Have you planned your income tax this year?

The financial year 2011-12 is coming to an end. It is time to finalise your income tax planning and savings. There are many sections under the Income Tax Act that enable you to reduce your income tax liability.

These are some sections you need to tap:

Section 80C

This section allows income tax exemptions and rebate to individuals. You can invest in certain specified instruments and reduce your taxable income by up to Rs 1 lakh under this section.

These are some of the major instruments that attract income tax benefits. You can invest Rs 1 lakh in one or more of these instruments to avail tax rebate under Section 80C:-

Provident funds (Employee Provident Fund and Public Provident Fund) Life insurance (term insurance and endowment plans) Pension plans Equity-linked savings schemes (ELSS) of mutual funds Specified government infrastructure bonds Repayment of housing loan (principal component) National Savings Certificate (NSC)

Section 80CCF:

This is an extension of Section 80C. The Income Tax Act allows you an additional rebate (in addition to the limit allowed under Section 80C) of up to Rs 20,000 when investing in notified infrastructure bonds. This section is a boost for infrastructure development in the country. There is an expectation that the investment limit in this section may be raised for the next year.

Home Loan Benefits:

A housing loan provides relief under the Income Tax Act. The repayment of the principal component of a housing loan attracts rebate under Section 80C of up to Rs 1 lakh. The interest payment on a housing loan attracts rebate of Rs 1.5 lakhs.

Medical Insurance:

The income tax benefit on purchase of medical insurance comes under Section 80D. You can claim a rebate in income tax on the premium paid to buy mediclaim policies. The maximum limit on the income tax rebate under this section is Rs 15,000. You can avail this deduction on medical insurance premiums paid for yourself, your spouse, parents and children.

Other Deductions (salaried individuals):

Medical allowance:

If an employer of a salaried individual offers a medical expense reimbursement allowance, an income tax deduction of up to Rs 15,000 per year against the relevant expenses is allowed.

LTA:

If an employer offers a leave travel allowance (LTA) as a part of the salary, one can avail an income tax deduction on the travel expenses. According to the norm, the LTA benefit can be availed twice in a block of four calendar years. Presently, the block applicable is from 2010 to 2013.

Review tax planning

These are some points you should keep in mind while reviewing your investment planning with respect to income tax optimisation :

Check limits:

First of all, exhaust the quotas of Section 80C and Section 80CCF. You can analyse the various options and invest to save tax under Section 80C.

Use allowances:

Salaried tax-payers should plan expenditure under medical allowance, child education allowance and conveyance allowance for maximum benefit.

Insure:

Investing in a medical insurance policy is another option to save tax, if your Section 80C limit is already exhausted. However, it is not advisable to take a medical insurance policy just for the sake of saving tax.

Source: EconomicTimes