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Sail through taxing times

Wednesday, July 21, 2010

THERE are two kinds of taxes one ends up paying, direct tax and indirect tax. Indirect taxes are not levied on individuals, but on goods and services. Customers indirectly pay this tax in the form of higher prices for goods and services they purchase. One such example is luxury taxes on hotel bills; others are sales tax, VAT, etc. It is paid by customers and the goods or service provider passes this tax to the respective authority. There is nothing you can do about indirect taxes.

On the other hand, direct taxes are charged directly. These include income tax, property tax and wealth tax. As we all must be aware, income tax is levied on income earned by an individual or business entity or any other entity. In India, income from agriculture is exempt from tax.

The rate at which taxes are levied will vary depending upon income level and status of a tax payer. Following is the income tax slab for men, women and senior citizens:

Income tax slab Tax Rate

Base amount
For Men -0 to 1,60,000
For Women - 0 to 1,90,000
For senior Citizen - 0 to 2,40,000

No tax
From base amount to 3,00,000 10%
3,00,001 to 5,00,000 20%
Above 5,00,000

Government has provided some relief from income tax for the tax payers by way of section 80 c. This promotes saving habits amongst them. From the total income calculated as per the income tax law, the amount invested up to Rs. 1,00,000 u/s 80c will be deducted before calculating tax. This year, the limit has been increased by Rs. 20,000, provided they are invested in infrastructure bonds as specified. There is a minimum lock in period of 3 years for these investments.

Some of the investments where tax benefit u/s 80 c is available are:
• Provident Fund
• Public Provident Fund
• Life insurance premium
• Pension plans
• Equity Linked Saving Schemes of mutual funds –ELSS
• Infrastructure bonds
• National Savings Certificate
• Home Loan principal amount up to prescribed limits.
• Tuition fees paid for education of children as per eligibility criteria.

Let’s understand how section 80 c can benefit an individual…

Mukeh Varma is drawing a yearly salary of Rs. 3,45,000. Without availing the benefits of sec. 80 c, his tax will be Rs. 23,690. But, if he invests in instruments u/s 80 c the amount of Rs. 1,00,000, his tax will come down to be Rs. 8,755. He saves Rs. 14,935 yearly, which is approximately half a month’s salary for him. Apart from saving tax, he starts building an investment portfolio for the future.

Individuals and Hindu Undivided Families (HUFs) can also benefit under section 80 D by paying for health insurance premiums under the scheme of the company, as approved by the Insurance Regulatory and Development Authority (IRDA).

There are other provisions also for tax planning such as educational loans, HRA, donations, etc. Consult your financial planner to know of the benefits available to you under various sections of income tax. Do not delay your meeting with a proper financial planner. One meeting will save your years of earning.
(The writer conducts seminars for young kids on money management and is a visiting faculty at management institutes. Write to her on )



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