One of the primary area to achieve financial freedom is to know and plan investments to save income tax optimally in balance with returns.
Today we are going to have a look at the Income Tax Brackets for individuals and the various Tax Saving options extended to them, with some simple examples to work out the tax.
The Income Tax Slabs extend some additional exemptions for the Senior Citizens and Very Senior Citizens. You can refer to the below tables for a ready reference. EXAMPLE OF WORKING OUT THE TAX
Vikram, aged 30 has a taxable salary of Rs. 6,75,000. His tax calculation will be as below.
Upto Rs. 2,50,000: Nil
The next slab is up to Rs. 5,00,000. Therefore, for Rs 5 lac less Rs. 2.50 lac, that is Rs. 2,50 lac, his tax liability would be Rs. 2.50 lac x 5%, working out to Rs. 12,500.
He still has Rs. 1,75,000 that will fall into the third slab which is more than Rs. 5.00 lac but below Rs. 10.00 lac. Against that his liability will be Rs. 1.75 lac x 20%, that is Rs. 35,000.
Hence his total tax liability will be Rs. 12,500 + Rs. 35,000, that is Rs. 47,500.
Besides, he has to pay 2% Education Cess and 1% Higher Education Cess on the Tax of Rs. 47,500, making the total liability as Rs. 48,925.
TAX SAVING OPTIONS
Tax Saving options are extended to individuals to encourage public to invest in various schemes to secure their financial future as well as help the Government in strengthening the country.
There are three stages when an individual can save taxes. For detailed information on investments covering the tax savings at any one or more of those stages, Click Here.
- Investment Stage
- Earning Stage
- Withdrawal Stage
IMPORTANT SECTIONS UNDER IT ACT TO BRING DOWN TAXABLE INCOME
There are many Tax Saving sections under Income Tax rules. The most common sections that can be used to save tax are:
- 80C/80CCC: Life Insurance, Provident Fund, PPF, Tax Saving Bonds, Tax Saving Mutual Funds (like ELSS), Tax Saving Fixed Deposits are some options.
- 10(10D): Interest earned from Life Insurance policies that have at least 10 times of annualized premium as Basic Sum Assured. This section gives a strong incentive to protect one's family in addition to tax saving by investing in life insurance plans.
- 80(D): Health Insurance for normal people
- 80DD: Health Insurance when one or more family members are disabled/handicapped
- 80DDB: Health Insurance for normal people plus if any family members are handicapped and/or senir citizen
- 80E: Repayment interest against Educational Loan
- 80G: Donation with a limit of Rs. 10 lacs
- 80EE: Repayment interest against housing loan
This covers a basic overview of the individual income tax and various tax saving sections for all taxpayers who wish to start building their corpus at an early age.