<b>Your Money:</b> Learn how you can avoid the 10% surcharge

If income is marginally above Rs 50 lakh, you can avoid the surcharge through careful tax planning

The Union Budget has brought in a surcharge of 10% on people whose income lies between Rs 50 lakh to Rs 1 crore income bracket. Tax experts say that those who are on the borderline (marginally above or below the Rs 50 lakh mark) can reduce their taxable income through careful tax planning and avoid paying the surcharge.

One step that people in this tax bracket can take is to speak to their employers and restructure their salary slightly. "If the employer offers the National Pension System (NPS), then the employer's contribution to NPS can be raised. Employees can enjoy deduction on the employer's contribution," says Archit Gupta, founder and chief executive officer, Cleartax.com.

Employees in this income bracket should also utilise all the deductions available to the hilt to reduce their taxable income. There is Section 80C (deduction to Rs 1.5 lakh); Section 80D for medical insurance premium (Rs 30,000 for senior citizens and Rs 25,000 for others; Rs 55,000 if a young man bears the burden for his parents); Section 80CCD(1B) for investment in NPS (up to Rs 50,000); Section 24 on interest repayment on home loan (up to Rs 2 lakh); and Section 80G for donations.

People close to the Rs 50 lakh mark should also reduce the income generated from their investments, or invest in avenues that generate tax-free income. Interest income from savings deposits are not taxed up to Rs 10,000, so don't exceed that mark. All interest income from bank fixed deposits gets added to your income and is taxed. On the other hand, dividend income is taxed only if it exceeds Rs 10 lakh.

In this tax bracket, people should also have large allocation to equities. "People in the income segment of Rs 50 lakh to Rs 1 crore should invest 60-70% of their portfolio in equities, where capital gains become tax-free after only one year of investment," says Feroze Aziz, deputy chief executive officer, Anand Rathi Private Wealth Management.  

People belonging to this tax bracket should also enhance their Voluntary Provident Fund (VPF) contribution. The final corpus that you get from Employees Provident Fund at the time of retirement is also tax-free. Tax-free bonds, as and when they appear, should also be snapped up by people in this tax bracket.