Negotiating Taxing Moments

Greater Kashmir

New tax rules give some relief to the salaried class

New Year is just a couple of days away. Right now almost everyone is busy in exchanging greetings. But this is the time when tension mounts on a particular segment of our work force, – the salaried class. Here the salaried class is mostly represented by government and semi government employees. Those falling in the income tax net gear up to work out the possibility of scissoring the tax and make these maddening moments financially a very sane one.
Gone are the days when prosperity for the salaried class meant a comfortable life at best. Times have changed now and so have the fortunes of the salaried class, which have gone from strength to strength. The strengthening of his fortunes has redefined his prosperity, as it now means not being comfortable at best. The salaried person has to prioritize his financial planning, as tax rules have increased his liabilities. Precisely, income tax has become an unwanted family member of the salaried class everywhere.
The new government at the centre announced its tax rules for the current financial year loaded with some relief to salaried class people. The first and the most important amendment was in the tax slab. Although there is no change in the existing tax rate yet now the minimum limit has been increased from Rs. 2 lakh to Rs.2.50 lakhs. Second important amendment is under section 80C and 80CCC. Earlier, the maximum qualifying investments for deduction from total income was Rs.1 lakh, which stands now raised to Rs.1.5 lakh.
Now salaried class has a responsibility to look for smart ways to bring tax liability down. Otherwise their goals could be in jeopardy. Here the basic rule is planning it right. For a salaried person the major breaks come under Section 80C of the Income Tax Act. He can get tax benefits by investing in specified financial products, up to an aggregate of Rs.1.50 lakh.
While tax saving is undoubtedly important, it is to be remembered that there is a larger purpose to investing in a financial instrument. One needs to invest in tax-saving instruments without compromising on the fulfillment of long-term goals and safety of the investment. Salaried class is a segment which normally has very low risk-bearing capacity.
Usually, insurance renewal premiums, children’s tuition fees, the principal portion of your home loan equated monthly installment and contribution to the employees provident fund, add up to a sizeable amount of the Rs.1.50 lakh limit. It’s here that one falling under income tax bracket should always choose a tax-saver means by linking it to a long-term goal. That’s because most tax-saving instruments are long-term in nature and that’s how they work best. One should not invest with the sole objective of saving taxes.
Mostly, it happens that one’s investment in a tax-saving product coincides with hefty premiums for insurance policies, and he falls short of funds to meet an important household expense next month. So the best to plan in advance to avoid bunching of too many expenses in a particular month and try spreading your outflows across the year.
Once you have calculated your tax liability for this year, you will exactly know how much you have to save to minimize your tax outgo. If you are short of liquid surplus funds to invest, you can simply go ahead and pay your tax. If you have surplus funds you can invest in medium and long term instruments to avail tax rebate under Section 80C.
Meanwhile, salaried class or for that matter anyone falling under income tax net can invest in bank fixed deposit scheme to earn tax rebate, for complete safety of money and assured returns on the investment. This tax saver term deposit scheme allows you to earn tax rebate and at the same time earns you assured interest income. The exemption is available for the entire amount invested in such scheme now up to a maximum limit of Rs.1.50 lakh. Such fixed deposits of the banks have a fixed tenure of 5 years, which means the money once deposited under the scheme cannot be withdrawn before completion of the full 5 year term.

(The views are of the author & not the institution he works for)