Arnav Pandya
There are two aspects to a tax saving investment. First one deals with the amount that has to be invested in order to save some tax. Second it more important. It is the actual amount of tax saved in the whole process. This is significant because in most cases the figure would not be the same for all individuals and hence one would have to look at the entire situation and how this would be applicable to them. The working for this purpose thus becomes significant and here is a way in which a person can go about this entire process.
Total amount investedThe first thing that an individual has to check is the total amount that is actually invested for the purpose of saving tax. This is significant because this represents the outlay that they have to make in terms of the cash flow. The investment made represents the amount that they have to put in and hence becomes the first step before any tax benefit can be seen. This would then need to be compared with the tax saved to see the kind of benefit that it actually provides them. Another reason why the total amount invested needs attention is due to the fact that this is usually a large amount in terms of the investment made and hence requires an element of planning so that the required figure is completed before the end of the financial year.
Nature of investmentThere are two ways in which a tax benefit can be received and one involves a deduction wherein the amount that is eligible would be reduced from the taxable income of the individual. The way that this works is that there is a total of the various heads of income which would be taxable and from this figure the deduction would be reduced to arrive at the net figure. For example if there is taxable income of Rs 5 lakh and there is a deduction of Rs 1 lakh then the tax would have to be calculated only on the remaining sum of Rs 4 lakh. The other is an investment where the income that is generated is tax free so here the benefit is not for any investment that is made but would be available when the instrument generates an income that would end up being not taxed and hence lead to savings in the total tax to be paid.
Actual benefitThe real working for the individual is to see the actual amount of tax that they save and when it comes to a deduction they would have to transplant the figure of the deduction to their own working and then work out the tax impact. This is necessary because different people could fall under various levels of income and with different rates of taxes on these levels the impact would also differ for them. For example if there is an individual with an income of Rs15 lakh and there is a deduction of Rs 1.5 lakh then the tax saved by this would be Rs 45,000 because the amount gets reduced from the income that falls under the 30 per cent tax bracket. On the other hand the same amount of savings for someone who has a pre deduction taxable income of Rs 9 lakh would lead to a tax saving of Rs 30,000 because they fall under the 20 per cent tax bracket. In some cases it could be that part of the deductions falls under two different tax slabs and hence this would require that a specific working be done.
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