A look at various tax saving routes
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Individuals have a small amount of benefit on the tax front but the overall situation will end up being negative as higher expenses in the form of additional service and excise eats up a larger part of their household budget. At the same time there are also a lot of gains on the procedural front that should not be forgotten.
Starting with the tax gain there is a small benefit that is available in terms of the rise in the basic exemption limit that has been increased to Rs 2 lakh for individuals. This means a savings of Rs 2,000 in tax for male individuals and a savings of Rs 1,000 for female individuals. There is no extra benefit for female taxpayers as the basic exemption limit for everyone stands at Rs 2 lakh so this difference has now been eliminated.
The real benefit on the tax front is for anyone who has a higher amount of income as the 20 per cent tax slab has been increased from Rs 8 lakh to Rs 10 lakh. This will give a straight and flat tax relief to the extent of Rs 20,000 for anyone who has income in excess of Rs 10 lakh. Taken together with the earlier benefit the total figure for a male individual will go upto Rs 22,000 and for a female individual to Rs 21,000.
There is a benefit that will be available for new investors into a scheme called Rajiv Gandhi Equity Saving Scheme. This will provide for a deduction of 50 per cent upto Rs 50,000 of investment made but there will be a 3 year lock in. Further details would come in due course and these will list out whether the conditions required to meet the qualification are easy enough to let many new investors take the benefit. What is also important is the manner in which the funds will be managed as investors want tax benefits with returns on the investment.
There is a big relief on the administrative front as having to collect small details about interest on savings banks interest and then paying tax on this has been tackled. There is a deduction of Rs 10,000 for income earned as savings bank interest so most people will gain on this front and it will make the filing of the returns easier as there will not be any extra tax to be paid. The salaried will benefit the most as they need not pay any additional amount of tax when there is a full deduction on all the other income in the form of tax deducted at source.
Investors will be able to reduce their expenses when they are investing due to the reduction in the securities transaction tax on delivery based transactions. While the figure has been reduced marginally the impact of this will be extremely small for the investors who undertake equity investing so it is more of a sentiment boosting measure.
Contributing capital to a Hindu Undivided Family has also become easier and this will make it an option that a lot more people can explore. Contribution made by a member in the form of property or sum to a HUF will be excluded from taxation while earlier this could be classified as a gift and then taxed since it was not from an exempted source.
A deduction of the expense made on preventive checkups has been proposed upto Rs 5,000 in the year. While this will encourage individuals to go in for preventive checkups and get a tax benefit for the same there is no extra benefit as the figure is within the overall limit present for payment of health insurance premium. So this is just another route to get the health expense deduction and is nothing additional.
Senior citizens might not have gained in terms of a higher tax benefit this year but they will have a lower administrative compliance requirement due to the fact that there is a proposal which says that they will not need to pay advance tax when they do not have business income in their portfolio. This is a good thing and they will be spared from the unnecessary interest cost and other compliance problems of remembering and making advance tax payments. Further the senior citizens definition has been streamlined across many areas to make it consistent at 60 years of age so this will not ensure that some benefit gets held up due to the wordings of an individual section.
The bad news is that there has to be a Tax Deduction at Source on the sale of the property when the value of this exceeds Rs 50 lakh in specified urban agglomeration and Rs 20 lakh in other areas. Since this has been introduced it will lead to a lot of situations where normal individuals will also have to pay tax on transactions that they undertake. The transferee has to deduct and pay the tax so the person who is buying the property is the one who has to undertake the process. This is expected to be completed smoothly as there will be a one page challan for payment and the person who is the transferee will not even have to take a tax deduction number for this purpose as this would be a one time transaction.
Ensuring that your life insurance policies qualify for a tax deduction just got easier as earlier the premium paid should not exceed 20 per cent of the sum assured. Now this figure has been reduced to 10 per cent so it means that a larger number of policies will qualify for tax benefits. One final thing while making a donation to get tax benefit ensures that the cash component is limited to just Rs 10,000 as the tax benefit for the cash part has been restriction to this figure.
- Last-minute Tax Tips – 13 smart ways to save thousands (theinsider.retailmenot.com)
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- Video: What Are Itemized Tax Deductions? (turbotax.intuit.com)