Tax planning ? where and how to begin?

If you are a salaried employee, chances are that you would have received a reminder from the Accounts, Finance or Human Resources department in your organization to submit proofs of investment in order to avoid deduction of tax from your salary.

Taxes are inevitable. And so is filing investment declarations. Though both may be an annual exercise, creating a plan of action early will not only help avoid stress at the last moment, but also enable you to make informed financial decisions that are most suited to your needs.

Though it may appear that tax-planning is a very basic exercise, lack of sufficient time and awareness about the different ways to save taxes are the two main reasons why individuals end up paying more taxes than they are obligated to. Let?s look at some of the basics that may help you stay ahead when planning your taxes.

What is tax-planning?

Tax-planning endeavours to reduce your tax liability by taking advantage of all exemptions, deductions, rebates and allowances which are offered by the Income Tax Act, 1961. A key factor to consider while planning your tax obligation is to ensure that your investments are in line with your long-term goals.

Understanding your tax bracket

According to the Income Tax Act 1961, Income Tax is a tax imposed by the Government of India on any person who earns income in India. Everyone who earns an income falls under a ?tax bracket?. It is important to keep in mind that the ?taxable income? or income after allowable deductions defines your tax bracket which could actually be lower than the amount of money you have earned in the previous year.

The rates of Income Tax and Corporate Tax and the applicable tax deductions are available in the Finance Bill (commonly known as Budget) passed by Parliament every year.

Every person, who is an assessee and whose total income exceeds the maximum exemption limit prescribed, shall be chargeable to the Income Tax at the rate or rates prescribed in the Finance Act.

Income tax rates for Assessment year 2012-13 for Resident Women (below 60 years)

1 Up to Rs. 1,90,000 No tax / exempt

2 Rs. 1,90,001 to Rs. 5,00,000 10%

3 Rs. 5,00,001 to Rs. 8,00,000 20%

4 Above Rs. 8,00,000 30%

Income tax rates for Assessment year 2012-13 Men & Others

1 Up to Rs. 1,80,000 No tax / exempt

2 Rs. 1,80,001 to Rs. 5,00,000 10%

3 Rs. 5,00,001 to Rs. 8,00,000 20%

4 Above Rs. 8,00,000 30%

Income tax rates for Assessment year 2012-13 Senior Citizens

1 Up to Rs. 2,50,000 No tax / exempt

2 Rs. 2,50,001 to Rs. 5,00,000 10%

3 Rs. 5,00,001 to Rs. 8,00,000 20%

4 Above Rs. 8,00,000 30%

Source: http://www.briefingwire.com/pr/tax-planning-where-and-how-to-begin

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