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Proper tax planning is the basic duty of every person, which should be carried out religiously. Basically, there are three steps in the tax planning exercise. You need not consult an Income Tax Practitioner or a Chartered Accountant for this. In fact, you can do it yourself.
These three steps are:
1) Calculate your taxable income for the Financial Year (from April 1 to March 31) from all sources such as salary, pension, interest etc.
2) Calculate tax payable on Annual Taxable Income using a simple tax rate table, given on the next page.
3) After you have calculated the amount of your tax liability, you have two options to choose from:
a) Pay your tax (no tax planning is required)
b) Minimize your tax through Prudent Tax Planning
Most people should and do choose the latter option. For this, you have to compare the advantages of the various tax saving schemes and depending on your age, life stage, tax slab and personal preferences, decide on the right allocation of investments and plans which shall reduce your tax liability to zero or Minimum possible. You may consult your Financial Planner for this.
The following rates are applicable for calculating tax liability for the FY ending on March 31, 2013.
For a resident male individuals below 60 years of age (born after April 1, 1952) and HUFs
Consult the govt website for current details
Tax Free Incomes
The following incomes are completely exempt from income tax without any upper limit.
1) Interest on PPF/GPF/EPF.
2) Interest on GOI tax free bonds.
3) Dividends on Shares and Mutual Funds.
4) Any capital receipt from life insurance policies ie sums received either on death of the insured or on maturity of life insurance plans. However, in case of life insurance policies issued after March 31, 2004, exemption on maturity payment u/s 10(10D) is available only if the premium paid in any year does not exceed 20 % of the sum assured.
5) Interest on savings bank account in a post office.
6) Long term capital gain on sale of shares and equity mutual funds if the security transaction is paid/imposed on such transactions.
Dividend income from companies/ equity -oriented Mutual Funds is completely exempt in the hands of investors. Dividend is also tax-free in the hands of investors in case of debt- oriented Mutual Fund schemes.
Gift tax was abolished with effect from October 1, 1998. The gifts are no longer taxable in the hands of donor or donee. However, with effect from September 1, 2004, any gift received by an individual or HUF will be included in taxable income, provided the amount of gift exceeds Rs 50,000.