How to Work Out for Effective Tax Savings Plan?

Posted by Mansi Negi
1
Aug 4, 2015
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Everyone wants to save those extra bucks filling up the government treasures, by taking a suitable tax savings plan. However, while planning for tax savings it is certainly not prudent to wait till the end of the financial year. And when you realize later it may not be possible to do any planning.

Everyone have their own perception towards taxes. Although people may think its being over cautious or planning too early but when it comes to tax savings investment it may never be early and it is a proven fact that earlier the planning better will be the saving of time and money.

Various avenues to explore which will minimize the tax burden effectively are available in the market. Tax saving plans can be worked out by two ways by spending and by investing. The Income tax act has many provisions to provide the benefit of exemption or deduction of income based on the payments or expenditure you incur as well as the saving or investment that you make.

Payments or expenses like medical insurance premiums, cost of treatment for specified diseases, donations to specified funds, charitable institutions are nature of expenses which come under the tax savings brackets. However, there are other investment modes too to avail the benefit of income tax deduction.

Some of the investment options available under the popular Section 80C of Income Tax Act are contribution to Public Provident Fund, post office savings schemes, investment in mutual funds etc. Even the deduction towards repayment of principal on housing loan could be considered under this category since it comes out of the investment in a house property.

Another tax savings plan is to invest in tax saver fixed deposits with banks. Investment in such fixed deposits for an amount not exceeding Rs. 1,00,000 in a year (with a tenure of 5 years) are exempted from payment of income tax under Section 80C of Income Tax Act.

However, a few drawbacks in this scheme are that, no encashment is possible before the completion of tenure. Also, unlike the Provident Fund (both EPF and PPF) and ELSS, the interest on such deposits is taxable.

Under new section 80CCG of Income Tax Act new retail investors in equity market are allowed a deduction from income, in respect of sums invested under an equity savings scheme. The 'Rajiv Gandhi Equity Savings Scheme' introduced in the Finance Act 2012 with much expectation, evoked a mixed response as the benefits towards tax saving was not seen as a significant one. Realizing this, the Government had made some changes extending the benefit for subsequent years.

Most of the young couples and middle aged income tax payee incur quite high payments towards the education fees of their children. The expenditure incurred on education fees is also eligible for a deduction under Income Tax Act, thus, if you are incurring expenditure towards education fee of your children, please check whether these are eligible for deduction under the IT Act.

While your mission is creating one good tax savings plan the ways to reach your mission are many. It is now you who need to decide the route that you wish to take to reach your destination of tax savings.[Source:

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