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Thursday, February 28, 2013

Budget 2013: Seven tax-saving avenues for common-man

This year's budget has not changed the tax slab rates for taxpayers, implying zero savings as far as the basic payment of income tax is concerned. The only exception to the rule is those who earn annual income of up to Rs 5 lakh where the net tax saving would be Rs 2060 (including education cess).

For other taxpayers, here are some the tax-saving avenues proposed in the Budget 2013...

Life Insurance Premium:

Section 80C of the I.Tax Act currently allows a deduction on premium paid on life insurance policy only if the annual premium paid is less than 10% of the sum assured.

Budget Impact - For persons with disability or severe disability or suffering from diseases or ailments specified in the Income Tax Act, the limit of 10% has been increased to 15%. Thus, for these assesses, if the annual premium paid is up to 15% of the sum assured, the same can be availed as a deduction under the Rs 1 lakh tax limit under section 80C.

Rajiv Gandhi Equity Savings Scheme:

Section 80CCG allows for tax deduction of a maximum of Rs 25,000 on amount invested in equity shares under the Rajiv Gandhi Equity Savings Scheme (RGESS) provided the taxable income of the person is less than Rs 10 lakh

Budget Impact - Now those earning income up to Rs 12 lakh will be eligible for deduction under RGESS. Also, the new provision will allow the investor exemption for not only direct investment in equity shares but also if the investment is made in the scheme of participating equity mutual fund schemes.

Also, the tax deduction of 50% of the amount invested, subject to a maximum of Rs 25,000, has been extended to three years instead of the current one-year.

This means that those eligible for deduction under this scheme can continue to invest up to Rs 50,000 per annum in equity or equity mutual funds for three consecutive years and avail an additional deduction of Rs 25,000 each year over and above the Rs 1 lakh deduction available under section 80C

Interest on Housing Loan:

Interest paid on housing loan for self-occupied property is allowed as a deduction up to a maximum of Rs 1.5 lakh per annum

Budget Impact - A new section 80EE has been inserted for only the first time buyers of a house property.

Those buying a house property whose value does not exceed Rs 40 lakh and avail a loan for an amount not exceeding Rs 25 lakh for the same shall now be allowed an additional deduction of Rs 1 lakh on interest paid on home loan so availed.

As this will be over the above the existing provision, the total amount of interest on housing loan allowed as a deduction will now be Rs 2.5 lakh for housing loans of up to Rs 25 lakh, resulting in more savings for such investors.

Tax - free bonds:

Investors can expect more investment avenues in the form of Tax-free bonds in the coming fiscal with the budget proposing to raise a maximum of Rs 50,000 crore of money from the market in FY '14, double the amount of money raised through tax-free bonds in FY '13.

Infrastructure Debt Funds:

Investors can also look forward to new investment avenue in the form of Infrastructure Debt Funds. While the structure of these debt funds will be clear later, the government has announced that four Infrastructure debt funds have been registered with Sebi already of which two have been launched in Feb '13.

New Investment avenues:

The budget has proposed introduction of new savings instruments with an intention to protect savings from inflation. These new instruments will be launched in consultation with the Reserve Bank of India. Though no tax benefits are expected to be attached to these instruments, investors can nevertheless expect a new savings avenue to diversify their savings.


Section 80G of the Income Tax Act that provides for exemption of any amount given as donation to specified institutions will now also include National Children Fund. Any amount donated to this fund will result in 100% deduction of the amount so donated. 
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