Some ways to show the Indian taxman the door

Ever wondered where that money goes by the middle of the month.

There was a time when a salary of Rs10,000 guaranteed a good living and at present even couples earning Rs40,000 to Rs50,000 per month are seen struggling with their bills.

Well, this can all be attributed to that red-eyed monster - inflation. But apart from this monster there is another parasite which eats into our hard earned income, and that is taxes.

So the best way to keep the taxman at bay is to increase savings. The normal rebate on savings under section 88 can be extended, provided the taxpayers give impetus to infrastructure activities by investing more in infrastructure bonds.

Here is a lowdown on popular savings schemes.

Provident Fund (regular as well as additional contributions)

People who will be retiring within the next three to five years, must ensure that they make the maximum amount of additional contributions so that they get higher capital for investment after retirement.

Infrastructure bonds or National Savings Certificates

If you are thinking of retiring after six to eight years, then you should either opt for infrastructure bonds or National Saving Certificates or better still a combination of both. The investment in bonds must be restricted to five at a time in order to avoid that gut wrenching tax deduction at source. And where NSCs are concerned, their purchase should be planned in such a way so that in any financial year, the accrued interest does not cross exemption limit.

Life insurance

Life insurance is for people in their mid twenties and also for the middle aged. While the young ones may choose the duration of policy according to their needs, the ones in their middle age should stretch beyond the D-Day to pave the way for lower premium and higher insurance cover, which in turn will invite higher bonus, in commensurate with terms and sum assured.

Public Provident Fund (PPF)

People who have more than six years in harness may go for this scheme, to take its maturity beyond retirement. The scheme, which accepts minimum deposit of Rs100 and maximum of Rs60,000 in a year, offers tax free interest of 9.50 per cent.

A PPF account runs for 15 years, but on maturity, can be extended, each time for a block of five years.

Though the accounts can be opened in your name or in the name of minor children, the maximum deposit in all accounts should not exceed Rs60,000 for claiming rebate of Rs12,000 under section 88.

The main feature of the PPF is that unlike any other savings scheme, there is a provision of liquidity, which can be availed after completing seven years and which can be taken as a non-repayable withdrawals, equal to 50 per cent of the fourth preceding year.

As deposits in PPF as well as withdrawals on recycling qualify for rebate. PPF is better placed than cumulative type of government bonds.

Another way of showing the taxman the door is repayment of a housing loan, which sadly is restricted to Rs20,000 for the purpose of rebate.

Also contributions to deferred annuity plans such as Jeevan Dhara, Jeevan Suraksha, etc, either in lump sum or in installments, fetch rebate and also either create sole source of pension or supplement the existing provisions.

Unlike deferred annuity plans, Jeevan Aksha Annuity Plan for immediate payment is best suited for those, who have retired from their service.

Taxpayers, in the age group of 30 and above, who are in active service, and who opt for this policy, should ensure that their income tax is nil to avoid the dilution of the annuity.

Special rebate for senior citizens under section 88-B

Senior Citizens aged 65 and above by March 31, 2002, are allowed a special rebate of Rs15,000, which means they need not save at all, when their net taxable income is up to Rs130,000. And with normal rebate of Rs16,000 they don't have to worry about tax when their income touches Rs190,000.

Special rebate for women under section 88-C

Ladies below 65 have the benefit of special rebate of Rs5,000. And this keeps their net taxable income up to Rs80,000 free from tax.

And they can stretch the tax free income up to Rs156,660, provided they save Rs80,000 and avoid the income tax in full with the help of normal rebate of Rs16,000.

Senior citizens need not save Rs75,000 thanks to special rebate of Rs15,000, maximum permissible savings under section 88 for the tax rebate of Rs16,000.

Maximum rebate available to ladies, when they save Rs80,000, they should deduct Rs21,000 from higher tax liability and work out surcharging at two per cent on the net tax.

Maximum rebate available to senior citizens, when they save Rs80,000, they should reduce higher tax liability by Rs31,000 and add surcharge to the net tax due. So go ahead and happily show the taxman the door.

R. Dyes is a journalist based in New Delhi.