందని భావించి మీ ముందుంచుతున్నాను. మీరు తెలుసుకోవడమే కాకుండా అవసరమైనవారికి మీరు సహాయపడగలరని ఆశిస్తున్నాను.
Tax Planning – How to save tax in FY 2012-13 (AY: 2013-14)
(Last updated: 22 September 2012) We know tax planning is a boring and time consuming exercise that you need to do every year. We cannot help you avoid it completely but what we can definitely do is to help you with all the information that you need to plan your tax and save money.

Tax Exemptions:
Tax Free Government Bonds
IRFC launches tax-free bonds issue to open on 21 Jan 2013 
The following is the necessary information that you need to know to do your tax planning properly for financial year 2012-13 and Assessment year 2013-14:
Tax Slabs
1) In Case of General Assesses (Both Male & Female):

Income Bracket Rate
0 to Rs. 2,00,000 0   %
Rs. 2,00,001 to Rs. 5,00,000 10 %
Rs. 5,00,001 to Rs. 10,00,000 20 %
Above Rs. 10,00,000 30 %
2) In Case of Senior Citizens (Age above 60 years but below 80 years):

Income Bracket Rate
0 to Rs. 2,50,000 0   %
Rs. 2,50,001 to Rs. 5,00,000 10 %
Rs. 5,00,001 to Rs. 10,00,000 20 %
Above Rs. 10,00,000 30 %
3) In Case of Very Senior Citizens (Age 80 years and above):

Income Bracket Rate
0 to Rs. 5,00,000 0   %
Rs. 5,00,001 to Rs. 10,00,000 20 %
Above Rs. 10,00,000 30 %
* On final tax amount, a surcharge of 3 %
**No surcharge above 10 lacs.
Tax Exemptions:

1) Section 80 C Limit Unchanged (Rs. 1,00,000)
Deduction on life insurance policy, taken after 1 April 2012, will be allowed only if yearly premium is less than 10% of sum assured. This is a new change from c.y. earlier it was 20%. If its more than 10% then not eligible for deduction u/sec. 80C
FD for 5 years
Pension Plans
Post Office SB
Infrastructure Bonds
Expenditure on Children Education (Upto Rs. 200 per month for upto 2 children)
Tuition fees (Only Tuition fees excluding Development Fees, Donations, etc. Maximum allowed: Rs. 24,000/-)
Housing loan principal
Deferred Annuity
Approved Super Annuation Fund
2) Section 80 CCF – Additional Rs. 20,000 on investments towards approved Infrastructure bonds  (withdrawn)
3) Section 80CCD:
Deduction under this section can be claimed only if the contribution to your NPS account is made by your employer and the deduction is limited to a maximum of 10% of your basic salary. Returns on NPS are tax free, but withdrawal is still taxable. The deduction under sec 80CCD is over and above the deduction available under sec 80C.
4) Section 80 D
Deduction under section 80D
Deduction of Rs. 15000/- is allowed if the same is paid as premium for Medical Insurance taken for self / dependents or towards preventive health check-up (max Rs. 5000). In case any of self / dependents is a senior citizen, the deduction allowed is Rs. 20000/-
Additional Rs. 15000/- is allowed as deduction if the same is paid as premium for Medical Insurance taken for parents. In case the parent is a senior citizen, the deduction allowed is Rs. 20000/-
5) Section 80DD
Deduction under section 80DD
Exemption given for Expenditure made for a disabled dependant towards Medical Treatment/Training/Rehabilitation. It also includes the LIC/Insurance premium paid towards maintenance of such dependant.
Maximum deduction allowed is Rs. 50,000/- in case of normal disability and Rs. 1 Lakh in case of severe disability.
6) Section 80DDB
Deduction under section 80DDB
Exemption given for expenditure incurred on specified disease or ailments such as cancer/aids.
Maximum deduction allowed is Rs. 40,000/-. In case of Senior Citizens, maximum deduction allowed is Rs. 60,000/-
7) Section 80E
Deduction under section 80E
Deduction is allowed for repayment of interest component of Higher Education loan. All education after Class 12 is allowed, either vocational or Fulltime. But should be from a school/institute/university recognized by the government.
8 ) Section 80G
Contribution to exempt charities – 25/50/75/100% depending on the charity and as per approval
100% exemption on donation to political parties
9) Section 80U
Deduction under section 80U
Deduction upto Rs. 50,000/- is allowed in case of Permanent Disability.
In case of Permanent Disability exceeding 80%, maximum deduction allowed is Rs. 1,00,000/-.
10) Section 24(1)(vi)
Housing loan interest.Maximum Investment Limit – Rs. 1,50,000 (for loans taken after 1 April 1999, for loans before that Maximum Investment Limit 30,000).
11) Superannuation – Any contribution made by a company to superannuation fund upto Rs. 1,00,000 tax free in the hands of the employee.
12) Conveyance/Transport Allowance – Any Conveyance / Transport Allowance given to an employee is tax free upto Rs. 9,600 /- (No Supporting Bills required).
13) Medical Allowance – Any Medical Allowance given to an employee is tax free upto Rs. 15,000 /- (Supporting Bills required).
14) HRA – Any House Rent Allowance given to an employee is tax free upto the minimum value of the following conditions (subject to – when an employee can produce rent paid receipts from landlord for the period and if the employee has not availed of tax exemptions for home loan interest / principal repayment):
a) 50% of Annual Basic (40% of Annual Basic in case of non-metros)
b) Actual HRA received
c) Rent Paid – (10% of Annual Basic)
15) Professional Tax – Any Professional Tax deducted from an employee’s salary can be reduced from the annual salary income to arrive at taxable salary.
16) Provident Fund – Provident Fund contributions (under section 80 C and subject to an overall investment limit of Rs. 1,00,000 ) deducted from an employee’s salary are tax exempt.
17)80CCG – Direct Equity Investment – Under ‘Rajiv Gandhi Equity Savings Scheme‘ – a new equity investor will be able to claim 50% of his investment in direct equity as deduction subject to maximum investment of Rs. 50,000 and provided his taxable income is below Rs. 10 lacs. The investment will be subject to 3 years lock-in.  
Update 23 Sep 2012: Government has notified this scheme (RGESS). Mutual funds and ETFs that invest in BSE100 or CNX 100 stocks or PSUs which are Navratna, Maharatna and Miniratna will qualify under this scheme. These investments can be traded over stock exchange after 1 year of investment. New equity investor has been defined as someone who has opened a Demat account but has not bought any securities till date of notification of this scheme (22 Sep 2012). More information here.
18) Section 80TTA – Savings Bank Interest  - No tax will be charged on interest earned on balance in savings bank account subject to a maximum of Rs. 10,000 per year.
There is only so much you can do to save money by optimizing your taxes. However, you can also save money by cutting down on your shopping bills. One way to do that is by shopping less. The other more exciting way is by using discount coupons and offers to reduce the cost of shopping. This is a free site that collects all discount coupons and deals. Hope it helps you save some additional bucks. You can also subscribe your email (form is on top right side of this page) so that you receive the best offers and deals every week in your inbox  :)
Any queries? Have I missed anything? Do you know any other way to save tax? Let me know in comments below.
Update (21Jul2012): I am overwhelmed at the response this post has received. I am happy that it has helped so many people save on their taxes. A lot of you have also added your comments appreciating the work (thank you!) and asking further questions. Though I try to answer all the questions, I am no tax expert. I am just an investment advisor with my expertise more in investments and less in accounting. Hence, if you ask me questions that are too specific or for which the law is ambiguous, I will not  be able to answer them. I suggest, you consult a certified tax consultant or a Chartered Accountant. I will still try to answer to the best of my abilities.

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