Your Complete Guide To Indian Income Tax and Retiring As A Crorepati - 2nd Edition

Your Complete Guide to Indian
Income Tax and Retiring as a

Crorepati
Retiring as a Crorepati was Never So Easy
2015 Anands Blog

Author: Anand Vijayakumar
Your Complete Guide to Indian Income Tax and Retiring as a

Crorepati
Copyright 2015 Anands Blog. All Rights Reserved. No part of this publication may be reproduced,
stored in a retrieval system, or transmitted, in any form or in any means by electronic, mechanical,
photocopying, recording or otherwise without the explicit prior written permission of the Author.
LEGAL DISCLAIMER: The Author is an Independent Blogger and Financial Advisor. Use of the information contained in
this book is at ones own risk. This is not an offer to sell or solicitation to buy any investment products. All stock market
investments carry an inherent risk of loss and the author will not be liable for any losses incurred out of the investment(s)
made by the reader. Information contained herein does not constitute a personal recommendation or take into account the
particular investment objectives, financial situation or needs of individual investors. All content and information provided in
this book is on an As Is basis by the Author. Information in this book is believed to be reliable but the Author does not
warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or
implied. The author may hold investments in any of the products discussed here however the author has NO Vested Interest
in recommending any of the products outlined in this book. The Performance of the products quoted in this book may or may
not be sustained in future. All rate of returns used in calculations are for indicative purposes only and do not guarantee
future results. The actual returns your portfolio will gain will be based on multiple factors like your investment choice, market
performance etc.
2015 Anands Blog. All Rights Reserved.
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Contents of this Book
Whats New in this Years Edition? .............................................................................................................. 6

Introduction .................................................................................................................................................. 7
Why This Book? ..................................................................................................................................... 7
Basics of Indian Income Tax .......................................................................................................................... 8
The Financial Year Cycle ........................................................................................................................ 8
Tax Deducted at Source TDS .............................................................................................................. 9
The Form 16 .......................................................................................................................................... 9
Tax Filing and Refunds ........................................................................................................................ 10
Rectifications to Your Tax Returns ...................................................................................................... 11
What to do if I missed my Tax Filing Deadline? .................................................................................. 11
The Current Tax Slabs in our Country ......................................................................................................... 13
What is Taxable Income? ............................................................................................................................ 15
Heads of Income ................................................................................................................................. 15
Deductions on Income: ............................................................................................................................... 16
House Rent Allowance or HRA ............................................................................................................ 16
Leave Travel Allowance or LTA ........................................................................................................... 17
Medical Allowance .............................................................................................................................. 17
Transportation Allowance................................................................................................................... 18
Interest Paid on housing loan ............................................................................................................. 18
Tax Exemptions ........................................................................................................................................... 20
Section 80C Exemptions for Qualified Investments ......................................................................... 20
Section 80D Exemptions for Medical Insurance .............................................................................. 21
Section 80DD - Medical Treatment of a Physically Disabled Dependent ........................................... 21
Section 80DDB - Medical Treatment of Self/Dependents for Major Diseases: .................................. 22
Section 80E Exemption for Education Loan Repayment .................................................................. 23
Section 80U - Exemption for Disabled Tax Payers: ............................................................................. 23
Section 80G Exemptions for Charitable Donations .......................................................................... 24
Section 80CCG Exemption for Investing in Rajiv Gandhi Equity Savings Scheme RGESS:............. 26
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Crorepati
Section 80TTA Exemption for Interest Income Earned from Savings Accounts .............................. 27
Section 80GG Exemption for Individuals Living in Rented Houses .................................................. 27
Section 80GGC - Donations Made to Political Parties: ....................................................................... 28
Section 80CCD - Contribution to NPS Scheme: ................................................................................... 28
Clubbing of Minor Income: ......................................................................................................................... 30
A Comparison of the Various Instruments Available to Invest Under Section 80C .................................... 31
Life Stage based Tax Saving Portfolio that can make you a CROREPATI ................................................. 33
The Investment Strategy ......................................................................................................................... 34
Your Life Stage Based Tax Saving Portfolio ............................................................................................. 35
What to do with Maturity Amounts ................................................................................................... 37
The Yearly Portfolio Performance Review .......................................................................................... 40
Some Common Tax Filing Mistakes ............................................................................................................ 42
Not declaring Interest Earned from Bank Accounts, Fixed Deposits etc. ............................................... 42
Double Declaration of Deductions and Exemptions ............................................................................... 43
Not Declaring other sources of Income like Gifts ................................................................................... 43
What are the Chances that My Mistakes are found out? ....................................................................... 43
The Best Investment Options As of Today ............................................................................................... 45
Best Fixed Deposits to Invest in Now ...................................................................................................... 45
Best Mutual Funds For Investment ...................................................................................................... 48
Some Last Words ........................................................................................................................................ 52
Your Portfolios Growth Over Time ..................................................................................................... 52
Appendix A House Rent and You ............................................................................................................. 54
For People Living in Rented Houses: ....................................................................................................... 54
For People Owning a House that Rented Out:........................................................................................ 54
For People Owning a House that is not Rented Out: .............................................................................. 54
Appendix B LTA and You .......................................................................................................................... 55
Conditions that need to be met to Claim LTA ......................................................................................... 55
Some Additional Points Reg. Claiming LTA: ............................................................................................ 55
Appendix C Education Loan and You ....................................................................................................... 56
Appendix D Rajiv Gandhi Equity Savings Scheme and You ...................................................................... 57
Appendix E Wealth Tax and You .............................................................................................................. 58
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Appendix F Capital Gains Tax and You ..................................................................................................... 59
Capital Gains on Sale of Investments...................................................................................................... 59
Short Term Capital Gains Tax .............................................................................................................. 59
Long Term Capital Gains Tax ............................................................................................................... 59
Capital Gains on Sale of Property ........................................................................................................... 60
Short Term Capital Gains Tax .............................................................................................................. 60
Long Term Capital Gains Tax ............................................................................................................... 60
Appendix G Sukanya Samriddhi Scheme and You ................................................................................... 62
Who can open this Sukanya Samriddhi Account? .................................................................................. 62
Where can we open this Sukanya Samriddhi Account? ......................................................................... 62
Minimum and Maximum Allowed Contributions ................................................................................... 63
Account Maturity. Withdrawal and Loan Options .................................................................................. 63
Interest Rate Offered .............................................................................................................................. 63
My Take on Sukanya Samriddhi Scheme ................................................................................................ 63
Appendix H A Sample Income Tax Calculation ........................................................................................ 64
A Little Bit More About Hari: .............................................................................................................. 64
Haris Total Income: ............................................................................................................................ 65
Deductions on Haris Income For Tax Calculation Purposes: .......................................................... 66
Exemptions that Hari can Avail For Tax Calculation Purposes: ........................................................ 67
Haris Taxable Income: ........................................................................................................................... 68
Haris Tax Exemptions: Rs. 1,67,500/- ............................................................................................... 68
Haris Deductions: Rs. 2,48,300/- ...................................................................................................... 68
Haris Tax Liability ................................................................................................................................... 68
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Whats New in this Years Edition?

The year 2014 was monumental for many reasons. Firstly, the new BJP Government led by Mr. Narendra
Modi took charge under immense expectations from the billion plus population of our country.
Secondly, this book, my first ever adventure in writing was successful and as a book on India Income Tax,
this book needs to be updated every year, as the tax laws in the country change.
This year, on February 28th 2015, our Finance Minister presented the Indian Union Budget. Expectations,
as always were sky high and there are quite a few updates on Individual/Personal Taxation laws. In this
edition, you will be able to review all the modifications to personal tax laws.
Apart from the modifications in personal tax laws, you will also be able to learn about the new Sukanya
Samriddhi Savings Scheme that can help you invest for your daughters future. You will also be able to
find out the best fixed deposit interest rates (both regular and tax saving) plus the latest list of
recommended mutual funds that you can invest now.
Hope you find this edition useful.

Best Wishes
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Crorepati
Introduction
Do you remember what happened when you got your first salary? The day my first month salary got
credited I heard and learnt about two words that I havent been able to forget till date
Every country needs money to run the government, pay its staff and plan for development projects
across the country. The Government gets this money through taxes. There are numerous types of taxes
like Income Tax, Wealth Tax, Sales Tax, Service Tax etc
Tax Income is the single largest contributor to the Governments Exchequer. The projected Income Tax
receipts for our government at the end of the financial year 2013-2014 is expected to be around Rs. 11
lakh crores.
Why This Book?
Even though everyone who earns an income in India has to pay taxes, the government offers certain
benefits to its citizens by means of deductions and exemptions. Not everything you earn is taxed and
not everyone is taxed at the same level. People who earn more are taxed more in comparison to people
who earn less. The idea behind this book is multifold, they are:
To help you understand the complex tax regulations in our country

To help you understand the benefits that you can avail through the various applicable tax
laws
To help you utilize all the deductions and exemptions and save Income Tax in a legal way
To identify the best possible investment instruments that are available in the market as of
today
To utilize the Tax Benefits offered by Section 80C of our Tax Laws and build a Crorepati
Retirement Portfolio
If you are an NRI and do not pay taxes in India, there is nothing wrong in learning about Indian Income
Tax because when you come back home permanently you will still need it. Plus, you can still follow the
life stage based portfolio and replace the ELSS Mutual Fund component with an Equity Diversified
Mutual Fund and build up a retirement corpus.
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Lets get started, shall we?
Basics of Indian Income Tax

Every Individual who earns an income in India has to pay a % of his earnings as Income Tax at the end of
each financial year to the Government of India. Calculation of the Income Tax to be paid by an individual
is a cumbersome process and could be extremely confusing especially if you have just taken up a job and
started earning. In fact, even individuals who have been working for many years do not fully understand
the Tax Policies.
This section covers the basics of the Indian Income Tax and how things work. If you have been employed
for at least one year or more, you probably know many of these things but, for the benefit of the
beginners we are covering the basics here. Plus, when I name the book as Your Complete Guide I
shouldnt be missing anything isnt it?
The Financial Year Cycle
India is one of those countries that follow a separate Financial Year cycle for Tax Computation purposes.
The financial year starts on 1st of April and ends on the 31st of March next year. The current financial
year started on 1st April 2013 and will end on 31st March 2014. All the money an individual earns during
this 1 year period is considered income for Tax Calculation.
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Tax Deducted at Source TDS
Anyone who is salaried would probably know this but again for the sake of completeness Tax
Deducted at Source or TDS refers to the amount of money your employer deducts from your Salary
every month and sends it to the Income Tax Department automatically. Every company asks for their
staff to update their tax deductions, tax savings etc. (which we will be covering in the subsequent
sections) so that they can calculate the employees Tax Liability accurately. Companys usually have fullfledged tax computational software into which they key-in the income details of their employees as well
as their investment/deduction/exemption details. Using this info, the software accurately calculates the
Tax Liability of the employees.
This calculated Tax Liability of the employee is divided by the number of months remaining in the
financial year and deducted from the employees monthly salary. This way, the company tries to deduct
at least as much money as the employee owes the government as Tax Dues. In almost all cases where
the employee has no other source of income, the TDS is usually higher than the individuals tax liability
and he/she gets the refund after filing the tax returns.
The Form 16
After the end of each financial year, if you are a salaried employee, your employer will give you a
document called the Form 16. The form 16 outlines all the money you earned as part of the
employment including the amount of money that was deducted as TDS by your employer. The form 16
will clearly specify the amount of money that you need to pay the tax department or the amount the tax
department owes you. The form 16 will be signed and certified by the authorized signatory from your
company who will certify that:
All the information in the form 16 is accurate
All the TDS that was deducted from your salary was remitted to the Tax Department
All the Investment Proof, Deductions etc. have been submitted to the Tax Department
on your behalf already
If you have received your Form 16 it means that, your company has done almost everything on your
behalf and all you need to do now is - file your tax returns using this document.
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Tax Filing and Refunds
As mentioned in the previous section, after you receive the Form 16, you need to file your tax returns.
Even though your employer deducted TDS and submitted all of your investment/deduction related
proof, you will need to formally file your tax returns to close-out the Process.
The government opens up a time window that starts around July and ends around August/September
each year during which you are expected to file your returns. Any additional income that you might have
earned or any extra deductions that were missed in the form 16 have to be included when you file your
tax returns. This year, to help tax payers finish their filing; the IT Department had extended the deadline
up until 31st October 2013.
If the amount deducted as TDS is lower than your final tax liability, you need to pay the remaining
money along with the tax returns. In case your TDS was higher than your final tax liability, you can
expect a refund from the government. The money will be electronically credited into your bank account
after a few months. Dont worry; the government will pay you an interest at 8% for as many months
they keep your refund money.
Once you file your returns, you will get something called an ITR-V form which stands for Income Tax
Returns Verification form. It is an acknowledgement which is generated automatically after filing a
return online. It contains the basic details of income mentioned in the ITR Form while filing the return
along with the date of filing the return, acknowledgement no and the details from where the return was
filed. If the return is filed online with Digital Signature then it is not required to be sent to CPC Bangalore
for processing. In case the return is filed without Digital Signature, you have to duly sign the ITR-V and
send it to CPC Bangalore (address along with instructions mentioned in the ITR-V) within 120 days of
filing the return. After the ITR-V is received by the department, an ITR-V receipt is emailed to the email
id mentioned in the return form. If there is any mismatch in the signature then the ITR-V is rejected and
you are required to send it again.
The status of the return can be checked online at the Income Tax Department website
i.e. www.incometaxindiaefiling.gov.in
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Rectifications to Your Tax Returns
There may be situations where you did some clerical or numerical error while filing your Tax Returns. In
such a situation, you can make amendments to your tax returns and rectify the mistakes. You need to
make an application to the Income Tax Commissioner of the Tax Office where you filed your returns to
submit the amendments to your Tax Returns. Alternately, if the Tax Authorities identify any mistakes in
your tax returns, they too will contact you reg. the same. You will receive a notice with details of the
mistake or discrepancy found out by the Authorities and you will be asked to clarify and provide more
details. In either case the process of making the amendments to your tax returns, remains almost the
same.
In cases where you identified the mistake, you need to request the amendment before the end of the
next financial year. For ex: If you want to make amendments to the returns you field this year, you have
time until March 2014 to submit the request for amendments.
As a general point of advice, making amendments to tax returns and following up with the authorities is
even more complicated than the normal tax filing process. So, I would strongly suggest that you enlist
the help of a Chartered Accountant or any specialist who can help you with the same.
What to do if I missed my Tax Filing Deadline?
If you are someone who had to travel out of country or for some other reason, could not file your tax
returns within the deadline set by our IT Department, you will be in a little bit of trouble. However, the
government realizes that people might be in circumstances that could force them to delay their tax
return filings and hence provides options for such individuals who missed the tax filing deadline.
Things to know about Late Filing of Tax Returns
If you are filing your returns within 1 financial year, there will be no fine or penalty. i.e.,
If you file your tax returns for the financial year 2012-2013 by 31st March 2014 there is
no penalty
If you are filing your returns after the 1 year grace period, the penalty is Rs. 5,000/- for
late filing. i.e., If you file your tax returns for the financial year 2012-2013 on or after 1st
April 2014, you need to pay this Rs. 5,000/- penalty
Penalty Interest of 1% per month (Simple Interest) would be applicable on tax dues for
every month of delay starting from April
You will not receive interest on the Tax Refunds for the period that you delayed.
You will not be able to make any amendments to your tax returns after you submit. For
normal tax filings, you have time until the end of the next financial year wherein you can
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make amendments to your tax returns whereas for late filing this privilege is not
available.
Capital Losses cannot be carried forward unless they are specified by the 31st of July and
filed in the Income Tax Return. Exemption to this rule is that, you can still carry forward
loss on sale of residential property
Usually late filing of tax returns is slightly more complicated than the regular process. So, I would
suggest you take professional help from a competent tax advisor or a chartered accountant to ensure
that you do not miss anything.
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The Current Tax Slabs in our Country
As I said before, the amount of tax you pay depends on which Tax Slab you fall into. Below is the current
Tax Slabs:
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Points to Note:
1. If your Taxable income is above 1 crore you need to pay an additional 12% surcharge on your
Tax Amount. For ex: If your tax liability is 30 lakhs on a taxable income of 1 crore, after including
the Surcharge, your tax liability will be 33.60 lakhs (Last year this surcharge was 10%)
2. An Educational cess of 2% and a Higher Educational cess of 1% will be payable on your total tax
liability including the surcharge. For ex: If your Tax liability is Rs. 25,000/- after including the
Educational cess and Higher Educational cess, the final tax to be paid will be Rs. 25,750/3. The tax slabs above reflect the changes that were introduced as part of the new Budget that was
presented in the Parliament in July 2014. The Tax Slabs were not changed in this years budget.
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What is Taxable Income?
Not all your income is taxable. As I highlighted in the introductory section, the government allows some
deductions and exemptions which you can use to reduce your tax liability. The term Taxable Income
refers to the amount of money for which you are supposed to pay Income Tax. You can calculate your
Taxable Income as follows:
As you read on, you will first find out what qualifies as income and then we will take a look at the
various deductions and exemptions using which you can reduce your Taxable Income.
Heads of Income
Heads of Income is the technical term used in almost all tax related documentation in our country which
I am just using here so that you wouldnt be surprised if you read any article related to income tax.
Actually it is just a fancy term which refers to the types of income earned by an individual that would
qualify as Income for which he/she needs to pay tax. They include:
1.
2.
3.
4.
5.
Salary/Wages
Bonus
Commissions
Income from Other Sources Ex: House Rent, Interest from Fixed Deposits etc.
Other Perquisite Benefits
The first 4 items are pretty straight forward and so, I am not going to explain them. According to the
Indian Tax laws Perquisites include the following:
a) Rent free accommodation or concessional rate accommodation received from the employer
b) Any other benefit given by the employer either in cash or material (Apart from monthly Salary)
c) Any Fringe benefits provided by the employer (This would include Mobile bill reimbursement,
Petrol expenses and any other reimbursements you may receive from your employer)
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Deductions on Income:
As per our tax laws, there are certain deductions that are allowed on the income earned by an
individual. These amounts can be subtracted while arriving upon the net taxable salary of an individual.
For ex: If your total salary is 5 lakhs and the deductions that we are going to cover in this section total up
to 1.5 lakhs, your net taxable income will be only 3.5 lakhs.
Those deductions are:
House Rent Allowance or HRA
The House Rent Allowance or HRA is usually a part of the Salary/Wages that is paid out to an employee
by the employer. Any individual who is residing in a rented house and is paying a rent on the same is
eligible to use the HRA Deduction if he/she receives HRA as part of their Salary. There are some rules
that govern the amount of money you can deduct from your taxable income. Out of the below
mentioned 3 rules, whichever works out to be the LOWER will be considered for the purpose of
deduction under the HRA component:
The Actual amount of HRA you receive as part of your Salary
50% of your Basic Salary if you live in a Metro City or 40% of your Basic Salary in case of nonmetros
Actual Rent paid by you minus 10% of your Basic Salary
For example Let us say your monthly basic salary is Rs. 12,000, the HRA Component as per your salary
is Rs. 5,000 and the rent you pay is Rs. 5,000 a house in Chennai the calculation would be as follows:
a. Actual HRA Rs. 5,000
b. 50% of Basic Salary Rs. 6,000
c. Actual Rent minus 10% of Basic Salary 5000 minus 1,200 = Rs. 3,800
So, the deduction that is allowed for calculating your tax liability would be Rs. 3,800/- per month which
would work out to Rs. 45,600/- for the year. Even though your actual house rent is Rs. 5,000/- you can
avail deductions only for Rs. 3,800/- every month.
Alternately, if you are someone who actually owns a house that is rented out, you need to add the Rent
that you receive from your tenant as part of your annual income. See Appendix A for more details on
how to calculate house rent for both income and income tax purposes.
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Leave Travel Allowance or LTA
Just like the HRA, Leave Travel Allowance or LTA is also something that is paid out as part of the monthly
salary by the employer. As per our tax laws you are eligible to claim an amount that is less than or equal
to the total LTA component that is part of your salary. This would cover the travel expenses incurred for
self with or without dependents. However, there are certain conditions which have to be satisfied for
you to be able to use this deduction, they are:
a. LTA can be claimed only twice in a block of 4 years. You cannot claim LTA every year
b. Only Transportation Expenses via the Primary Mode of Transport can be considered for LTA.
Accommodation, food, taxes etc. cannot be considered
c. You should have been on earned leave on the days when the travel happened. As a general
guideline, most companies expect you to apply for Earned Leave for at least 3 working days
in order to be eligible to claim LTA
d. Only travel by the shortest route between the origin and destination will be considered for
LTA claim
e. In case of air travel only Economy Class air-fares can be claimed as LTA
f. The Tax Payer who is claiming LTA should have been a part of the group that travelled in
order to be eligible to claim LTA
g. Foreign Travel cannot be claimed under LTA
For example lets say you receive Rs. 2000/- every month as LTA and you spent Rs. 16,000/- on a
vacation with your spouse and kids, you can deduct this 16,000/- from your taxable income. The
remaining 8,000 would be taxable since your annual LTA is Rs. 24,000/The current LTA block is 2010 to 2013 and the next block is 2014 to 2017. The LTA cycle follows the
Calendar year but the claim for LTA has to be done during the Financial Year when the travel happened.
See Appendix B for more details on how you can use LTA to reduce your Tax Liability.
Medical Allowance
Medical Allowance too is something that is part of the salary most of us receive from our employer.
Unlike HRA or LTA, even if this component is not part of your salary, you can still use the deduction that
is allowed here. The maximum amount eligible for this component is either Rs. 15,000/- or the actual
amount paid out to you as part of Salary or the actual amount of money you spent on medical
treatments whichever is LOWER. However, to claim the deduction, you need to provide original bills to
substantiate the medical expenses you incurred. The medical bills you submit could be in your name,
your spouse or your children or dependent parents.
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Transportation Allowance
Dont get alarmed, this isnt the Leave Travel Allowance section again due to a copy-paste error. Every
tax payer is allowed to deduct Rs. 1,600/- per month as a standard deduction to cover for the
transportation expenses he/she would incur as part of their daily commute to work. This amount is fixed
and does not change based on your job or industry or the mode of transport you use to reach your work
location. A point to note here is that, you cannot claim this allowance if you are using company provided
free transport or if you work from home permanently. (Last Year the transportation allowance was Rs.
800 per month. It has been doubled in this years budget)
Interest Paid on housing loan
Buying a Home is everybodys dream and in most cases we go for a Home Loan to finance the
purchase of the house. The repayment we make to the Bank includes a Principal Component and an
Interest Component. In order to ease the tax payers burden due to the high interest rates that prevail
in our markets, the government offers us a deduction by which all or part of the Interest we repay is
reduced from our Taxable Income.
Just like any other deductible, there are a few conditions here too. They are:
The property for which the loan is being repaid should be Residential Property. Commercial
property loan or loan taken for purchase of land does not qualify for this deduction
If the property is occupied by the you, the maximum eligible deduction is Rs. 2 lakhs per
year
Only the Interest component of the loan being repaid can be deducted here
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Banks will give out yearly home loan repayment statements which will detail out the
Principal and Interest repaid during that financial year using which you can claim this
deduction
If the property is rented out and you are showing the rent received as Income from Other
Sources there is no maximum amount. The actual interest component that you are
repaying can be deducted here without any limits.
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Tax Exemptions
Just like the various deductions that we covered in the previous section, the Indian Tax Laws allow many
exemptions that help the tax payer reduce his tax liability. These exemptions are categorized as sections
with numbers followed by alphabets to help us identify them easily.
Section 80C Exemptions for Qualified Investments
The Section 80C of the Indian Tax Laws provides exemption to tax payers for amounts that are invested
in certain qualified instruments. The Government not only wants to tax you on your income but also
wants to cultivate the habit of saving in individuals. So, to motivate us to save every year, any money we
invest and save is exempt from Income Tax provided we invest from the list that has been published by
the Income Tax Department. These instruments are:
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
Employee Provident Fund EPF

Public Provident Fund PPF
National Savings Certificate NSC
Equity Linked Savings Scheme ELSS
Kisan Vikas Patra KVP
Tax Saving Unit Linked Insurance Plans (ULIPs)
Principal Amount repaid on a Home Loan
5 year Tax Saving Bank Fixed Deposits
Premium Paid on Life Insurance Policies
Sukanya Samriddhi Scheme (New Added this year. See Appendix G for more details)
The individual amounts invested in any or all of these instruments are summed up and the total amount
can be considered for exemption under Section 80C. A point to remember here is that, the exemption is
capped at Rs. 1.5 lakhs per Financial Year. So, if the amount invested is less than 1.5 lakhs, the actual
amount is considered for exemption and if the amount you invested is more, the exemption is capped at
1.5 lakhs per financial year.
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If you Incur Expenses for your Childrens School or College Education, the amount of tuition fee you
pay (for up to 2 kids) each year can also be claimed under this Section 80C. A point to note here is
that, any development fee or transportation fee you pay the school cannot be added here.
Section 80D Exemptions for Medical Insurance
One of the key problems in India is the affordability or should I say non-affordability of proper medical
care. With rising medical costs, even a simple illness can result in an outflow of a few thousand rupees.
In case of severe illnesses, the expenditure can run into lakhs. In developing nations like India, the
penetration of Medical Insurance leaves a lot to be desired. In fact, even in a tier 1 city like Chennai or
Mumbai the % of people who actually have medical insurance plan is very low.
So, in order to motivate people to take up proper Medical Insurance Plans, we are provided exemption
under Section 80D on the premium paid towards these Medical Insurance plans for an amount of up to
Rs. 25,000/- each financial year. The premiums paid towards policies for self, spouse and children can be
used for Tax Exemption under this section. (Up until last year, this amount was Rs. 15,000/-)
In case of a senior citizen, the maximum amount extends up to Rs. 30,000/- per year (Up until last year,
this amount was Rs. 20,000/-).
If you are paying the premium for your parents (whether dependent or not), you can claim an additional
deduction of Rs. 15,000/- per year.
Section 80DD - Medical Treatment of a Physically Disabled Dependent
Individuals who have physically disabled dependents and incur expenses in taking care of them can
claim some additional tax exemptions under Section 80DD. The requirement here is that, the individual
must have incurred the expenses in the medical treatment or rehabilitation of the disabled dependent
OR must have deposited the amount to LIC of India or any other Insurance Company for the
maintenance of the disabled dependent. Here the dependent could be your spouse, parents, children or
your siblings.
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The Exemption is Rs. 75,000/- per year for cases where the disability is up to 40% and it goes up to Rs.
1,25,000/- per year if the disability is 80% or more. (Up until last year, the amounts were Rs. 50,000/and Rs. 1 lakh respectively. The government has hiked this limit by Rs. 25,000/- this year)
A Medical Certificate issued by the doctor who is treating the disabled dependent along with the bills to
support the amount spent have to be submitted to claim this exemption. If the amount spent is lower
than these limits, the exemption would be equal to the actual amount spent. And, if the amount spent is
higher, the exemption would be capped at the limit.
The following disabilities are eligible for exemption under Section 80DD:
Blindness
Low Vision
Leprosy
Hearing Impairment
Locomotors Disability
Mental Illness and/or Retardation
Section 80DDB - Medical Treatment of Self/Dependents for Major Diseases:
Any Tax Payer who is suffering from any major illness or has a dependent family member who is
suffering from a major illnesses, is eligible to claim additional tax exemption using this Section 80DDB.
There is an upper limit cap of Rs. 40,000/- per year that you can claim under this section. If the individual
or the dependent is a Senior Citizen, the exemption limit is Rs. 60,000/- per year. If the individual or
dependent is a Very Senior Citizen (Above 80 years of age) this exemption limit is Rs. 80,000/- per year.
(This extra Rs. 20,000/- for very senior citizens is newly added in this years budget)
A certificate from the specialist who is treating the illness along with the actual bills must be submitted
to claim exemption under this section. If the actual amount spent is below the upper limit cap, the
exemption would be limited to the actual amount spent. (Up until last year, only a certificate issued by a
Government Hospital doctor was accepted. From this year onward, the specialist who is treating the
medical condition can issue the certificate)
You can claim this additional exemption under Section 80DDB for the following Illnesses:
Neurological Diseases (where the disability is at least 40% or more)

Parkinsons Disease
Malignant Cancers
AIDS
Renal Failure
Hemophilia
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Crorepati
Thalassemia
Etc.
A point to note here is that the list above is not exhaustive and almost all major diseases qualify for this
exemption.
Section 80E Exemption for Education Loan Repayment
The government wants its citizens to be well educated even if their parents are not able to finance their
education. As a result, it has directed banks to grant educational loan to meritorious students with a
good academic record irrespective of the parents financial status. In order to motivate people to pursue
this educational loan approach for higher studies, they also offer Tax Exemption on the money that is
repaid each year. Here, the repayment could be for a loan that was taken by the individual, their spouse
or their children.
The loan repayment via the EMI route starts as soon as you finish education. This repayment includes
both Principal and Interest components. The Section 80E provides exemption on the Interest
Component that you repay the bank that offered you the education loan without any limits. At the end
of each financial year, you can ask your Bank to give you a consolidated loan statement which clearly
specifies the Principal and Interest amounts that you repaid over the past year. You can use this
statement to claim exemption under this section.
Two important points to note about Section 80E are:

Exemption is available only on the Interest Component of the loan repayment
Exemption is available only for 8 years or the Loan Tenure, whichever is LOWER
See Appendix C for more details on Educational Loan and its tax benefits.
Section 80U - Exemption for Disabled Tax Payers:
The Indian Tax Laws give special concessions to tax payers who suffer from some kind of disability
through Section 80U. Any individual who suffers from partial or total disability gets additional tax
exemptions. The term disability as per Section 80U refers to any of the following illnesses:
Blindness
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Crorepati
Low Vision
Hearing Impairment
Leprosy
Moving Disability
Mental Retardation
Autism
Cerebral Palsy
Multiple Disabilities (More than 1 from the above list)
The Tax Exemption under Section 80U is a flat Rs. 75,000 irrespective of the medical expenses incurred if
the disability is at least 40%. If the disability is 80% or more, the exemption is Rs. 1,25,000/-. A
Certificate issued by the doctor treating you for the disability which clearly states the % disability is
required to claim exemption under this section. (Up until last year, the limits for exemption were Rs.
50,000/- and 1 lakh respectively. The government has increased the limits by Rs. 25,000/- this year)
A point to note here is that if the disability is less than 40% the tax exemption under this section cannot
be claimed.
Section 80G Exemptions for Charitable Donations
Section 80G of the Indian Income Tax Act provides tax relief to the Citizens of India on the amounts
donated as contributions to Approved Charitable Organizations or Political Parties in our country. Any
donation made by cash or cheque only is eligible for tax benefits. Other donations you might make like
food, clothes etc. are not eligible for tax exemption.
In order to claim exemption under Section 80G you need a signed and stamped receipt from the
Charitable Organization that is accepting your donation. The receipt must include the following details.
Name and address of the trust

The name of the donor
The amount donated, mentioned in words and figures
The registration number of the trust, as given by the income tax department under section 80G,
along with its validity period.
Tax benefits cannot be claimed without the above mentioned details and document. The amount that is
exempted from Income Tax depends on which organization you donate to.
Donations made to the following organizations allow 100% exemption without any qualifying limits:
1. Prime Ministers National Relief Fund
2. National Defense Fund
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Crorepati
3.
4.
5.
6.
7.
8.
9.
10.
11.
The National Foundation for Communal Harmony

Donations made to Zila Saksharta Samitis
The National Blood Transfusion Council
The Army Central Welfare Fund
The Indian Naval Benevolent Fund
The Air Force Central Welfare Fund
Central Governments Fund for Technology Development & Application
Chief Ministers Relief Fund (Any State)
National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental
Retardation & Multiple Disabilities
12. National Illness Assistance Fund
13. Clean Ganga Fund
14. Swachh Bharat Kosh
The Clean Ganga Fund and Swachh Bharat Kosh are set up by our Government recently and were added
to the list of exempt donations under Section 80G in this years budget.
A point to note here is that, donations made as part of Corporate Social Responsibility (through your
company) will not be eligible for exemptions.
Donations made to the following organizations allow 50% exemption without any qualifying limits:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Jawaharlal Nehru Memorial Fund

Prime Ministers Drought Relief Fund
National Childrens Fund
Indira Gandhi Memorial Trust
The Rajiv Gandhi Foundation
Donations to govt./ local authority for charitable purposes (excluding family
planning)
Authority/ corporation having income exempt under erstwhile section or u/s
10(26BB)
Donations for repair/ renovation of notified places of worship
World Vision India
Udavum Karangal
Donations to the following are eligible for 100% deduction subject to 10% of your total taxable income
1. Donations to the Government or a local authority for the purpose of promoting
family planning.
2. Sums paid by a company to Indian Olympic Association
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Crorepati
Donations to the following are eligible for 50% deduction subject to 10% of your total taxable income
1. Donation to the Government or any local authority to be utilized by them for any
charitable purposes other than the purpose of promoting family planning.
Section 80CCG Exemption for Investing in Rajiv Gandhi Equity Savings Scheme RGESS:
The Rajiv Gandhi Equity Savings Scheme or RGESS is a new scheme that was introduced recently by our
finance minister to offer tax exemptions under Section 80CCG for Investors who invest up to Rs.
50,000/- each year in qualified shares and mutual funds. 50% of your qualified investments under this
section will be eligible for exemption. Also, this benefit is only available if your total income for the year
is less than or equal to Rs. 12 lakhs.
The following stocks and mutual funds are eligible for purchase under this Rajiv Gandhi Equity Savings
Scheme:
The top 100 stocks listed on the BSE 100 of the Bombay Stock Exchange
The top 100 stocks listed on the CNX 100 of the National Stock Exchange
Shares of Government owned Navratna, Maharatna and Miniratna companies
Investments in follow-on public offers (FPOs) of these government owned entities with
an annual turnover of Rs. 4000 crores or more in the three years preceding the issue
would also be eligible
ETFs and Mutual Funds that invest in approved securities are also eligible for this
scheme
50% of the amount invested (Of up to Rs. 50,000/-) in approved Stocks and Mutual Funds can be
claimed as a deduction each year. For ex: If you invest Rs. 40,000/- in the approved stocks/mutual funds
under this section, you can reduce Rs. 20,000/- from your total annual taxable income.
Investments under this scheme will have a lock-in period of 3 years. For one year from the date of
purchase of the Equities/MFs under the scheme, the investor cannot sell his/her investments at all.
From the second year onwards, the investor can sell the securities provided the overall portfolio held by
the investor does not fall below the amount for which tax deduction was claimed for.
For ex: Lets say I buy shares of State Bank of India worth Rs. 50,000/- today, I can deduct Rs. 25,000/from my total income for computation of income tax. However, I cannot sell these shares for at least 1
year. Lets say after I complete one full year, I sell these SBI shares and invest another Rs. 50,000/- in
Indian Oil Corporation shares that is perfectly fine. However, I cannot claim fresh tax benefits for this Rs.
50,000/- because the investment was made to offset a sale and is not considered a fresh investment.
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Crorepati
Next year, I can invest another Rs. 50,000/- in let us say ICICI Bank and claim deductions under this
section for the next financial year.
A point to note here is that, if your total annual taxable income crosses the 12 lakh limit your eligibility
to claim benefits under this section would cease.
Investing in stocks is extremely risky and many of us do not have the time or the know-how to
extensively research those companies and decide when to Buy or Sell, I would suggest you choose the
ETF or Mutual Fund route to utilize exemption under this section.
See Appendix D for the list of Mutual Funds and Exchange Traded Funds (ETFs) that qualify for
exemption under this section.
Section 80TTA Exemption for Interest Income Earned from Savings Accounts
Almost all of us have Savings Accounts with banks and every year we earn at least a few hundred rupees
as interest. Up until this section of tax exemption was introduced, we were expected to add this interest
income, no matter how trivial or small it is, to our total income and pay tax on the same. The good news
now is that, any interest we earn up to Rs. 10,000/- each year from Savings Accounts is exempt from
Income Tax. The best part is that we need not include the interest income (If it is lower than Rs. 10,000)
from our tax returns.
Some points to note here are:
The sum of all the interest you earned from all of your savings accounts must be added
up to calculate the exemption under this section
Any amount in excess of this Rs. 10,000/- limit has to be added as an income and you
need to pay tax on the same
Interest earned from accounts like Fixed Deposits and Recurring Deposits are not
exempt under this section. You would still need to add them to your total annual
income
Section 80GG Exemption for Individuals Living in Rented Houses
Are you someone who lives in a rented house but, your employer does not have a component titled
House Rent Allowance in your salary to help you claim HRA Deduction as explained in the previous
section? If so, there is no need to worry. The government realizes that some people may fall under this
category in spite of the fact that they are living in a rented house.
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Crorepati
According to the Section 80GG of the Indian Income Tax, Exemption is available if:
You live in a Rented House
You do not receive any kind of HRA as part of your income
You or your spouse or your children do not own any residential property in India or
Abroad
If you satisfy all of the 3 conditions mentioned above, the LOWER of the following will be considered for
exemption under this section:
25% of your Total Annual Income
Rs. 2,000/- per month
Excess of rent paid over 10% of total income
Section 80GGC - Donations Made to Political Parties:
The Section 80GGC provides tax exemption for donations that you make to any political party that is
registered in India under Section 29A of the Representation of the People Act of 1951.
There is actually no upper limit under this section and any amount that you contribute can be fully
claimed for tax exemption. A receipt issued by the political party to which you made the donation has to
be submitted as proof to claim exemption under this section. A point to note here is that, any donation
you make can be claimed for tax exemption only once and that too during the financial year in which the
donation was made.
The government has also introduced the restriction this year that, donations cannot be made in Cash.
This is done to avoid the influx of black-money and unaccounted for funds into our economy by means
of these donations.
Section 80CCD - Contribution to NPS Scheme:
Section 80CCD underwent a major revamp in this years budget. As india does not have any formal Social
Security Scheme, our finance minister emphasized the need for Indian Citizens to utilize the NPS
Scheme. And, in order to further motivate citizens to invest/save in NPS, the government is also offering
additional tax exemptions to citizens. Section 80CCD has been split into 2 parts:
Section 80CCD(1) Exemption on contributions made towards NPS by the Individual
Section 80CCD(2) Exemption on contributions made towards NPS by the Employer
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Crorepati
Section 80CCD(1) Contribution towards NPS by the Tax Paying Individual
Any contributions made by the individual up to Rs. 50,000/- towards his/her Tier I NPS Account, in any
financial year is exempt from income tax under this Section 80CCD.
Up until last year, though we had this section, the investment under NPS was actually clubbed with the
other qualifying investments under Section 80C and the overall shared limit was Rs. 1.5 lakhs. This year,
the government has revised the rules to allow a specific additional exemption of Rs. 50,000/- for
investments into NPS Scheme.
So, effectively, your new exemption limit = 2 Lakhs.
Rs. 1.5 lakhs under 80C + Rs. 50,000/- under 80CCD(1).
Section 80CCD(2) Contribution towards NPS by the Tax Payers Employer
Under this section, any contributions made by the Employer towards the Tier I NPS Account of his/her
employees are exempt from Income Tax. However, the maximum exemption amount is capped at 10%
of the employees basic salary for that year. This exemption is over and above the tax exemption the
employee is availing as part of Section 80C and Section 80CCD(1).
If your annual basic salary was Rs. 5 lakhs, your employer can contribute a maximum of Rs. 50,000/- this
year and this amount would not get added to your taxable income. Similarly, if my annual basic salary is
Rs. 4 lakhs, the amount my employer can contribute is limited to a maximum of Rs. 40,000/-.
Apart from this 10% cap, there is actually no upper limit to this section. The higher your basic salary, the
higher the exemption you can avail.
Most Private Corporations do not offer this benefit to its employees. They usually offer schemes like
Employee Provident Fund. During your next annual appraisal or salary revision, talk to your
manager/HR/employer if they are willing to reallocate a % of your annual CTC Component towards your
NPS Account. I remember a friend of mine in Wipro saying that they are allowed to adjust their CTC
Package to add this contribution to their NPS Accounts to avail this additional tax benefit.
Note: The Benefit under this Section is available only if YOUR EMPLOYER contributes to your NPS Tier I
Account. Many of you may have individual NPS Accounts. The amount you contribute can avail you
exemption under 80CCD(1) only.
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Crorepati
Clubbing of Minor Income:
It is common practice in our country to make investments in the name of our children. Are you someone
who has Fixed Deposits or other Investments in the name of your Kids? Most of these investments have
some sort of returns which technically qualifies as income for the Minor child on whose name the
investments were made. As the minor child does not pay any taxes, the onus is on the parent to pay the
requisite taxes on behalf of their children.
In such situations, any income that is lesser than Rs. 1,500/- per year is totally tax free. Any income in
excess of this limit of Rs. 1,500/- per year will be added to the parents income and taxed accordingly. If
both of the parents are employed, the minors income has to be added to the income of the parent with
the higher income. This clubbing of Minor Income can be done only until the child turns 18. After that
age, the income need not be added to the parents taxable income.
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Crorepati
A Comparison of the Various Instruments Available to Invest Under
Section 80C
As we have numerous instruments which offer us tax benefits under Section 80C, you may find it hard to
compare them or shortlist one for investment. So, to make things easy for you, the following table
compares all of these options to help you choose and shortlist.
Investment
Instrument
Safety
Returns on
Investment
Employee
Very High
8 to 8.5%
Provident Fund
Avg. 25 basis
- EPF
points above the
Govt. of India
Bond Yield.
Investment Strong Points
Downsides
1. Extremely Safe as the

Government owns our money
1. The rate of returns does not beat

inflation.
2. Every month a small amount is

automatically deducted by your
employer and it gets accumulated
2. Very long lock in period. You cannot

withdraw the funds until you retire
(Withdrawing EPF corpus while
switching jobs is neither right nor
advisable)
Public
Extremely Safe as the Government
Very High
8 to 8.5%
Provident Fund
owns our money
Avg. 25 basis
PPF
points above the
Govt. of India
Bond Yield.
National
Savings
Certificate NSC
Very High
8%
1. The rate of returns does not beat

inflation.
2. Lock-in Period is 15 years and you
cannot close it ahead of time
3. At least Rs. 500/- has to be
deposited each year to keep the
account active
Extremely Safe as the Government 1. The rate of returns does not beat
owns our money
inflation.
2. Lock-in Period is 6 years and you
cannot close it ahead of time
3. The Interest Earned on NSC is
Taxable, so if we consider the tax
implications the returns will be lower
than 8%
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Crorepati
5 Year Bank
Fixed Deposits
High
9% or more
1. The Money deposited in these

FD's are very safe because the RBI
mandates banks to maintain a
higher amount of capital to
protect investor money
2. Banks these days offer more
than 9% on these FD's
ELSS Mutual
Funds
Low
Depends on the
Stock Market
1. Lock in period is 5 years and you

cannot close the FD ahead of time
2. The Interest Earned on these FD's is
taxable. So, if we consider the Tax
Implications the returns will be lower
than 9%
1. The money is invested in the

1. The money is invested in the stock
stock market and you can get good market and the chances of losses are
returns if you invest for the longhigh
term
2. You can invest via the SIP Route
to average out your investment in
the long run
3. The lock-in period is only 3 years
which is the shortest of all
Investment Instruments under
Section 80C
4. The returns/profits on ELSS
Investments are tax free
Sukanya
Samriddhi
Scheme
High
9% or more
1. Extremely Safe as the

Government owns our money.
Avg. 75 basis
points above the 2. Returns higher than most safe
Govt. of India
instruments. This year it is 9.1%
Bond Yield.
3. You can invest up to 1.5 lakhs
each year and save a corpus for
our daughter
1. Account can only be opened if you

have a daughter aged 10 years or
below
2. Account Matures only when the girl
turns 21. So, you cannot withdraw the
amount until then.
3. 50% of the corpus can be withdrawn
when the girl turns 18 or gets married.
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Crorepati
Life Stage based Tax Saving Portfolio that can make you a CROREPATI
Tax Saving is not a one-time activity. Most of us take up tax saving as a onetime activity each year
around Jan/Feb and forget about it. One of the Main Reasons why I stared writing this book is to
demonstrate to you that, if you planned your investments to save tax every year as a continuous
activity, you can absolutely retire as a Crorepati.
After so many pages of educational stuff we are getting down to business, arent we???
Every individual has his/her own risk appetite and ability to absorb risk. For ex: An individual who has
just started his career and earning Rs. 25,000/- per month and has no loans or family commitments can
much more comfortably absorb a loss of 1 or 2 lakhs in the stock market than an individual who has a
spouse and kids who is on a similar income level
Get the picture?
Just like any other investment, you can model your investment portfolio based on your age. As you grow
older your responsibilities change and so does your ability to absorb risks. You may be 20 or 40 or even
50, it is never too late to start planning your investments. Based on your age, you could broadly fall into
one of the following groups:
1.
2.
3.
4.
5.
Single
Just Married
With A Family
Middle Aged
Nearing Retirement
For you to be able to easily decide what to invest and to avoid confusion I am only considering 3
investment options that provide Section 80C benefits. They are:
ELSS Mutual Funds
Public Provident Fund PPF
Bank Fixed Deposits
You may be wondering why I have selected only 3 of the many products that were compared in the
table that you just read in the previous page. Am I right?
I couldve easily picked up many more of the instruments that qualify for the Section 80C benefits but
that wouldnt have served the purpose. It wouldve just over-complicated things. Managing a portfolio
is not easy and the fewer instruments you have, the easier it is to manage. No matter what age group
you belong to, a combination of these 3 instruments can suit your needs and help build a Solid
Retirement Corpus.
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Crorepati
The Investment Strategy
Any investment needs to have a strategy on how you are going to take it forward. Unless you are a
Crorepati already, anything related to money has to be carefully planned. An improperly timed
investment will not be as effective as it couldve been if you had planned properly. For ex: The year 2007
ended when the BSE Sensex was at an all-time high of over 20,500 points. By March 2008 the Sensex
was hovering at around 8000 points a fall of over 12,000 points. If you had invested Rs. 50,000/- in an
ELSS Mutual Fund on 2nd Jan 2008, by March your investment wouldve been worth less than 20,000/rupees. Get the picture?
In case of PPF and Bank FDs, the timing doesnt really matter because the interest rates are fairly
stable. It may go up or down by 0.5% to 1% year on year but that wouldnt impact you heavily. So,
anytime of the year you get some investible surplus like the yearly performance bonus, invest the
money that is required to meet the % allocation towards these two instruments right away. There is no
need to think too much here.
The strategy for the ELSS Mutual Funds should be different because the stock market can go up or down
anytime. Did you read the example at the beginning of this section about the stock market crash of
2008? That is why I am going to suggest that, you take the Systematic Investment Plan (SIP) Route for
investing in these funds. This way, when the market is down, you get to accumulate more units and
average out your investment.
Choose one or two funds that you have shortlisted, calculate the annual investment required based on
the % allocation, divide it by 12 and start SIPs. So, for someone who is in his 30s he/she must invest
60% of their 80C investments into ELSS Mutual Funds. This works out to Rs. 90,000/- per year and Rs.
7,5000/- per month. So, they can either start an SIP for Rs. 7,500/- per month in one ELSS MF or start
three SIPs for Rs. 2,500/- per month each and spread out the risk across three funds.
Not only does the SIP route help you average out your cost, it is easier on your pocket because it is
always easier to keep aside Rs. 7,500/- each month than keeping aside Rs. 90,000/- in one shot.
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Crorepati
Your Life Stage Based Tax Saving Portfolio
As I said in the previous section, as you grow older, your ability to take or absorb risks and losses comes
down. So, it is important that you invest in instruments that are appropriate for your age and your risk
taking ability. The following table will suggest the % allocation you can follow based on which age group
you fall into.
Life Stage
Your Age
About You In Brief
Proposed
Investment
Allocation
Single
20 to 30
You are young, energetic

and have just started your
career. You have a long
way to go until retirement
and you should use this to
save up a sizeable corpus
for retirement
ELSS Mutual
Funds 80%
PPF 20%
Investment Rationale
1. You CAN afford to take risks

and hence the high
allocation to Equity
2. Equity Instruments tend to
outperform in the long run
and the longer you stay
invested, the better your
returns will be
3. The PPF Component is just
to add some cushion and
stability to your Portfolio
Just Married 30 to 35
You just got married and

are starting to take
additional responsibilities
in your life. You have a
spouse and need to make
sure that you do not take
any reckless risks when it
comes to investments
ELSS Mutual
Funds 60%
PPF 20%
Bank FDs 20%
1. You have a spouse now and

hence the equity exposure
comes down and safer
instruments go up
2. PPF has a 15 year lock-in and
hence we start exposure to
Bank FDs so that you will
have liquidity options after 5
years in case you need it
3. A 40% allocation to PPF and
FDs can add a lot of stability
to your portfolio even if the
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Crorepati
markets are volatile
With A
Family
35 to 40
You have a child now and

your responsibilities have
grown. You need to start
saving for your child's
future too and hence you
need to be a little more
cautious when it comes to
investments, than when
you were in the previous
life stage
ELSS Mutual
Funds 40%
Bank FDs 20%
1. You have a family now and

hence the equity exposure
comes down even more and
safer instruments go up
further
Sukanya
Samriddhi
Scheme 20% (If
you have a
Daughter)
2. PPF has a 15 year lock-in and

hence we start exposure to
Bank FDs so that you will
have liquidity options after 5
years in case you need it
If you do not have

a daughter you
can increase ELSS
to 50% and PPF to
30%
3. You can also consider

opening a PPF Account in
your kids name and start
saving money there for your
child's future. You can get
tax benefits on that too
because your child is
financially dependent on you
PPF 20%
4. Sukanya Samriddhi Scheme

is an excellent way to save a
corpus for your princess and
should be a part of every
dads portfolio
Middle Aged 40 to 50
Your kids have grown up

and you are starting to give
serious thought about
retirement and your life
after 60
ELSS Mutual
Funds 30%
PPF 30%
Bank FDs 40%
Sukanya
Samriddhi
Scheme 10% (If
1. You are nearing retirement

now and hence your equity
investments must not
exceed one third of your
total investments
2. FDs offer a slightly higher
interest than PPF, hence the
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Crorepati
you have a
daughter you can
reduce Bank FDs
by 10% and invest
here)
Nearing
Retirement
50 plus
Your kids are in college or

have graduated and you
are ready to retire
peacefully
ELSS Mutual
Funds 10%
Bank FDs 90%
additional 10% allocation

3. Your aim now is stability and
safety rather than growth
and returns
1. You are very close to

retirement and hence your
priority must be capital
preservation hence the
90% allocation to Bank FDs
2. If your PFF Account has
matured, it wouldnt be
advisable to reopen a fresh
PPF account now because
you have to wait 15 more
years until you can get the
money
What to do with Maturity Amounts
As you progress through your life, the investments you make each year will start maturing one by one.
Your portfolio will be fat and healthy only if you have a plan for the money you will get when your
investments mature. For ex: Let us say you start your Investments in Jan 2014, your ELSS Mutual Fund
Investments you make in 2014 will mature in 2017. You should NOT and I repeat SHOULD NOT get
tempted to spend the maturity proceeds unless it is a real emergency. You should invest the maturity
proceeds in other investment options and at the same time keep your overall portfolio allocation
optimal depending on your age.
Reinvesting Maturity Proceeds
Every year, your portfolio grows in size and in parallel, the investments you made in the previous years
start maturing one by one. This section is going to tell you how to handle the maturity amounts.
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Crorepati
As and when your PPF Account matures, divert the maturity proceeds towards a Fixed Deposit
with a bank that offers the best interest
As and when your Tax Saving 5 year FD matures, divert the maturity proceeds towards a Fixed
Deposit with a bank that offers the best interest rate
Handling of ELSS MF Investments when they mature is slightly trickier. Where you invest you the money
that comes out of maturity again depends on which age group you fall into.
When you are in your 20s Divert the maturity proceeds towards a well-managed Diversified
Equity Mutual Fund
When you are in your 30s Divert the maturity proceeds towards a well-managed Large Cap
Oriented Equity Mutual Fund
When you are in your 40s Divert the maturity proceeds towards a well-managed Balanced
Mutual Fund
When you are in your 50s Divert the maturity proceeds towards either Bank FDs or LongTerm Debt Mutual Funds
Another point you need to remember here is that, every time you invest maturity proceeds, you need to
ensure that your investments are optimally allocated based on your age.
Optimal Portfolio Allocation
As you continue to invest each year, your portfolio keeps growing in size. As each year passes bye, one
of the things you need to do, is to ensure that your portfolio allocation is Optimal. Based on your age,
your allocation towards Risky and Safe Instruments keep changing. For your reference, the table below
would be the recommended allocation based on your age. The % Allocation to Risky Instruments is the
Upper Limit and similarly the % Allocation to Safe Instruments is the Minimum Requirement.
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When you cross each decade of your life, your allocation towards Risky Investments comes down by a
big % and your allocation towards Safe Instruments goes up by a corresponding %. If you just follow
investing as per the age group related investment suggestion from the Life Stage Based Tax Saving
Portfolio each year, even though you are investing based on your age, your overall portfolio is not
appropriate to your age. This means that, when you cross such milestones, you need to reallocate your
investments to ensure that your overall portfolio is Optimal based on your age.
For ex: Let us say you start investing when you are 25 and invest for 5 years, when you reach the age of
30, your investments will be around 5 lakhs or more. At that point, if you had followed the suggested
investment ideas, you would have approx. 4 lakhs in ELSS Mutual Funds and another 1 lakh in PPF. After
30, your suggested portfolio allocation is 60% Risky and 40% Safe which translates to 3 lakhs in Equities
and 2 lakhs in FD/PPF. So, as and when your ELSS Mutual Funds mature, you should start diverting
additional funds towards regular Fixed Deposits every year so that your portfolio slowly moves towards
the 60-40 ratio.
This transition from 80-20 to 60-40 cannot happen overnight. Dont worry, you can take a few years and
slowly shift funds from Equities onto Safer Instruments. Remember that this portfolio reallocation is
extremely important in the long run and a MUST DO Activity for any Investor.
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The Yearly Portfolio Performance Review
One of the things you should do every year is a performance review of the instruments that you have
put your hard earned money in. This is done to ensure that you can take decisions as and when
required.
Handling Fixed Deposits
The Interest Rates offered by banks to their customers changes regularly. Even though the range of
fluctuation is only around the range of 0.5% to 1%, in the long run it could have a decent effect on the
returns you earn out of your investments. Every time your Fixed Deposit matures, you have two choices
either to renew your FD with the same bank or transfer the FD over to another bank that may offer a
slightly higher interest rate. For ex: If one of my FDs with Bank A that is earning me 8.5% rate of interest
is about to mature and I learn that a nearby bank lets say Bank B is offering 9.5% for FDs. If I consider a
deposit of 10 lakhs, I will be earning Rs. 10,000/- extra by moving my FD from Bank A to Bank B.
Be on the lookout for such options. By doing a little bit of research to find out which bank offers the best
interest rates and spending the time & effort required to move the FD from Bank A to Bank B, I just
made an extra 10,000/- rupees this year.
Handling Mutual Fund Investments
Mutual funds are much more volatile than Bank FDs. Todays best performing mutual fund could just
become an average performer or worse a poor performer after a few years because the fund manager
changed or for some other reason. If the fund you have invested in isnt performing as well as its peers
then its time to move on. It is our hard earned money and we can always switch between funds.
Remember that all Mutual Funds have an Exit Load if you withdraw your investment before
completing at least 1 year. The Exit Load is usually 1% which means that if you redeem 1 lakh worth of
Investments from a mutual fund before completing 1 year, you will get only Rs. 99,000/Plus, in order to properly gauge the performance of a mutual fund, you need to monitor it for at least a
year. So, it is better to wait for at least one year before exiting Mutual Funds.
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Below are two guidelines to evaluate your Mutual Funds:
Your Funds returns must at least MEET or preferably BEAT the Index that it is aligned to. For Ex:
An Equity Mutual Fund performance must be compared with the BSE Sensex.
Be among the top 5 funds in its fund category every year.
Below are some scenarios when I would consider exiting my fund and reinvesting in a different one:
If your fund is giving you a 10% returns while the BSE Sensex grew by 15% year on year
If your fund has gotten too big to manage for the fund manager and it shows in the returns.
Another fund in the same category gave a 15% returns while yours gave only 10%
If the fund manager has changed and the funds performance has taken a hit. Last year it was
15% whereas this year it is only 10% under the new fund manager
Remember your money only works as hard as you want it to. The yearly Portfolio Performance Review
is like Servicing your vehicle to keep it running smooth". If you do not spend the time and effort to
review your portfolio every year, your portfolio may not be earning as much profits as it can
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Some Common Tax Filing Mistakes
So far in this book, you learnt about the Tax Laws in India, How much tax you ought to pay and how you
can reduce your tax liability. We also covered about how we can utilize the Section 80C benefits each
year to build a retirement portfolio. One of the most important things that happen each year is the
Filing of your Tax Returns. You have to do it every year PERIOD.
As described at the beginning of this book, your employer will give you a Form 16 using which you will
file your tax returns each year. However, things arent as simple as it sounds. Filing your Tax Returns is a
fairly complicated process and error prone. When it comes to the tax regulations in our country,
ignorance is never an excuse no matter how silly or simple the mistake was. You are liable to face the
consequences irrespective of whether you intentionally or unintentionally made the mistake. The
Income Tax Department reviews all tax returns and has the ability to dig through any individuals
financial records and check if it matches with his tax returns. If they find any errors or discrepancies they
have the right to impose heavy penalties and punishments.
The most common mistakes that we do as tax payers when it comes to Income Tax Calculations are:
Not Declaring Interest Earned from Bank Accounts, Fixed Deposits etc.
Double Declaration of Deductions
Not Declaring Other sources of Income like Gifts
Double Calculation of Standard Deduction
Not declaring Interest Earned from Bank Accounts, Fixed Deposits etc.
This is probably the simplest and most common mistake people do. One of the more recent
developments in the tax policies in our country is that we need not declare the Income we earn from
our Savings Account as long as the total interest earned is less than Rs. 10,000/-. If the income you
earned is more than this amount, you must definitely declare the excess amount as an Income and pay
tax accordingly.
The Income out of Fixed Deposits and Recurring Deposits is fully taxable. All the interest you earn must
be added to your total income for that financial year and you must pay tax accordingly. These days
banks are instructed to deduct TDS on the Interest Payments to customers. If that happens, your bank
will give you a statement of the interest you earned as well as the TDS they deducted. You can use those
to calculate your income and file your tax returns appropriately.
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Double Declaration of Deductions and Exemptions
These days, both spouses working is very common. Most companys only ask for Xerox copies of
documents like Medical Expenses, House Rent Proof, Investment Proof like Insurance Premium Receipt,
Childrens Education fees etc. So, in such cases, some couples submit a copy each in their respective
companies. In all such cases, companies take these documents as true declarations from their
employees and calculate the tax liability accordingly. In reality, you are actually getting double benefits
for the same expenditure.
As per our tax laws, two individuals claiming tax benefits for the same expenditure is illegal. If the
husband is claiming the tax benefits for the House Rent that is being paid, his wife cannot claim the
same. If by any chance our Tax Authorities find out this fact, they can and surely will take action against
you.
Not Declaring other sources of Income like Gifts

Every year we have numerous festivals and auspicious occasions in our country when people gift one
another. Sometimes these gifts are valuable items. If you received any gift that is worth more than Rs.
50,000/- in value, it has to be considered an income. The value of the gift has to be added to your
income and you need to pay tax accordingly.
If the gift was received during your wedding, no matter how valuable it is, you need not pay tax for the
same. Similarly if the gift was received from a family member you need not pay any Taxes on the same.
The term Family Member covers Spouse, Parents, Siblings, Spouses Siblings, Spouses Parents and
Children of any of these people.
If the person who is giving the gift is not a family member and the gift is worth more than Rs. 50,000/the value of the gift (In Excess of Rs. 50,000/-) has to be added to your income and you will be taxed
according to the Tax Slab into which you fall.
What are the Chances that My Mistakes are found out?

Ok, this is a tricky question. Theoretically speaking, millions of people file their tax returns each year and
the chances of the Tax-Man finding out such a mistake are very low.
However, the truth is, the Tax Department has abundant resources at its disposal and can very easily
identify such cases. These days banks are asked to send out periodic reports to the Tax Authorities so
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that the list of people and their assets in the bank are recorded. As your PAN details are available with
the bank, the tax authorities can easily make the connection between your tax returns and any assets
that you may have missed in your returns.
At the end of the day, if you are caught, you may end up facing harsh penalties like heavy fines and even
jail time depending on how big the mistake is.
So, it is BETTER to be SAFE than SORRY!!!
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The Best Investment Options As of Today
The past 30+ pages of this book covered the key details reg. how to form an investment portfolio, how
to strategize your investments, what to do with maturity proceeds etc. By now, you are well equipped to
get down to work and start building your portfolio.
The next few pages of this book is going to list down the best Investment Options from each of the
different categories that we considered for investment so far.
Best Fixed Deposits to Invest in Now
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Are you wondering why Senior Citizens get an additional 0.5% to 0.75% Interest Rate? The reason
behind this is simple. Senior Citizens usually do not have regular monthly income like you and me and
are dependent on their Pension or Savings. So, this additional interest is offered to help them make
some extra money from their Savings.
Note: Banks keep revising their Interest Rates frequently. The rates present here are correct at the time
of writing.
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Best Mutual Funds For Investment
Even though this book is about Income Tax and Tax Savings, I wouldnt be adding any value to the
money that you paid to purchase/download this book if I did not tell you the best non-tax saving mutual
funds where you can invest now.
Let me start off by saying that, these investments are long term and you need to stay invested for at
least 3 to 5 years in order to reap the full benefits of the Indian Equity Markets. I would suggest that you
start out monthly Systematic Investment Plans for any amount that you can afford each month in one or
more of these funds. Even Rs. 1,000/- per month invested for a 5 year period has the potential to give
you a sizeable corpus when you want to sell it. If you can afford to invest higher amounts say Rs. 5,000/per month or Rs. 10,000/- per month, by all means go ahead. Any amount you invest and save for your
future is good. In this section you are going to find the best mutual funds that you can invest your hard
earned money now. Below are the mutual fund selection criteria:
If you visit stock or mutual fund recommendation websites, you will definitely find many small sized
funds that have given 100% or even more returns in the past 1 year or so. I prefer funds that have
weathered storms and have consistently given strong returns to investors in the past 3 years or more. I
prefer to invest my money in a Marathon Runner type fund rather than a short Sprinter who is going to
run out of steam in just a very short distance.
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Important Information: I want to reiterate one important point here. Mutual fund returns are heavily
dependent on how the overall stock market performs. Past Performance is not a guarantee that the fund
house will be able to generate similar returns in the future. Past Performance May or May Not be
Sustained in the Future.
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Some Last Words
I always believe that, with proper planning we can not only save Income Tax but also save up a sizeable
corpus for our retirement. If you are still not convinced about this idea of building a portfolio by utilizing
the Section 80C Tax Benefits, the below table will help convince you. Below is how your Portfolio will
grow in size year on year, if you invest 1 lakh every year, reinvest the maturity proceeds without
spending it and follow the asset allocation that was suggested in the section titled Optimal Portfolio
Allocation.
Your Portfolios Growth Over Time
You invested a total of Rs. 35 Lakhs over a period of 35 year but your portfolio is worth 3.7 Crores when
you retire at the age of 60. Not to mention the more than 10 lakhs worth of Tax Savings these
investments gave you every year (Rs. 30,000/- Saved per year for 35 years)
To make it easy for you to understand the estimated worth of your portfolio in Lakhs during the
significant milestones in your life would be:
30 years 10 Lakhs
35 years 24.85 Lakhs
40 years 50.9 Lakhs
45 years 88.7 Lakhs
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50 years 1.49 Crores
55 years 2.36 Crores
60 years 3.7 Crores
Are you still thinking whether or not you should give serious thought about this idea? I suggest you stop
thinking and start acting so that you can retire
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Appendix A House Rent and You
House Rent has a significant tax implication for you irrespective of whether you own a house or you live
in one for which you are paying a rent. This section covers some key points related to this topic that you
need to know in order to calculate your Taxes appropriately.
For People Living in Rented Houses:

As long as you are paying a rent for the house in which you are living, you can claim
deductions from your income
A Rent Receipt issued and signed by the house owner is required in order to claim this
deduction
A Simple rental agreement written on a sheet of paper and signed by both you and the
house owner on a One Rupee revenue stamp should be sufficient
If you are staying with your parents in a house owned by them, you cannot claim HRA
Deduction (As if you are paying rent to your parents)
If your Mom/Dad is willing to add the rent they are receiving from you as an Income in
their tax returns and pay taxes on the same, you can claim HRA Deduction
If the house is registered in the name of your spouse, you cannot claim HRA because as
per the tax laws you CANNOT pay rent to your own spouse
For People Owning a House that Rented Out:

If you own a house which is rented out, 70% of the rent you receive has to be added to your
total income. For ex: If your monthly rent is Rs. 10,000/- you can deduct 30% of the rent
towards maintenance of your property and add the remaining Rs. 7,000/- into your Income
If you have a home loan on the house that is rented out, the interest repaid on your home
loan can be deducted from the rent received and you need to consider only the remainder
amount as the income. For ex: Lets go by the same example as above where Rs. 1.2 lakhs is
the annual rent. If you have a home loan where the Interest component from the EMI is Rs.
60,000/- only the remaining Rs. 60,000/- needs to be considered for calculation purposes.
So, 70% of the same Rs. 42,000/- will be the net amount to be added to your income
For People Owning a House that is not Rented Out:

If you own a house that isnt rented out, you need to consider 70% of the Notional Rent
and add it to your total income for taxation purpose
The Notional Rent is the guideline rent that the government has set for houses depending
on their type, size and locality
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Appendix B LTA and You
The Leave Travel Allowance or LTA is a deductible that is available to everyone who has LTA as part of
their total compensation package. This section covers some key points related to this topic that you
need to know in order to calculate your Taxes appropriately.
Conditions that need to be met to Claim LTA

The Amount should be spent only on Self and Immediate Family Who is totally dependent on
you
The Travelling Group should Include the person who is going to claim LTA
The Amount Claimed should be for Travelling Expenses Only via the Primary Mode of Travel
Foreign Travel is not eligible for LTA
Travel Expenses are Considered only for the Shortest Route Possible
You can claim LTA only Twice in a Block of Four Years
If Husband and Wife both receive LTA, They cannot claim the same Trip
You must have been on earned/annual leave on the dates for which you are claiming the LTA.
You cannot claim LTA for days when you were working
Some Additional Points Reg. Claiming LTA:

If the amount you claim as LTA is lower than the LTA Component of your salary, the reminder
amount is fully taxable
If the amount you claim as LTA is higher than the LTA Component of your salary, the tax benefit
is limited to the LTA component
Fees paid out to agents, brokers, guides cannot be claimed as part of LTA
Expenses incurred for Hotel, Accommodation and Food cannot be claimed as part of LTA
If you are travelling by air, only Economy Class Fares are considered for LTA
In case you dont avail of the LTA exemption in a particular block, whether for both the journeys
or for just one journey, you could carry forward one journey to the first calendar year in the next
succeeding block of four years. Thus, in the next block of four years, you could claim the carried
forward travel, plus, two journeys of that particular block i.e. a total of 3 exemptions
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Appendix C Education Loan and You
An Educational Loan is a boon to every student who wants to take up higher studies without having to
burden his/her parents. It not only helps you obtain education which can help you land in a great job,
but also helps you reduce your tax liabilities during the initial years of your career when the education
loan is being repaid. Once you start repaying your educational loan via the EMI route a portion of your
EMI goes towards repaying the principal amount you borrowed and the remaining goes towards the
Interest. This Interest Amount that is paid out each year is fully deductible from your taxable income.
For ex: If your annual income is Rs. 5 lakhs and the Interest portion of your educational loan is Rs.
50,000/- your income for tax calculation purposes will be Rs. 4.5 lakhs only.
You need to keep the following points in mind with respect to this benefit:
This benefit is only available for Individuals
This benefit is only available if the loan was taken in the name of the tax payer or his
spouse or children
This benefit is only available if the bank that has lent you the money is a bank inside
India. Even branches of foreign banks operating within India are eligible
The benefit is only available if the loan was taken for higher education (Graduate or
Post-Graduate Education)
The benefit is only available if the course was a full-time course. Loans taken for Parttime courses are not eligible for tax benefits
The benefit is only available if the loan is being repaid using your income for which you
are legally paying tax
The benefit is only available for the first 8 years of the loans repayment period or until
the loan is fully repaid whichever is earlier
The benefit is only available on the Interest Component of the repayment and not the
Principal
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Appendix D Rajiv Gandhi Equity Savings Scheme and You
The Rajiv Gandhi Equity Savings Scheme (RGESS) is a recent addition to the Indian Tax Laws which is
aimed at improving retail participation in our stock markets. As I suggested in the section that explained
this scheme, choosing out the stocks that you could invest to claim exemption under this section could
be tricky and risky as well. So, if you are keen on using this section to claim additional tax exemption, I
would suggest that you choose an eligible Mutual Fund or an Exchange Traded Fund.
The following are the list of RGESS Eligible Mutual Fund Schemes:
DSP BlackRock RGESS Fund

IDBI Rajiv Gandhi Equity Saving Scheme - Series I
LIC Nomura MF RGESS Series 1
SBI Sensex ETF
UTI Rajiv Gandhi Equity Saving Scheme
HDFC Rajiv Gandhi Equity Savings Scheme
The following are the list of RGESS Eligible Exchange Traded Funds (ETFs):
Goldman Sachs S&P CNX Nifty Shariah Index ETF

Goldman Sachs Banking Index Exchange Traded Scheme
Goldman Sachs Nifty Exchange Traded Scheme
Goldman Sachs Nifty Junior Exchange Traded Scheme
Kotak NIFTY ETF
Kotak SENSEX ETF
Quantum Index Fund -Exchange Traded Fund (ETF)
These RGESS Eligible Mutual Funds have started picking up momentum these days and may be a good
addition to your portfolio. How you treat these investments should be exactly the same as how you
would treat your ELSS Mutual Fund Investments.
An important point to note here is that, since RGESS is a relatively new scheme, these funds have been
in existence for only a few months. As a result, we dont really have enough data or information to
properly analyze or evaluate them. You can use the reputation of the fund house as shortlisting criteria
but we need to wait at least for one more year until we can decide which fund is doing well and which
isnt.
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Appendix E Wealth Tax and You
Wealth Tax is nothing but a type of Tax that was charged on individuals, companies and HUFs whose
net taxable assets exceed the current limit of Rs. 30 Lakhs. 1% of the value of your assets that are worth
beyond this limit of 30 lakhs would be your tax. For ex: If your assets are worth Rs. 50 lakhs, your wealth
tax liability would be 1% of 20 lakhs which is Rs. 20,000/- Here, the Term Taxable Assets refers to:
Real Estate (Residential/Commercial)

Non-Agricultural Land
Cars, Boats, Yachts and Private Jets
Jewelry/Bullion (Gold & Silver)/Utensils made of Gold & Silver
Liquid Cash (Beyond Rs. 50,000/-)
The Term Taxable Assets did not include:

Any Property that has been or is on rent for at least 300 days in a year
Investments in Stocks, Bonds, Mutual Funds, Fixed Deposits and Debentures
If you are a Resident Indian as per your Tax Status and own any of the above mentioned assets
outside of India, the value of those assets in Indian Rupees has to be considered for the purpose of
computation of Wealth Tax.
If you are a Non-Resident Indian (NRI) only the assets that are owned Inside India would be considered
for the purpose of computation of Wealth Tax
The Good News as of this year is that, the Government has abolished this Wealth Tax Scheme. Hence, it
is no longer required for us to track our wealth and accurately report it. The government felt that this
was one of those high maintenance sections of our income tax which resulted in very little tax revenue
but a lot of overheads to track the same. Hence the decision to scrap this tax.
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Appendix F Capital Gains Tax and You
Any investment that you make is called an Asset and the profit that you would make by selling those
assets like Stocks, Bonds, Mutual Funds, Real Estate etc. is called Capital Gains
If you thought calculating Income Tax was complicated, wait until you learn how to calculate capital
gains. Capital Gains is a highly complicated subject and explaining it fully will probably require a separate
book in itself. However, this section is just going to list down and highlight the key facts you need to
know about Capital Gains Tax.
Capital Gains on Sale of Investments

The sale of Investments like Bonds, Shares and Mutual Funds attracts two types of capital gains taxes
Short Term and Long Term.
Short Term Capital Gains Tax
The asset you sell attracts short term capital gains tax if you sell the investments within a period of 1
year from the date of purchase. For ex: If you bought some shares or mutual funds on January 2nd 2013,
if you sell them before the end of 2013, you need to pay short term capital gains tax.
A flat 15% of the profit you made as a result of the sale has to be paid as the short term capital gains tax.
Let us say you sold shares of ICICI Bank within one year and made a profit of Rs. 25,000/- and similarly
incurred a loss of Rs. 20,000/- out of sale of HDFC Bank shares, the total profit for which you need to pay
short term capital gains tax is only Rs. 5,000/-
Long Term Capital Gains Tax
Any stock or mutual funds that you sell after holding for 1 year does not attract any long term capital
gains tax as long as the transaction happened in one of Indias registered stock exchanges and the
Securities Transaction Tax (STT) was paid out on the same.
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Capital Gains on Sale of Property
The Sale of any Property Residential or Commercial too attracts Capital Gains Tax both Short Term
and Long Term.
Short Term Capital Gains Tax
Any property that is sold before the completion of 3 years attracts short term capital gains tax. The total
amount of profit you made will be added to your income on that financial year and will be taxed
accordingly.
For ex: Lets say you bought a house in 2011 for 40 lakhs and are selling it now for 45 lakhs, you will be
making a profit of 5 lakhs which is good considering the fact that you bought the house just a couple of
years ago. But, this 5 lakhs will get added to your total annual income for the financial year 2013-14. If
your annual income from employment this year was 10 lakhs, your total income for tax calculation
purposes will be Rs. 15 lakhs.
Long Term Capital Gains Tax
Any property that is sold after completion of 3 years attracts long term capital gains tax. 20% of your
long term capital gains has to be paid as long term capital gains tax.
Our Tax laws have a provision of reducing the effective tax burden on long-term capital gains that you
make. This provision allows you to increase the purchase price of the asset that you have sold. This helps
to reduce the net taxable profit allowing you to pay lower capital gains tax. The idea behind this is
Adjustments against the inflation since we know inflation reduces asset value over a period of time.
This benefit provided by Income Tax laws is called Indexation.
Long Term Capital Gains would be calculated as follows:
To calculate the Indexed Cost of Purchase of your property you need to know something called Cost
Inflation Index or CII. CII is something our government releases each financial year so that you can
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calculate your long term capital gains tax appropriately. You can do a simple internet search for the year
you are searching for, and find out the CII.
The index cost of purchase is calculated as follows:
Lets understand with a real life example. Lets say I bought a property during 1996-97 financial year for
Rs. 2.5 lakhs and sold it during the financial year 2004-05 for Rs. 4.5 lakhs. To calculate my long term
capital gains I need to know the CII for these two financial years.
CII for 1996-97 = 305
CII for 2004-05 = 480
Indexed cost of Purchase of my house = 2.5 lakhs * (480/305) = Rs. 3,93,443/So, Long Term Capital Gains = Rs. 4,50,000 Rs.3,93,443 = Rs. 56,557/Tax Liability (@20%) = Rs. 11,311.40/If we did not consider indexation and inflation, we wouldve had to pay tax on the total profit of 2 lakhs
which means you wouldve had to pay Rs. 40,000/- as tax.
Note: If the Profits or Long Term Capital Gains arising out of sale of your property is invested into the
purchase of another Residential Property in India, the Tax is exempt (You need not pay tax)
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Appendix G Sukanya Samriddhi Scheme and You
The Sukanya Samriddhi Scheme is a new investment product that is aimed at helping parents
accumulate a corpus for their girl child. As an added benefit, the amount you invest in this scheme is
eligible for tax exemption under Section 80C of our Indian Tax Laws.
Who can open this Sukanya Samriddhi Account?

A Sukanya Samriddhi Account can be opened by the Parent/Guardian in the name of a girl child till she
attains the age of ten years. Only one account is allowed per girl child. Parents can open this account for
a maximum of two children. All you need is the Birth Certificate of the girl child and the Identity +
Address proof of the Parent/Guardian who is opening the account.
Where can we open this Sukanya Samriddhi Account?

The Sukanya Samriddhi Account can be opened in any Post Office branch near you. In future, the
government plans to allow citizens to open these accounts in branches of all nationalized banks.
However, as of now, you can open a Sukanya Samriddhi account only the following banks:
State Bank of India (SBI)

Bank of Baroda (BoB)
Punjab National Bank (PNB)
Bank of India (BoI)
Canara Bank
UCO Bank
United Bank of India
Andhra Bank
Allahabad Bank
Indian Bank
Corporation Bank
Central Bank of India
IDBI Bank
Dena Bank
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Minimum and Maximum Allowed Contributions
In a Sukanya Samriddhi Account, a minimum of Rs. 1,000 has to be deposited every year and the
maximum limit is Rs. 1.5 lakh. And there is no limit on number of deposits either in a month or in a
financial year. A charge of Rs. 50 will be levied if the minimum contribution is not made every year.
An important point to note here is that, contributions can be made only for the first 14 years after
opening the account.
Account Maturity. Withdrawal and Loan Options

The Sukanya Samriddhi Account can be closed after the girl child in whose name the account was
opened completes the age of 21. If account is not closed after maturity, the balance will continue to
earn interest as specified for the scheme from time to time.
Up to 50 per cent of the accumulated amount can be withdrawn after the account holder turns 18 while
full withdrawal is possible after she turns 21.
Presently, this scheme does not offer any Loan Facilities.
Interest Rate Offered

Currently the interest rate offered is 9.1% and it is expected to be at least 75 basis points above the 10
year Government of India Bond rate of interest.
My Take on Sukanya Samriddhi Scheme

I have been a strong supporter of schemes that are long term wealth creators especially for our
childrens future. This scheme specifically targets parents of girl children and aims at helping the parents
accumulate a sizeable corpus for the time in future when the girl turns 21. Lets say your newborn
daughter was born a few days ago and you open an account in her name now and start investing Rs.
1000/- per month for a period of 14 years, she will get 6 lakhs when she turns 21. Whatever you can
save each month, you can divert towards this account and save a sizeable corpus for your daughter.
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Appendix H A Sample Income Tax Calculation
If you are a salaried employee, your employer is going to prepare the form-16 document based on your
income, investments, exemptions etc. But, wouldnt it be nice if you were able to do it yourself up-front
to calculate your tax liability yourself? The below work-up calculation will help you do that yourself.
Lets assume Hari is an IT Professional living in Bangalore and his monthly FIXED SALARY breakup is as
follows:
Salary Component
Basic Salary
House Rent Allowance
Leave Travel Allowance
Travel/Conveyance Allowance
Medical Allowance
Other Allowances
Total
Amount Per Month

Rs. 30,000/Rs. 15,000/Rs. 5,000/Rs. 2,000/Rs. 1,500/Rs. 15,000/Rs. 68,500/-
Apart from this, he also has an Annual Performance Bonus Component that is Rs. 1.5 Lakhs per annum
and is paid out based on his performance as well as his companys performance. So, all in all Haris
CTC would work out to Rs. 9,72,000/-
A Little Bit More About Hari:
In order to accurately calculate Haris Tax Liability, we need to consider all of the investments he
made this year as well as the exemptions that he would be eligible for:
Hari Lives in a Rented House for which he is paying a Rent of Rs. 16,000/- per month.
He goes to work in his office bus for which his company deducts Rs. 1,000/- each month
He Invests Rs. 25,000/- each year into his PPF Account to save money towards his
Retirement
He Invests Rs. 2000/- every month (Rs. 24,000 in one year) on the Sukanya Samriddhi
Scheme in the name of his daughter who was born last year.
He Invests Rs. 2,500/- each month into an SIP in ICICI Prudential Tax Plan ELSS Mutual
Fund
He has saved up all of the Medical Bills from his visits to the Doctor this year and the
total amount for the same is Rs. 12,600/- for this year
He Went on a Trip to Jaipur during the Summer Holidays with his wife & Kid by Flight
and the Travel Expenses for the trip were a total of Rs. 36,500/ 2015 Anands Blog. All Rights Reserved.
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Crorepati
He has a Life Insurance Policy for which he pays an Annual Premium of Rs. 12,000/ He has taken a Health Insurance Policy to cover him and his whole family for higher
hospitalization and critical illnesses for which he pays an Annual Premium of Rs.
24,000/ Every year during his Sons birthday he donates Rs. 10,000/- to an NGO that helps out
Orphans in the city
He has Fixed Deposits worth Rs. 5 Lakhs which have been kept aside for an Emergency
and he earns an Interest of Rs. 47,500/- as Interest on the deposits
Every Month his company deducts 12% of his basic salary as Provident Fund each
month. The total amount for the year works out to Rs. 43,200/- per year (@ Rs. 3,600
per month)
As his company did exceptionally well this year and Hari was one among the top
performers in his division, he received an annual bonus of Rs. 2,25,000/- this year
Last year his Savings Account earned him an interest of Rs. 7,500/-
Haris Total Income:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Basic Salary
House Rent Allowance
Leave Travel Allowance
Conveyance Allowance
Medical Allowance
Other Allowances
Interest from Fixed Deposits
Annual Performance Bonus
Savings Account Interest
Total Income
Rs. 3,60,000/Rs. 1,80,000/Rs. 60,000/Rs. 24,000/Rs. 18,000/Rs. 1,80,000/Rs. 47,500/Rs. 2,25,000/Rs. 7,500/Rs. 11,02,000/-
As soon as you saw the 11.02 lakhs total income, you may have been tempted to think that Hari will fall
under the 30% Tax slab. Actually, you are expected to pay taxes on your Taxable Income and not on your
Total Income. So, dont worry.
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Crorepati
Deductions on Haris Income For Tax Calculation Purposes:
Based on Haris Profile that we saw in the previous page, he is eligible for the following Deductions
House Rent Allowance: Rs. 1,56,000/-
Hari is Eligible for House Rent Allowance because he lives in a Rented house plus he receives an HRA
Component in his salary. Based on his income his HRA would be calculated as the LOWER of the
following:
o
o
o
Actual Rent Minus 10% of Basic 18000 3000 = Rs. 13,000 or

50% of Basic Salary Rs. 15,000 or
Actual HRA Component in Salary Rs. 15,000
Transportation Allowance: Rs. 19,200/-
Though Hari is getting Rs. 2,000/- each month as Transportation Allowance and is also the same each
month for his office bus service, the Government only offers us Transportation Allowance of Rs. 1,600/per month. So, the remaining Rs. 400/- in his allowance is fully taxable. (As of last year he wouldve
gotten a benefit of only Rs. 800 per month but this year the government has doubled this limit to Rs.
1600 per month)
Leave Travel Allowance: Rs. 36,500/-
Though Hari is getting Rs. 5,000/- each month (Rs. 60,000/- in a year) as Leave Travel Allowance, his tax
exemption is the lower of his actual LTA component or the amount he spent in actual travel. Since his
trip cost him only Rs. 36,500/- the LTA Deduction from his taxable income would be only that much. The
remaining Rs. 23,500/- will be fully taxable.
Medical Allowance: Rs. 12,600/-
Though Hari is getting Rs. 1,500/- each month (Rs. 18,000/- in a year) as Medical allowance, his tax
exemption is the lower of Rs. 15,000/- or his actual medical expenses. Since he has medical bills worth
Page 66

Crorepati
only Rs. 12,600/- the Medical Allowance Deduction from his taxable income would be only that much.
The remaining Rs. 5,400/- will be fully taxable.
Exemptions that Hari can Avail For Tax Calculation Purposes:
Just like these deductions, Hari is also eligible for many exemptions that were outlined just a few pages
before.
Section 80C: Rs. 1,50,000/-
The following items qualify for Section 80C Deduction for Hari:
Provident Fund: Rs. 43,200/Life insurance premium: Rs. 24,000/PPF Investment: Rs. 50,000/ELSS Mutual Fund Investment: Rs. 40,000/Sukanya Samriddhi Scheme: Rs. 24,000/-
The sum of these 4 investments is Rs. 1,81,200/- but the upper limit for Section 80C Exemption is 1.5
lakhs only. So, the amount above the limit (Rs. 31,200/-) does not qualify for any tax exemptions.
Section 80G: Rs. 10,000/-
As mentioned in the previous page, every year on his Sons birthday Hari makes a Rs. 10,000/- donation
to an NGO that helps out orphans in Bangalore. This contribution that he makes is eligible for tax
exemption under Section 80G.
Section 80TTA: Rs. 7,500/-
Under Section 80TTA Interest earned from Savings Accounts is exempt from Income tax up to Rs.
10,000/- per year. As Hari earned only Rs. 7,500/- the full amount is exempt from tax.
Page 67

Crorepati
Section 80D: Rs. 24,000/-
Under Section 80D, Hari can claim up to Rs. 25,000/- each year against health insurance premiums that
he is paying for self and family. This year, the amount paid is Rs. 24,000/- and hence his tax exemption is
capped at Rs. 24,000/- for this year.
Haris Taxable Income:

To Calculate Haris Taxable Income, we first need to sum up all of his qualifying deductions and
exemptions.
Haris Tax Exemptions: Rs. 1,67,500/a. Section 80C: Rs. 1,50,000/b. Section 80G: Rs. 10,000/c. Section 80TTA: Rs. 7,500/Haris Deductions: Rs. 2,48,300/a. House Rent Allowance: Rs. 1,56,000/b. Leave Travel Allowance: Rs. 36,500/c. Medical Allowance: Rs. 12,600/d. Transportation Allowance: Rs. 19,200/e. Medical Insurance: Rs. 24,000/So, Haris Taxable Income would be: 11,02,000 2,48,300 1,67,500
Haris Tax Liability

Hari is a Regular Citizen and would fall under the tax slabs that are set up for regular citizens.
Income Slab
Rs. 0 to Rs. 2,50,000/Rs. 2,50,000/- to Rs. 5,00,000/Rs. 5,00,000/- to Rs. 6,86,200/-
Tax Payable %
0%
10%
20%
Tax Payable Amount

Rs. 0
Rs. 25,000/Rs. 37,240/-
Tax Payable: Rs. 62,240/ 2015 Anands Blog. All Rights Reserved.
Page 68

Crorepati
Educational Cess Payable (@ 2%): Rs. 1,244.8/- and Higher Educational Cess Payable (@ 1%): Rs.
622.40/-
Page 69

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Your Complete Guide to Indian

Income Tax and Retiring as a

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Your Complete Guide to Indian Income Tax and Retiring as a

2015 Anands Blog. All Rights Reserved.

Your Complete Guide to Indian Income Tax and Retiring as a

Whats New in this Years Edition? .............................................................................................................. 6

Your Complete Guide to Indian Income Tax and Retiring as a

Your Complete Guide to Indian Income Tax and Retiring as a

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Your Complete Guide to Indian Income Tax and Retiring as a

Whats New in this Years Edition?

Hope you find this edition useful.

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Your Complete Guide to Indian Income Tax and Retiring as a

Why This Book?

To help you understand the complex tax regulations in our country

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Lets get started, shall we?

Basics of Indian Income Tax

The Financial Year Cycle

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What to do if I missed my Tax Filing Deadline?

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Your Complete Guide to Indian Income Tax and Retiring as a

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Your Complete Guide to Indian Income Tax and Retiring as a

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Your Complete Guide to Indian Income Tax and Retiring as a

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Your Complete Guide to Indian Income Tax and Retiring as a

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Your Complete Guide to Indian Income Tax and Retiring as a

Your Complete Guide to Indian Income Tax and Retiring as a

Interest Paid on housing loan

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Your Complete Guide to Indian Income Tax and Retiring as a

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Your Complete Guide to Indian Income Tax and Retiring as a

Section 80C Exemptions for Qualified Investments

Employee Provident Fund EPF

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Section 80D Exemptions for Medical Insurance

Section 80DD - Medical Treatment of a Physically Disabled Dependent

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Section 80DDB - Medical Treatment of Self/Dependents for Major Diseases:

Neurological Diseases (where the disability is at least 40% or more)

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Section 80E Exemption for Education Loan Repayment

Two important points to note about Section 80E are:

Section 80U - Exemption for Disabled Tax Payers:

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Section 80G Exemptions for Charitable Donations