Tax Planning - Introduction

After assessing your tax liability, the next step is tax planning. It involves selecting the right tax saving instruments and making investments accordingly.

Deductions from Taxable Income:

Deduction under section 80C

This new section has been introduced from the Financial Year 2005-06.

Under this section, a deduction of up to Rs. 1,00,000 is allowed from Taxable Income in respect of investments made in some specified schemes. The specified schemes are the same which were there in section 88 but without any sectoral caps (except in PPF).

Specified Investment Schemes u/s 80C

# Life Insurance Premiums
#  Contributions to Employees Provident Fund/GPF
#  Public Provident Fund (maximum Rs 70,000 in a year)
#  NSC
#  Unit Linked Insurance Plan (ULIP)
#  Repayment of Housing Loan (Principal)
#  Equity Linked Savings Scheme (ELSS)
#  Tuition Fees including admission fees or college fees paid for Full-time education of any two children of the assessee (Any Development fees or donation or payment of similar nature shall not be eligible for deduction).
#  Infrastructure Bonds issued by Institutions/ Banks such as IDBI, ICICI, REC, and NHAI.

Interest accrued in respect of NSC VIII issue.

Notes:

#  There are no sectoral caps (except in PPF) on investment in the new section and the assessee is free to invest Rs. 1,00,000 in any one or more of the specified instruments.
#  Amount invested in these instruments would be allowed as deduction irrespective of the fact whether (or not) such investment is made out of income chargeable to tax.
#  Section 80C deduction is allowed irrespective of assessee's income level. Even persons with taxable income above Rs. 10,00,000 can avail benefit of section 80C.


Please note that because the deduction is allowed from taxable income, the exact savings in tax will depend upon the tax slab of the individual. Thus, a person in 30% tax stab can save income tax up to Rs. 30,600 (or Rs. 33,660 if annual income exceeds Rs. 10,00,000) by investing Rs. 1,00,000 in the specified schemes u/s 80C.

Deduction under section 80 CCC(1)
This section allows a deduction of up to Rs. 10,000 to an individual in respect of contribution to 'Pension' scheme of LIC of India or any other Insurance Co. Accordingly, a person who is in 30% tax bracket can save income tax of Rs 3,060 (or Rs. 3366 if annual income exceeds Rs 10,00,000) by contributing Rs 10,000 towards Pension plan in a year .
Some of the popular pension plans are Jeevan Suraksha by LIC, Life Time Pension By ICICI Prudential Life Insurance, Aviva Life - Pension Plus by Aviva Life Insurance, Max-Easy Life policy by Max New York Life, Nirvana Plus by Tata AIG Insurance Etc.

Section 80 CCE
Aggregate deduction u/s 80 C, u/s 80 CCC and 80 CCD can not exceed Rs. 1,00,000.

Deduction under section 80D.
Under This section, a deduction up to Rs 10,000 (Rs 15,000 in case of senior citizens) is allowed in respect of premium paid by cheque towards health insurance policy, like "Mediclaim". Such premium can be paid towards health insurance of spouse, dependent parents as well as dependent children.

Accordingly a person who is under/in 30% tax bracket can save income tax up to Rs 3,060 (or Rs. 3366 if annual income exceeds Rs 10,00,000) by paying Rs 10,000 as premium in "Mediclaim" policy in a year.

Deduction under section 24(b)
Under this section, Interest on borrowed capital for the purpose of house purchase or construction is deductible from taxable income up to Rs. 1,50,000 with some conditions to be fulfilled.