Money, Money, Money: Your Taxes and You – Let’s Make it a Happy Relationship!

Written By

Bindu Bhat

Lifestyle.Finance.Taxes and you1.3.2.2016-05-07 Loading

“The hardest thing to understand in the world is the income tax …” Albert Einstein

If Einstein found it confusing, the rest of us can’t be blamed — Income tax and the tax code can seem like Greek at times. So this article will explore the relevant tax sections applicable to a working person in India, especially when the months Jan-March come in!

To start with, let’s understand how much income tax you need to pay. It is likely that you are in one of the following groups:

For Men/Women below 60 years of age For Senior Citizens (Age 60 years to 80 years) For Senior Citizens (Above age 80 years)
Income Level Tax Rate Income Level Tax Rate Income Level Tax Rate
Up to Rs. 2,50,000 Nil Up to Rs. 3,00,000 Nil Up to Rs. 5,00,000 Nil
Rs. 2,50,001 – Rs. 500,000 10% Rs. 3,00,001 – Rs. 500,000 10% Rs. 5,00,001 – Rs. 10,00,000 20%
Rs. 500,001 – Rs. 10,00,000 20% Rs. 500,001 – Rs. 10,00,000 20% Above Rs. 10,00,000 30%
Above Rs. 10,00,000 30% Above Rs. 10,00,000 30%

The following are also applicable over and above the details mentioned earlier,

  • 3% education cess
  • Surcharge of 12% on individuals having income above Rs.1 crore
  • Tax credit of Rs.2000/- for income up to Rs.5 lacs u/s 87A. For example, If you are salaried with an income of Rs.5 lacs, your tax rate is 10% and if we assume that no additional tax savings investments have been made, the tax payable will be + 3% surcharge

So, this takes care of understanding the HOW much tax needs to be paid.

 Next come the Key IT sections applicable for individuals.

As individuals (whether salaried or self-employed), our tax options are summed up in exactly a dozen alphabets! That’s right, we need to basically refer to Sec 80C / D and their corresponding sub sections.

Please note that the entire Sec 80C and its sub heads gives an exemption of up to Rs.1.5 lacs only. The additional component available is if NPS is taken up, details are mentioned further below.

Let’s understand these sections by classifying them into categories,

  • Investment & Expenditure
  • Health and Well-being
  • Loans

Investment & Expenditure

The monthly deductions of employee provident fund (EPF), PPF, Long term fixed deposits and others are your investments while insurances or loan repayments are to be treated as an expenditure. Sec 80C covers these areas as follows:

 Sec 80C

  • Fixed return – EPF, PPF, FDs (5 year duration)
  • Equity linked -ELSS

Sec 80CCC

  • Premium of insurance based pension products
  • Term insurance premium

Sec 80CCD

  • Central government employee pension scheme
  • National Pension Scheme (NPS)
  • Principal repayment of a home loan up to Rs.1 lac

The National Pension Scheme (NPS) has an independent limit of Rs.50,000/- over and above the overall Rs.1.5 lac limit under Sec 80C.

This means that the limit under Sec 80C becomes Rs.2 lacs if and only if you also invest in the NPS, else it remains Rs.1.5 lacs only.

Next, we look at Sec 80D which covers health related areas:

Section 80D

  • Medical insurance for family and parents
  • Deduction for under 60 yr person for a family MI is max Rs.25,000/-
  • Deduction for parents MI premium is max Rs.30,000/-

Section 80DD

  • Deduction in respect of rehabilitation of handicapped relative
  • Deduction up to Rs.1.25 lacs maximum

Section 80DDB

  • Treatment of certain disease/ailment
  • Deduction max up to Rs.80,000/-

Section 80U

  • Physically disabled assessee
  • Deduction up to Rs.1.25 lacs

Finally, we look at deductions available on taking up loans, specifically education and home loans:

Section 80E:

  • Interest payable on education loan with no upper limit on the deduction amount

Section 24:

  • Interest payable on housing loan and home improvement loan
  • Deduction up to Rs.2 lacs for interest on housing loan for a self occupied house
  • No limit on the interest deduction when the house is rented out
  • Deduction up to Rs.30,000 for interest on home improvement loans

Well, that’s it for now! Do go ahead and complete your tax filing at the earliest and avoid waiting for the last moment. The stress is completely avoidable!

Should you require further details, feel free to drop me an email at bhat.bindu@gmail.com.

Read other helpful tips by Bindu on planning your child’s education and planning for parenthood.

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ABOUT THE AUTHOR

A happy mother-cum-financial-planner-cum educator; community volunteer, avid traveller and history buff; Bindu loves it all. Along with being a mom to her 12 year old, Bindu is also discovering more sides to herself after crossing the '40' milestone and is enjoying the journey thoroughly. Bindu believes that working as a Financial planner gives her the fabulous opportunity of seeing people make positive changes in their money habits. And to catch them young, she conducts financial literacy programs at schools and communities. She's a Mathematics grad and Finance post-grad from Amchi Mumbai, worked with a banking group and a Hyderabad based start up, before finding her niche as a Financial Planner, based in Hyderabad.

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