Tax planning tips for working women

In India, for ages women have allowed other members of her family -- like her father, brother or husband, to take important decisions of her life. Even their financial decisions are taken by their male family members. However, this is changing fast as women are increasingly stepping beyond the boundaries of the house to make an independent career for themselves.

As more and more women are climbing the professional ladder, they are also equipping themselves with the required financial knowledge that will help them to manage their finances on their own. With the correct financial knowledge, it is easy for an average woman to handle her money matters independently.

The first step for being truly financially independent for the fairer sex includes gaining understanding and clarity of the income tax laws that are applicable on their income. This will help them in tax planning and in analysing the impact of income tax rules and regulations on their finances.

Fundamentals of income tax for women assessees

Some basic features of Indian taxation system that all women should keep in mind are as follows:

1. In India, men and women have separate tax slabs. The limits of these slabs keeps on changing from year to year depending on the changes brought about in the latest budget.

2. Taxes are levied on all working woman regardless of whether she is a business woman or a salaried individual, what business she does or where she is residing.

3. Income tax is levied on both an individual as well as a company. So, women entrepreneurs who are running firms will have to pay individual income tax and income tax incurred by the company, both.

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4. When calculating the total payable income tax, income earned by a lady from every source in a financial year is taken into account. Incomes from various sources are classified into the following heads:

a. Income from salary: All income earned as salary through the employer-employee structure is put under this head for the purpose of taxation.

b. Income from house property: Any income earned from property like a building or land, which is not utilised in business or for professional purpose is taxed under this head.

c. Income from profession or business: Income incurred from a business enterprise or professional engagement is classified and taxed under this head.

d. Income from capital gains (for money invested in shares, funds etc): Income earned from the sale or transfer of assets such as real estate, bonds, shares, jewellery, equity, paintings, art etc are taxed under this head.

e. Income from other sources: includes income from dividends, interests on securities like debentures, bonds, government securities, lotteries, horse races etc.

5. Although, this is not an exhaustive list, it includes some of the major sources of income for individuals under each head. If any income is eligible for tax relief, it is computed and provided for under its respective head only.

6. Under section 80C of the Income Tax law, both men and women have been provided many tax reliefs also, such as tax free investments of up to Rs 100,000.

Exemptions for women

The benefits provided to women under the Indian Income Tax Act, 1961 is that a resident woman till 65 years of age and above is not liable to pay income tax on the annual net income of up to Rs 1,90,000. This slab is slightly higher than the slab provided for men, which is Rs 1,80,000. With effect from April 1, 2011 salaried ladies will get a tax deduction of 10 per cent in case the employer has put in Rs 100,000 and above in Central Government Pension Scheme.

Benefits under Section 80 C of the Income Tax Act

One of the most useful sections for availing tax benefits for individuals under the Income Tax Act is Section 80 C of the act. It provides tax benefits, to men and women alike, on investing in certain instruments such as the public provident fund, tax saving certificates, national savings certificates, bank fixed deposits etc up to the amount of Rs 100,000.

Other factors to be considered in tax planning

Apart from this, for the purpose of saving taxes, women can also make investments in Infrastructure Bonds till Rs 20,000 and in other instruments like insurance policies, unit linked insurance plan (ULIP), equity linked savings schemes etc.

If a lady lives in a rented apartment or a rented house, she should claim House Rent Allowance (HRA) and other tax benefits. For this, two fundamental factors should be taken into account: the actual rent allowance provided by the employer, which is 50 per cent in metro cities and 40 per cent in non-metro cities, the actual rent being paid by the employee for residential purposes from which 10 per cent of basic pay is subtracted. Wherever these deductions are applicable, they should be claimed by the employee.

Tax planning involves taking into consideration various factors such as age of the assessee, total income earned and the financial goals of the assessee as an individual and from the perspective of her family. Working women should learn how to ensure a balance in investments (from the point of view of risks) as well as how to diversify these investments, as diversification is an important aspect of successful investments.

Today, there are numerous investment options available to an investor, be it a woman or a man, which helps to save taxes. Earlier, the responsibility of making financial choices was only on men, but with changing times, women have also started bearing this responsibility. For a woman who has just started handling her finances, the need is to research well before deciding to invest. The key to being a good tax planner is to take all financial decisions wisely.