Simple Tax Planning Guide

If you are salaried the mail for your tax proofs must be on the way. Here we just list the basic tax reckoner for you so that you may save whatever you can. Tax planning should actually be considered in accordance with the overall asset allocation of our portfolios. After all, tax planning avenues will be either equity or debt. These are the simple avenues from which you can save taxes.

Income Tax Slab Financial Year 2011 – 2012

  • In case of a resident woman below the age of 60 years, the basic exemption limit is Rs 1,90,000.
  • In case of a resident individual of the age of 60 years to 80 years (Senior citizen), the basic exemption limit is Rs 2,50,000.
  • In case of a resident individual above the age of 80 years (Very Senior Citizen), the basic exemption limit is Rs 5,00,000.

We can divide our tax planning into 2 Parts Deduction under Section 80 C & beyond 80 C:

1)      Deduction Under Section 80 C

Start by checking out Section 80C. According to this tax provision, an amount equal to the investment that you make in certain specified instruments or an expense that you incur reduces your Gross Total Income (GTI) by the same amount.

Broadly section 80 C deductions can be classified into two options Investment Oriented & Non Investment Oriented

A) Investment Oriented

Tax saving should be result of your Investment planning and not vice versa.

You should think about the following criteria, before selecting your tax saving investments for the year:

  • Liquidity
  • Risk and Return
  • Inflation protection

However, there is a limit of Rs 1 lakh. These specified instruments include: National Savings Certificate (NSC), 5-year Bank FD, ELSS, LIC, ULIPs, Pension Plan and EPF.  If you are a salaried employee, 12 per cent of your salary is deducted every month and put into a kitty maintained either by the government or the company’s own trust. First deduct that amount from Rs 1 lakh to know how much more you have to save under this section.

From the balance, decide on your debt-equity allocation. If you are looking at equity, you can consider an Equity Linked Savings Scheme (ELSS). These are diversified equity mutual funds that offer a tax break under Section 80C.

Other Section 80 C instruments:

Check the Inforgraphic given in end of the article.

Don’t use insurance policies for tax saving purpose.

B) Non Investment Oriented (Expense Oriented)

  • Principal component of home loan repayment
  • Tuition fees paid for children’s education (maximum 2 children)

2) Beyond 80 C

For individuals whose gross total income exceeds Rs 280,000 pa, deductions under Section 80C may not be sufficient to reduce the overall tax liability. In such cases they can consider the following:

Health Insurance Section 80 D: If you spend up to Rs 15000/- on buying a mediclaim or a health insurance for your family. An additional deduction of Rs 15000 is available if you buy a mediclaim for your dependent parents. Senior citizens can claim Rs 20000/- as deduction.

Education Loan: If you have taken a loan for higher studies for yourself, spouse or child the interest payment can be deducted from the GTI. This is under Section 80 E.

If you are philanthropist by nature, get yourself benefited from your donations. Subject to 10% of your overall income you can get 50% or 100% of the deduction form your GTI. These donations to specified funds and charitable institutions are covered under Section 80 G.

Housing loans are very much useful while saving taxes. The principal amount repayment is covered under Section 80 C. Also the interest payment on home loan is covered under Section 24, where you can claim upto Rs 1.5 lakhs of the interest repayment for you self occupied house.

Then comes Section 80 DD. If you have a dependent who is disabled you can claim a deduction against expenses incurred over him. The limit for this is Rs 50000/- and if the disability is severe the amount limit is Rs 100000/-.

And the last one and not to miss this year. Under Section 80CCF, you can invest upto Rs 20000/ in infrastructure bonds and claim a rebate as per your tax slab. This limit is above the Rs 1 Lakh specified under Section 80 C.

If you don’t plan now some ads/agents will scare you & you will end up buying insurance policies that you don’t need.

Superb Infrographic by Manshu (OneMint) on Tax Planning

We are frugal at everything else, we know very well how to save money and spend as little as we can. Take this attitude to tax planning as well and plan your investments in a way that you end up paying the least amount of tax that is due under the law.

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Hemant Beniwal is a CERTIFIED FINANCIAL PLANNER and his Company Ark Primary Advisors Pvt Ltd is registered as an Investment Adviser with SEBI. Hemant is also a member of the Financial Planning Association, U.S.A and registered as a life planner with Kinder Institute of Life Planning, U.S.A. He started his Financial Planning Practice & TFL Guide Blog in 2009. "The Financial Literates" is a dream & mission to make Indians Financial Literate.

52 COMMENTS

    • Dear Kannan,
      Read this
      Section 80DD for Medical Treatment of Handicapped Dependents
      If you are incurring expenditure for the treatment of your handicapped dependent, you could claim a deduction under section 80DD.
      Available Deduction – Rs 50000, or actual expenditure incurred, whichever is lesser. For severe handicap conditions Rs. 1,00,000 is the deduction limit.
      Scope of Deduction – Deduction can be claimed for dependent parents, spouse, children and siblings. Dependents must not have claimed any deduction for their disability.
      Deductions are permissible in either of the following cases.
      a) Costs incurred for medical treatment, training or rehabilitation of a disabled dependent, including amount spent for nursing.
      b) Amount paid towards an insurance scheme for the maintenance of your disabled dependent in case of your untimely death.
      Meaning of Disability- Disability means a person suffering from 40% or more of any of the below disabilities. A severe disability condition is 80% or more of the disabilities.
      a) Blindness and Vision problems
      b) Leprosy-cured
      c) Hearing impairment
      d) Locomotor disability
      e) Mental retardation or illness
      Key factors
      a) Individuals would need to produce a copy of the disability certificate as issued by the central or state government medical board to claim deduction.
      b) Insurance policy obtained must be in your name and should be a policy for life. It could pay either an annuity or a lump sum amount for the benefit of the dependent on your death.
      c) If the disabled dependent predeceases you, the policy amount is returned to you, and treated as income for the year in which you receive it, thus fully taxable in your hands.
      Section 80 DDB for Treatment of Specified diseases
      Costs incurred for treatment of specified illnesses, could fetch you a tax benefit under section 80DDB.
      Available Deduction – For individual assesses less than 65 years of age, a deduction limit of Rs. 40,000 is applicable. For a senior citizen, the limit is Rs. 60,000.
      Scope of Deduction – Deduction is applicable for treatment of self, spouse, children, siblings, and parents, wholly dependent on you.
      Diseases covered
      a) Neurological Diseases (where the disability level has been certified as 40% or more).
      b) Parkinson’s Disease
      c) Malignant Cancers
      d) Acquired Immune Deficiency Syndrome (AIDS)
      e) Chronic Renal failure
      f) Hemophilia
      g) Thalassaemia
      Key Factors
      If you are already receiving any reimbursement for the treatment from your insurance company or employer, deductions cannot be claimed. If you are receiving partial reimbursement, the balance amount can be used for a deduction.
      A certificate would be required from a specialist working in a government hospital, as proof for the specified ailment.

      • Thanks Hemant, this information was very usefull. Is there any other way to reduce tax deduction if I’m in 30% slab other than 1,20,000 and my parents are not disabled.

      • Thanks for the detailed info.
        Quite useful. One question :

        If someone is taking care of a disabled person but that person is not related to him, is this considered as donation / charity ?

        Please reply for better understanding.

  1. Clear, Simple and Understandable Article. Thanks Hemantji. Apart from 80C, 80CCF, 80E and 80D sections, the rest are so painful to claim, especially producing the documents for disability etc.
    So, any ideas what happens to the tax payers money with the Govt? Isn’t Govt accountable?
    Also, just want to add that filing can be done online at the IT website or through third party like Taxsmile etc but they charge a fee for that. Refunds are suppose to come back to our bank accounts, just received an email last week from IT Dept that the refund is being processed, eager to see how different it is from my previous refunds, applied online for the first time.

  2. Hi,
    When is a good time to file taxes? As close to the deadline as possible, or months in advance? What do you suggest?
    Right now I have no home loan, but plan on taking one by December or January. Should I file after?

    Thanks.

    • Hi Veer,

      You should file your return in time for salaried it’s 31st July of Assessment year & for business man & others its 30th September. It’s good that you should file return in advance.
      Yes, when you are filing the income tax in next year of current year you can easily claim tax exemption under head House Property.

  3. what’s the best alternative of ELSS for next year when the proposed DTC kicks in? right now I’m utilizing 100% 80c through ELSS but confused if there’s any such scheme will remain available post DTC except crappy ULIPS etc. any thought? I don’t want to dive into debt except mandatory EPF deductions through my employer.

    Jagbir

  4. Hi Hemant,

    What an impressive blog you have managed….& quite a following, I must say.
    Request your comments on my selection of Mutual Funds for SIP investment, starting Dec 2011 onwards. Please suggest if the funds I have shortlisted for SIP are good enough or not recommended…

    I am 29 years old. Plan to invest INR 12K each, in all these funds…

    HDFC TOP 200 FUND- GROWTH Large Cap
    Fidelity Equity Fund (G) Large Cap
    IDFC Premier Equity – A (G) Midcap & Small cap
    SBI Magnum Emerging Busi (G) Midcap & Small cap
    ICICI Discovery Fund Midcap & Small cap
    HDFC EQUITY FUND- GROWTH Multicap
    Canara Robeco Infrastructure Fund Infrastructure Fund
    ICICI PRUDENTIAL TECHNOLOGY FUND- GROWTH Technology Fund
    RELIANCE PHARMA FUND- GROWTH Pharmaceuticals
    Reliance Gold ETF Gold
    AIG World Gold Fund (G) Gold

    • Hi

      1.Please reduce the no. of funds.
      2.Eventhough u are young Avoid sectoral funds which are highly risky. Have one or maximum two sectors which u can really take a bet in the next 3 yrs. Avoid infra, Pharma and technology funds.
      3.Amount u has not specified . so i cant see ur core and satellite percentage.
      core- large cap, large and mid cap. satellite- remaining all funds. keep it according to your risk profile. core generates constant returns. satellite will be suddenly high /low.
      4.Mid cap and Multi cap are next to sector funds in risk. But they can be part of your protfolio. reduce it to three. As more funds u cant review it.

      5. AIG gold fund is the one which tracks on the gold mining companies. so it s better to avoid that. its not like Reliance gold fund which will be tracking its own etf. Generally As these are funds of funds expense ratio is higher. Taxation of gold fund is also diff. so better to go for etf if you are a long term investor.

      6. large cap selection is good.

      My suggestion : 1. keep the large cap 2. Make it two three.
      IDFC Premier Equity – A (G) Midcap & Small cap
      SBI Magnum Emerging Busi (G) Midcap & Small cap
      3. I dont suggest you sectoral funds. sorry
      4. Quantum gold fund(if you are really interested in gold, go for this.) Expense ratio is lesser.

      regards
      Vignesh

      • Thanks a ton, Hemant for devoting your attention & analysis to my query….I would do exactly as you said. Would be back here, with a revised & trimmed Mutual funds portfolio, shortly.

        • Thanks a ton, Vignesh for your analysis & recommendation.
          As per your recommendation, please find my final list of mutual funds to be invested in, through SIP route. I have reduced no. of funds from 11 to 9. Amount would be INR 12000 per annum in each fund.
          Please suggest.
          My profile : I am 29, married & 1 kid.

          HDFC TOP 200 FUND- GROWTH Large Cap
          Fidelity Equity Fund (G) Large Cap
          FRANKLIN INDIA BLUECHIP FUND- GROWTH Large Cap
          DSP-BR Top 100 Equity – RP (G) Large Cap
          ICICI Pru Discovery -Inst -I Large & MidCap
          IDFC Premier Equity – A (G) Midcap & Small cap
          SBI Magnum Emerging Busi (G) Midcap & Small cap
          HDFC EQUITY FUND- GROWTH Multicap
          Reliance Gold Fund Gold

          Thanks & Regards,
          Rahul S.

          • 1. Intially i thought u are goi to invest 12000 in each fund per month. now only i came to know that u are goi to invest 12000 per annum.

            Sorry My suggestion u took it in a wrong way. I asked you to reduce the mid and small cap funds from four to two. that i did not mention in the comment section. U interepted to increase ur large cap portfolio.

            2. Your previous selection of large cap is good.

            My suggestion

            HDfc top 200 – 3000
            FRANKLIN INDIA BLUECHIP FUND- GROWTH Large Cap-4000
            IDFC Premier Equity – A (G) Midcap & Small cap ——–2000
            SBI Magnum Emerging Busi (G) Midcap & Small cap—- 1000
            Hdfc equity – 1000
            One gold fund — 1000 (Do you have any specific reason for goi for the reliance gold ? Take the one which has the least expense ratio that willbe benificial for you in long term)

            core portfolio- 60 percent satellite- 40 percent.

            1. know abt these things before investing in gold mutual funds

            (i) taxation while redemption
            (ii) Double charges as they are funds of funds

            Later on while increasing ur sip u can increase the no of funds and that too not more than max 6 or 7.

            if you have still any doubts revert back.

            @Hemant pls guide us by providing the feedback on above the selection is good or need any changes.

            regards
            Vignesh

  5. Hi leader,

    I am 38 yrs salaried person, having regular premium of rs 30thousand , home loan of rs 72 thousand per annum. would like to do SIP of Rs. 50000 per annum.
    please suggest the plans to get maximum at the age of retirement.

  6. Hi Hemant,
    I have another Q, I was surfing through the internet and came across Time Deposit of Post office, the time duration for the deposit are 1yr, 2yr, 3yr, 4yr and 5yr. but I am not sure weather we can claim tax benefit for 1,2,3 and 4 yrs under 80c.
    Any idea?

  7. Hi,

    Very good article in a nutshell.
    Request your comments on my selection of ELSS funds for tax savings under 80C.
    I would like to invest around 30000 at onetime now.
    Please suggest me some good funds. I have Fidelity Tax Advantage as one of the fund in my mind

    Regards,
    Nagasudhan
    .

    • Hi Madhav,

      No there is no exemption of gold purchased with bill.And there is no exemption for gold purchased without bill as well.

  8. INDIAN PSU INSURER WHICH ARE LAUNCHING INSURANCE PLANS FOR CHILDENS/TAX SAVING SHOULD STOP SUCH MALPRACTICING OF FOLOING GULLIBLE INVESTORS.IRDA MUST STOP SUCH THING.

  9. Hi

    My father gave voluntary retirement and his annual income from the emplyer(railwys) is 1.20 lakhs. his other income such as FD nterest makes him to come under the 10 percent slab. he is taking more medicines and had one catract surgery everything cost around 40000 per year for this yr(2011-2012).

    1. how will he get the form 16?

    2. is there any provision while filing returns to claim these medical bills?

    Pls guide me.

    • Hi Vignesh,
      I think regarding form 16 – your father should reach their accounts department.
      Upto Rs 15000 medical bills can be used to save tax but this is actually part of overall salary so again accounts department can help you in this.

  10. Hi Hemant,

    My wife is salaried person (4,32,000 /PA) .
    Pf amount is 9360 /pa

    Investment
    LIC = 10,000
    Franklin India Taxshield = 40,000
    Fidelity Tax Advantage = 30,000

    I want to invest 20,000 more to save the tax , please suggest the option for the same.
    Shall i go for health insurance (what is the diff between Health Insurance & mediclaim). If yes then which (2 Adult + 1 child) or any other option.

    Thanks,
    Bhushan

  11. please inform loan taken on mortgage of one residential property other than taken for the purpose of construction ,but for house improvement qualifies for interst deduction in IT

  12. dear hemant,
    please advice me should i continue paying premium for ‘max amsure secure returns builder ulip-increasing simplified’ which i purchased in dec-97 fund value is just 50% of what i paid till date. this product was sold to me by amway agent misleading and hiding real facts. please let me know where i can complaint for the same.

  13. Dear Hemant,
    I had posted a query earlier on 22 Mar however I am still waiting for your advice. Please advice as to whether my father who has turned 80 yrs in Oct 2011 is eligible for IT exemption up to Rs 5 lacs in the FY 2011-12.
    Regards,
    Inderjit Metharu

  14. HI, hemant sir
    i want to know about capital gain tax
    my father(71 yrs) is investor he buy and sell property
    BUYING:5-6 properties in 1998-1999
    SELLING:
    2006 FLAT 350000
    2008 2 shops 550000(both)
    2009 1 shop 200000
    2010 1shop 150000
    2011 1 shop 400000
    we invest all of this money in bank FDs when we sell prop & close the FD
    (on or before or after maturity)
    i mean we invest 3.5L FD in 2006 withdraw in 2007 and so on
    my father had not paid tax since 20 yrs approx
    so now i m worry about its verification and I-T rules etc
    what should i do?please advice

  15. Just to know about one of my colleague had comment with you about 1) PF that his name in the PF slip found without initial.
    2) Also, about interest in investment some of amt from the salary to PF apart from regular flow by the employer and employee.

    Will there be any problem regarding point 1) and about point 2), the procedure to follow. Will you please advice.

  16. will gold investment will be part of tax savings? if yes can u please let me know the clause no n what is the limit n how much we can save?

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