Tax Planning – How to save tax in FY 2013-14 (AY: 2014-15)

Tax Planning – How to save tax in FY 2013-14 (AY: 2014-15)

The article I wrote about tax planning for 2012-13 generated a lot of interest from you readers. Got more than 500 comments! Thank you A lot of these comments were follow-up questions on the article. Taking that as feedback, I will try to explain the provisions this time in as much detail as possible.

First, let me explain what exactly has changed in terms of taxation from last year (i.e. 2012-13):

1. No change in tax slabs
2. If your annual income is less than or equal to Rs. 5 lac, you get a tax relief of Rs. 2000. Let me explain this with an example: Suppose a person named Neerav earns Rs. 4,50,000 next year. Neerav does not make any tax saving investments. Hence, his total tax liability will come to Rs. 25,000. Now according to this provision, Neerav will get a tax relief of Rs. 2000 and will have to pay only Rs. 23,000 as tax
3. The benefit under section 80CCG could earlier be claimed only by persons whose annual income was upto Rs. 10 lacs. Now the ceiling has been raised and persons whose annual income is upto Rs. 12 lacs qualify for this deduction.
4. An additional surcharge of 10% will be applicable on persons whose annual income is above Rs. 1 crore. This surcharge will be applicable for only one year.
5. Additional deduction of Rs. 1 lac will be applicable to persons taking first home loan of up to Rs. 25 lacs for property worth upto Rs. 40 lac. For such persons, the total deduction will be Rs. 2.5 lacs (Rs. 1.5 lac available under section 24(1)(vi) and Rs. 1 lac available under this new section 80EE).
6. There will be 1% TDS on transfer of immovable property above Rs. 50 lac (not including agricultural land).

How to save tax in 2013-14

The question that I am asked most often is that my income is Rs. XXXXXXX, what all can I do to save tax? The rest of this article is dedicated to answering that question on tax planning. I have created a comprehensive list of all the provisions that you can utilize to reduce your taxable income.

Tax Slabs

1) In Case of General Assesses (Both Male & Female):

Income Bracket	Rate
0 to Rs. 2,00,000	0   %
Rs. 2,00,001 to Rs. 5,00,000	10 %
Rs. 5,00,001 to Rs. 10,00,000	20 %
Above Rs. 10,00,000	30 %

2) In Case of Senior Citizens (Age above 60 years but below 80 years):

Income Bracket	Rate
0 to Rs. 2,50,000	0   %
Rs. 2,50,001 to Rs. 5,00,000	10 %
Rs. 5,00,001 to Rs. 10,00,000	20 %
Above Rs. 10,00,000	30 %

3) In Case of Very Senior Citizens (Age 80 years and above):

Income Bracket	Rate
0 to Rs. 5,00,000	0   %
Rs. 5,00,001 to Rs. 10,00,000	20 %
Above Rs. 10,00,000	30 %

* On final tax amount, a surcharge of 3 %
**No surcharge above 10 lacs.
***An additional surcharge of 10% will be applicable on persons whose annual income is above Rs. 1 crore. This surcharge will be applicable for only one year

Tax Exemptions: 

1) Section 80 C Limit Unchanged (Rs. 1,00,000)

• Deduction on life insurance policy, taken after 1 April 2012, will be allowed only if yearly premium is less than 10% of sum assured.  If its more than 10% then not eligible for deduction u/sec. 80C
• ELSS
• PPF
• EPF
• FD for 5 years
• Pension Plans
• NSC
• Post Office SB
• Infrastructure Bonds
• Expenditure on Children Education (For upto 2 children only for full time education)
• Tuition fees (Only Tuition fees excluding Development Fees, Donations, etc.)
• Housing loan principal
• Deferred Annuity
• Approved Super Annuation Fund

2) Section 80 CCF – Additional Rs. 20,000 on investments towards approved Infrastructure bonds  (withdrawn)

3) Section 80CCD

Deduction under this section can be claimed only if the contribution to your NPS account is made by your employer and the deduction is limited to a maximum of 10% of your basic salary. Returns on NPS are tax free, but withdrawal is still taxable. The deduction under sec 80CCD is over and above the deduction available under sec 80C.

4) Section 80 D

Deduction under section 80D

• Deduction of Rs. 15000/- is allowed if the same is paid as premium for Medical Insurance taken for self / dependents or towards preventive health check-up (max Rs. 5000). In case any of self / dependents is a senior citizen, the deduction allowed is Rs. 20000/-
• Additional Rs. 15000/- is allowed as deduction if the same is paid as premium for Medical Insurance taken for parents. In case the parent is a senior citizen, the deduction allowed is Rs. 20000/-

5) Section 80DD

Deduction under section 80DD

• Exemption given for Expenditure made for a disabled dependant towards Medical Treatment/Training/Rehabilitation. It also includes the LIC/Insurance premium paid towards maintenance of such dependant.
• Maximum deduction allowed is Rs. 50,000/- in case of normal disability and Rs. 1 Lakh in case of severe disability.

6) Section 80DDB

Deduction under section 80DDB

• Exemption given for expenditure incurred on specified disease or ailments such as cancer/aids.
• Maximum deduction allowed is Rs. 40,000/-. In case of Senior Citizens, maximum deduction allowed is Rs. 60,000/-

List of ailments covered:
(i) Neurological Diseases where the disability level has been certified to be of 40% and above,

1. Dementia ;
2. Dystonia Musculorum Deformans ;
3. Motor Neuron Disease ;
4. Ataxia ;
5. Chorea ;
6. Hemiballismus ;
7. Aphasia ;
8. Parkinsons Disease ;

(ii) Malignant Cancers ;

(iii) Full Blown Acquired Immuno-Deficiency Syndrome (AIDS) ;

(iv) Chronic Renal failure ;

(v) Hematological disorders :

1. Hemophilia ;
2. Thalassaemia.

7) Section 80E

Deduction under section 80E
Deduction is allowed for repayment of interest component of Higher Education loan. All education after Class 12 is allowed, either vocational or Fulltime. But should be from a school/institute/university recognized by the government.

8 ) Section 80G

• Contribution to exempt charities – 25/50/75/100% depending on the charity and as per approval
• 100% exemption on donation to political parties

9) Section 80U

• Deduction upto Rs. 50,000/- is allowed in case of Permanent Disability.
• In case of Permanent Disability exceeding 80%, maximum deduction allowed is Rs. 1,00,000/-.

10) Section 24(1)(vi) & Section 80EE

• Housing loan interest. Maximum Investment Limit – Rs. 1,50,000 (for loans taken after 1 April 1999, for loans before that Maximum Investment Limit 30,000).
• Additional deduction of Rs. 1 lac will be applicable to persons taking first home loan of up to Rs. 25 lacs for property worth upto Rs. 40 lac. For such persons, the total deduction will be Rs. 2.5 lacs (Rs. 1.5 lac available under section 24(1)(vi) and Rs. 1 lac available under this new section 80EE).

11) Superannuation

Any contribution made by a company to superannuation fund upto Rs. 1,00,000 tax free in the hands of the employee.

12) Conveyance/Transport Allowance

Any Conveyance / Transport Allowance given to an employee is tax free upto Rs. 9,600 /- (No Supporting Bills required).

13) Medical Allowance

Any Medical Allowance given to an employee is tax free upto Rs. 15,000 /- (Supporting Bills required).

14) HRA

Any House Rent Allowance given to an employee is tax free upto the minimum value of the following conditions (subject to – when an employee can produce rent paid receipts from landlord for the period and if the employee has not availed of tax exemptions for home loan interest / principal repayment):

1. 50% of Annual Basic (40% of Annual Basic in case of non-metros)
2. Actual HRA received
3. Rent Paid – (10% of Annual Basic)

15) Professional Tax

Any Professional Tax deducted from an employee’s salary can be reduced from the annual salary income to arrive at taxable salary.

16) Provident Fund

Provident Fund contributions (under section 80 C and subject to an overall investment limit of Rs. 1,00,000 ) deducted from an employee’s salary are tax exempt.

17)80CCG – Direct Equity Investment

Under ‘Rajiv Gandhi Equity Savings Scheme‘ - a new equity investor will be able to claim 50% of his investment in direct equity as deduction subject to maximum investment of Rs. 50,000 and provided his taxable income is below Rs. 10 lacs. The investment will be subject to 3 years lock-in.  
Government has notified this scheme (RGESS). Mutual funds and ETFs that invest in BSE100 or CNX 100 stocks or PSUs which are Navratna, Maharatna and Miniratna will qualify under this scheme. These investments can be traded over stock exchange after 1 year of investment. New equity investor has been defined as someone who has opened a Demat account but has not bought any securities till date of notification of this scheme (22 Sep 2012). More information here.

18) Section 80TTA – Savings Bank Interest

No tax will be charged on interest earned on balance in savings bank account subject to a maximum of Rs. 10,000 per year.

You can save money by reducing your taxes and you can also save money by spending less. Spending less does not mean no shopping It just means ‘smart’ shopping. Smart shopping involves shopping when there is a sale going on or when you have discount coupons and offers to buy stuff at less than MRP! I love to collect all the discount coupons and offers available for shopping online. Check the navigation at the top of this page to find coupons for your favourite online store. All the discount coupons have been listed based on stores (like Flipkart Coupons, Snapdeal Coupons, Jabong Coupons, Myntra Coupons, Makemytrip Coupons, Cleartrip Coupons, etc.) and categories (like Travel Coupons, Mobile phone coupons, Accessories Coupons, etc.). Hope these discount coupons help you save some additional bucks. You can also subscribe your email (form is on top right side of this page) so that you receive the best coupons and offers every week in your inbox  :)

Any queries? Have I missed anything? Do you know any other way to save tax/money? Let me know in comments below.
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