Tips on Optimising Your Income Tax in India

Most of the Indians staying in the USA must be paying income tax every year in India. I have given very useful tips in this article on how to save your income tax in India. These simple tips and guidelines shall certainly help you all to optimize your income tax. Each financial year begins on 1^st April and ends on 31^st March in India. You need to calculate your income of this period and pay the tax, latest by 15^th March every year. The last date for filing the income tax return is 31^st July. As majority of people earn through their salaries and interest in India, I have tried to cover the aspects pertaining to them in this article. All such individuals need to submit their income tax return in form ITR-1.

The income tax slabs and the calculation procedure have been simplified considerably during last few years in India. The income tax structure at present for the financial year 2007-2008 is no tax up to Rs.100000, 10% tax for income up to Rs.150000, 20% tax for income up to Rs.250000, and income tax of 30% on the income above Rs.250000. As per present rules for the financial year 2007-2008 and the assessment year 2008-2009, the income up to Rs.100000 is exempted from income tax for all the males and Rs.135000 are exempted to all ladies. Over and above this, all salaried people are given standard deduction of 30% of their salary towards expenses like car/vehicle maintenance etc. up to the maximum limit of Rs.25000. The deduction is also offered towards the premium paid for the mediclaim policies up to Rs.10000 held by the individuals. The next deduction offered is up to maximum of Rs.100000 per individual. This deduction is allowed for the investments made in employee's provident fund scheme, Public provident fund scheme, some selected mutual funds, premiums for various life insurance policies of LIC of India, and some selected infrastructure bonds. The donations made in certain selected institutions approved by Indian government are also totally tax free. You need to attach the proof of such investments along with your income tax return. Thus, up to the total income of Rs.200000 per anum, you have not to pay any income tax. The standard deduction and the health policy premium deductions are allowed in addition to this amount. You need to work out your net taxable income after considering all above deductions.

There are very few schemes as of today for investment whose interest is tax free. In the past, some selected bonds like RBI, Railways etc. offered total tax free interest. The only investments that offer tax free interest today are employee's provident fund, public provident fund, mutual funds dividends, and the profit earned in the stock market. Out of these, employee's provident fund is applicable to only those who are still employed in the job. You can invest up to Rs.100000 in public provident fund scheme with State Bank of India or the post offices and the interest earned on it shall be tax free. However, you are allowed to withdraw the total amount from your PPF account after a period of 15 years and not earlier. Thus, your capital will get blocked for a very long period. The investments made in the stock market and the mutual funds can certainly fetch you the total tax free income of interest. However, there is a risk of losing the money in these investments due to the uncertainty of the stock market. It needs thorough study and involvement of the stock market to derive sure profits. Though, some operators like City Bank, HDFC bank, and ICICI bank etc. have recently come in the market that can handle your complete mutual fund and stock market investment portfolios. However, they also do not give any guarantee on the exact earnings. Under the circumstances, the only option left with the common people is to invest around only 20% of the total capital possessed in stock market/mutual funds and pay the income tax on the interest earned in other schemes like bank fixed deposits, post office investments etc. That means that you can only optimize your tax payment up to certain extent. That is why our goal should be to optimize such tax and refrain from paying unnecessary tax.

Each and every earning citizen of India has to file the income tax return every year without fail. If the income of individual do not attract the income tax as per rules, the individual needs to show his total income and write that no tax is required to be paid. If you are not an Indian citizen, you need to invest only in the schemes where NRE accounts are allowed to be opened. Each and every citizen of India needs to obtain PAN (Permanent account number) card from income tax authorities. Even if you are not a citizen of India, but is having some financial income/assets/property in India, you must obtain your PAN card. This card can be easily available within a fortnight by filling one simple form, attaching the copy of your address proof and the photo identity with the form. If you are away in abroad, the income tax authorities can grant you the extension of time limit for filing income tax return. However, you need to apply for the same in writing in advance before 31^st July every year. The online income tax return submission has been also introduced recently from this financial year and your refund also can be directly deposited in to your bank account in India.

I sincerely hope that these simple facts about the income tax laws in India shall be very helpful to all the persons who need to file the income tax return in India. However, if any of my AC friends have any questions on this, they are free to contact me.