How to reduce your Income Tax liability for current financial year

Deadlines for filing Income tax returns for the financial year ended March 31, 2015 which is called assessment year 2015-16 in income-tax language is over. In case you have missed to file your tax returns for any reason, you can still file them before March 31, 2016, in which case you are only required to pay interest for delay @ 1% per month, if at all there is any tax due for payment. 

For the current financial year 2015-16 ie Assessment Year 2016-17, the tax rates are exactly the same as that of last year except surcharge for income over Rs 1 crore which is increased from 10% to 12%. However, the amounts available for deduction from gross total income to reduce your tax liability are increased significantly. 

Under Income Tax Act, all individuals are grouped under 3 categories. Individuals who are below 60 years of age, senior citizens between 60 and 80 years, and super senior citizens above 80 years of age. The basic exemption limit is Rs 2.50 lakh, 3 lakh and 5 lakh respectively. This benefit of senior and super senior citizens is not available to non-residents. 

Given below are various deductions, rebates and reliefs to reduce your tax liability. Check carefully your eligibility to claim relief. Based on this, you should work out your tax reduction plan. 

For this, you should first make estimate of your total income from all sources and find out the tax that you will be required to pay and then work out your tax deduction plan. 

Under section 80C, multiple tax saving options are available within the overall maximum limit of Rs 1,50,000. You should make choice, based on cash availability and your priorities. Most preferred option is contribution to Employees Provident Fund, Public Provident Fund, life insurance premia, National Saving Certificates, 5- year tax saver bank deposits, Sukanya Samriddhi Account Scheme, specified mutual funds (ELSS), education expenditure of 2 children, Housing Loan principal repayment for self occupied house.

In addition, there are other tax saving options. You can have sizable health risk cover  for your entire family towards hospitalization expenses etc with mediclaim insurance premium u/s 80D upto Rs 25,000 and Rs 30,000 for senior citizens. Every year you can have health check up for your entire family by making payment upto Rs 5,000. If you are very senior citizen,  without health insurance, any day to day expenditure towards medicines, health supplements, doctors fees etc, etc is deductible upto Rs 30,000. If you join new National Pension Scheme, you are eligible for further additional tax deduction upto Rs 50,000 u/s 80CCD(1B).

 In case you are taking care of any dependent relative suffering from partial/ permanent physical disability expenditure upto Rs 50,000- Rs 1,00,000 can be claimed  depending on severity [u/s 80DD]. Tax payer who are themselves suffering from permanent physical disability certified by medical authority are eligible for deduction of Rs 50,000 – Rs 1,00,000 depending upon severity [u/s 80U]. For this claim, actual expenditure is not required. For serious specified illnesses, expenditure upto Rs 40,000 is allowed and for senior citizens Rs 60,000 and for very senior citizens Rs 80,000 [u/s 80DDB]. You can provide good higher education to your children by taking loan and entire interest is deductible [u/s 80E]. If you build a sweet home with housing loan, interest is deductible upto Rs 2,00,000 [u/s 24(b)] . In case you are staying in rented house in absence of your own, deduction of Rs 2,000 per month or 25% of total income whichever is low is deductible.  Don’t forget to claim exemption of Rs 10,000 on saving bank interest [u/s 80TTA].  If you are in tax bracket of 30% it means tax saving of Rs 3,000.

One can also be philanthropist at the cost of government by making donations to specified charitable organizations u/s 80G.

After claiming above deductions from your estimated total income, if the tax payable after deducting TDS exceeds Rs 10,000, you are required to pay tax in advance. Senior citizens are exempted provided they don’t have business income.

Goan married couples governed under Portuguese Civil Code u/s 5A of Income Tax Act, can claim this deductions separately for each spouse.

Check carefully your eligibility to claim above reliefs and ensure that you take appropriate steps before the end of financial year March 31, 2016 to reduce your tax liability.