It's the tax-planning season and investors are busy making investments in public provident fund, National Savings Certificate and infrastructure bonds to claim tax rebates under Section 88 of the Income Tax Act.
However, for individuals whose gross total income is above Rs 500,000, tax rebates from the above mentioned investment avenues are off-limits. But there is no reason to despair. We present a 4-step strategy which can help investors in the 'above Rs 500,000 tax bracket' reduce their tax liability.
Invest in a pension plan
Contributions to pension plans qualify for a deduction (subject to an upper limit of Rs 10,000) from the assessee's gross total income. Investing in a pension plan offered by a life insurer would be a prudent move as it enables building a corpus for retirement on one hand; alternatively it also contributes towards reducing the assessee's tax liability.
A checklist for pension plans
Contribute to a medical insurance policy
Individuals can opt for a medical insurance policy (commonly referred to as a mediclaim policy). Contributions made by cheque upto Rs 10,000 qualify as deductions. In case the insured person is a senior citizen, the maximum deduction allowed is Rs 15,000. The payment has to be made to effect or to keep in force, insurance on the health of the assessee, his/her spouse, dependent parents and children. The above benefit has been provided under Section 80D of the Act.
Click here for a free copy of Money Simplified - The definitive guide to Tax Planning
Make eligible donations
Deductions can be claimed on donations made to charities under Section 80G of the Act. However all donations are not eligible for the above benefit; the donation must be made to prescribed funds and institutions. For the purpose of deductions, donations have been segregated into 2 broad categories, those eligible for 100% of the donation amount and those eligible for 50% of the donation amount.
Take a home loan
If buying a home is on your agenda, then it's a good time to take a home loan. Interest payments are eligible for deduction upto Rs 150,000 per annum subject to fulfillment of certain conditions. This can go a long way in reducing your tax liability.
Investment Guide 2005. Get this latest issue of Money Simplified absolutely FREE! Click here!
More Personal Finance
Advertisement
Email this Article 
Print this Article