There may be liberty and justice for all, but there are tax breaks only for some. ~ Martin Sullivan
A majority of the tax payers in India are ignorant about the wealth tax, and it’s implications.
Wealth tax is a good potential annual recurring income stream for the government. However, it is perplexing why the tax authorities are lax on this aspect of tax collection. Political compulsions, Pressure from the affluent to look the other way, or probably because they have more pressing revenue sources, whatever the reasons may be, the common man needs to be aware of the implications of wealth tax, as the authorities can come after them at any point in time.
So what is Wealth Tax?
Wealth tax is a direct tax levied on the ownership of certain assets by individuals and Hindu Undivided Families (HUFs) even though these assets may not generate any income. It is an annual tax and is imposed with reference to the previous financial year or the present assessment year. It is governed by the Wealth Tax Act, 1957.
The assets which are taxable under the Wealth Tax Act are residential property other than one house, guesthouse, farmhouse, motor cars, precious metals including those in (more…)
Income during an income year of an Individual is assessed for tax under Income Tax Act 1961. It is general tendency of assesses to commence savings during the end of the Income Year, mostly to seek exemption from Income Tax thus reducing Income Tax liability. They have to combine their savings with financial planning
Under section 80C, a deduction from taxable income is allowed subject to a limit of 1Lac.
The following investment routes can be used to avail this tax benefit.
- Life insurance premium paid for traditional products.
- Unit-linked insurance plans (ULIPs).
- Pension plans.
- Repayment of the principal component of home loan.
- Employee provident funds (EPFs).
- Equity linked saving schemes (ELSS).
- Tuition fees paid for children.
- Five-year tax saving bank deposits.
- Public provident funds (PPFs).
- National savings certificates (NSCs).
- Senior citizen savings schemes (SCSs).
- Stamp duty and registration charges.
- Infrastructure bonds.
- Pension funds.
- Post office time deposit – five years.
Tax Planning involves making investments with the objective of minimizing the tax liability and maximizing returns. Ideally, one should carefully plan and invest through the year rather than at the end of the year in order to take the tax advantages.