Income Tax

How to save income tax for financial year 2012-13

by shma

This financial year 2012-13 is going to be end on 31st March 2012 and most of us must be busy in calculation of income tax they have to save or pay. As the financial year is coming to end the decision that where to save tax is becoming confusing. In this article I will discuss the various methods where one can invest to save tax. But first of all let us discuss the income tax exemption limits for various categories:

1. For Females: up to 2 lakh no tax

2. For Males: up to 2 lakh no tax

 For both males and females the income tax rates:

2-5 lakh = 10%

5-10 lakh = 20%

Above 10 lakh = 30%

 3. For Senior Citizens (In between age 60 – 80 years) : up to 2.5 lakh no tax

The income tax rates are:

2.5 – 5 lakh = 10%

5-10 lakh = 20%

Above 10 lakh = 30%

 4. For Senior Citizens above 80 years : up to 5 lakh no tax

The income rates are:

5-10 lakh = 20%

Above 10 lakh = 30%

 Thus these are the income tax limits for males, females and senior citizens.

Now if person ‘A’ salary is 4 lakh per annum (male or female), then ‘A’ has to pay tax on

4lakh – 2 lakh = 2 lakh.

According to our above discussion ‘A’r income tax rates are 10%, it means ‘A’ tax will be 20000. But do you know that there are many methods through you can save tax and reduce this amount of 20000.

Please read my article how senior citizens can save income tax for detail information.

 Where and how to save income tax:

One can invest up to Rs. 1 lakh in various investment options and Rs. 15000 extra in medical insurance (it is Rs. 20000 for senior citizens).

 Let us discuss which are these income tax saving instruments:

 1. Public Provident Fund (PPF): You can invest up to Rs. 1 lakh in PPF. The rate of return is 8.6% compounded annually. The lock in period is 15 years. But one can tale loan after certain years. I will discuss PPF in detail in another article.

2. Insurance Policies and Unit linked Insurance plans

3. Equity linked Saving Schemes (ELSS) of Mutual Funds: The lock in period is 3 years

4. National Pension Scheme

5. Tuition fee of children (maximum 2)

6. Medical Insurance: up to Rs. 15000 and Rs. 20000 for senior citizen.

7. Home loan

8. Bank Fixed Deposit of 5 years (One can not break this FD)

There is more income tax saving methods. I will discuss these and above mentioned in detail in future articles.

Now if person ‘A’ invested Rs. 100000 in any of the scheme and Rs. 15000 in medical insurance, then total amount on which ‘A’ will pay tax will be

2 lakh – 1 lakh – 15000 = Rs. 85000

 Thus the income tax will be 10 % of 85000 that is Rs. 8500. Thus ‘A’ can save tax

Of 20000 – 8500= Rs. 11500.

 These are the methods through which one can save income tax.

 Note: Please give your feedback in comment section and of course you can also submit your queries regarding saving of income tax in comment section. I will try to solve it. Thanks

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