This time of the year there is a different kind of joke making the rounds. Sample this: Isn’t it appropriate that the month of the tax begins with April Fool’s Day and ends with cries of May Day!

The taxpayer: that’s someone who works for the federal government, but doesn’t have to take a civil service examination.

Tax planning is the most dreaded activity for most of us. Three main reasons: One, lack of knowledge, two, blame it on time, third and most importantly – who wants to part with more money than they feel they need to? Well, anyway, it all stacks up the list of to-dos in March, hence makes us all hate tax more! Surely, a bit of planning and some time spent on understanding what it is all about can make life a lot easier. This article aims to simplify tax to you so that it becomes a part of your regular investment activity.

Here are some easy steps to keep you well planned throughout the year:

Tax planning and investment is an ongoing activity.

• Unplanned and last minute investments can only tilt your overall investment goal.

Estimate your income.

• This requires you to put together all your sources of income, salary/business income, capital gains, interest income, income from property. Also, include the income of children to the earning parent. There are certain types of income that are not taxed like the income from agriculture, dividends from equity investments and mutual funds, and long term capital gains. Once you add all your income under these heads, you arrive at the gross total income.

Deductions.

Once you have a grip on your income, put together all the deductions permissible under the different sections of the IT Act.

• Interest paid for home loans: You get a reduction up to Rs. 1.50 lakhs a year, for the interest component of a home loan, for a self-occupied property. If you have a second home loan, there is no limit on the extent of rebate you can get, however, the property is assumed to be rented out even if it’s actually not.
• Health Insurance: Premiums paid for health insurance for self, spouse, children and parents, are deductible under Section 80D. The maximum allowed is Rs 15,000 per annum for family and an additional Rs 15,000 for parents. Rs 20,000 is permitted for parents who are senior citizens.
• Interest component of education loans for children or spouse: This is permitted with no upper limit, under Section 80E. But the principal repayments don’t qualify for deductions.
• Deductions for charity: One can claim rebate – 50 per cent or 100 per cent – for donations under section 80 G for contributions  to charity.

Investments with tax saving option.

Section 80 C benefits are available to everyone, irrespective of their income levels. So, even if you are in the highest tax bracket of 30 per cent, and you invest the full Rs 1 lakh (which is the maximum you can claim), you save tax of approximately Rs 30,000. Your options are:

• Tuition fees: a maximum of Rs 1 lakh per annum for not more than two children.
• Home loans: principal component of the monthly EMIs are allowed deduction under Section 80 C.
• Employees provident fund: Every month, an employer deducts 12 per cent of your basic salary and contributes an equal amount under the PF scheme investments. Your annual contribution is eligible for deduction from your taxable income. If you wish to contribute/save more under this option than what is deducted from your company, you can avail of the Public Provident Fund (PPF), which are voluntary investments in a PPF account by an individual. With a tax-free interest rate of 8 per cent, the maturity period for this instrument is 15 years. Minimum amount of contribution is Rs 500 and maximum is Rs 70,000.
• Life insurance premium is eligible for deductions, up to a maximum of Rs 1 lakh.
• Equity linked saving schemes: These are market related investments through specific tax saving schemes of Mutual Funds and ULIPS.
• National savings certificate (NSC): This is a 6-year, small savings instrument, eligible for section 80C tax benefit. Rate of interest is eight per cent compounded half-yearly, i.e., the effective annual rate of interest is 8.16 per cent.

Infrastructure bonds, pension funds, 5-year tax-saving fixed deposits of scheduled banks, senior citizen savings scheme 2004 (SCSS), 5-year post office time deposit (POTD) scheme, NABARD rural bonds and unit linked insurance plan are some other options under this Section.

Once you add this amounts of benefit that you are availing under Section 80 C, you will know if you have invested enough or you if there is a need to invest more. You can choose the mix of the different options, based on your risk appetite – those with higher risk-taking capacity will opt for ELSS, while prudent investors prefer the safety and surety of a guaranteed 8.50 per cent provident fund.

Take a long, hard look at all these options, choose the ones that suit you best, and pay your taxes on time and with a smile!