Steps to follow while investing for Tax Planning

So, there are 4 simple Steps to follow while investing for Tax planning

1)Tax Liability: Tax liability is the amount of money in the form of tax debt you owe to tax authorities. It is the total amount of tax you are liable to pay to the government. Taxes are applicable to the income you earn in a service or business, interest income of various investment avenues, capital gains on stocks, income from other sources such as winning a lottery, horse race etc. house rent and more. The Indian Income tax act of 1961 has set laws in relation to the amount of tax to be charged, exemption limit etc. Compute your Income and understand your Tax Slab. Calculating of tax is as per the amount and % for e.g., if you are earning 12 lacs Rs Salary per year then up to 2.5 lac no tax, from 2.5 lac to 5 lacs 5%, from 5 lac to 10 lac 20% and on balance 2 lacs – 30% – what eve is the total amount of all these slab wise calculations is what tax liability.

2. TDS – Tax Deducted at Source –
The concept of TDS was introduced with an aim to collect tax from the very source of income. As per this concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government. This is the advance payment already done by you to the Govt, so minus the TDS from your Tax Liability.

3) From 2019 –
A Standard Deduction is basically a deduction allowed in Income Tax irrespective of the expense incurred or the investment made by the Individual. No Disclosures/ Investment Proofs/ Expense Bills are required for this type of Income Tax Standard Deduction as it is allowed at a standard rate. Standard amount of Rs 50000 p.a.is deducted from your tax liability by removing Medical and leisure allowances etc. No proof is required.

4)Tax Exemptions like: 80C
The Public Provident Fund is a savings-cum-tax-saving instrument in India, introduced by the National Savings Institute of the Ministry of Finance in 1968. The aim of the scheme is to mobilize small savings by offering an investment with reasonable returns combined with income tax benefits. The scheme is fully guaranteed by the Central Government. Balance in PPF account is not subject to attachment under any order or decree of court. However, Income Tax & other Government authorities can attach the account for recovering tax dues.

You can invest minimum Rs. 500/- up to 1.50 lacs in a financial year. The returns on the investment are between 7% to 8% guaranteed. The amount invested is eligible for tax exemption under section 80C of Income Tax Act. It has a lock in period of 15 years, and you can extend the lock in for 5 years more after the maturity. The returns are fully tax free and tax exempted.

An Equity Linked Savings Scheme is a mutual fund scheme that allows an individual a deduction from total income of up to Rs. 1.5 lacs under Sec 80C of Income Tax Act 1961. In this scheme there is no limitations of investment in a financial year. However, you can only get a tax rebate up to 1.5 lacs in a financial year. It has a lock in period of minimum 3 years. As it invests in equity it does not guarantee returns. However, it has given approximately 15% returns in the last 15 years. Let us refer a table.

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