U R HERE TO MAKE MONEY: Today's provisions and tomorrow's DTC: Plan your taxes

By Umesh Rathi

When it comes to planning our taxes, most of us make impulse decisions because of the last minute planning and in the process we may end up buying products which are not right for us. Efficient planning of your taxes is crucial for your long term financial health.

Tax planning should be done a few months in advance so that you have ample time to understand and evaluate different options that are specific to your financial situation. Instead of waiting for the March month to arrive when your insurance agent or neighbourhood advisor will coax you into products you don’t need, start tax planning now for assessment year 2011-12.

The tax planning investment avenues require long term commitment, for e.g., if you take up an insurance policy for the term of 10 years then you have to pay premium for 10 years. Similarly for PPF it is for 15 years. This long term investment commitment requires that we take the investment decision very carefully and diligently taking into consideration our future inflow and outflow of funds. This aspect becomes more pertinent in view of the proposed direct tax code (DTC) that will be enacted in the forthcoming financial year.

In the proposed DTC, remarkable changes have been proposed. It is important to know that some of the securities will not fetch the tax benefit in coming year which are available in the current year. Hence it is necessary to understand all the aspects of various provisions and proper befitting tax planning and keep ourselves abreast with the provisions and tax slabs.

It is important to note that in the current financial year (2011-12) the eligible age for senior citizen is 60 years instead of 65 years. Along with this a new category of Very Senior Citizen has been introduced in which a person of 80 years and above is entitled for the basic exemption of Rs 5 lacs i.e. they need not have to pay tax up to the income of Rs 5 lacs.

Tax Slab for FY 2011-12(AY 2012-13)

Male	Female	Senior Citizen(Male and Female 60-79 years)	Very Senior Citizen (80 years and above	Tax Slab
Up to Rs 180000	Up to Rs 190000	Up to Rs 250000	Up to Rs 500000	0%
From Rs 180001 to Rs 500000	From Rs 190001 to Rs 500000	From Rs 250001 to Rs 500000		10%
From Rs 500001 to Rs 800000	From Rs 500001 to Rs 800000	From Rs 500001 to Rs 800000	From Rs 500001 to Rs 800000	20%
Rs 800001 or above	Rs 800001 or above	Rs 800001 or above	Rs 800001 or above	30%

The various provisions of IT act pertaining to investments (the tax savings exemptions) during the current financial year 2011-12 (AY 2012-13) available to individual and HUF and from the FY 2012-13 after the enactment of DTC are outlined below:

Under section 80C, 80CCC and 80CCD one can claim deduction up to Rs 1 lac. The various investment options in these sections are -

Section	Investment/contribution/payment	Eligible Tax Payer	Proposed DTC Provision
	Life Insurance Premium	Individual & HUF	Should not exceed 5% of sum assured maximum of Rs. 50000 (including Tut ion fee, Mediclaim premium)
	Life Insurance Premium	Individual & HUF
	Tution Fee for Children	Individual	Same as above
	PPF- Public Provident Fund	Individual	Maximum of Rs. one lac in approved funds ( EPF,PPF New Pension Funds)
	EPF- Employees Provident Fund	Individual
	NSC- National Saving Certificate	Individual
	ELSS- Equity Linked Mutual Fund	Individual & HUF
	Housing Loan Principal Repayment	Individual & HUF	No Provisions for Tax Exemptions
	Registration and Stamp fee on House Property	Individual & HUF
	Tax Savings Fixed Deposit (PO/Bank)	Individual & HUF
80C	Senior Citizen Saving Scheme	Sr. Citizen
80CCC	Contribution in Pension Fund	Individual	Maximum of Rs. one lac in approved funds ( EPF,PPF New Pension Funds)
80CCC	Contribution in Pension Fund	Individual
80CCD	Contribution in New Pension Scheme	Individual

While selecting the options under these sections one should keep in mind their need, goals, time horizon and risk profile.
Infrastructure Bonds (Section 80 CCF)

Current Provision - In budget 2011-12 finance minister announced to continue the additional deduction of Rs 20,000 for individual and HUF in respect of long term infrastructure bonds under section 80CCF. This deduction is in addition to the deduction of Rs 1 lac allowed under sections 80C, 80CCC and 80CCD of the Income tax act.

Proposed DTC - This deduction is not proposed in DTC.

Health Insurance Premium (Section 80 D)

Current Provision - If you have taken a medical insurance plan for yourself, your spouse and/or children then you can claim deductions up to Rs 15,000 and an additional Rs 15,000 can be claimed for your dependent parents’ under Section 80D for the premiums paid via cheque. In case of senior citizen one can claim deductions up to Rs 20,000.

Proposed DTC - The DTC provides the deduction up to Rs 50,000 for the premium paid for life insurance premium (restricted up to 5% of sum assured), mediclaim insurance premium and children tution fee.

Disabled Dependents (Section 80 DD)

Current Provision – Under section 80DD, deduction is available for expenditure for the medical treatment, training and rehabilitation of a dependant, being a person with disability; or paid or deposited any amount, under any scheme framed by the LIC or any other insurer or UTI and which is approved by the CBDT. The deduction of Rs 50,000 is available from gross total income, irrespective of the actual expenditure incurred/ amount deposited. Where such dependant is a person with severe disability deduction of Rs 1lac is available instead of Rs 50,000. This exemption is available to both individual and HUF tax payers.