Tax Planning

Salary income
House property income
Other sources of income
Tax savings instruments
Tax structure and slabs
Tax filing procedure
Date & time for submission of investment
Format of tax saving forms
What is Tax Planning?
Tax planning is a structural & legal financial planning made by an individual for a
particular financial year to take maximum advantage of allowances, exemptions,
deductions, concessions & rebates allowed under the provisions of Income Tax
Its Objectives :
Understanding your sources of income
Planning for the reduction of tax liabilities & the freeing-up of
cash flows for other purposes
Aligning your investments with long term goals
Making legitimate use of accessible allowances, exemptions etc
Paying tax dues in a timely manner
(a). Heads of Income :
1. Salary income
(b).Exemptions, Allowances &
2. House property income
3. Business & Profession
(c). Tax Structure & Tax slab
4. Capital Gains
5. Other sources
(d). Preparation & Filing of
Income Tax Returns
Salary Income
Salary includes basic pay and all other monetary & non
monetary benefits provided by the employer to the employee.
1. House Rent Allowance (HRA):
HRA is a component of the salary
package & paid by the employer
to the employee to meet the cost of
renting an accommodation.
50% of basic salary in case the
residential house is situated in
metros & 40% for any other
Actual HRA received
HRA exemption is calculated as
the least of the given 3 amounts:
Actual rent paid less 10%
of the salary
Note: However no Exemption shall be available if the employee
lives in his own house or in a house for which no rent is paid.
For example…
Mr. X, who resides in Calcutta gets Rs. 6,00,000 as salary
He receives Rs. 1,70,000 as HRA. Rent paid by him is Rs. 1,80,000.
The Exempt HRA for the A.Y. 12-13 will be least of the following:
Actual HRA received i.e. Rs. 1,70,000 or
50% of salary i.e. Rs. 3,00,000 or
Rent paid in excess of 10% of salary i.e.
[1,80,000 – (10%* 6,00,000)]
= [1,80,000 – 60,000]
= Rs. 1,20,000 = Exempted HRA
In this case the taxable HRA will be:
Actual HRA received (less) exempted amount
= (170000 - 120000) = Rs. 50,000
2. Children Education Allowance
Up to Rs. 100 p.m. per child, maximum of two children.
Mr. A gets Rs 300 p.m. for his 3 children as C.E.A ,
In this case the exemption amount will be Rs. (2*100*12) = 2400
Taxable amount would be Rs. {(3*300*12)- 2400} = 8400
3. Hostel Expenditure Allowance
Up to Rs. 300 p.m. per child, maximum of 2 children
Mr. B gets Rs 400 p.m. for his 2 children as H.E.A ,
In this case the exemption amount will be Rs. (2*300*12) = 7200
Taxable amount would be Rs. {(2*400*12)- 7200} = 2400
3. Transport Allowance
 Up to Rs. 800 p.m. for commuting between residence and place of duty
 For Disabled employee Rs. 1600 p.m.
 Mr. C gets Rs 1000 p.m. as Transport allowance,
In this case the exemption amount will be Rs. (800*12) = 9600
Taxable amount would be Rs. {(1000*12)- 9600} = 1600
4. Travelling/Conveyance, Helper, Uniform, Academic, Transfer and Daily
 Exempted up to the amount of expenditure incurred for office purpose only.
 Mr. D gets Rs 2000 as Conveyance allowance, out of which he spends Rs 1,500 for
his office purpose and balance Rs. 500 for personal use.
In this case the exemption amount will be Rs. 1500
Taxable amount would be Rs. 500
Leave Encashment
Leave Travel Allowance
Dearness Allowance
City Compensatory Allowance
Fixed Medical Allowance
Servant Allowance
Other Special Allowance
 House
Property Income
Home Loan Repayment
Original + Additional
Deductible up
to Rs. 1,50,000
(Sec 24)
deductible up to
Rs. 1,00,000
(Sec 80C)
Ex: Mr. Gupta has taken a housing loan of Rs. 20,00,000 @10% p.a. having an
EMI (monthly installment) of Rs. 20,000. So, Mr. Gupta is making a payment
of (Rs.20,000 * 12) = Rs. 2,40,000 p.a . out of his taxable income
Of which Interest = Rs. 1,60,000
Principal = Rs. 80,000
Tax consequences for Mr. X are as follows;
Interest amount up to 1,50,000 (out of Rs 1,60,000) will be exempted / adjusted
from salary income. The principal amount of Rs. 80,000 will be exempted under
section 80 C subject to maximum limit of Rs 1,00,000.
 Other
Sources of Income
Dividend income- exempt for tax u/s 10(34)
Saving bank interest
Interest on fixed deposits with bank
Interest on deposits with post- offices
Any other income
Note: Employee should disclose all other income
to his employer enabling him to calculate his
correct tax liability and make payment thereof.
This is submitted in the Tax Savings form on PINS during the month of December
Tax Saving Instruments
1. Life Insurance Premium:
 LIC can be taken in the name of individual, spouse, children (minor/major,
dependant/independent, married/unmarried)
No deduction will be available if LIC policies are taken in the name of parents,
brother, sisters or any other relatives.
Premium amount cannot exceed 10% of the sum assured if policies is taken after
Lock in period is 2 years , i.e. any amount withdrawn before 2 years would ,be
2. Contribution towards Unit Linked Insurance Plan (ULIP) of LIC, UTI, or
any other notified ULIP schemes:
Lock in period is 5 years
Very high returns in bullish market, & such returns are Tax-free
3. Contribution to Equity Linked Saving Scheme (ELSS)
Lock in period is 5 years
Very high returns in bullish market, & such returns are Tax-free
4. Subscription to National Saving Certificates (VIII):
Amount invested is eligible for deduction in the year in which investment is
Interest accrued on NSC which is re-invested is also eligible for deduction
Lock in period is 6 years.
5. Contribution towards Public Provident Fund (PPF)
Assured Tax free return @ 8.8% p.a.
Maximum limit of investment is Rs. 1,00,000
Lock in period is 15 Years however can be partially withdrawn after 6 Yrs.
6. Contribution towards Statutory Provident Fund, Recognized Provident
Fund, Approved superannuation Fund
7.Tax saving fixed deposits with banks
Lock in period is 5 years
Interest income is taxable.
8.Tax saving term deposits with Post Office
Lock in period is 5 years
Interest income is taxable
9. Senior Citizen Saving Schemes
Assured Returns @ 9.3%
Application to senior citizens only
Interest income is taxable.
Lock in period is 5 years.
10. Any sum paid as Tuition Fees for children:
 Tuition fees does not include payment in the form of development fees, donation
and payment of similar nature.
 Allowed for maximum of two children.
11. Any payment made towards repayment of Housing Loan (principal amount).
Contribution to Pension funds
Any premium paid towards annuity plan of LIC or any other insurer for receiving
pension fund is deductible
The amount of pension received by individual or his nominee is taxable.
Ex: Suppose Mr. X has contributed Rs. 1,50,000 in the pension plan of LIC in
July 2012, with an intention to receive monthly pension of Rs. 2000 after
attaining the age of 50.
In the above case Mr. X will get a deduction of Rs. 1,00,000 under section
80 CCC in the A.Y. 2013-14, on the other hand the pension received by
Mr. X (after attaining the age of 50) i.e. Rs. 24,000 will be taxable in his
hands in the year of receipt.
Note: Section 80CCE provides that deduction under sec 80C, 80CCC & 80CCD shall not
exceed Rs. 1,00,000.
Section 80D
Medical premium
paid in respect of
Self, Spouse &
Medical premium
paid in respect of
Parents, whether
dependant or not
Total Deduction
u/s 80D
All are below 60
Rs. 15,000
Rs. 15,000
Rs. 30,000
Assessee is less
than 60 years &
parent is a senior
Rs. 15,000
Rs. 20,000
Rs. 35,000
Both individual &
parent attained the
age of 60 years
Rs. 20,000
Rs. 20,000
Rs. 40,000
Additional deduction for preventive health check-up is allowed up to Rs. 5,000.
Ex: For instance Mr. X, pays medical insurance premium of Rs. 12000
for his health and on the health of spouse and dependant children and
further he pays Rs. 18,000 for the health of his parents.
Moreover during the year Mr. X made an expense of Rs. 6000 for preventive
health check up of his family.
Deduction u/s 80 D will be as under;
a). Mr. X will be allowed a deduction of Rs.12,000 for himself , his spouse & children
and for his parents he will get a deduction of only Rs. 15,000, (if neither of his
parent is a senior citizen).
therefore, Total deduction = Rs. 12,000+15,000 = 27,000
b). However, if any of his parents is a senior citizen, he will be allowed as
deduction of Rs. 18000
therefore, Total deduction = Rs. 12,000+18,000 = 30,000
Additional deduction of Rs. 5,000 for preventive health check up would be
allowed in both the cases.
Section 80DD
Expenditure incurred for treatment of disabled dependent spouse,
children parents, brothers & sisters suffering from Autism, mental
retardation etc. up to Rs. 50,000 (Rs. 1,00,000 for severe disability)
irrespective of the amount of expenditure incurred.
Section 80DDB
Expenditure incurred on treatment of the individual or his dependant
relatives for specified diseases such as Cancer, AIDS qualifies for
Deduction up to Rs. 40,000 (Rs. 60,000 for senior citizens).
Section 80U
For individuals suffering with Autism, mental retardation etc.
up to Rs. 50,000(Rs. 100000 for severe disability) can be
claimed as deduction.
Equity Saving Schemes (Sec 80CCG)
 Eligible for new retail investors
 Investment should be made in listed equity shares as notified
 Amount of deduction would be 50% of amount invested maximum up to Rs.
 Lock in period for investment is 3 years
Interest on Education Loan (Sec 80 E)
Interest paid on loan taken for higher studies for self, spouse and children is
exempt from tax without any limit for a maximum period of 8 successive years
or till the interest is paid whichever is earlier.
Ex: Mr. X has taken an educational loan for his children’s higher education of Rs.
5,00,000 @ 10% p.a. in April 2012.
Deduction u/s 80E will be Rs. 50,000 p.a. starting from the A.Y. 2013-14 in which the
first repayment is made for a maximum period of 8 successive years or till the interest is
paid whichever is earlier.
Saving Bank Interest up to Rs. 10,000 is allowed as deduction ( Sec 80TTA )
Tax structure &
Tax slabs
Net Income Range
Tax Rates
Education Cess
Secondary &
Higher Education
Upto Rs. 2,00,000
Rs. 2,00,000 – Rs.
10% of (Total Income
minus Rs. 2,00,000)
2% of Income Tax
1% of Income Tax
Rs. 5,00,000 – Rs.
Rs. 30,000+20% of
(Total Income minus
Rs. 5,00,000)
2% of Income Tax
1% of Income Tax
Rs. 1,30,000+ 30% of
Total Income minus
Rs. 10,00,000
2% of Income Tax
1% of Income Tax
Above Rs.
NOTE :1. For resident Senior Citizens ( 60 yrs to 80 yrs) the basic exemption limit is Rs.
2. Surcharge is not applicable .
Say Mr. X, aged 40 yrs is having a net income as follows:
Salary income
Less: Deductions under chapter VI A
(Sec 80C, 80D, 80U etc.)
Total Taxable Income
Tax for first Rs 200000
on next 2 lakhs to 5 lakhs @ 10%
on next 5 lakhs to 10 lakhs @ 20%
on balance of Rs 50,000 @ 30%
Tax payable
Add: E.Cess & SHES Cess @ 3%
Rs 12,00,000
Rs 1,50,000
-----------Rs 10,50,000
Rs 1,00,000
-----------Rs 1,45,000
Rs. 1,49,350
Return Filing
Basics of ITR:
There are two income tax return forms, ITR-1(SAHAJ) and ITR-2, for salaried
 Your sources of income will decide which ITR form will be applicable on you.
•Income from salary, pension,
•Interest income.
Income Tax
ITR-2 –
• Income from salary, pension,
• Income or loss from house property,
• Capital Gains from sale of house property or shares and
• Income from other sources.
It can be prepared online or offline.
Offline : In this case , you can fill it up and submit to the income tax
office and get the acknowledgement.
Online : This option is more user friendly and needs to be submitted on the
IT dept website followed by a speed post to CPC Bangalore
 One can simply download the relevant ITR Form from Slide 32
 Fill up the required details in the form on the basis of Form 16 in excel
 Prepare Login Id & Password at Slide 33
 Generate xml file from the prepared IT return
 Upload the xml file. Slide 34
 Take the print out of ITR V (acknowledgement)Slide 35
 Send it to CPC Bangalore after signing it.
Due date of Income Tax Return Filing for Individuals is 31st July of the relevant
Asst Year.
From the Financial Year 2010-11, salaried individuals with taxable income of less
than 5 lakhs have not to file returns, provided the entire income is accrued from a
single employer and there is no interest income of more than Rs. 10,000 form your
savings account and included in Form 16.
If the assessee fails to file the return within the due date, he may file the return
within 31st March of the relevant A.Y. without any penalty after that a penalty of
Rs. 5,000 will be imposed on him.
Default in furnishing the return of income attracts interest of 1% p.m. or part thereof
from the due date of filing return till the date of furnishing the return or date of
completion of income tax assessment.
Site for Downloading IT forms:
Sites for e-filing of Return:
Due Dates
Last date for submission of investment declaration for
the current F.Y.
01st August, 2013
Last date for making investments and providing
investments proofs by the employees
31st January, 2014
If payment due falls in Feb’14 & March’ 14 then
attach last year paid receipt of the same.
31st January, 2014
To accomplish great things, we must not
only act, but also dream; not only plan,
but also believe.
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