Best Tax Savings Options for FY 2011-2012!

              The  current financial year will come to an end within five months time.  Its already late to plan for your tax savings for the current financial year.  This article is mainly intended for those who are not yet started investing for tax savings purpose.   There are many sections of Income Tax Act that enable individuals to save tax by investing in various qualified instruments. It's time for investors to review their investments in tax-saving instruments and look at possibilities to save maximum possible tax in the current financial year.

  Under Section 80C of the Income Tax Act

Section 80C of the Income Tax Act allows income tax exemptions to individuals on investments in certain qualified instruments. The maximum limit to claim deduction under this Section is Rs 1, 00,000. You can invest Rs 1,00,000 in one or more of these instruments to avail tax rebate.  The amount invested in the qualified instruments will be deducted from your total income.  So finally you end up paying tax only for the net amount after deduction of the money invested in those qualified financial instruments.

              You can reduce your tax liabilities by way of investing any of the following instruments

1)                  Employee Provident Fund

2)                  PPF – Public Provident Fund (Maximum limit per financial year Rs. 70,000)

3)                 Life insurance (term insurance as well as endowment plans)

4)                 Pension plans

5)                Equity-linked Savings Schemes (ELSS) of mutual funds  (three year lock-in period)

6)                 Bank Term Deposits (special deposits for tax savings purposes – lock in period applicable)

7)                Specified government infrastructure bonds

8)                Repayment of housing loan principal repayment

9)              National Savings Certificates (NSC) and interest accruals on previous years' NSCs can also be added to the Section 80C limit

Infrastructure bonds


You can invest in specified long-term infrastructure bonds to claim a deduction up to Rs 20,000. The tax rebate for infrastructure bonds is in addition to Section 80C.  (Lot of companies both Government and private sectors are planning to launch their long term infrastructure bonds during the month of Nov-Dec, 2011.  Presently PFC, IFCI infrastructure bonds are on tap, in case you are patient enough to wait for another month you may likely to get more interest from the coming infrastructure bond issues.  )

Housing  loan – tax benefits


Housing loans provide tax relief. The principal repayment of a housing loan attracts rebate under Section 80C up to Rs 1,00,000 and the interest payment attracts a rebate of Rs 1,50,000.

Medical insurance


In addition to Section 80C, there is Section 80D that enables an individual to claim rebate on mediclaim policies. Payment of premium for medical insurance (mediclaim) is eligible for tax exemption up to Rs 15,000  This deduction can avail on medical insurance premium paid for yourself, spouse, parents and children.




Other deductions for salaried employees


If your employer provides medical allowance, you can available an income tax deduction of up to Rs 15,000 per year by offering proof of the relevant expenses.


If the employer gives leave travel allowance as a part of your salary, you can avail income tax deduction on travel expenses (family travel expenses can also be covered if family travels along with the taxpayer). Leave travel allowance can be availed twice in a block of four calendar years. Presently, the block applicable is from 2010 to 2013. Leave travel allowance can only be availed on the expenses incurred on domestic travel. However, the travel mode can be anything like taxi, bus, train or air.

Conclusion


Since only five months are left out for completing this financial year,  it is advisable for you to review your tax savings  planning, and explore available options to minimize the tax liabilities.


Please keep the following factors in your mind while proceeding with tax saving investments.

              First of all, try to exhaust the quota for Section 80C. You can look at various options to invest and save tax under Section 80C. Salaried people can also look at saving tax by planning the expenditures under medical allowance, child education allowance and conveyance allowance. Investing in a medical insurance policy is another option to save tax, if your Section 80C limit is already exhausted. However, it is not advisable to take another medical policy just for the sake of saving tax, if you already have one.