Lucid Guide for those who Find Tax Planning Taxing

If planning for tax saving is a tedious task for you, here is a quote from Mr. Benjamin Franklin that will make your lethargic soul wake up. The quote says, "A penny saved is a dollar earned." With so many lucrative investment schemes available these day, tax saving can actually motivate you to improve your financial health by making investment that will ultimately help you in meeting your bigger financial goals.

Here is a lucid guide for those who have recently come under the tax net and find tax planning a taxing exercise.

Understanding Income Tax
The government of India imposes an income tax on taxable income of individuals, Hindu Undivided Families (HUFs), companies (firms), co-operative societies and trusts. Individual Income Tax is a progressive tax with three slabs of 10%, 20% and 30% as the income goes higher. Income tax is exempt for men earning upto Rs.110,000 per year, women earning upto Rs 145,000 and senior citizens earning upto Rs. 195,000.

Tax Planning

While levying tax, government allows individual to make efforts to save taxes through legitimate ways and this is what tax planning is all about. The goal of tax planning is to arrange your financial affairs so as to minimize your taxes. Keeping in view the basic parameters of safety and liquidity, every individual should make prudent investment decisions to reduce income tax liability and to ensure a high post-tax yield.

Assessing Taxable Income

Before beginning tax planning an individual needs to calculate total taxable income under all heads such as income from salary, house property, business and profession, capital gains and income from other sources. Following this, one needs to calculate tax payable on the gross taxable income during the financial year (1st April – 31st March) using the simple tax rate table.

After making an assessment of the tax liability, the individual has two options to choose from - pay tax or to minimize tax through prudent tax planning. Those who consider tax planning a tedious and boring exercise simply pay taxes and get rid of hassles, prudent ones make advance planning and make wise to decisions to save tax and gain on investments.

Tax Saving Options

Section 80C of the Income Tax Act allows certain investments and expenditure to be tax-exempt. The total limit under this section is Rs. 100,000 (Rs. 1.0 lakh). Before you start thinking of tax saving, make it clear in your mind that tax saving is not at all tedious and boring. It is rather a challenging fun through which you can save a lot of money. This positive approach will help you plan more sagaciously.

Some of the most popular tax saving options in India are

*PPF (with post offices/banks), statutory provident fund (deducted and paid by the employees).
*Life insurance premium
*Unit-linked insurance (ULIP & mutual funds)
*Equity-linked saving schemes (ELSS) of mutual funds
*National Saving Certificates
*Infrastructure bonds
*Home loans

Out of these, most attractive tax saving options are - Investment in mutual funds, infrastructure bonds and payment of home loans. Life insurance is considered not as attractive as an investment option these days due to low returns and long time period.

Tips on Saving Tax

Given here are points that will help you in maneuvering your net taxable income and saving on taxes.
*A salary earner can reduce his tax by paying rent to the family member owning the house.
*Through gifts made to a senior citizen, investment can be made.
*Tax-free investments can be made in the name of any family member.
*Investing in a senior citizen's name can result for the higher tax exemption one enjoys.
*Certain investments offers higher return to senior citizens.
*A self-occupied house should be bought in the name of the member in the highest tax bracket.