Income Tax First Step


Tax planning can be simply understood as planning your taxes in such a way that you save maximum tax and use that investment efficiently. Most of the common investors get away from the word Tax planning, but believe me it is a very simple and easy thing if done timely and with proper advice.

The month of March always brings with it the nightmare of tax planning because one has not planned it when having a time.

Efficient and timely tax planning enables you to reduce your tax liability to the minimum. In simple words efficient tax planning is taking advantage of all tax exemptions, deductions rebates and allowances and ensure that your investments are in line with your long term goals.

An individual broadly has 2 options today

a.    Pay your Taxes (without tax planning).

b.    Minimize your tax through proper Tax planning

Most of us will choose the option B, but with the young earner by default the option is A because of the lack of awareness

We will guide you to the process of proper Tax Planning.

STEP I.  Calculate your taxable Income for the Financial Year (from April 1 to March 31) from all sources such as Salary/Pension, interest etc

STEP II. Take maximum advantage of all tax exemptions, deductions rebates and allowances available to you

STEP III. Next, calculate tax payable on Annual Taxable Income using a simple Tax Rate Table, different Slab for each.  Read ‘Income Tax Slab 2011-12’

I. for Resident Male Individuals

II. for Resident Women below

III. for Resident Senior Citizens

STEP IV: After tracing out which Tax slab you fall into calculate the Tax Liability on you

Tax Saving Investments

Before you do any investment for the purpose of saving tax you need to keep inmind the following points

Risk: This depends on how much risk you want to take, if you dont want to take risk go for fixed income tax savers available, if you think you can take risk go for equity related products or you can also do some investment in low risk products and the remaining in risky products but wherever you do investment do remember that the returns should beat the inflation.

Return: Returns are depend on the product you choose the more risky product oviosly gives you the better return, though the tax saving investments are for the long term you can take risk on it. You need to find out that what ever the product you choose for tax saving investment, is that product maturity is also tax free or the return that you are going to get on it is taxable it matters a lot in investments.

Liquidity: Before investment in any product you always looks after the product which have the lowest lock in or lowest maturity in years, so that you can use that amount again in tax saving for that financial year. Mutual Fund is the lowest lock in product available in the market today.

Important points to keep in mind

– Dont get caought into emotional selling.

– Don’t get lured by the Dividend promotion campaign of ELSS.

– Mutual Fund ELSS is one of the best option available in market for tax saving.

– Try not to do investment for tax saving in march, because nobody having a time to understand the product in last hour.

– Consider all exemptions, deductions, allowance before calculate the tax liability.

– Always take advise from planners rather from friends.

– Try not to buy product which is having insurance as well as showing return equal to equity.

– Understand the product deeply which carry the flashy tag line.

– March 31 is the last day for doing investments for the financial year.

– July 31 is the last day for filing the tax return.

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