The New Year usually begins with companies sending out inter-office memos asking employees to provide details of their investments and other tax saving measures so that deductions for the entire financial year can be made and the salaries adjusted accordingly.
January is like a wake up call of sorts for self-employed working professionals as well, because their chartered accountant starts messaging them for financial details.
While the second week of January is not really the stage when you should start planning your finances with the objective of tax saving for the fiscal (one should ideally start the process around May or June), its still better than delaying till the very last minute.
Many people make the cardinal mistake of waiting till the last week of March.
At that stage, its a do or die effort where investments are made anywhere possible, based on recommendations from friends or even casual interactions with strangers while commuting to work.
Another classic error is assuming the same tax saving options from last year can be repeated.
Announcements by the finance minister in the budget and subsequent amendments need to be factored in and decisions taken accordingly.
Tax slabs and relief
dna reader Neerav Parekh, who has done an analysis named 'How to save tax in FY 2013-14 (AY: 2014-15)' explains that there is no change in tax slabs. If your annual income is less than or equal to Rs. 5 lakh you get a tax relief of Rs. 2000. For instance, if a person earns Rs. 4,50,000 and does not make any tax saving investments, his total tax liability will come to Rs. 25,000.
Now according to this provision, he will get a tax relief of Rs. 2000 and will have to pay only Rs. 23,000 as tax.
The benefit under section 80CCG could earlier be claimed only by persons whose annual income was up to Rs. 10 lakh.
Now, according to Neerav, the ceiling has been raised and persons whose annual income is up to Rs. 12 lakh qualify for this deduction.
An additional surcharge of 10% will be applicable on persons whose annual income is above Rs. 1 crore. This surcharge will be applicable for only one year, Neerav explains.
The additional deductions
When it comes to real estate investments, he shares that additional deduction of Rs. 1 lakh will be applicable to persons taking the first home loan of up to Rs. 25 lakh for property worth up to Rs. 40 lakh.
For such persons, the total deduction will be Rs. 2.5 lakh (Rs. 1.5 lakh available under section 24(1)(vi) and Rs. 1 lakh available under this new section 80EE).
There will be 1% TDS on transfer of immovable property above Rs. 50 lakh (not including agricultural land).
This is just the tip of the iceberg so to speak. Watch out for amedments to specific sections and how they impact your tax liabilities in forthcoming issues of dna of wealth