The season of investments and tax planning!

The Financial Year 2005-06 is on the verge of getting over. People have started worrying about their taxes. Last few days are left for the investment under section 80C of the Income Tax Act, 1961. Grab this opportunity to save some tax and also for your future.

Here’s a small list of some of the very popular investments options. This list is not exhaustive.

1. PPF (Where else do you get 8% tax free returns?)
2. NSC
3. Life Insurance
4. Pension Plans
5. Tuition Fees

Till last year (FY 2004-05) we had section 88 that gave us rebate from the tax. Depending on the income, percentage of rebate varied. The calculation was pretty simple.

This year we have a new section 80C which has simplified the calculation even further. Simply deduct the allowed investments from the income. Maximum deduction is Rs. 100,000 (One Lakh). Quite simple!

Let me give an example. This is how it works as tax planning.

If a person has an income of Rs. 275,000/- without planning, his tax will be as follows:
First 100,000 – NIL
100,000 to 150,000 – 5,000 (10%)
150,000 to 250,000 – 20,000 (20%)
250,000 to 275,000 – 7,500 (30%)
TOTAL 32500 + 2% education cess i.e. 33,150/-

Now if the same person invests 100,000 then it will be as follows:
Taxable Income = 275,000 – 100,000 = 175,000
First 100,000 – NIL
100,000 to 150,000 – 5,000 (10%)
150,000 to 175,000 – 5,000 (20%)
TOTAL 10,000 + 2% education cess i.e. 10,200/-

That means a saving of Rs. 22,950 in taxes. Additionally, the investments will also earn some income.



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  2. Chintamani of ICICI!! 😆 Even he is talking about investment for tax planning. I am doing the same, but showing you some more better options than ICICI pension plan 😉

  3. Hey no malice but seeing the begining of your post made me think you were speaking about Chintamani aka ICICI fame.

    Anyways thanks for the informative post.

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