There's Just One Thing I Can't Figure Out, It's My Income Tax - IndianMoney.com

One has heard the famous saying “Today It Takes More Brains And Effort To Make Out The Income Tax Form Than It Does To Make The Income”. One surely knows what is planning and the need for planning in our day to day life. No work gets done without a plan. Don’t you think it is necessary for one to plan one’s income tax deductions in a proper manner and not wait for the last minute to file those returns? It would be wise to remember the good old saying “He Who Fails To Plan, Plans To Fail”. The vast majority of our fellow citizens rush to file their income tax returns on the last day. When it comes to filing one’s income tax returns the legendary Japanese philosophy of the “Just In Time Approach “is followed almost religiously .Remember to file your income tax returns in time and help your fellow citizens file their income tax returns in time. The team of Financial Planners at IndianMoney.com are always there for you to plan your taxation needs in a most effective and efficient manner. You can explore this unique Free Advisory Service just by giving a missed call on 02261816111.

Income Tax Slabs For The Financial Year 2013-2014:

o    Individuals And Hindu Undivided Families and Resident Woman Under 60 Years:

	Income Tax Slabs	Income Tax Rates	Education Cess
1	Where the total  income does not exceed INR  2,00,000	NIL	NIL
2	Where the total income exceeds INR 2,00,000 but does not exceed INR 5,00,000	10% of the amount by which the total income exceeds INR    2,00,000.	2 % of Income Tax
3	Where the total income exceeds INR 5,00,000 but does not exceed INR 10,00,000	INR 30000/- + 20% of the amount by which the total income exceeds INR 5, 00,000.	2 % of Income Tax
4	Where the total income exceeds INR 10,00,000	INR 130000/- + 30% of the amount by which the total income exceeds  INR 10,00,000	2 % of Income Tax

 

Education Cess:

Here Education cess on Income tax and Secondary and Higher Education cess on income tax shall be levied at the rate of 2% and 1% respectively.                                                                                                                                                                                                             Let us consider Mrs Usha aged 45 years of age works as a fashion designer and consultant and earns INR 12 Lakhs per annum. Mrs Usha does not make use of any of the income tax deductions available to her. Let us calculate her income taxes.

Table – 1:

Heads	% Of Income Tax	Income Tax
Up To INR 2.0 Lakh	NIL	NIL
INR 2  Lakhs - INR 5 Lakhs  One has  a range of 200000 To 500000  which  gives us  300000 One then calculates 10% of INR 300000	10%	INR 30000               (A)
INR 5 Lakhs - INR 10 Lakhs  One has a range of 500000 To 1000000 which gives us 500000 One then calculates 20% of INR 500000 .	20%   +   INR 30000	INR 130000              (B)
>  INR 10 Lakhs Mrs Usha earns INR 1200000 One has a range of 1000000 to 1200000 which gives us 200000 One then  calculates 30% of INR  200000	30%   +   INR 130000	INR 190000               (C)
Total		INR 350000        (A+B+C)
Educational   Cess	3% Of Total Cess	INR 10500              (D)
Net Tax Payable		INR 360500         (A+B+C+D)

What Does One Infer From This Case?                                                                                                                                                 Mrs Usha pays INR 360500 as Income Tax as she does not make use of any of the income tax deductions available to her because of her lack of knowledge on the subject. Let us now see how Mrs Usha could have saved on her income taxes had she made use of the deductions available to her.                                                                                                                                                                              Deductions Available Under Section 80 C Of The Income Tax Act:                                                                                                    Mrs Usha could have invested INR 1 Lakh in the National Saving Certificate and made use of the deductions available to her under Section 80 C of the income tax act.

National Saving Certificates Of Five And Ten Years Tenure:

 

Ø  One has the NSC offered by the post offices which gives an interest rate of 8.5% per annum compounded half yearly. The maturity period is five years eligible for tax deductions under Section 80C.

Ø  The Annual Interest earned is deemed to be reinvested and qualifies for tax rebate for five years under Section 80C of the Income Tax act.

Ø  Deposits are exempt from wealth tax.There is a facility for reinvestment on maturity.

Ø  A 10 year NSC gives returns of 8.8% and the rest of the features are same as that of a five year NSC.                                                                              

Deductions Available Under Section 80 D Of The Income Tax Act:                                                                                                                       Mrs Usha could have taken a health policy for herself as well as her parents who are Senior citizens and availed deductions of up to INR 35000 as per deductions under Section 80 D of the income tax act.                                                                                                          Premium On The Health Policy:                                                                                                                                                                           Under this section, an individual can claim deductions for the health insurance premium paid for himself, spouse and children. He can also claim a deduction up to INR 15,000 for the health insurance premium paid for his parents. If either of the parents are senior citizens, this limit is INR 20,000.The age limit for senior citizen is 60 years from the Financial Year 2012-13. So, the limit can go up to INR 35,000 in a year   Deductions Available Under Section 80 E Of The Income Tax Act:                                                                                                                     Mrs Usha has a daughter 21 years of age. She could have availed of tax deductions under Section 80 E on the interest component of the education loan taken by her daughter for higher studies. The interest component is INR 70 Lakhs per annum on the education loan.

Ø  Education loan is not only beneficial to pursue higher studies but also one can avail of tax benefits under Section 80E of Income tax act. Only an individual is eligible for tax deduction and not a Hindu Undivided Family.

Ø  Education loan can be availed for one’s spouse, children and oneself. Loan can be availed to study in India as well as abroad.

Ø  An individual can claim deductions on the interest on loans taken by him from any financial institution or any approved charitable institution for the purpose of pursuing his higher education.

Ø  Tax benefit is only for the interest paid and not on the principal amount. 

Ø  Tax benefit can be availed only for 8 years from the date one starts one’s first installment. After 8 years one will not be eligible for further tax benefits.

Ø  Loan should be availed from financial institution or any approved charitable institution. 

Ø  Only full-time courses are eligible for tax benefit. 

Ø  Education loans taken for both regular as well as professional courses pursued after passing the senior secondary examination are eligible for deduction.

Table 2:

Heads	Amount
Gross Taxable Income	INR  1200000                      (A)
Less National Saving Certificate Under Section 80 C	INR   100000                       (B)
Less Tax Deductions Under Section 80 D	INR   35000                        (C)
Less Tax Deductions Under Section 80 E	INR   70000                        (D)
Total Taxable Income	INR 995000               (A)-(B+C+D)

Table 3:

Heads	% Of Income Tax	Income Tax
Up To INR 2.0 Lakhs	NIL	NIL                     (A)
INR 2.0 Lakhs - INR 5 Lakhs  One  has a range of  200000 To  500000  which  gives  300000 One then  calculates 10% of INR 300000	10%	INR 30000                (B)
INR 5 Lakhs - INR 10 Lakhs  One has a range of 500000 To 1000000 which gives 500000.(1000000-500000) One  then calculates  20% of  INR 495000	20%                                 +                            INR 30000	INR 129000             (C)
Total Tax		INR 159000   (A)+(B)+(C)
Education Cess	3% Of INR 159000	INR 4770             (D)
Net Tax Payable		INR 163770  (A)+(B)+(C)+(D)

 

·         One can see the Net Income Tax payable of  INR 360500  (TABLE -1) where Mrs Usha has not made use of any of the income  tax deductions available to her and hence pays a higher amount of income tax.

·         One can see the Net Income Tax Payable of   INR 163770   (TABLE -3) where one can calculate  the amount paid by Mrs Usha as income taxes had she made use of the deductions available to her.

·         Here the difference between TABLE 3 and TABLE 1 is the yearly amount Mrs Usha could have saved on tax had she made use of the tax saving instruments available to her. This translates to a sum of INR 360500-INR 163770=INR 196730.

                  I would like to end this article with the famous saying” It Wasn’t Raining When  Noah Built The Ark”. This means that one has to plan for all eventualities before they occur. Similarly file your income tax returns as well as plan your income tax deductions well before time.