As the close of the financial year 2018-19 dawns upon us, there is just a short window left for tax planning and tax saving investment decisions. It would be wise for one to assess his/her tax position and accordingly plan for the same sooner rather than later.
The Government has provided a number of options and instruments under the Income Tax Act, 1961, whereby one can reduce their taxable income and thereby save on the tax outflow. However, this needs to be planned in a systematic way of taking into consideration the benefits one wants to obtain from investing in a tax saving instrument apart from reducing the tax outflow.
This can be evaluated from the point of view of businesses and individuals (sole proprietorships, salaried employees, etc)
For businesses, minimizing the tax liability can be very critical as an exorbitant tax outflow due to poor tax planning can cripple the working capital position which is so important for growth. Tax planning for a company pertains to taking strategic decisions such as when to purchase a necessary equipment/asset, where and how to invest the proposed profit : whether in technology, HR, business development and how much of it needs to be reinvested back into the business keeping in mind the tax consequences that each decision has on your business.
There are many tax saving instruments for individuals under the Income Tax Act, 1961 from section 80C to 80U. Few of the more popular ones have been described below:
80C: PPF, EPF, Bank Fd’s, NSC, LIC premium, Principal repayment towards the home loan, Tuition Fees: Investments can be made in these instruments whereby one can get a deduction of a maximum of Rs. 1,50,000/- from his/her taxable income.
Note: It is found that people are usually unaware that a deduction can be availed for the tuition fees incurred for a child’s education or for repaying the principal amount towards home loans.
80D: Towards Medical Insurance
For individual taxpayers- Premium up to Rs. 25,000 in the case of individuals and up to Rs. 30,000 for senior citizens.
For HUFs- Premium up to Rs. 25,000 and up to Rs. 30,000 in case the member insured is a senior citizen.
80E: Interest on repayment of education loan:
There is no limit for this deduction provided the loan is taken for higher education.
The amount of deduction varies from 50% to 100% of the amount depending on the institution to which the donation is made and whether it is registered.
80GG: Rent paid by self-employed individuals
Rs. 5000 per month or 25% of total income whichever is less. This is available to all those individuals who have not claimed HRA. This section is unknown to many.
Tax planning can be complicated but if done correctly, can notably decrease tax liabilities. It is advisable to plan your investments in a structured way wherein one can obtain twin benefits of saving tax as well as reaping the investment benefits.
For more guidance and assistance with tax planning, do reach out to us at Savage & Palmer to set up a consultation right away!