Tax Planning
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TAX PLANNING: A STEP TOWARDS BEING A MILLIONAIRE on Annual Taxable Income using a simple tax rate table, given below. 3. After you have calculated the amount of your tax liability, you have two options to choose from: a. Pay your tax (no tax planning is required) b. Minimize your tax through Prudent Tax Planning.
Proper tax planning is the basic duty of every person, which should be carried out religiously. Basically, there are three steps in the tax planning exercise: 1. Calculate your Taxable Income for the Financial Year (from April 1 to March 31) from all sources such as salary /pension, interest etc. 2. Calculate tax payable
Most people should and do choose
Option ‘2’. Here, you have to compare the advantages of several tax-saving schemes and depending upon your age, social liabilities, tax slab and personal preferences, decide on the right mix of investments/insurance plans, which shall reduce your tax liability to the “Minimum” possible. You may consult your investment advisor for distributing your savings in various tax saving schemes.
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1MVT&EVDBUJPO$FTT
Up to Rs. 1,50,000
Nil
Nil
Nil
Rs. 1,50,001 to Rs. 3,00,000
10% of income above Rs. 1,50,000
Nil
3% of income tax
Rs 3,00,001 to Rs 5,00,000
Rs. 15,000 + 20% of the
Nil
3% of income tax
Nil
3% of income tax
Rs. 2,05,000 + 30% of
10% of
3% of income tax
the income above Rs. 10,00,000
income tax
and surcharge
1MVT4VSDIBSHF
1MVT&EVDBUJPO$FTT
income above Rs. 3,00,000 Rs. 5,00,001 to Rs. 10,00,000
Rs. 55,000 + 30% of income above Rs. 5,00,000
Above Rs. 10,00,000
/FU*ODPNF3BOHF
*ODPNF5BY
Up to Rs. 1,80,000
Nil
Nil
Nil
Rs. 1,80,001 to Rs. 3,00,000
10% of the income
Nil
3% of income tax
Nil
3% of income tax
Nil
3% of income tax
Rs. 2,02,000 + 30% of the income
10% of
3% of income tax
above Rs. income 10,00,000
income tax
and surcharge
above Rs. 1,80,000 Rs 3,00,001 to 5,00,000
Rs.12,000 + 20% of the income above 3,00,000
Rs. 5,00,001 to Rs. 10,00,000
Rs. 52,000 + 30% of the income above Rs. 5,00,000
Above Rs. 10,00,000
4 | MARCH 2009
ADVISORS
FILING OF INCOME TAX RETURN 1. Filing of income tax return is compulsory for all individuals whose gross annual income exceeds the maximum amount which is not chargeable to income tax i.e. Rs. 1,80,000 for Resident Women, Rs.
2,25,000 for Senior Citizens and Rs. 1,50,000 for other individuals and HUFs. 2. The last date of filing income tax return is July 31, in case of individuals who are not covered in
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point 3 below. 3. If the income includes business or professional income requiring tax audit (turnover Rs. 40 lakhs), the last date for filing the return is September 30. 4. The penalty for non-filing of income tax return is Rs. 5000 (after assessment year).
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ADVISORS
MARCH 2009 | 5
DEDUCTIONS FROM TAXABLE INCOME: %FEVDUJPOVOEFSTFDUJPO$ This new section has been introduced from the Financial Year 2005-06. Under this section, a deduction of up to Rs. 1,00,000 is allowed from Taxable Income in respect of investments made in some specified schemes. Specified Investment Schemes u/s 80C and u/s 80CCC (1)1. Life Insurance Premiums 2. Contributions to Employees Provident Fund/GPF 3. Public Provident Fund (maximum Rs 70,000 in a year) 4. NSC (National Savings Certificates) 5. Unit Linked Insurance Plan (ULIP) 6. Repayment of Housing Loan (Principal) 7. Equity Linked Savings Scheme (ELSS) of Mutual Funds 8. Tuition Fees including admission fees or college fees paid for fulltime education of any two children of the assessee (Any development fees or donation or payment of a similar nature shall not be eligible
for deduction). 9. Infrastructure Bonds issued by Institutions/ Banks such as IDBI, ICICI, REC, PFC etc. 10. Interest accrued in respect of NSC VIII issue. 11. Pension scheme of LIC of India or any other insurance company. 12. Fixed Deposit with Banks having a lock-in period of 5 Years /PUFT 1. There are no sectoral caps (except in PPF) on investment in the new section and the assessee is free to invest Rs. 1,00,000 in any one or more of the specified instruments. 2. Amount invested in these instruments would be allowed as deduction irrespective of the fact whether (or not) such investment is made out of income chargeable to tax. 3. Section 80C deduction is allowed irrespective of the assessee’s income level. Even persons with taxable income above Rs. 10,00,000 can avail the benefit of section 80C. 4. Some of the popular pension plans
are Jeevan Suraksha by LIC, Life Time Pension By ICICI Prudential Life Insurance, Aviva Life - Pension Plus by Aviva Life Insurance, MaxEasy Life policy by Max New York Life, Nirvana Plus by Tata AIG Life Insurance etc. Please note that because the deduction is allowed from taxable income, the exact savings in tax will depend upon the tax slab of the individual. Thus, a person in the 30% tax slab can save income tax up to Rs. 30,900 (or Rs. 33,990 if annual income exceeds Rs. 10,00,000) by investing Rs. 1,00,000 in the specified schemes u/s 80C. %FEVDUJPOVOEFSTFDUJPO% Under this section, deduction of up to Rs 40,000 can be claimed in respect of premium paid by cheque towards health insurance policy of various General Insurance companies like Royal Sundaram Health Shield Gold, Reliance Healthwise etc. Such premium can be paid towards health insurance of spouse, dependent parents as well as dependent children. as per following table:
TAX DEDUCTION AT SOURCE (TDS) *OUFSFTU QBZNFOUT CZ DPNQBOJFT PO 'JYFE%FQPTJUT Income tax is deducted @10.3% in case the interest exceeds Rs 5,000 in a financial year. *OUFSFTUQBZNFOUTCZ'JOBODJBM*OTUJ UVUJPOT#BOLT Income Tax is deducted @10.3% in case the interest amount exceeds Rs.
6 | MARCH 2009
10,000 in a financial year. Accordingly, in case of ICICI Tax Saving Bonds and IDBI Flexibonds, tax is deductible at source in case the annual payment of interest exceeds Rs 10,000. *OUFSFTU QBZNFOUT CZ )PVTJOH 'J OBODF$PNQBOJFT#BOLT Income tax is deducted @10.3% in
ADVISORS
case the interest exceeds Rs. 5,000 in a financial year . /05& Deduction of income tax at source can be avoided by filing Form 15G in duplicate (15 H for senior citizens). However, such forms can be submitted only by individuals whose total income in the financial year is expected to be below the maximum amount not chargeable to tax.
COMPUTATION OF GROSS TAXABLE INCOME As per Income Tax , Income of a Person is Computed under the following 5 Heads : 1. Income from Salaries 2. Income from House Properties 3. Profit & Gains of Business & Profession 4. Capital Gains 5. Income from Other Sources Now we will discuss in detail about the taxability of these sources of income. Salary or Pension Income Salaried employees are issued a certificate of tax deducted at source from salary income by their employers in Form No. 16. It also gives the Net Taxable Salary figure. Income from House Property If the property is self occupied then the Income from House Property is treated as NIL. If any loan is taken for the purchase of the property then
the amount paid towards interest upto a maximum of Rs.1,50,000/- is deducted from taxable income. In case property is given on rent,then we have to find out the a. Annual Rental Income b.From this deduct Property Tax paid if any c. From balance amount – deduct 30% towards repairs & maintenaince d. From the residual figure – deduct the amount of interest paid on loan taken for the purchase of the property. e. The resultant figure is the Income from House Property. Profit from Business / profession Income as arived on the basis of Profit & Loss A/c Income from Interest Interest Income from the following sources is also required to be included
in the Gross Taxable Income: 1. Interest on company deposits. 2. Interest on debentures/ bonds. 3. Interest on savings bank account/ fixed deposits with banks. 4. Interest on post office savings schemes like MIS, NSC, KVP etc. 5. Interest on private loans given to relatives, friends or any other entity. 6. Interest on government securities. Note: Deduction u/s 80 L has been omitted now and accordingly, interest income from the above sources is fully taxable now.
TAX FREE INCOME The following incomes are completely exempt from income tax without any upper limit. 1. Interest on PPF/GPF/EPF. 2. Interest on GOI tax free bonds. 3. Dividends on Shares and on Mutual Funds.
4. Any capital receipt from life insurance policies i.e., sums received either on death of the insured or on maturity of life insurance plans. However, in case of life insurance policies issued after March 31, 2004, exemption on maturity payment u/ s 10(10D) is available only if the
ADVISORS
premium paid in any year does not exceed 20% of the sum assured. 5. Interest on savings bank account in a post office. 6. Long term capital gain on sale of shares and equity mutual funds if the security transaction tax is paid/ imposed on such transactions. 3. Brother or sister of the spouse 4. Brother or sister of either of the parents of the individual 5. Any lineal ascendant or descendant of the individual 6. Any lineal ascendant or descendant of the spouse of the individual 7. Spouse of the person referred to in (2) or (6) Also, gifts received on the occasion of marriage or under a will by way of inheritance are also tax free MARCH 2009 | 7
TAX PLANNING: A STEP TOWARDS BEING A MILLIONAIRE on Annual Taxable Income using a simple tax rate table, given below. 3. After you have calculated the amount of your tax liability, you have two options to choose from: a. Pay your tax (no tax planning is required) b. Minimize your tax through Prudent Tax Planning.
Proper tax planning is the basic duty of every person, which should be carried out religiously. Basically, there are three steps in the tax planning exercise: 1. Calculate your Taxable Income for the Financial Year (from April 1 to March 31) from all sources such as salary /pension, interest etc. 2. Calculate tax payable
Most people should and do choose
Option ‘2’. Here, you have to compare the advantages of several tax-saving schemes and depending upon your age, social liabilities, tax slab and personal preferences, decide on the right mix of investments/insurance plans, which shall reduce your tax liability to the “Minimum” possible. You may consult your investment advisor for distributing your savings in various tax saving schemes.
'PSPUIFS3FTJEFOU.BMF*OEJWJEVBMTCFMPXZFBSTPGBHFBOE)6'T
/FU*ODPNF3BOHF
*ODPNF5BY
1MVT4VSDIBSHF
1MVT&EVDBUJPO$FTT
Up to Rs. 1,50,000
Nil
Nil
Nil
Rs. 1,50,001 to Rs. 3,00,000
10% of income above Rs. 1,50,000
Nil
3% of income tax
Rs 3,00,001 to Rs 5,00,000
Rs. 15,000 + 20% of the
Nil
3% of income tax
Nil
3% of income tax
Rs. 2,05,000 + 30% of
10% of
3% of income tax
the income above Rs. 10,00,000
income tax
and surcharge
1MVT4VSDIBSHF
1MVT&EVDBUJPO$FTT
income above Rs. 3,00,000 Rs. 5,00,001 to Rs. 10,00,000
Rs. 55,000 + 30% of income above Rs. 5,00,000
Above Rs. 10,00,000
/FU*ODPNF3BOHF
*ODPNF5BY
Up to Rs. 1,80,000
Nil
Nil
Nil
Rs. 1,80,001 to Rs. 3,00,000
10% of the income
Nil
3% of income tax
Nil
3% of income tax
Nil
3% of income tax
Rs. 2,02,000 + 30% of the income
10% of
3% of income tax
above Rs. income 10,00,000
income tax
and surcharge
above Rs. 1,80,000 Rs 3,00,001 to 5,00,000
Rs.12,000 + 20% of the income above 3,00,000
Rs. 5,00,001 to Rs. 10,00,000
Rs. 52,000 + 30% of the income above Rs. 5,00,000
Above Rs. 10,00,000
4 | MARCH 2009
ADVISORS
FILING OF INCOME TAX RETURN 1. Filing of income tax return is compulsory for all individuals whose gross annual income exceeds the maximum amount which is not chargeable to income tax i.e. Rs. 1,80,000 for Resident Women, Rs.
2,25,000 for Senior Citizens and Rs. 1,50,000 for other individuals and HUFs. 2. The last date of filing income tax return is July 31, in case of individuals who are not covered in
/FU*ODPNF3BOHF 6QUP3T
*ODPNF5BY
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1MVT4VSDIBSHF
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point 3 below. 3. If the income includes business or professional income requiring tax audit (turnover Rs. 40 lakhs), the last date for filing the return is September 30. 4. The penalty for non-filing of income tax return is Rs. 5000 (after assessment year).
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PG
PGJODPNFUBY
BCPWF3T
JODPNFUBY
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ADVISORS
MARCH 2009 | 5
DEDUCTIONS FROM TAXABLE INCOME: %FEVDUJPOVOEFSTFDUJPO$ This new section has been introduced from the Financial Year 2005-06. Under this section, a deduction of up to Rs. 1,00,000 is allowed from Taxable Income in respect of investments made in some specified schemes. Specified Investment Schemes u/s 80C and u/s 80CCC (1)1. Life Insurance Premiums 2. Contributions to Employees Provident Fund/GPF 3. Public Provident Fund (maximum Rs 70,000 in a year) 4. NSC (National Savings Certificates) 5. Unit Linked Insurance Plan (ULIP) 6. Repayment of Housing Loan (Principal) 7. Equity Linked Savings Scheme (ELSS) of Mutual Funds 8. Tuition Fees including admission fees or college fees paid for fulltime education of any two children of the assessee (Any development fees or donation or payment of a similar nature shall not be eligible
for deduction). 9. Infrastructure Bonds issued by Institutions/ Banks such as IDBI, ICICI, REC, PFC etc. 10. Interest accrued in respect of NSC VIII issue. 11. Pension scheme of LIC of India or any other insurance company. 12. Fixed Deposit with Banks having a lock-in period of 5 Years /PUFT 1. There are no sectoral caps (except in PPF) on investment in the new section and the assessee is free to invest Rs. 1,00,000 in any one or more of the specified instruments. 2. Amount invested in these instruments would be allowed as deduction irrespective of the fact whether (or not) such investment is made out of income chargeable to tax. 3. Section 80C deduction is allowed irrespective of the assessee’s income level. Even persons with taxable income above Rs. 10,00,000 can avail the benefit of section 80C. 4. Some of the popular pension plans
are Jeevan Suraksha by LIC, Life Time Pension By ICICI Prudential Life Insurance, Aviva Life - Pension Plus by Aviva Life Insurance, MaxEasy Life policy by Max New York Life, Nirvana Plus by Tata AIG Life Insurance etc. Please note that because the deduction is allowed from taxable income, the exact savings in tax will depend upon the tax slab of the individual. Thus, a person in the 30% tax slab can save income tax up to Rs. 30,900 (or Rs. 33,990 if annual income exceeds Rs. 10,00,000) by investing Rs. 1,00,000 in the specified schemes u/s 80C. %FEVDUJPOVOEFSTFDUJPO% Under this section, deduction of up to Rs 40,000 can be claimed in respect of premium paid by cheque towards health insurance policy of various General Insurance companies like Royal Sundaram Health Shield Gold, Reliance Healthwise etc. Such premium can be paid towards health insurance of spouse, dependent parents as well as dependent children. as per following table:
TAX DEDUCTION AT SOURCE (TDS) *OUFSFTU QBZNFOUT CZ DPNQBOJFT PO 'JYFE%FQPTJUT Income tax is deducted @10.3% in case the interest exceeds Rs 5,000 in a financial year. *OUFSFTUQBZNFOUTCZ'JOBODJBM*OTUJ UVUJPOT#BOLT Income Tax is deducted @10.3% in case the interest amount exceeds Rs.
6 | MARCH 2009
10,000 in a financial year. Accordingly, in case of ICICI Tax Saving Bonds and IDBI Flexibonds, tax is deductible at source in case the annual payment of interest exceeds Rs 10,000. *OUFSFTU QBZNFOUT CZ )PVTJOH 'J OBODF$PNQBOJFT#BOLT Income tax is deducted @10.3% in
ADVISORS
case the interest exceeds Rs. 5,000 in a financial year . /05& Deduction of income tax at source can be avoided by filing Form 15G in duplicate (15 H for senior citizens). However, such forms can be submitted only by individuals whose total income in the financial year is expected to be below the maximum amount not chargeable to tax.
COMPUTATION OF GROSS TAXABLE INCOME As per Income Tax , Income of a Person is Computed under the following 5 Heads : 1. Income from Salaries 2. Income from House Properties 3. Profit & Gains of Business & Profession 4. Capital Gains 5. Income from Other Sources Now we will discuss in detail about the taxability of these sources of income. Salary or Pension Income Salaried employees are issued a certificate of tax deducted at source from salary income by their employers in Form No. 16. It also gives the Net Taxable Salary figure. Income from House Property If the property is self occupied then the Income from House Property is treated as NIL. If any loan is taken for the purchase of the property then
the amount paid towards interest upto a maximum of Rs.1,50,000/- is deducted from taxable income. In case property is given on rent,then we have to find out the a. Annual Rental Income b.From this deduct Property Tax paid if any c. From balance amount – deduct 30% towards repairs & maintenaince d. From the residual figure – deduct the amount of interest paid on loan taken for the purchase of the property. e. The resultant figure is the Income from House Property. Profit from Business / profession Income as arived on the basis of Profit & Loss A/c Income from Interest Interest Income from the following sources is also required to be included
in the Gross Taxable Income: 1. Interest on company deposits. 2. Interest on debentures/ bonds. 3. Interest on savings bank account/ fixed deposits with banks. 4. Interest on post office savings schemes like MIS, NSC, KVP etc. 5. Interest on private loans given to relatives, friends or any other entity. 6. Interest on government securities. Note: Deduction u/s 80 L has been omitted now and accordingly, interest income from the above sources is fully taxable now.
TAX FREE INCOME The following incomes are completely exempt from income tax without any upper limit. 1. Interest on PPF/GPF/EPF. 2. Interest on GOI tax free bonds. 3. Dividends on Shares and on Mutual Funds.
4. Any capital receipt from life insurance policies i.e., sums received either on death of the insured or on maturity of life insurance plans. However, in case of life insurance policies issued after March 31, 2004, exemption on maturity payment u/ s 10(10D) is available only if the
ADVISORS
premium paid in any year does not exceed 20% of the sum assured. 5. Interest on savings bank account in a post office. 6. Long term capital gain on sale of shares and equity mutual funds if the security transaction tax is paid/ imposed on such transactions. 3. Brother or sister of the spouse 4. Brother or sister of either of the parents of the individual 5. Any lineal ascendant or descendant of the individual 6. Any lineal ascendant or descendant of the spouse of the individual 7. Spouse of the person referred to in (2) or (6) Also, gifts received on the occasion of marriage or under a will by way of inheritance are also tax free MARCH 2009 | 7
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