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8 tax-smart savings for retirement
May 15, 2008
Mr. Kumar is likely to have an annual taxable salary package of Rs. 12 lakh in the financial year 2008-09 relevant to the assessment year (AY) 2009-10. He is the owner of a self-occupied house, acquired out of a bank loan on which he would be required to pay interest of Rs 150,000 during the year.
Besides, he would also repay Rs 50,000 out of the principal loan amount. He intends to pay Rs. 20,000 as life insurance premium on his life and contribute Rs 30,000 in the Public Provident Fund account during the year.
He has created 100% specific beneficiary trust for his minor son's benefit to which he intends to contribute Rs. 40,000.
He has got a personal deity trust to which he would like to contribute Rs. 35,000 during the year. His total income for the financial year 2008-09 relevant to the A.Y. 2009-10 would be computed as under:
| |
Rs |
Rs |
|
Net taxable salary for the year |
- |
12,00,000 |
|
Less: Deduction under Section 80C: |
- |
|
|
Life insurance premium on his life: |
20,000 |
|
|
Contribution to PPF: |
30,000 |
|
|
Repayment of housing loan: |
50,000 |
|
|
Total: |
100,000 |
100,000 |
|
|
11,00,000 |
|
|
Less: Loss under the head
'Income from house property'
re: interest on borrowed funds |
1,50,000 |
1,50,000 |
|
Total Income: |
|
950,000 |
[N.B.: The savings of Rs 40,000 transferred to 100 per cent specific beneficiary trust and Rs 35,000 to the personal deity trust are drawings which would enable him to have two separate income tax entities to enjoy separate exemption limit and lower, slab rates of tax.]
| Income tax on Rs. 9,50,000 will be calculated as under: |
|
Rs |
|
Income tax on RS. 1,50,000: |
|
NIL |
|
Income tax on the next Rs. 1,50,000 @ 10% |
|
15,000 |
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Income tax on the next Rs. 2,00,000 @ 20% |
|
40,000 |
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Income tax on the next Rs. 4,50,000 @ 30% |
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135,000 |
|
Income tax: |
|
190,000 |
|
Add: 2% Education Cess on Rs. 190,000 |
- |
3,800 |
|
1 % Secondary and Higher Edu.Cess |
- |
1,900 |
|
Total Tax Payable: |
|
195.700 |
It he had not planned the savings as above, he would have been required to pay income tax, surcharge and cesses, on Rs 12,00,000 as under:
|
|
Rs |
|
Income tax on Rs. 9,50,000 as above |
- |
190,000 |
|
Income tax on the next Rs. 2,50,000 @ 30% |
- |
75,000 |
|
Income tax |
- |
265,000 |
(Excerpt from 51 Tips for Saving Income Tax (FY 2008-09) by R. N. Lakhotia, one of India's top taxation experts who has written several hundred books and articles on tax planning.)
Image: An elderly man clutches his walking stick | Photograph: Rob Elliott/AFP/Getty Images
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