Most of the people don’t know that they are paying tax on everything. Even those who are living under poverty line and earning just a few hundred rupees in a whole month are also paying tax. How? By purchasing those products which are sold with tax added price. A match box, a candle, a bread packet, an egg, and what not. We have to pay taxes on everything. But there, when we are talking about personal finance, tax planning means income tax planning. As a taxpayer you should know various different types of tax planning strategies for individuals in India. Today we will learn and understand about income tax exemption limit, income tax slab for ay 2017-18 (fy 2016-17), income tax slab for ay 2018-19 (fy 2017-18) in India, limitations of tax planning, tax planning strategies, and related limitations for individuals in India for current financial year 2017-2018.
Introduction to Tax Planning Strategies:
Analysis of financial statement and building a strategy to minimize the tax payout and maximize the available options under tax exemptions, rebates, deductions based on the Income Tax Act of India. In other words, it is planning to save income tax to the maximum while following all the law of the country.
The Indian Income Tax Act allows some deductions at the time of income tax return filing which help people to save on their income tax. The advantage of these allowed deductions is possible only if an individual has done tax planning in synchronization to these allowed deductions.
In 2017, this is the first time in history where union budget and railway budget are conducted together on the same day under Narendra Modi government in India.
Income Tax Slab for FY 2016-17 in India:
Income tax for assessment year (AY) 2017-18 was presented in February 2016. Income tax is applicable according to the income tax slab rate, which is revised in every budget of India. Highest tax slab for assessment year 2017-18 in India is 30%. Taxation in India can be calculated based on your below income tax slab for the financial year (FY) 2016-2017. India Income tax slab for general tax payers for men and women below 60 years of age is listed here:
Income Tax Slab for FY 2016-17 (in Rs.) / Taxation in India
|0 to 2,50,000||No tax|
|2,50,001 to 5,00,000||10%|
|5,00,001 to 10,00,000||20%|
Additional Notes: Budget 2016-17 income tax slab: Cess 3% on income tax plus surcharge and 12% Surcharge on income exceed Rs.1 crore.
Income Tax Slab for FY 2017-18 in India:
Financial budget for assessment year 2018-19 presented on 1st February, 2017 at 11:00 am in the morning. Eariler on the report schedule for budget presentation was going to postpone by next business day due to death of lokh sabha “E. Ahamed” member of parliament. Union cabinet hold the quick meeting and finalized to present budget on the same date as mentioned earlier. Income tax slab rate is set to revised in every budget of India. Highest tax slab for AY 2018-19 in India is 30%. India Income tax slab for ay 2018-19 for general tax payers for men and women below 60 years of age mentioned in budget 2017-18 income tax slabs is listed here:
Income Tax Slab for FY 2017-18 (in Rs.) / Taxation in India
|0 to 3,00,000||No tax|
|3,00,001 to 5,00,000||5%|
|5,00,001 to 10,00,000||20%|
|10,00,001 to 50,00,000|
|50,00,001 to 1,00,00,000|
30% + 10% surcharge
30% + 15% surcharge
- Education cess 3% on income tax.
- Rs.2,500 rebate on tax for salary upto Rs.3,50,000/-
Tax Planning Strategies for Individuals in India for Current Financial Year:
Indian Income Tax Act has several sections under which every individual can enjoy the benefit of deductions. Here are the list of tax planning limitations / exemptions / rebates or deductions under income tax as a part of tax planning strategies for individuals which you can avail in financial year 2017-18.
1. Taxpayer deduction under Section 80C:
Theses sections allow tax savings on several small savings. The maximum limit of saving under these acts is Rs.1,50,000/-. This limit can change in future. The previous limit was Rs.1,50,000/-. Mainly, it is these sections under which most of the people look to save taxes. These sections allow savings on tax as well as some expenditure which people normally incur. This is one of the common tactic followed under tax planning strategies in India.
The small savings / investments which fall under these sections which help a rebate in tax are:
- Provident Fund (PF) & Voluntary Provident Fund (VPF).
- Public Provident Fund (PPF).
- Life Insurance Premiums.
- Equity Linked Savings Scheme (ELSS).
- Stamp Duty and Registration Charges for a home.
- Sukanya Samriddhi Account.
- National Savings Certificate (NSC) (VIII Issue).
- Infrastructure Bonds.
- Pension Funds – Section 80CCC.
- 5-Yr bank fixed deposits (FDs).
- Senior Citizen Savings Scheme 2004 (SCSS).
- 5-Yr post office time deposit (POTD) scheme.
- NABARD rural bonds.
- Unit linked Insurance Plan.
- Sukanya Samriddhi Account.
- Home Loan Principle.
- Registration & Stamp duty paid on purchase of home.
- Self, Spouse and Children’s education expense.
- Tuition fees up to two children.
It is very important of everyone to know all the different savings types and pick the right one for self. Saving of 1,50,000 rupees a year is a big amount for any common person.
2. Deductions under Income Tax for HRA under Section 10 (13A)
HRA is commonly termed for House Rent Allowance. Part of the HRA can be claimed for deduction from income tax if you are staying in rented house. Also note that those who are staying with their families can also apply for benefits by declaring rent towards parents.
Exemption under HRA amount is calculated on minimum from below:
a) (Rent paid per annum) – (10% of basic salary + dearness allowance).
b) Actual House Rent Allowance (HRA) received.
c) 40% (incase of non-metro cities) or 50% (for metro cities) of basic salary + dearness allowance.
3. Exemption Under Section 80D, Section 80DD, and Section 80DDB:
These sections allow individuals to save on taxes for insuring his own health or the health of his dependents (child and spouse). These sections covers medical insurance premium, medical treatment of handicapped dependents, and treatment of specific diseases such as neurological diseases, malignant cancers, full-blown acquired immune-deficiency syndrome (AIDS), chronic renal failure, and hematological disorders. Deduction of Rs.25,000 for age below 60 years and Rs.30,000 above 60 years of age can be claimed for self, spouse and children.
4. Tax Planning Strategies for Home Loan:
It is the saving on home loan principal repayment and home loan interest payment. This is highly advisable to avail this benefit of deduction allowed for repayment of home loan which results in big tax saving. Home loan principle can be claimed under section 80C and Home loan interest can be claimed under section 24B.
As per current tax laws, borrowers / owners of self-occupied properties and let-out properties can claim for deduction upto Rs.2,00,000 per year after adjusting rental income. Earlier there was no upper cap on let-out properties but from this year government has brought down tax benefits for let-out owners.
5. Effective Tax Planning Strategy on Education Loan:
It is tax saving on education loan (under section 80E) which people need to take, generally for higher education. Here, point to note is that the deduction is on repayment of interest and not the principle amount. In the case of home loan repayment, the deduction is allowed on the repayment of principal amount as well as on interest.
6. Taxpayer Related Limitations Under Section 80CCG (RGESS):
This section is for only those who have an annual taxable income of less than Rs. 12,00,000 and invest in shares of specified companies and specified mutual funds. The name of this deduction is Rajiv Gandhi Equity Saving Scheme. You can consider this as one of the important taxpayers planning strategies if your income is below then mentioned limit.
7. Tax Planning Strategies in India – Long Term Capital Gains:
This is one of the important type and effective type of tax planning strategies which is followed widely across India. If an individual makes some profit on the sale of any long term capital asset, then he can claim a tax deduction. Here, long-term means 3 or more years. For example: If a person sells a property after 3 years, then he can claim the tax deduction on the profit gains. It is highly advisable and recommended to take the advantage of exemption.
8. Long-Term Capital Gains from Sale of Equity Shares:
There is a provision of income tax deduction on long-term gains from the sale of equity shares. Provided these shares were held for more than 1 year.
9. Donations Exemption under section 80G:
There are many NGO’s where you can donate and avail to take benefit of donation under your tax exemptions. Contribution towards National Relief Fund is a typical example of donation where an individual can claim a tax rebate.
This are some of the common and important tactics followed as a tax planning strategies in India for individuals. Effective tax planning strategy will help you lot in your savings and building your wealth. If you haven’t focused on it yet, you should think-of now. So, as an individual tax planning is another big thing to deal with. There are various different types of strategies as well. Learning and keep on improving is the only way to reach the goal of good personal finance.
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