Tax Planning
Strategic tax planning plays a vital role in optimizing an investment portfolio, with personalized approaches tailored to align with individual investment goals.
Effective tax planning is a year-round process that can help minimize tax liability while remaining compliant with tax laws by understanding tax brackets, available deductions, and strategic timing of income and expenses.
Proactive tax planning can help you:
- Reduce your overall tax burden.
- Plan ELSS investments and retirement planning.
- Select tax efficient investment offerings.
- Maximize savings.
- Take advantage of available tax deductions, exemptions and rebates.
- Make informed financial decisions throughout the year.
- Plan for major milestones that impact your taxes.
Tax Slabs
Tax Slabs represent the range of income levels that are taxed at different rates.
The system typically includes varying rates for individuals based on their total income, with higher rates applied as income increases.
In some cases, the slabs differ for different age groups and types of income, allowing for various exemptions or deductions based on the taxpayer's category.
Taxpayers are required to calculate their taxable income after considering applicable exemptions, deductions, and rebates to determine the final tax liability.
Additionally, taxpayers can choose between the old tax regime with exemptions and deductions, or the new tax regime with lower tax rates but no exemptions. This choice influences which tax slab and benefits apply.
Tax Calculators
Old Regime vs New Regime
The Old Tax Regime allows taxpayers to claim various exemptions and deductions (like HRA, 80C, etc.) to reduce taxable income.
The New Tax Regime offers lower tax rates but removes most exemptions and deductions.
Taxpayers can choose between the two based on which option gives them greater tax savings.
Period of Holding Capital Assets
The period of holding refers to the duration an asset is held before it is sold or transferred.
It determines whether the gain is classified as short-term or long-term:
- Short-term: Typically less than 36 months (12 months for shares and mutual funds).
- Long-term: More than the specified threshold, eligible for lower tax rates.
Exemption from Capital Gains
Exemption from Capital Gains allows taxpayers to reduce or avoid tax on capital gains by reinvesting the proceeds into specified assets.
Common exemptions include:
- Section 54: Reinvestment in a residential house (for individuals).
- Section 54EC: Investment in specified bonds.
- Section 54F: Reinvestment of proceeds from other assets into a house property.
Deduction under Section 80D
Section 80D allows tax deductions on premiums paid for health insurance policies for self, family, and parents.
It also covers preventive health check-up expenses within the overall deduction limit and offers higher benefits if the insured includes senior citizens.
This deduction is available even if the premium is paid for dependent parents.
Deduction under Section 80C
Section 80C provides deductions on investments and expenses made in specified financial instruments.
This includes contributions to life insurance premiums, EPF, PPF, NSC, tax-saving fixed deposits, and tuition fees, among others.
The total deduction under this section is subject to a specified limit.
Indexed Cost of Acquisition or Improvement
Indexed Cost of Acquisition or Improvement adjusts the purchase price or improvement costs of an asset for inflation using the Cost Inflation Index (CII).
This helps reduce taxable capital gains by increasing the cost basis of the asset, thus lowering the gains subject to tax when the asset is sold.
Residential Status
Residential Status determines an individual's tax liability in India based on their stay in the country during a financial year.
It is classified into three categories:
- Resident.
- Non-Resident.
- Resident but Not Ordinarily Resident (RNOR).
Important Tax Dates
Important Tax Dates include key deadlines for filing returns, making tax payments, and other related activities:
- July 31 - Last date for filing Income Tax Return for individuals (without audit requirement).
- March 31 - End of Financial Year; last day to make tax-saving investments.
- Quarterly - Advance tax payment dates (15th June, 15th Sept, 15th Dec, 15th March).