Tax Planning – How to save tax in FY 2012-13 (AY: 2013-14)

We know tax planning is a boring and time consuming exercise that you need to do every year. We cannot help you avoid it completely but what we can definitely do is to help you with all the information that you need to plan your tax and save money.

The following is the necessary information that you need to know to do your tax planning properly for financial year 2012-13 and Assessment year 2013-14:

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. 8,00,000	20 %
Above Rs. 8,00,000	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.

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.
• ELSS
• PPF
• EPF
• FD for 5 years
• Pension Plans
• NSC
• Post Office SB
• Infrastructure Bonds
• Expenditure on Children Education (Upto Rs. 200 per month for upto 2 children)
• Tuition fees (Only Tuition fees excluding Development Fees, Donations, etc. Maximum allowed: Rs. 24,000/-)
• 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2) Section 80 CCF – Additional Rs. 20,000 on investments towards approved Infrastructure bonds  (withdrawn)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:
Contribution to NPS and returns on NPS tax free, but withdrawal still taxable.
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/-

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 under 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)

• 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).

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):
a) 50% of Annual Basic (40% of Annual Basic in case of non-metros)
b) Actual HRA received
c) 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)Direct Equity Investment – Under ‘Rajiv Gandhi Equity Savings Scheme’ – a new equity investor will be able to claiom 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. (Read in a newspaper on 2 Apr 2012 that the 3 year lock-in may be reduced to 1 year. Clarification will be release by the government soon)
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.
Any queries? Have we missed anything? Do you know any other way to save tax? Let us know in comments below.
Update (21Jul2012): I am overwhelmed at the response this post has received. I am happy that it has helped so many people save on their taxes. A lot of you have also added your comments appreciating the work (thank you!) and asking further questions. Though I try to answer all the questions, I am no tax expert. I am just an investment advisor with my expertise more in investments and less in accounting. Hence, if you ask me questions that are too specific or for which the law is ambiguous, I will not  be able to answer them. I suggest, you consult a certified tax consultant or a Chartered Accountant. I will still try to answer to the best of my abilities