From working people to senior citizens, there are a host of tax saving schemes that one can opt for. Shalini saksena gives you a lowdown on some ways to help you pay lesser tax by saving more
The 2013 Budget is out and it has brought good news, especially for those whose total taxable income is up to Rs 2.20 lakh per annum. In such a scenario, one doesn’t have to pay any tax on the income. If the total income is up to Rs 5 lakh, one can claim a rebate of Rs 2,000 or actual tax payable, whichever is lower. For example: If the total tax payable in the next financial year is Rs 15,000, then you can claim a rebate of Rs 2,000 and pay just Rs 13,000.
To some, this rebate looks like a no-gainer. “After all, what will one do with a meagre Rs 150 per month rebate? But, if one sees the larger picture (from the Government perspective) if there are a million people with an income of Rs 5 lakh, the spending in the market increases by approximately Rs 200 crore,” Mumbai-based finance expert and CEO of apnapaisa.com Harshvardhan Roongta says.
There are a few tax tips that must be kept in mind. If one is a salaried individual, he should ensure that his salary is structured in a manner that can help keep the tax liability at the minimum. But to do so, one will have to ensure that the conveyance allowance is part of the gross salary, that medical bills are reimbursed up to at least Rs 15,000 a year. If one is living in a rented house, one can claim HRA under Section 10 (13A) for rent paid.
Income Tax lawyers suggest that you should not forget to claim the deduction of Rs 1 lakh under section 80C of the Income Tax Act, 1961. For this, you can invest up to Rs 1 lakh in the public provident fund (PPF). Senior citizens (60 or above) can invest in the Senior Citizen Saving Scheme, National Savings Certificates and specified five-year bank fixed deposits and Equity Linked Savings Schemes (ELSS). Similarly, one can claim deduction for payment of life insurance premiums and repayment of home loan principal.
One can also claim deduction under Section 80D for medical insurance premium for self, spouse, dependent children and parents. The maximum deduction allowed under this category is Rs 15,000 for self, spouse and dependent children. For parents, the deduction is an additional Rs 15,000. If the parents are senior citizens, the deduction is Rs 20,000.
One must claim deduction for interest paid on home loan of up to Rs 1.50 lakh a year. This is available under Section 24B of the Income Tax Act. Then there is a deduction of up to 10 per cent of the gross total income for donations to any charitable and religious trust. The amount of deduction could either be 50 per cent or 100 per cent of the total amount donated, depending on the tax concession provided by the relevant tax authorities. This benefit is available under Section 80G.
Besides this, there are some lesser known tax savings. Not many know that investment in equity-oriented funds and equity shares of listed companies are exempt from long-term capital gains tax if the investment is held for more than 36 days from the date of purchase.
In case of debt funds, opt for the growth option if your investment horizon is more than a year. One can claim the benefit of indexation. However, the same is not available for interest income from fixed deposits and other similar fixed income securities.
While most people would know that long-term capital gains arising from the sale of a house property are exempt from tax if another house property is purchased either a year before or within two years from the date of sale or a new property is constructed within three years of sale. What they would probably not know is that if someone doesn’t want to reinvest in another house property, he can invest the amount of capital gains into capital gains tax savings bond issue by the National Highways Authority of India (NHAI) and the Rural Electrification Corporation (REC).
In case of open offers by listed companies, when such an offer is accepted by a shareholder wherein he transfers the shares to the company, it is treated as an off-market transaction which is not subject to Securities Transaction Tax (STT). The shareholder will be eligible for indexation benefit and will have to pay a tax equal to 10 per cent of capital gains (without indexation) or 20 per cent (with indexation) whichever is lower. This comes with a warning — do not tender the open offer in off-market trade if the open offer price and stock market quoted price is nearly the same.
But what about investment options in view of the present Budget? “Investments don’t really depend on changes that may happen like the Budget. Since investments are long-term plans, they are independent of such changes. The only difference comes a minor bumps or a smoother ride. The fact that 90 per cent of the returns are dependent on asset allocation what matters is where the money has been invested and how much,” Ronngta tells you.
He is also quick to point that investment options should be goal-oriented. For the investor, what should matter is how he will reach that end. External factors don’t really affect the portfolio. But this doesn’t mean that one should just invest and forget about it.
“Reviewing the portfolio is important. How one does that needs due consideration as well. Overkill is bad and so is no revision. Once in six months is a must,” Roongta says, adding that first-timers who want to invest should not try unique investment options.
“The best option for such people is to go for tried and tested investment options. Since they are new to the whole investment scene they should stick to well-known options that are available in the market,” Roongta states.
Have new investment options been announced? “The only new option is inflation-indexed bonds. But till the time the structure of these bonds is announced, it is not possible to express any views about it. However, it is a welcome move to introduce these bonds as such an investment would be quite helpful for the investors to protect themselves against high inflation,” Shiv Kukreja, CFP, founder and managing partner of Ojas Capital, tells you.
This year’s Budget was disappointing for investors and taxpayers. “Except a couple of tweaks there is nothing new in the budget which a large number of investors would be able to use to cut their tax burden or increase their investment returns. Increase in the Dividend Distribution Tax from 12.5 per cent to 25 per cent for all debt schemes of mutual funds is also a dampener from the investors’ point of view. It would be advisable if the investors move their money from dividend option to growth option of their debt fund investments,” Kukreja says.
Despite the fact that the criterion of Rs 10 lakh gross taxable income has been increased to Rs 12 lakh in RGESS and the exemption will be available for three consecutive years, the scheme is a little complicated.
“It will be better if the investors take advantage of the tax exemption under 80CCG and invest in RGESS eligible mutual fund schemes in order to make it less complicated for them,” Kukreja concludes.
Budget 2013 has modified the Rajiv Gandhi Savings Scheme as follows:
- RGESS is available under section 80CCG of the Income Tax Act
- Earlier the RGESS provided that first time equity investor who is a resident Indian with gross total income up to Rs 10 lakh can claim a deduction of 50 per cent of the amount invested in listed equity shares enlisted under this scheme. Maximum deduction available is Rs 25,000. Further this deduction was available only for one year
- The Budget has now provided that first time investors in the equity market, with total income up to Rs 12 lakh can invest in the RGESS. Also, the deduction will now be available for three consecutive assessment years
- One may invest in specified stocks and equity oriented mutual funds under this scheme. But, being a first time investor, it is recommended that one takes the mutual fund route as the portfolio is managed by a professional fund manager
- The Budget has introduced new section 80EE under which first time home buyers taking a home loan of up to Rs 25 lakh can claim a deduction of up to Rs 1 lakh for interest paid during the financial year. If the interest amount is less than Rs 1 lakh in the FY 2013-14, the balance can be claimed in the FY2014-15. However, the following conditions have to be fulfilled by the assessee:
- Loan should be sanctioned between April 1, 2013 to March 31, 2014
- Value of property should not be more than Rs 40 lakh
- Tax payer should not own any house on the date of loan sanction