A little help for tax planning

Domestically too, our tax rates today are a far cry from the heydays of the socialistic economic bias of the 70’s when the maximum marginal income tax rates used to be an unbelievable 90% plus.

STEPS TO EFFECTIVE TAX PLANNING

n Understand various tax slabs and the available deductions and rebates under various heads

n Zero in on the various tax planning instruments

n Devise a plan covering the above, based on your objectives, risk-return profile, time horizon and liquidity needs. Your financial advisor/tax planner should be able to guide you through this.

STEP 1: The I-T Act gives tax benefits via two major routes, deductions — reduction from total taxable income and rebates — discount as a percentage of your investment.

For income below Rs 1.50 lakh p.a., rebate is 20% of the amount invested. For income between Rs 1.50 lakh to 5 lakh, rebate is 15% of the amount invested. Beyond Rs 5 lakh no rebate is available.

Currently we have four tax slabs: 10% for income between Rs 50,001 to 60,000; 20% for Rs 60,001 to Rs 1.50 lakh; 30 % for Rs 150,001 to Rs 850,00; and 33% for above Rs 8.50 lakh.

Standard deduction

The government provides this benefit to all employees based on the gross total income. For employees with income below Rs 5 lakh p.a., SD is 40% of total income or Rs 30,000 whichever is lower. For income above Rs 5 lakh, SD is Rs 20,000.

To minimise the tax burden on senior citizens(65 years and above), income up to Rs 1.53 lakh is exempt from tax. If standard deduction of Rs 30,000 is added, then for senior citizens income up to Rs 1.83 lakh is tax exempt.

STEP 2: To zero-in on the various avenues available, let’s examine the various major deductions and rebates available to us (see graphics).

STEP 3: Your advisor / tax planner can tailor-make an effective financial plan based on your individual objectives, risk appetite, returns expectation, time horizon and liquidity needs.

Remember, proper and effective tax planning is the route to a financially secure future. You owe it to yourself and your family.

The author is with UTI Bank Ltd. The views are his personal. He can be contacted at prashant.mehta@utibank.co.in