You must have heard that the most expected Direct Tax Code (DTC) will come in to effect from 01st April, 2012. Paying tax is mandatory and it is the duty of every proud citizen of a nation. As Bible says Give to Caesar what belongs to Caesar and to God what belongs to God (Matthew 22:21). But the Income Tax Department itself gives some directions that how we can legally exempt from tax. Some Specified investments and expenses, home loan reimbursement etc. are exempted and can deduct from gross total income while calculating Income Tax.
The Investments are Employees Provident Fund (EPF), Public Provident Fund (PPF), Five year Fixed Deposits, National Saving certificates (NSC), Equity Linked Saving Scheme (ELSS) etc. These investments are exempted from Income Tax under section 80C subjected to a maximum of Rs. 100000, of the existing income tax rule.
The above section 80C and the maximum limit of Rs. 100000 include payment of Tuition fee for your two children in a recognized, regular educational institution, premium paid to life insurance policies and repayment of the principal amount of housing loan. But for the medical insurance you can get additional income tax exemption of Rs. 15000 (Rs. 20000 if at least one of the insurer is a senior citizen) and another Rs. 15000 exemption for the medical insurance of your parents (Rs. 20000 if your mother or father is a senior citizen) under section 80D of income Tax rule.
An investment in Infrastruture bonds of certain companies or institutions is also exempted from your income up to Rs. 20000 unders section 80CCF.
Expenses such as interest on housing loan up to Rs. 150000 in a year as per section 24(b), medical treatment of critical illness (Cancer, Neurological Diseases (disability is 40% or more), Parkinson’s disease, AIDS, Chronic Renal Failure (CRF), Hemophilia, Thalassemia) for self or dependent spouse, children, parent, brother or sister up to Rs. 40000 (Rs. 60000 if the person with illness is a senior citizen) under section 80DDB, and for the medical treatment of handicapped dependent up to Rs. 40000 for disability of 40% or more and Rs. 100000 for severe disability, disability of 80% or more under section 80DD.
Rent paid for residence is also can be exempted under certain conditions, only if you or your spouse or your minor child does not own a house in the place where you live in and not paying rent to your parents and you are not getting House Rent Allowance from anywhere else , you can get a maximum exemption of Rs. 24000 in a year (least of Rs. 2000 per month, Rent paid minus 10% of your gross total income, 25% of your gross total income) under section 80GG. For getting exemption of rent paid, you should submit a declaration in Form 10BA (Download Form 10BA)
Donation given to some recognised socities, charitable institutions and some specified purposes are exmpeted 100% or 50% as the case may be under section 80G.
But when the implementation of DTC some of the above mentioned investments will be avoided and rescheduled from Tax saving status and the methods of tax exemption will be changed.
If you are interested in helping people fully understand tax law and how it can work for them, you may also be interested in obtaining an online degree in a graduate tax program
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