TAXIMISER

(2009-10)
Maximise your Tax
Savings...
 Objective
 By the end of this session we will cover:

 Relevant Sections (FY 2009-10)

 Tax slabs and rates of tax

 Some avenues of tax savings

 Role of insurance in tax planning

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 Sections of our relevance

80CCE (Total Rs.1 lac)

80CCC 80CCD
80C
Instruments
Instruments (Central Govt.
Instruments
(Life Insurance
(Pension) Employee only)
Premium)

10(10D) 10(10A)
80D Commutation
Exemption on
Health cover Benefit(1/3rd of
Maturity
Corpus)

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 Section 80C
Under Sec. 80C, total Rs. 1 Lac deductions
can be claimed under the following items:

1. Life Insurance premium

2. ELSS
3. NSC
4. Tuition Fee paid on Children’s education up to two
children.
5. Housing Loan Principal
6. Public Provident Fund
7. Recognised provident Fund
8. Bank FD’s (tenure of 5 years or more)
9. Approved Superannuation Fund
10. Specified Infrastructure bonds
11. Senior citizen saving scheme
12. Post office time deposits etc.
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 What is Tax Deduction?
 An investment which reduces the taxable income
on which tax is calculated

 For e.g.
 Gross Total Income: 10 Lacs
 Deduction: 1 Lac
 Taxable Computable Income: 10 Lacs – 1 Lac = 9 Lacs

Deduction helps in reducing the computable tax base, in

turn reducing the net tax liability

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 Usage of Tax Deductions
 A break granted by the government
 In order to encourage investment
 To fulfill certain long term objectives (e.g.
infrastructure development,
 Socially desirable objectives (e.g. life cover for
the individual, pension savings etc.)

 Sections of IT Act deal with tax deductions:

 Section 80C
 Section 80CCC
 Section 80D
 Section 80E

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 Section 80D
 Premium paid for health insurance policies is tax
deductible
 In case of individual assessee, it means
 Himself/herself
 Spouse
 Dependant children
 Parents
 In case of HUF assessee – any member of HUF
 2 conditions applicable for Sec 80D:
 If age < 65 - Maximum limit is Rs. 15,000
 If age >=65, then deduction upto Rs. 20,000

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 Section 80D
 Additional Deduction for parents:
 Parents age < 65 - Upto Rs. 15,000
 Parents age >=65, Upto Rs. 20,000

 Total Deductions: Self + Parent

 Parents age < 65 - Upto Rs. 30,000 (15,000+ 15,000)

 Parents age >= 65 - Upto Rs. 35,000 (15,000+20,000)
can be availed

 Premium should be paid in any mode other than cash

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 Summary
 So, under section 80CCE & 80D, I along with
my HUF Income can actually save:

 Section 80(C) Individual Rs. 100,000

 Section 80(C) Karta, HUF Rs. 100,000
 Section 80(D) Self, Rs. 15,000
 Section 80(D) Parents (<65 yrs) Rs. 15,000
 Or Parents (>=65 yrs) Rs. 20,000
--------------------
Rs.
Either of the230,000
case
or
Rs. 235,000

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 Hindu Undivided Family
 Hindu Undivided Family – HUF

 Can be created by Hindu Father/Mother for

 Purpose of creating a common pool of assets
 For the benefit of whole family

 U/S 80C of Income Tax Act, 1961

 Rs. 1 Lac deduction available from total HUF Income

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 Life Insurance & Tax
 Premiums paid for Life insurance
 Deduction u/s 80C subject to limit of Rs. 1lac under
all avenues of Sec 80CCE

 20% limit : (In a financial year) if Premium paid >

20% of the actual sum assured then
 Deduction will be only for premiums up to 20% of
the sum assured
 For e.g.
 Sum Assured: Rs. 4 Lacs
 Premium: Rs. 90,000 Deduction of Rs. 80,000 only
u/s 80C
 Even if premium increases more than 20% due to
Top up; deduction will be only to the defined limit

 The policy should remain in force for minimum 2

years, failing which the deduction allowed shall
be added to income in year of lapsation

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 Life Insurance & Tax
 As per Section 10(10D) of the IT Act
 Premium cannot exceed 20% of sum assured
throughout the term of the policy
 Receipts from life insurance policies are exempt
subject to conditions u/s 10(10D)
 Maturity will be taxable even if Top up increases the
SA & premium ratio of 1:5

 Tax exempt under this section is allowed in

 All withdrawals
 Surrender
 Maturity proceeds
 Death benefit
Life Insurance premium provides dual tax benefits in form
of deduction & exemptions
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 Pension & Tax
 Contribution to PPF (over and above your mandatory
PF) should not exceed Rs. 70,000

 If wife & kids are dependent then

 All combined PPF contribution not to exceed Rs. 70,000
 Else there will be no interest paid & principal is refunded*

 For annuity plans, sum assured limit for tax benefit

does not apply

* Central Govt. amendment: GSR 908(E), dated Dec 06, 2000

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 Pension & Tax
 Once an annuity plan matures:
 Full withdrawal (taxable)
 Commutation u/s 10(10A) - 1/3 exempt from tax
 Remaining 2/3rd as taxable pension
 Full Pension (taxable in the financial year in which
pension is received)

 Let’s understand with an example

 Maturity Corpus: 3 crores
 1/3rd commuted: 1 crore (Tax free)
 2/3rd corpus: 2 crores (Annuity receivable is Taxable)

 Any annuity received forms a part of the gross

annual income for that financial year

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 Taximise your Housing Loan
 Capital borrowed for Acquisition of self occupied house
property
 Deductible upto Rs. 1 lac
 Under Sec. 80C from gross annual income
 Under Sec. 24(b) of the IT Act the interest paid in case of a
house loan taken for acquisition & construction is
deductible subject to:
 Rs. 30,000 p.a. if loan taken before 1st April, 1999
 Rs. 150,000 if loan taken after 1st April, 1999
 In case of Let & Deemed Let out property – No Limit

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 Income Definition

1. Salary

2. House 5. Other
Property Sources
Income

3. Business 4. Capital
& Profession Gains

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 Tax Computation Flow
Less :Exempted Income Note : Sec 10(1), 10(10D) etc. are
(Chapter III of the IT Act) contained in Chapter III of the IT Act

Gross Total Income Note : Sec 80C, 80CCC, 80CCD, etc. are
contained in Chapter VI of the IT Act
Less : Deductions
(Chapter VI of the IT Act)

Total Income

Compute Tax

Add : Education Cess

On Tax

Final Tax Liability

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 Tax Rates for 2009-10
Total Income (Rs.) Rate of Tax
Senior Citizen Women below 65 years Others
Upto Rs. 160,000/- Nil Nil Nil
Rs. 160,001/- to 190,000/- Nil Nil 10%

Rs. 190,001/- to 240,000/- Nil 10% 10%

Rs. 240,001 to Rs 300,000 10% 10% 10%

Rs. 300,001 to Rs 500,000 20% 20% 20%

Rs. 500,001/- and above 30% 30% 30%

Education cess @ 3% on the tax payable

Sr. Citizen: Tax Payers of the age 65 & above

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 Tax Planning-Case 1
Slab Income in the slab Rate Tax
0 - 1,60,000 160,000 0% 0
1,60,001-3,00,000 140,000 10% 14,000
3,00,000-5,00,000 200,000 20% 40,000
Above 5,00,000(5,75,000-5,00,000) 75,000 30% 22,500
Total Tax 76,500

 Annual net salary of Mr. Raj is Rs. 5,75,000. What will

be his tax?
 As shown above, the tax payable comes to Rs.
76,500=(14,000+40,000+22,500)
 Not only this your customer has to pay education
cess @ 3% on the tax amount so calculated.
 Therefore it comes to 76,500 x .03 = Rs. 2,295
 Hence total tax payable is 76,500 + 2295 =
Rs.78,795

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 Tax Planning
 Mr. Raj: My employer deducts Rs. 14,400 every year
towards PF. He also contributes an equal amount

 Now if I invest Rs. 25,000 in Insurance, how much

tax will I be able to save?

 I have no other form of tax planning

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 Taxable Income
 Assuming, that he has a life cover of atleast
Rs.1,25,000, (i.e. 5 times) (refer slide #20) his
entire insurance premium is tax deductible

 His contribution to pension is also tax deductible

 Hence total taxable income is now Rs. 5,35,600 (Rs.

5,75,000-Rs. 25,000-Rs.14,400)

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 Tax saved is money EARNED
Slab Income in slab Rate Tax
0 - 1,60,000 160,000 0% 0
1,60,001-3,00,000 140,000 10% 14,000
3,00,000-5,00,000 200,000 20% 40,000
Above 5,00,000(5,35,600-5,00,000) 35,600 30% 10,680
Total Tax 64,680

 Tax comes to Rs. 64,680

 Education cess @ 3% of Rs. 64,680 = Rs. 1940
 Therefore total tax payable (64,680+1940) = Rs.
66,620
 Now he pays Rs. 12,175 lesser tax than earlier
(78,795-66,620)
 Hence we may say he has EARNED Rs.12,175 through
smart TAX PLANNING

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 Tax Planning-Case 2
 Mr. Vijay: My taxable income is Rs. 12,00,000. I
have made investments of Rs. 1,00,000 eligible for
tax deduction under Sec. 80C. I have also paid a
professional tax of Rs. 1,200

 I pay Rs. 15,000 towards a health plan

 How much tax will I have to pay? Is there any other

Investment option which will provide tax benefit?

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 Actual Taxable income
 Salary 12,00,000
 Less: Professional tax paid 1,200
-----------------------
 Taxable Salary income 11,98,800
 Less: Deduction u/s 80C 1,00,000
 Less: Deduction u/s 80D 15,000
-----------------------
 Taxable income 10,83,800

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 Tax Payable
 First Rs. 1,60,000 will not suffer tax 0
 Next Rs. 1,40,000 will attract 10% 14,000
 Next Rs. 2,00,000 will attract 20% 40,000
 Remaining Rs. 5,83,800(10.83 Lac-5.0 Lac) 1,75,140 @30% -----------------------
 Total 2,29,140
 Education Cess @ 3% of Rs. 2,29,140 6,874
-----------------------
 Total Tax 2,36,014

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 Conclusion
 In short life insurance is an excellent tax saving tool
because:
 If premium falls within 1lac limit of Sec. 80C and is upto
20% of sum assured, it is exempt during earning
 It is not taxed during accumulation

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 Disclaimer
 Tax benefits are as per the Income Tax Act, 1961,
and are subject to any amendments made thereto
from time to time

 Tax benefits are subject to conditions of Sec 80C,

80CCC, 80D, 80E, 10(10D), 10(10A), & 24(b) of the
Income Tax Act, 1961 & are subject to change from
time to time

 Tax rates are as per the Finance Act No.2) of 2009

& applicable for the financial year 2009-10

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Thank You