## Income Tax saving: How much is too much?

I’m thankful to dear Sonadhi for providing the Idea for this article. (Click here to know the background). When we are asking for tax saving, a question should be asked to ourselves. How much is too much? Should we solely focus on the tax saving alone & forget the bigger picture of our financial life? What about our dreams, aims, goals?

In the shared background above, the person in question is having an yly taxable income of 700000 Rs. Already claiming section 80C 100000 Rs. in full as well as home loan interest related benefit also for 150000 Rs. Another deduction is there for prem. paid towards health insurance for self & Sr. citizen parents of 35000 Rs. So After these deductions, what is the tax liability for this person?

A. Gross taxable income = 700000

B. Loss from house property = 150000

C. Net Taxable Income = 550000

D. Chapter VIA deductions = 135000

F. Net Taxable Income = 415000

G. Applicable Tax Slab (as per Fy 2013-2014) = 10%

Now interestingly, whatever more deductions are tried out, the benefit in tax saving ‘ll be limited to just 10% as the person is in that slab. For the charity or donations related deduction, the 25000 Rs. paid by this person ‘ll provide the tax benefit of 1288 Rs. (@10.3% rate, including edu cess). Now is it worth to opt such tax saving ways.

Now if the same person opts to pay tax, the effective amount with him is 23712 (25000-1288) Rs. which can be used as per free choice or invested for future use. Please do note, this discussion is purely for financial impact on the finance of the person in question & do not ask to stop charity.

### 2 Responses to Income Tax saving: How much is too much?

1. Hema Aravind says:

Hi Ashal, In your calculation above, shouldn’t the net taxable income be 415000 instead of 465000?
I duly respect Sonadhi’s intention towards charity. On a different note, I agree that while looking for tax saving options is important, it should not become the primary objective of our financial journey. I feel the focus should be more on ‘investing to maximize returns’ than ‘investing to minimize tax’

• ashalanshu says:

Dear Hema, thanks for the comment & pointing out the calculation mistake. The same is rectified. Please keep pointing out such mistakes.

thanks

Ashal