Mcom Project 2018
Mcom Project 2018
Mcom Project 2018
A Project Submitted to
Master in Commerce
By
Roll No: 60
For
A Project Submitted to
Master in Commerce
By
Roll No: 60
For
I the undersigned Pravin Dhondibhau Date ( Roll. No. 60) here by, declare that
the work embodied in this project work titled “INCOME TAX PLANNIG IN
INDIA WITH RESPECTRED TO INDIVIDUAL ASSESSEE”, forms my
own contribution to the research work carried out under the guidance of
Prof. Mr. Mahesh Vaishya is a result of my own research work and has not
been previously submitted to any other University for any other Degree/
Diploma to this or any other University. Wherever reference has been made to
previous works of others, it has been clearly indicated as such and included in
the bibliography. I, here by further declare that all information of this document
has been obtained and presented in accordance with academic rules and ethical
conduct.
Certified By
I the undersigned Pravin Dhondibhau Date Roll. No. 60)here by, declare that
the work embodied in this project work titled “INCOME TAX PLANNIG IN
INDIA WITH RESPECTRED TO INDIVIDUAL ASSESSEE”, forms my
own contribution to the research work carried out under the guidance of
Prof.Mr.Mahesh Vaishya is a result of my own research work and has not
been previously submitted to any other University for any other Degree/
Diploma to this or any other University. Wherever reference has been made to
previous works of others, it has been clearly indicated as such and included in
the bibliography. I, here by further declare that all information of this document
has been obtained and presented in accordance with academic rules and ethical
conduct.
Certified By
To list who all have helped me is difficult because they are so numerous and the
depth is so enormous.
I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.
I take this opportunity to thank our Co-ordinator Mr. Mahesh Vaisya for his
moral support and guidance.
I would also like to express my sincere gratitude towards my project guide Mr.
Mahesh Vaisya whose guidance and care made the project successful.
Lastly, I would like to thanks each and every person who directly or indirectly
helped me in the completion of the project especially my parents and peers
who supported me throughout my project.
INDEX
Sr.No Description Page No.
1. Introduction
I. Meaning
II. Definition
Tax Management deals with filing of Return in time, getting the accounts
audited, deducting tax at source etc. Tax Management relates
to Past, Present, Future. Past – Assessment Proceedings, Appeals, Revisions etc.
Present – Filing of Return, payment of advance tax etc. Future – To take
corrective action. It helps in avoiding payment of interest, penalty, prosecution
etc.
Definition:
A direct tax is paid directly by an individual or organization to the imposing
entity. A taxpayer, for example, pays direct taxes to the government for
different purposes, including real property tax, personal property tax,
income tax or taxes on assets.
Direct Taxes :
a) Corporation tax
b) Taxes on income
c) Estate duty
d) Interest Tax
e) Wealth Tax
f) Gift Tax
g) Land Revenue
h) Agricultural tax
j) Expenditure tax
k) Other’
2.Research And Methodology
1. Need for Study:
In last some years of my career and
education, I have seen my colleagues and
faculties grappling with the taxation issue
and complaining against the tax deducted by
their employers from monthly remuneration.
Not equipped with proper knowledge of
taxation and tax saving avenues available to
them, they were at mercy of the HR/Admin
departments which never bothered to do
even as little as take advise from some good
tax consultant.
This prodded me to study this aspect leading to this project during my M.com
course with the university, hoping this concise yet comprehensive write up will
help this salaried individual Assessee class to save whatever extra rupee they
can from their hard-earned monies.
2.Objectives:
To study taxation provisions of The
Income Tax Act, 1961 as amended by
Finance Act, 2007.
To explore and simplify the tax
planning procedure from a layman’s
perspective.
To present the tax saving avenues
under prevailing statures.
To know the tax planning and tax
management tools.
3. Scope & Limitations
This project studies the tax planning for
individuals assessed to Income Tax.
The study relates to non-specific and
generalized tax planning, eliminating the
need of sample/population analysis.
Basic methodology implemented in this
study is subjected to various pros & cons,
and different income levels of individual
assessees.
This study may include comparative and analytical study of more than one
tax saving plans and instruments.
This study covers individual income tax assessees only and does not hold
good for corporate taxpayers.
The tax rates, insurance plans, and premium are all subject to FY 2017-18
only.
4. Methodology :
Methodology Adopted:
The present study is basically an exploratory research. As such, in order to collect
concerned primary data, survey and observation methods are used. In order to assess
the perception of the individual, company assessees, a separate questionnaire is
prepared for each type of assessees and administered.
This is a descriptive type of research. Therefore simple types of statistical
techniques such as average, percentage etc. are used to analyze the data.
Primary Data –
Primary data is collected by using questionnaire and observation. Formal and
informal discussions are also held with the various individual Aseessee of Income-
Tax payer. Primary data has been collected by questionnaire by Google form.
Secondary Data
For the study purpose the required secondary data is collected by using various
published sources. . Some government publications are also used for national and
state level information.
Data processing:
For the presentation and study purpose, the collected data is edited, classified, and
tabulated by using usual statistical techniques. The graphical representation of the
data is also given wherever necessary. In this project used useful related picture for
purpose of easy understand.
3. Litreture Review
Tax planning is the analysis of one’s financial situation from a tax efficiency
point of view so as to plan one’s finances in the most optimized manner. Tax
planning allows a taxpayer to make the best use of the various tax exemptions,
deductions and benefits to minimize their tax liability over a financial year. Tax
planning is a legal way of reducing income tax liabilities, however caution has
to be maintained to ensure that the taxpayer isn’t knowingly indulging in tax
evasion or tax avoidance.
Taxes are calculated on the annual income of a person, and an annual cycle
(year) in the eyes of the Income Tax law starts on the 1st of April and ends on
the 31st of March of the next calendar year. The law recognizes and classifies
the year as “Previous Year” and “Assessment Year”.
The year in which income is earned is called the previous year and the year in
which it is charged to tax is called the assessment year.
• Every year, assessees are paying tax to the government; it means every year
assessees are planning their tax. This leads to every year savings which in turn
wealth creation in the hands of assessees. Therefore, a further research on
comparison of yearly savings or investments of assessees can be done.
• Present study has taken into consideration only five occupations wise
individual assessees. Research on many more occupation wise and investments
of Male and Female comparison also can be done.
Methodology Adopted:
This project prepared basis on collect concerned primary data, survey
and observation methods. Primary data is collected by using
questionnaire and observation. Formal and informal discussions are also
held with the various individual Aseessee of Income-Tax payer.
For the study purpose the required secondary data is collected by using
various published sources.
For the presentation and study purpose, the collected data is edited,
classified, and tabulated by using usual statistical techniques. The
graphical representation of the data is also given wherever necessary. In
this project used useful related picture for purpose of easy understand.
Main Body Of Project
Tax Planning is an activity conducted by the tax payer to reduce the tax
liable upon him/her by making maximum use of all available deductions,
allowances, exclusions, etc .
In other words, it is the analysis of a financial situation from the taxation
point of view. The objective behind tax planning is insurance of tax
efficiency.
Indian law offers a variety of tax saving options for the taxpayers,
allowing for a large range of options for exemptions and deductions
through which you could limit your overall tax output.
First, you must calculate the tax liability that is associated with you, to
find the amount of income tax that you will get back as income tax
refund.
If the amount that you have paid in the form of taxes is more than the tax
liability, then the extra amount will be refunded to your account.
4. Data Analysis, Interpretation, And Presentation:
I. Who is the Assessee..?
Definition :
U/s 2(7) “Assessee” means a person by whom income tax or any other
sum of money is payable under the Act and it includes:
a. every person in respect of whom any proceeding under the Act has
been taken for the assessment of his income or loss or the amount of
refund due to him
b. a person who is assessable in respect of income or loss of another
person or who is deemed to be an assessee, or c. an assessee in default
under any provision of the Act
The definition of “assessee” is also inclusive one and may include any
other person is not covered in the above categories. In other words, the
definition of the assessee is so wide that so as to include a person himself
or his representative such as legal heir, trustee etc. Moreover, importance
is given not only to the amount of tax payable but also to refund due and
the proceedings taken.
1. A person by whom income tax or any other sum of money is payable under
the Act
2. A person in respect of whom any proceeding under the Act has been taken for
the assessment of his : a. income or b. loss or c. the amount of refund due to him
5. an assessee in default under any provision of the Act 5.4 A minor child is
treated as a separate assessee in respect of any income generated out of
activities performed by him like singing in radio jingles, acting in films, tuition
income, delivering newspapers, etc.
However, income from investments, capital gains on securities held by minor
child, etc. would be taxable in the hands of the parent having the higher income
(mostly the father), unless if such assets have been acquired from the minor’s
sources of income.
II. HEADS OF INCOME
As per Section 14 of the Income Tax Act, for the purpose oFcharging of tax and
computation of total income, all incomes are classified under the following
5 Heads of Income -
4 Capital Gains
5 Income from Other Sources
The total income under all these 5 heads of Income is the added and disclosed in
the Income Tax Return. The tax on the total taxable income (after allowing
deductions) is then calculated as the Income Tax Slab Rates of the taxpayer.
Under these 5 heads of Income, there are several incomes which are tax free and
there are several incomes from which deductions are also allowed which help a
taxpayer in reducing his taxliability substantially.
1. Income from Salaries
Tax on Income from House Property is the tax on rental income which is being
earned from theHouse Property. However, in case the property is not being
rented out, tax would be levied on the expected rent that would have been
received if this property was rented out.
Income from House Property is perhaps the only income that is charged
to tax on a notional basis. Tax under this head does not only include Income
from letting out of House Property but also includes Income from letting out of
Commercial Properties and all types of properties.
Any profits or gains arising from the transfer of a capital asset effected in the
financial year shall be chargeable to Income Tax under the head ‘Capital Gains’
and shall be deemed to be the income of the year in which the transfer took
place unless such capital gain is exempt under section 54, 54B,
Any Income which is not chargeable to tax under the above mentioned 4 heads
of income shall be chargeable under this head of income provided that income
is not exempt from the computation of total income.
III. COMPUTATION OF TOTAL INCOME :
Section 14 of the Act defines the Gross Total Income as the aggregate of the
incomes computed under the five heads after making adjustments for set-off and
carry forward of losses.
1. Salaries
2. Income from house property
3. Capital gains
4. Profits and gains of business or profession
5. Income from other sources
As per Income Tax Act, 1961, income tax is charged for any assessment year at
prevailing rates in respect of the total income of the previous year of every
person. Previous year means the financial year immediately preceding the
assessment year
Total Income
For the purposes of chargeability of income-tax and computation of
total income, The Income Tax Act, 1961 classifies the earning under
the following heads of income:
1. Salaries
2. Income from house property
3. Capital gains
4. Profits and gains of business or profession
5. Income from other sources
1.Income from Salary
This clause essentially assimilates any remuneration,
which is received by an individual on terms of
services provided by him based on a contract of
employment. This amount qualifies to be considered
for income tax only if there is an employer-employee
relationship between the payer and the payee
respectively. Salary also should include the basic
wages or salary, advance salary, pension, commission, gratuity, perquisites as
well as annual bonus. Incomes termed as Salaries:
However, following incomes shall be taxable under the head ‘Income from
House Property'.
1. Income from letting of any farm house agricultural land appurtenant thereto
for any purpose other than agriculture shall not be deemed as agricultural
income, but taxable as income from house property.
2. Any arrears of rent, not taxed u/s 23, received in a subsequent year, shall be
taxable in the year.
Even if the house property is situated outside India it is taxable in India if the
owner-assessee is resident in India.
The following incomes are excluded from the charge of income tax under this
head:
Annual value of house property used for business purposes
Income of rent received from vacant land.
Income from house property in the immediate vicinity of agricultural land
and used as a store house, dwelling house etc.
Annual Value:
Income from house property is taxable on the basis of annual value.
Annual Value of Let-out Property:
Where the property or any part thereof is let out, the annual value of such
property or part shall be the reasonable rent for that property or part or the
actual rent received or receivable, whichever is higher.
Repairs and collection charges: Standard deduction of 30% of the net annual
value of the property.
Deductions from House Property Income:
Interest on Borrowed Capital:
Amounts not deductible from House Property Income:
Expenditures not specified as specifically deductible. For instance, no
deduction can be claimed in respect of expenses on electricity, water supply,
salary of liftman, etc
Self Occupied Properties
Cost of acquisition is the amount for which the capital asset was originally
purchased by the assessee.
Where capital asset became the property of the assessee before 1.4.1981, he
has an option to adopt the fair market value of the asset as on 1.4.1981, as its
cost of acquisition.
Cost of Improvement:
Indexed cost of Acquisition/Improvement:
For computing long-term capital gains, ‘Indexed cost of acquisition and
‘Indexed cost of Improvement’ are required to deducted from the full
value of consideration of a capital asset. Both these costs are thus
required to be indexed with respect to the cost inflation index pertaining
to the year of transfer.
Capital Loss:
The amount, by which the value of consideration for transfer of an asset
falls short of its cost of acquisition and improvement /indexed cost of
acquisition and improvement, and the expenditure on transfer, represents
the capital loss. Capital Loss’ may be short-term or long-term, as in case
of capital gains, depending upon the period of holding of the asset.
(i) Dividends
(ii) Income from machinery, plant or furniture belonging to the assessee.
(v) Where any sum of money exceeding twenty-five thousand rupees is received
without consideration by an individual or a Hindu undivided family from any
person on or after the 1st day of September, 2004, the whole of such sum,
provided that this clause shall not apply to any sum of money received
1. Tax Evasion
2. Tax Avoidance
1.Tax Evasion
Tax Evasion means not paying taxes as per the provisions of the law or
minimizing tax by illegitimate and hence illegal means. Tax Evasion can be
achieved by concealment of income or inflation of expenses or falsification of
accounts or by conscious deliberate violation of law.
Tax Evasion is an act executed knowingly willfully, with the intent to deceive
so that the tax reported by the taxpayer is less than the tax payable under the
law.
Example:
Mr. A, having rendered service to another person Mr. B, is entitled to receive a
sum of say Rs. 50,000/- from Mr. B. Mr. A’s other income is Rs. 200,000/-. Mr.
A tells Mr. B to pay cheque of Rs. 50,000/- in the name of Mr. C instead of in
the name of Mr. A. Mr. C deposits the cheque in his bank account and account
for it as his income. But Mr. C has no other income and therefore pays no tax on
that income of Rs. 50,000/-. By diverting the income to Mr. C, Mr. A has
resorted to Tax Avoidance.
3.Tax Planning
Tax Planning has been described as a refined form of ‘tax avoidance’ and
implies arrangement of a person’s financial affairs in such a way that it reduces
the tax liability. This is achieved by taking full advantage of all the tax
exemptions, deductions, concessions, rebates, reliefs, allowances and other
benefits granted by the tax laws so that the incidence of tax is reduced. Exercise
in tax planning is based on the law itself and is therefore legal and permanent.
Example: Mr. A having other income of Rs. 2,00,000/- receives income of Rs.
50,000/- from Mr. B. Mr. A to save tax deposits Rs. 60,000/- in his PPF account
and saves the tax of Rs. 12,000/- and thereby pays no tax on income of Rs.
50,000.
4.Tax Management :
Example: Action of Mr. A depositing Rs. 60,000 in his PPF account and
saving tax of Rs. 12,000/- is Tax Management. Actual action on Tax Planning
provision is Tax Management.
To sum up all these four expressions, we may say that:
Tax Evasion is fraudulent and hence illegal. It violates the spirit and the
letter of the law.
Tax Avoidance, being based on a loophole in the law is legal since it violates
only the spirit of the law but not the letter of the law.
Tax Planning does not violate the spirit nor the letter of the law since it is
entirely based on the specific provision of the law itself.
Tax Management is actual implementation of a tax planning provision. The
net result of tax reduction by taking action of fulfilling the conditions of law
is tax management.
Most people rightly choose Option 'B'. Here you have to compare the
advantages of several tax-saving schemes and depending upon your age, social
liabilities, tax slabs and personal preferences, decide upon a right mix of
investments, which shall reduce your tax liability to zero or the minimum
possible.
Every citizen has a fundamental right to avail all the tax incentives provided by
the Government. Therefore, through prudent tax planning not only income-tax
liability is reduced but also a better future is ensured due to compulsory savings
in highly safe Government schemes. We should plan our investments in such a
way, that the post-tax yield is the highest possible keeping in view the basic
parameters of safety and liquidity.
For most individuals, financial planning and tax planning are two mutually
exclusive exercises. While planning our investments we spend considerable
amount of time evaluating various options and determining which suits us best.
But when it comes to planning our investments from a tax-saving perspective,
more often than not, we simply go the traditional way and do the exact same
thing that we did in the earlier years. Well, in case you were not aware the
guidelines governing such investments are a lot different this year. And lethargy
on your part to rework your investment plan could cost you dear.
Why are the stakes higher this year? Until the previous year, tax benefit was
provided as a rebate on the investment amount, which could not exceed Rs
100,000; of this Rs 30,000 was exclusively reserved for Infrastructure Bonds.
Also, the rebate reduced with every rise in the income slab; individuals earning
over Rs 5,00,000 per year were not eligible to claim any rebate. For the current
financial year, the Rs 100,000 limit has been retained; however internal caps
have been done away with. Individuals have a much greater degree of flexibility
in deciding how much to invest in the eligible instruments. The other significant
changes are:
The rebate has been replaced by a deduction from gross total income,
effectively. The higher your income slab, the greater is the tax benefit.
All individuals irrespective of the income bracket are eligible for this
investment. These developments will result in higher tax-savings.
You are now nearing retirement. To that extent it is critical that you fill in any
shortfall that may exist in your retirement nest egg. You also do not want to
jeopardize your pool of savings by taking any extraordinary risk. The allocation
will therefore continue to move away from risky assets like stocks, to safer ones
line the NSC. However, it is important that you continue to allocate some
money to stocks. The reason being that even at age 55, you probably have 15 -
20 years of retired life; therefore having some portion of your money invested
for longer durations, in the high risk - high return category, will help in
building your nest egg for the latter part of your retired life.
For persons over 55 years of age:
You are to retire in a few years; then you will have to depend on your
investments for meeting your expenses. Therefore the money that you
have to invest under Section 80C must be allocated in a manner that serves
both near term income requirements as well as long-term growth needs.
Most of the funds are therefore allocated to NSC. Your PPF account
probably will mature early into your retirement (if you started another
account at about age 40 years). You continue to allocate some money to
equity to provide for the latter part of your retired life. Once you are
retired however, since you will not have income there is no need to worry
about Section 80C. You should consider investing in the Senior Citizens
Savings Scheme, which offers an assured return of 9% pa; interest is
payable quarterly. Another investment you should consider is Post Office
Monthly Income Scheme.
Following are the five tax planning tools that simultaneously help the assessees
maximize their wealth too.
The returns from such investments are likely to be minuscule and or they may
not serve any worthwhile use of your money. Tax planning is very strategic in
nature and not like the last minute fire fighting most do each year.
For most people, tax planning is akin to some kind of a burden that they want
off their shoulders as soon as possible. As a result, the attitude is whatever
seems ok and will help save tax – ‘let’s go for it’ - the basic mantra. What is
really foolhardy is that saving tax is a larger prerogative than that of utilisation
of your hard earned money and the future of such monies in years to come.
1) Tax is saved and that you claim the full benefit of your section 80C
benefits.
2) Product are chosen based on their long term merit and not like fire
fighting options undertaken just to reach that Rs 1 lakh investment mark.
3) Products are chosen in such a manner that multiple life goals can be
fulfilled and that they are in line with your future goals and expectations.
4) Products that you choose help you optimise returns while you save tax in
the immediate future.
Strategic Tax Planning
So far with whatever you have done in the past, it is important to understand the
future implications of your tax saving strategy. You cannot do much about the
statutory commitments and contribution like provident fund (PF) but all the rest
is in your control.
1. Insurance
If you have a traditional money back
policy or an endowment type of policy
understand that you will be earning about
4% to 6% returns on such policies. In
years to come, this will be lower or just
equal to inflation and hence you are not
creating any wealth, infact you are
destroying the value of your wealth
rapidly.
Such policies should ideally be restructured and making them paid up is a good
option. You can buy term assurance plan which will serve your need to
obtaining life cover and all the same release unproductive cash flow to be
deployed into more productive and wealth generating asset classes. Be careful
of ULIPS; invest if you are under 35 years of age, else as and when the stock
markets are down or enter into a downward phase. Your ULIP will turn out to
be very expensive as your age increases. Again I am sure you did not know this.
2. Public Provident Fund (PPF)
This has been a long time
favourite of most people. It is a no-
brainer and hence most people
prefer this but note this. The current
returns are 8% and quite likely that
sooner or later with the
implementation of the exempt tax
(EET) regime of taxation investments in PPF may become redundant, as returns
will fall significantly.
How this will be implemented is not clear hence the best option is to go easy on
this one. Simply place a nominal sum to keep your account active before there
is clarity on this front. EET may apply to insurance policies as well.
3. Pension Policies
The problem with pension policies is that you will get a measly 2% or 4%
annuity when you actually retire. To make matters worse this will be taxed at
full marginal rate of income tax as well. Liquidity and flexibility will just not be
there. No insurance company or agent will agree to this but this is a cold fact.
Steer clear of such policies. Either make them paid up or stop paying Tulip
premiums, if you can. Divest the money to more productive assets based on
your overall risk profile and general preferences. Bite this – Rs 100 today will
be worth only Rs 32 say in 20 years time considering 5% inflation.
4. Five year fixed deposits (FDs), National Savings Scheme (NSC), other
bonds
These products are fair if your risk appetite is really low and if you are not too
keen to build wealth. Generally speaking, in all that we do wealth creation
should be the underlying motive.
It is an equity investment and when your three years are over, you may not have
made great returns or the stock markets may be down at that point. If that be the
case, you will have to hold much longer. Hence if you wish to use such funds in
three-four years time the calculations can go wrong.
Nevertheless, strange as it may seem, the high-risk investment has the least tax
liability, infact it is nil as per the current tax laws. If you are prepared to hold
for long really long like five-ten years, surely you will make super normal
returns.
That said ideally you must have your financial goal in mind first and then see
how you can meet your goals and in the process take advantage of tax savings
strategies.
There is so much to be done while you plan your tax. Look at 80C benefits as a
composite tool. Look at this as a tax management tool for the family and not
just yourself. You have section 80C benefit for yourself, your spouse, your
HUF, your parents, your father’s HUF. There are so many Rs 1 lakh to be
planned and hence so much to benefit from good tax planning.
Term plans
A term plan is the most basic type of life insurance plan. In this plan, only the
mortality charges and the sales and administration expenses are covered. There
is no savings element; hence the individual does not receive any maturity
benefits. A term plan should form a part of every individual's portfolio.
Let us suppose an individual aged 25 years, wants to buy a term plan for tenure
of 20 years and a sum assured of Rs 1,000,000. As the table shows, a term plan
is offered by insurance companies at a very affordable rate. In case of an
eventuality during the policy tenure, the individual's nominees stand to receive
the sum assured of Rs 1,000,000.
Individuals should also note that the term plan offering differs across life
insurance companies. It becomes important therefore to evaluate all the options
at their disposal before finalizing a plan from any one company. For example,
some insurance companies offer a term plan with a maximum tenure of 25 years
while other companies do so for 30 years. A certain insurance company also has
an upper limit of Rs 1,000,000 for its sum assured.
Unit linked plans have been a rage of late. With the advent of the private
insurance companies and increased competition, a lot has happened in terms of
product innovation and aggressive marketing of the same. ULIPs basically work
like a mutual fund with a life cover thrown in. They invest the premium in
market-linked instruments like stocks, corporate bonds and government
securities (Gsecs).
The basic difference between ULIPs and traditional insurance plans is that
while traditional plans invest mostly in bonds and Gsecs, ULIPs' mandate is to
invest a major portion of their corpus in stocks. Individuals need to understand
and digest this fact well before they decide to buy a ULIP.
Having said that, we believe that equities are best equipped to give better
returns from a long term perspective as compared to other investment avenues
like gold, property or bonds. This holds true especially in light of the fact that
assured return life insurance schemes have now become a thing of the past.
Today, policy returns really depend on how well the company is able to manage
its finances.
Pension/retirement plans
Premiums paid for pension plans from life insurance companies enjoy tax
benefits up to Rs 10,000 under Section 80CCC. Individuals while conducting
their tax planning exercise could consider investing a portion of their insurance
money in such plans.
Unit linked pension plans are also available with most insurance companies. As
already mentioned earlier, such investments should be in tune with their risk
appetites. However, individuals could contemplate investing in pension ULIPs
since retirement planning is a long term activity.
Individuals with a low risk appetite, who want an insurance cover, which will
also give them returns on maturity could consider buying traditional endowment
plans. Such plans invest most of their monies in corporate bonds, Gsecs and the
money market. The return that an individual can expect on such plans should be
in the 4%-7% range as given in the illustration below.
Table 8: Traditional Endowment Plan Returns
Age Sum Premium Tenure Maturity Actual rate
(Yrs) Assured (Rs) (Yrs) Amount of return
(Rs) (Rs)* (%)
Company 30 1,000,000 65,070 15 1,684,000 6.55
A
Company 30 1,000,000 65202 15 1,766,559 7.09
B
The maturity amounts shown above are at the rate of 10% as per
company illustrations. Returns calculated by the company are on the
premium amount net of expenses.
Taxes as applicable may be levied on some premium quotes given above.
Individuals are advised to contact the insurance companies for further
details.
A variant of endowment plans are child plans and money back plans. While
they may be presented differently, they still remain endowment plans in
essence. Such plans purport to give the individual either a certain sum at regular
intervals (in case of money back plans) or as a lump sum on maturity. They fit
into an individual's tax planning exercise provided that there exists a need for
such plans.
Tax benefits*
Premiums paid on life insurance plans enjoy tax benefits under Section 80C
subject to an upper limit of Rs 1,50,000. The tax benefit on pension plans is
subject to an upper limit of Rs 10,000 as per Section 80CCC (this falls within
the overall Rs 1,50,000 Section 80C limit). The maturity amount is currently
treated as tax free in the hands of the individual on maturity under Section 10
(10D).
Income Head-wise Tax Planning Tips
2. The Supreme Court has held in Gestetner Duplicators (p) Ltd. Vs CIT that
commission payable as per the terms of contract of employment at a fixed
percentage of turnover achieved by an employee, falls within the expression
“salary” as defined in rule 2(h) of part A of the fourth schedule. Consequently,
tax incidence on house rent allowance, entertainment allowance, gratuity and
commuted pension will be lesser if commission is paid at a fixed percentage of
turnover achieved by the employee.
10. As the perquisite in respect of leave travel concession is not taxable in the
hands of the employees if certain conditions are satisfied, it should be ensured
that the travel concession should be claimed to the maximum possible extent
without attracting any incidence of tax.
12. Since the term “salary” includes basic salary, bonus, commission, fees and
all other taxable allowances for the purpose of valuation of perquisite in respect
of rent free house, it would be advantageous if an employee goes in for
perquisites rather than for taxable allowances. This will reduce valuation of rent
free house, on one hand, and, on the other hand, the employee may not fall in
the category of specified employee. The effect of this ingenuity will be that all
the perquisites specified u/s 17(2)(iii) will not be taxable.
House Property Head:
The following propositions should be borne in mind:
1. If a person has occupied more than one house for his own residence, only one
house of his own choice is treated as self-occupied and all the other houses are
deemed to be let out. The tax exemption applies only in the case of on self-
occupied house and not in the case of deemed to be let out properties. Care
should, therefore, be taken while selecting the house( One which is having
higher GAV normally after looking into further details ) to be treated as self-
occupied in order to minimize the tax liability.
5. If an individual makes cash a cash gift to his wife who purchases a house
property with the gifted money, the individual will not be deemed as fictional
owner of the property under section 27(i) – K.D.Thakar vs. CIT. Taxable
income of the wife from the property is, however, includible in the income of
individual in terms of section 64(1)(iv), such income is computed u/s 23(2), if
she uses house property for her residential purposes. It can, therefore, be
advised that if an individual transfers an asset, other than house property, even
without adequate consideration, he can escape the deeming provision of section
27(i) and the consequent hardship.
6.Under section 27(i), if a person transfers a house property without
consideration to his/her spouse(not being a transfer in connection with an
agreement to live apart), or to his minor child(not being a married daughter), the
transferor is deemed to be the owner of the house property. This deeming
provision was found necessary in order to bring this situation in line with the
provision of section 64. But when the scope of section 64 was extended to cover
transfer of assets without adequate consideration to son’s wife or minor
grandchild by the taxation laws(Amendment) Act 1975, w.e.f. A.Y. 1975-76
onwards the scope of section 27(i) was not similarly extended. Consequently, if
a person transfers house property to his son’s wife without adequate
consideration, he will not be deemed to be the owner of the property u/s 27(i),
but income earned from the property by the transferee will be included in the
income of the transferor u/s 64. For the purpose of sections 22 to 27, the
transferee will, thus, be treated as an owner of the house property and income
computed in his/her hands is included in the income of the transferor u/s 64.
Such income is to be computed under section 23(2), if the transferee uses that
property for self-occupation. Therefore, in some cases, it is beneficial to transfer
the house property without adequate consideration to son’s wife or son’s minor
child.
1. Since long-term capital gains bear lower tax, taxpayers should so plan as to
transfer their capital assets normally only 36 months after acquisition. It is
pertinent to note that if capital asset is one which became the property of the
taxpayer in any manner specified in section 49(1), the period for which it was
held by the previous owner is also to be counted in computing 36 months.
3. Exchange of asset between one spouse and another is outside the clubbing
provisions if such exchange of assets is for adequate consideration. The spouse
within higher marginal tax rate can transfer income yielding asset to other
spouse in exchange of an equal value of asset which does not yield any income.
For instance, X (whose marginal rate of tax is 33.66%) can transfer fixed
deposit in a company of Rs.100,000 bearing 9% interest, to Mrs. X (whose
marginal tax is nil) in exchange of gold of Rs.100,000; he can reduce his tax bill
by Rs. 3029(i.e., 0.3366 x 0.09 x Rs 100000) without attracting provisions of
section 64.
6.Explanation 3 to section 64 (1) lays down the method for computing income
to be clubbed on the basis of value of assets transferred to the spouse as on the
first day of the previous year. This offers attractive approach for minimizing
income to be clubbed by transfers for temporary periods during the course of
the previous year.
7.If a trust is created by a male member to settle his separate property thereon
for the benefit of HUF, with a stipulation that income shall accrue for a
specified period and the corpus going to the trust afterwards, provisions of
section 64 are not attracted.
8.If gifts are made by HUF to the wife, minor child, or daughter in law of any of
its male or female members (including karta), provisions of section 64 are not
attracted.
10.In cases covered in section 64, income arising to the transferee, from
property transferred without adequate consideration, is taxable in the hands of
transferor. However, income arising from the accretion of such transferred
assets or from the accumulated income cannot be clubbed in the hands of the
transferor.
12.Where the assessee withdrew funds lying in capital account of firm in which
he was a partner and advanced the same to his HUF which deposited the said
funds back into firm, the said loan by the assessee to his HUF could not be
treated as a transfer for the purpose of section 64 and income arising from such
deposits was not assessable in the hands of the assessee.
2.An Indian Company means a company formed and registered under the
companies’ act 1956.
( For Male)
Note: A resident individual is entitled for rebate u/s 87A if his total income does
not exceed Rs. 3,50,000. The amount of rebate shall be 100% of income-tax or
Rs. 2,500, whichever is less
D.Income Tax Slab for Individuals more than or equal to 80 years
known as Super Senior Citizens For F.Y. 2017-18 (Both Male and
Female)
80C
This section is applicable from the assessment
year 2017-2018.Under this section 100%
deduction would be available from Gross Total
Income subject to maximum ceiling given u/s
80CCE. Following investments are included in
this section:
Amount of deduction: the deduction allowable is Rs. 50,000 (Rs. 40,000 for
A.Y. 2003-2004) in aggregate for any of or both the purposes specified above,
irrespective of the actual amount of expenditure incurred. Thus, if the total of
expenditure incurred and the deposit made in approved scheme is Rs. 45,000,
the deduction allowable for A.Y. 2004-2005, is Rs. 50,000
Deduction under section 80DDB
Section 80CCD:
Deductions under this section are for contributions to the New Pension
Scheme by the assesse and the employer. The deduction is equal to the
contribution, not exceeding 10% of his salary.
The total deduction available under Section 80C , 80CCC and 80CCD is
Rs.1,50,000. However, contributions to the Notified Pension Scheme
under Section 80CCD are not considered in the Rs.1,50,000 limit.
Section 80D:
This is the section that deals with income tax deductions on health insurance
premiums paid. In the case of individuals, the insurance policy can be taken to
cover himself, spouse, dependent children – for up to Rs.15,000 and parents
(whether dependent or not) – for up to Rs.15,000. An additional deduction of
Rs.5,000 is applicable if the insured is a senior citizen. In the case of HUF, any
member can be insured and the general deduction will be for up to Rs.15,000
and an additional deduction of Rs.5,000.
A total of Rs.2,00,000 can be claimed as deductions whether the assesse is an
individual or a HUF.
Section 80DDB:
This section is for deductions on medical expenses that arise for treatment
of a disease or ailment as specified in the rules (11DD) for the assesse, a
family member or any member of a HUF.
Section 80E:
This section deals with the deductions that are applicable on the interest
paid on education loans for an education in India.
Section 80EE:
This section deals with tax savings applicable to first time home-owners.
Applies for individuals whose first home purchased has a value less than
Rs.40 lakh and the loan taken for which is Rs.25 lakh or less.
Section 80RRB:
Deductions with respect to income by way of royalties or patents can be
claimed under this section. Income tax can be saved on an amount up to
Rs.3,00,000 for patents registered under the Patents Act, 1970.
Section 80TTA:
This section deals with the tax savings that are applicable on interest
earned in savings bank accounts, post office or co-operative societies.
Individuals and HUFs can claim a deduction on an interest income of up to
Rs.10,000.
Section 80U:
This section deals with the flat deduction on income tax that applies to
disabled people, when they produce their disability certificate. Up to
Rs.1,00,000 can be non-taxed, depending on the severity of the disability.
Section 24:
This section deals with the interest paid on housing loans that is exempt
from taxation. An amount of up to Rs.2,00,000 can be claimed as
deductions per year, and is in addition to the deductions under Sections
80C, 80CCF and 80D. This is only for self occupied properties. Properties
that have been rented out, 30% of rent received and municipal taxes paid
are eligible for tax exemption.
Other Deduction & Exceptions :
1) Tuition fees:
We often spend a considerable amount of our income to provide best education
to our kids. I-T laws provide you opportunity to compensate the expenses you
incur on their tuition fees by reducing your taxes. You can claim this deduction
u/s 80C of I-T Act.
5) Pension funds:
Ideally, the day you start earning money should be the day you start planning
your retirement.
One of the best ways to do this is to start investing in pension funds.
Fortunately, you can also reduce your taxes when you contribute to certain
pension funds. Provisions regarding tax benefits in this case are covered under
section 80C / 80CCC / 80CCD(1) / 80CCD(1B) / 80CCD(2).
14) PPF:
Other than PF, you can also invest in PPF. It is a good option if you looking for
long-term investment opportunity. Just like PF, you can get tax deduction on
your contributions while resulting interest income & maturity amount stays
exempt from tax.
6) NPS:
It is a saving scheme offered by postal department. It is considered a highly
secure option having almost zero risk. Your contribution to this scheme makes
you eligible for section 80C deduction. Though interest earned is taxable, it also
qualifies for deduction under section 80C
You are eligible to avail income tax refund once you file the return of your
income. Usually, the date for filing income tax returns is July 31 of every year
unless it is extended.
The quickest and easiest method of filing your income tax refund is to declare
your investments in Form 16. Your investments may include life insurance
premiums paid, house rent being paid, investments in equity/NSC/mutual funds,
bank FDs, tuition fees, etc. While filing your IT return, ssubmit all necessary
and relevant proofs. In case you have failed to do so and have been paying extra
taxes that you think you could have avoided, you will need to fill out Form 30.
Let’s understand what Form 30 is. Form 30 is basically a request that your case
be looked into and analyzed, so that the excess tax you have paid is refunded.
Your income tax refund claim should be submitted before the end of the
financial year. Also, your claim needs to be accompanied by a return in the
form, as prescribed under Section 139 of the Income Tax Act, 1961.
6. FINDING
Tax Management deals with filing of Return in time, getting the accounts
audited, deducting tax at source etc. Tax Management relates
to Past, Present, Future.
Past– Assessment Proceedings, Appeals, Revisions etc.
Present – Filing of Return, payment of advance tax etc.
Future – To take corrective action.
It helps in avoiding payment of interest, penalty, prosecution etc
6 . CONCLUSION
At the end of this study, The current income tax slabs 2018-19 are for
anyone filing their Income Tax Return in 2018 i.e. for F.Y.2017-18 (A.Y
2018-19). After reading this article, you must have understood that your
ITR slab AY 2017-18 doesn’t just depend on your income.
It also depends on your age , status and what all deductions and
exemptions you have taken. Deductions and exemptions can knock you
into a lower tax slab, reducing your tax liability (or increasing the size of
your tax refund) in the process.
That’s why it’s in your interest to make sure that you’re taking advantage
of all the income tax provisions for which you’re eligible, whether you use
tax preparation software, seek help from a CA or go the DIY route on
Income Tax portal.
7. BIBLIOGRAPHY
Websites:
http://Google.com/google scholer/
http://in.biz.yahoo.com/taxcentre/
http://www.google.com/tax-planning/
http://wikipedia.org
Books:
Dr. Vinod K. Singhania (2007), Students Guide to Income Tax,
Taxman Publications, New Delhi
CA Dr.Varsha Ainapure(2018),Mcom,Manan Prakashan,
Mumbai.