Eight simple ways to plan your taxes

Take some time out this week and spend a little time organising your tax plan. Here's how:

You have got only a few more months to complete this financial year. Very soon you will get a call from your company to submit the proofs for tax saving investments. So why don't you spend some time on organising your tax plan?

Over the following pages we will take you through the process in eight simple steps -- things you must do and keep in mind so you have no hassles while filing taxes.

Ramalingam K, an MBA (Finance) and certified financial planner, is founder and director of Holistic Investment Planners (P) Ltd (http://holisticinvestment.in).

Illustration: Dominic Xavier

Restructuring your salary with some additional components can reduce your tax liability. This restructuring doesn't require any additional cash outflow. The following components can be efficiently used to reduce your income tax liability.

• Transport allowance to the extend of Rs 800 is exempt
• Medical expenses which are reimbursed by the employer are exempt to the tune of Rs 15000
• Food coupons like Sodexo or Ticket restaurant are exempt from tax up to Rs 60000
• Individuals who are all living in a rented accommodation can include House Rent Allowance ( HRA ) as a part of their salary
• Leave Travel Allowance (LTA) can be part of your salary as this can be claimed twice in a block of 4 years.

Illustration: Uttam Ghosh

As far as possible utilise the maximum exemptions available under section 80 C, 80 CCF and 80 D. The maximum exemption available under section 80 C is Rs. 100000.

Under this section Rs.100000 investment or contribution can be made in PPF, NSC, Life insurance premium, 5 year FD with banks and Post offices, Mutual Fund ELSS, Principal Repayment of housing loan, and the tuition fees paid for children's education.

Under Section 80 CCF, you can invest up to Rs.20000 in infrastructure bonds.

Under Sec 80 D, the premium paid towards the mediclaim policies are exempt. The maximum limit of exemption is Rs.15000 and for senior citizens the limit is Rs.20000 and for covering senior citizen parents there is an additional exemption to the extend of Rs.15000.

The principal repayment of a housing loan is eligible for a deduction up to Rs 100,000. The interest paid on a housing loan is eligible for a deduction up to Rs 150,000.

If the housing loan is for a sizeable amount, then it is possible that the principal repayment and interest may exceed the specified tax exemption limit.

To utilise the maximum tax benefit, an individual can consider going for a joint home loan with his/her spouse or parent or sibling. This will make sure that both the co-owners can claim tax deductions in the proportion of their holding in the loan.

Illustration: Uttam Ghosh

You should not do your tax plan in isolation.

Instead you need to do it in sync with your overall financial plan.

So a tax plan is not only to just save taxes and also it should assist you in achieving your other financial goals like children's higher education, buying a home or retirement.

Illustration: Uttam Ghosh

In fact the right time to do the tax plan is the beginning of the financial year.

If you postpone your tax planning even now and do it in the last minute, then you will not be able to choose the right investment.

In the last minute rush, you will be forced to choose a scheme which gives the proof immediately. Is the investment sound and profitable?

Are there any other better options? You will not be able to choose the best scheme and you may settle with a mediocre one.

Illustration: Uttam Ghosh

Before investing your money, you need to invest your time.

You need to take some quality time to understand the various tax saving options and compare their benefits and limitations.

Illustration: Dominic Xavier

Some tax saving options like NSC or ELSS need only onetime investment.

Some other tax saving options like PPF, Ulips need periodical investments year after year.

You need to be careful in choosing a tax saving scheme where you need to commit for periodical future payments. You need to check on a few things like; do you need such a future commitment?

Will you be able to meet the future commitments at ease? The law may change and you may not get any tax exemption for your future payments. Would you consider the scheme irrespective of tax benefit for the future payments?

Did you switch your job in the middle of the financial year?

Then you need to redo your tax plan with consolidating the income from both the companies.

It is advisable to inform the new company about the income during the particular financial year from the old company. So that your new company will deduct the right amount of TDS. Otherwise you may need to pay extra tax at the end of the financial year.

Whenever you change your job, you need to have a sitting with your financial planner or tax advisor. So that the required changes in your tax plan can be done proactively.

With proper tax planning you can reduce your tax liability; save more; invest better and become wealthier.

Illustration: Uttam Ghosh