New Delhi: The festival season is the time when most splurge, but now that the season is over, it's important to make the most of your time, talent and money and prepare your cash flow chart for this financial year too to ensure a smooth take off when it comes to income tax planning.
In short, it's important that you plan your investments right away for this financial year. You don't need to invest any money now. The sole aim of the exercise is to cut down your tax payments. In other words what is required of you, right now, is to jot down your wish list related to investments and expenses that you propose to undertake during the period up to 31st March 2007.
Be it individual tax payers or Hindu Undivided Families (HUF), both categories need to plan all investments and expenses that they propose to undertake during the current financial year with an aim to cut down income tax payments as a result of tax deduction specially in terms of section 80C of the Income tax Act, 1961.
Rush with your investment plans to your employer
If you are employed you need to inform your employer about the projected investments, you plan to make. Know that it is only on submission of the details of your proposed investment for the purpose of tax saving that the employer would deduct the same to arrive at your monthly figure of ‘Tax’. This would be deducted at source from your salary income. Hence prepare details of your proposed investment schedule and submit the same to your employer right away.
Once this is done your tax would be deducted keeping the proposed tax deduction as per those under section 80C, 80CCC and 80D of the Income tax Act, 1961.
And you could make the the actual investments at a future date on or before 31st of March 2007. What a great big idea for salaried employees to enjoy tax saving right now without actually making investment.
Those individuals who are not employed as also those who fall under the Hindu Undivided Families (HUF) category should plan their proposed investment figures right now and keep them handy. This would be helpful when they contemplate making payment of Advance Tax. However, they too can make investments by 31st March 2007.
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Invest and get your tax rate changed
By adopting the strategy to make investment upto Rs.1 lakh, the individual tax payer can also cut down his tax rate. This is especially true for almost all tax payers.
For example, if the total income of a salaried employee is Rs 3,50,000 during the financial year 2006-2007, he has to pay income tax to the tune of Rs 55,000 but if he were to invest Rs 1 lakh as per section 80C then the total taxable income would be Rs 2,50,000 (Rs 3,50,000 - Rs 1,00,000) on which the income tax payable would be Rs 25,000 only.
Thus, this would help them gain tax saving of Rs 30,000 on investment of Rs.1 lakh. Income tax is payable as per slab rates and thus the tax deduction as per section 80C would bring a lower tax slab. (Education cess not considered for above purpose.)
Do you fear EET?
This year the biggest fear of the investor is in connection with the impact of taxation at a future date on the investments made during the current financial year.
Tax payers do not need to worry at least at this stage about investments made in this financial year specially because as of today there is no provision in the Income Tax Act, 1961 to bring into effect the concept of Exempt Exempt Tax (EET).
The Finance Minister had hinted on this new concept but introduced no amendment to this effect. Even if EET is introduced, it will be applicable only from the next year and it cannot have any retrospective impact. So tax payers can relax this year and invest without any fear.
Confusion on investment
Most tax payers are still confused about certain tax deductions under Sections 80C, 80CCC and section 80CCD. Note that the combined ceiling of deduction under Section 80CCE is Rs 1 lakh but as a tax payer you can also invest the full sum of Rs 1 lakh in a pension plan or spread the entire sum of Rs 1 lakh to invest in instruments that give you tax benefits under Section 80C.
The tax benefit for a residential house is only in respect of house property owned by the assessee in its own name. The expenses on payment of tuition fees are only in respect of two children of the assessee. Likewise, the tuition expenses (only for full time course) will enjoy tax benefits. Presently, the overall investment limit is Rs 1 lakh but under Public Provident Fund (PPF), the maximum limit is Rs.70,000.
Do remember that now you can also go in for a five-year bank fixed deposit and avail of tax benefits under section 80C.
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