A Comprehensive Ready Reckoner for Tax Planning
This time of the year, the focus for a majority of us, the earning class or those in business, is on tax planning or to be precise saving on tax. This ready reckoner has been put together with that express purpose. The table format has been adopted for readers. This article just serves as a good first step and it is advisable for a reader to seek expert advice or do more groundwork before making decisions.
TABLE 1 - INCOME SLABS, TAX RATES AND REBATE (Financial Year 2002-03)
| Income Slab | Income Tax | Tax Rebate U/s 88 |
| Upto Rs 50,000 | NIL | Not Applicable |
| Rs 50,000 - Rs 60,000 | 10% of the amount exceeding Rs 50,000 | 20% |
| Rs 60,000 - Rs 1,50,000 | Rs 1,000 + 20% of the amount exceeding Rs 60,000 | 20% |
| Rs 1,50,000 - Rs 5,00,000 | Rs 19,000 + 30% of the amount exceeding Rs.1,50,000 | 15% |
| Above Rs 5,00,000 | 30% of the amount | NIL |
NOTE: The applicable rate of rebate is determined based on the income arrived at, after subtracting standard deduction, professional tax & interest paid on housing loan (subject to a maximum of Rs 1,50,000/- in a financial year) and before allowing any deductions under Chapter VI-A.
TABLE 2 -PERMISSIBLE STANDARD DEDUCTION
| Salary Income | Standard Deduction under Section 16 |
| Upto Rs 1,50,000/- | Rs 30,000/- or 1/3rd of salary whichever is less |
| Between Rs 1,50,001 and Rs 3,00,000/- | Rs 25,000/- |
| Between Rs 3,00,000/- and Rs 5,00,000/- | Rs 20,000/- |
| More than Rs 5,00,000/- | NIL |
Permissible Deductions under Chapter VI A of IT Act
1. A premium of upto Rs 10,000/- paid towards Medical Insurance under Section 80D.
2. A premium of upto Rs 10,000/- paid towards Govt. approved Pension Fund such as LIC’s Jeevan Suraksha under Section 80CCC.
3. Medical expenditure of upto Rs 40,000/- incurred on a dependant relative suffering from a permanent physical disability under Section 80DD.
4. Deposits of upto Rs 40,000/- under LIC & UTI’s scheme for the benefit of a physically handicapped dependant.
5. Actual expenditure incurred on medical treatment of self or dependant, suffering from terminal disease like cancer, AIDS, renal failure etc. under Section 80DDB.
6. Repayment of loan upto Rs 40,000/- (& interest thereon), taken from a financial/charitable organization for self for higher education, under Section 80E.
7. 100% of donations made to National Defence Fund, PM’s releief Fund and other approved charitable organizations under Section 80G.
8. Dividend income from shares & Mutual Funds (except equity oriented Funds) and interest income, upto Rs 9,000/- from NSC, Bank deposits and company deposits, under Section 80L.
PERMISSIBLE DEDUCTIONS BEFORE ARRIVING AT NET TAXABLE INCOME
| Details | Amount eligible for Deductions | Remarks |
| HRA exemptions | Eligible amount | Please see below the table for details. |
| Standard Deductions | Eligible amount | Please refer Table 2 for details. |
| Interest on Housing Loan for self-occupied property | Maximum of Rs 1,50,000/- | For house acquisition / construction made within 3 years from the end of Financial Year in which loan was borrowed. |
| Premium paid towards Govt Approved Pension Plan such as LIC’s Jeevan Suraksha | Maximum of Rs 10,000/- | Under Section 80CCC |
| Dividend income from shares & Mutual Funds (except equity oriented Funds) and interest income, from NSC, Bank deposits and company deposits. | Maximum Rs 9,000/- | Under Section 80L |
| Interest received on Govt Securities, Industrial Re-constru- ction Corporation of India Bonds, National deposit scheme & National Rural Development Board Bonds etc. | Maximum Rs 3,000/- | Under Section 80L |
| Premium paid towards Mediclaim Insurance | Maximum Rs 10,000/- For senior citizen Rs 15,000/- | Under Section 80D |
ELIGIBILITY OF HRA
Least of the following is eligible for deduction under Section 10(13A).
(a) Actual HRA received or
(b) Actual Rent paid - 10% of (Basic Salary+DA) or
(c) 40% of (Basic+DA)
TAX SAVING INSTRUMENTS ELIGIBLE FOR REBATE UNDER SECTION 88
Public Provident Fund (PPF)
1. Minimum Lock-in 6 years.
2. 9% yearly compounding tax free return.
3. Maximum amount that one can invest in a year is Rs 70,000/- only.
4. Loan facility after 3 years @ 1% more than the prevailing rate.
5. Withdrawal facility after completion of 7th year. Maximum withdrawal permissible is limited to 50% of the 4th year balance.
6. Minimum term is 15 years, extendable by 5 years at a time.
National Saving Certificate (NSC)
1. Lock-in 6 years
2. Interest @ 9% compounded half yearly
3. Rs 100 mature to Rs 169 at the end of 6 years
4. No ceiling on the amount invested
5. Tax rebate limited to Rs 70,000/- only.
Unit Linked Insurance Plan (ULIP) of UTI
1. Lock-in 10 or 15 years
2. ULIP can be taken in the name of spouse or child
3. Provides Life Insurance & accident insurance coverage
4. Investment upto Rs 70,000/- is eligible for tax rebate under section 88.
COMPARISON BETWEEN VARIOUS TAX SAVING OPTIONS
| Options | Maximum Amount | Tax Saving Depending on tax Bracket | Lock-in Period | Returns | Tax on Returns |
| Option undersection 80CCC |
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| LIC Jeevan Suraksha | Rs 10,000 | 10% to 30% | Term of the policy | 5 to 6% | Applicable rate |
| Options under section 88 Equity Linked Saving Scheme (ELSS) | Rs 10,000 | 15% or 20% | 3 Years | > 15% | 10% |
| Mutual Fund Pension Plan | Rs 70,000 | 15% or 20% | Till the age of 58 yrs | > 12% | 10% |
| Infrastructure Bonds | Upto Rs 1,00,000 | 15% or 20% | 3 Years | > 7% | Applicable rate |
| Public Provident Fund (PPF) | Rs 60,000 | 15% or 20% | 6 years minimum | 9% compounded p.a | Tax Free |
| National Saving Certificate (NSC) | Rs 70,000 | 15% or 20% | 6 years minimum | 6% p.a | Applicable rate |
| ULIP of UTI | Rs 70,000 | 15% or 20% | 10 or 15yrs | > 6% | Applicable rate |
| LIC premiums | Rs 70,000 | 15% or 20% | Term of the policy | > 6% | Tax Free |
| Return of Principalof Housing Loan | Rs 20,000 |
| N/A | N/A | N/A |
| Maximum amount eligible for tax relief under section 88 and 80CCC. | Rs 1,10,000 |
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NOTE 1: If your net taxable income is more than Rs 5,00,000/-, you are not eligible for tax rebate under Section 88. However you can save upto Rs 3,150/- under Section 80CCC of Income Tax Act, if you opt for a Govt approved Pension Scheme such as LIC’s Jeevan Suraksha. This is a pension plan and a maximum of Rs 10,000/- paid as a premium for this policy is deductible from taxable income. The only other tax saving option is to take a housing loan. Upto Rs 1,50,000/- paid towards repayment of housing loan is deductible from income under section 24(ii).
NOTE 2: If your net taxable income is less than Rs 5,00,000/-, you can save upto Rs 1,10,000/-, in order to maximize your tax savings. You can save upto Rs 3,150/-under Section 80CCC of Income Tax Act, if you opt for a Govt approved Pension Scheme such as LIC’s Jeevan Suraksha. This is a pension plan and a maximum of Rs 10,000/- paid as a premium for this policy is deductible from taxable income.
NOTE 3: Upto Rs 1,50,000/- paid towards repayment of housing loan is deductible from income under section 24(ii).
(The article was contributed by . While care has been taken to ensure accuracy of the information, the author does not take responsibility for any errors and / or omissions. Feedback can be mailed to taxsaving@businessgyan.com.)
