Effective Tax Planning

1. Objective2. Salary income3. House property income4. Other sources of income5. Tax savings instruments6. Tax structure and slabs7. Tax filing procedure8. Date & time for submission of investment

proofs9. Format of tax saving forms

Course content

Tax planning & its objectives…What is Tax Planning?

Tax planning is a structural & legal financial planning made by an individual for aparticular financial year to take maximum advantage of allowances, exemptions,deductions, concessions & rebates allowed under the provisions of Income TaxAct,1961.

Its Objectives :Understanding your sources of incomePlanning for the reduction of tax liabilities & the freeing-up of cash flows for other purposesAligning your investments with long term goals Making legitimate use of accessible allowances, exemptions etcPaying tax dues in a timely manner

(a). Heads of Income :

1. Salary income

2. House property income

3. Business & Profession income

4. Capital Gains

5. Other sources

All about tax(b).Exemptions, Allowances &

Deductions

(c). Tax Structure & Tax slab

(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.

Taxable Salary

Salary

Fully Taxable

Partly Taxable

Partly taxable allowances

HRA is a component of the salary package & paid by the employer to the employee to meet the cost of renting an accommodation.

HRA exemption is calculated as the least of the given 3 amounts:

50% of basic salary in case the residential house is situated in metros & 40% for any other place.

Actual HRA received

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.

1. House Rent Allowance (HRA):

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

How to compute HRA?

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

Partly taxable allowances

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) = 9600Taxable amount would be Rs. {(1000*12)- 9600} = 1600

4. Travelling/Conveyance, Helper, Uniform, Academic, Transfer and Daily Allowance

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

Partly taxable allowances

BonusLeave EncashmentLeave Travel AllowanceDearness AllowanceOvertimeArrearsCity Compensatory AllowanceFixed Medical AllowanceServant AllowanceOther Special Allowance

Fully taxable allowances

House Property Income

Home Loan Repayment

Benefits OF HOME LOAN

Interest PrincipalOriginal + Additional

Interest Deductible up

to Rs. 1,50,000(Sec 24)

Principal 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.

Taxability of home loan repayment

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

Other sources

Tax Saving Instruments

Tax saving instruments under 80 C

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

01/04/2012. Lock in period is 2 years , i.e. any amount withdrawn before 2 years would ,be

taxable.

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

Tax saving instruments under 80 C & 80 CCC

4. Subscription to National Saving Certificates (VIII): Amount invested is eligible for deduction in the year in which

investment is made. 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.

Tax saving instruments under 80 C

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).

Tax saving instruments under 80 C

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.

Tax saving instruments under 80 CCC

Section 80D

Additional deduction for preventive health check-up is allowed up to Rs. 5,000.

Medical Benefits

Description Medical premium paid in respect of

Self, Spouse & Children

Medical premium paid in respect of Parents, whether dependant or not

Total Deduction u/s 80D

All are below 60 years

Rs. 15,000 Rs. 15,000 Rs. 30,000

Assessee is less than 60 years & parent is a senior citizen

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

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.

Medical Benefits

Section 80DDExpenditure 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.

Medical Benefits

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.

25,000. Lock in period for investment is 3 yearsInterest 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 )

Beyond 80 C

Tax structure & Tax slabs

Tax Slabs For the A.y. 2014-15 (f.y. 2013-14)

Net Income Range

Tax Rates Education Cess Secondary & Higher

Education CessUpto Rs. 2,00,000 Nil Nil Nil

Rs. 2,00,000 – Rs. 5,00,000

10% of (Total Income minus Rs.

2,00,000)

2% of Income Tax 1% of Income Tax

Rs. 5,00,000 – Rs. 10,00,000

Rs. 30,000+20% of (Total Income

minus Rs. 5,00,000)

2% of Income Tax 1% of Income Tax

Above Rs. 10,00,000

Rs. 1,30,000+ 30% of Total Income

minus Rs. 10,00,000

2% of Income Tax 1% of Income Tax

NOTE :1. For resident Senior Citizens ( 60 yrs to 80 yrs) the basic exemption limit is Rs. 2,50,000.2. Surcharge is not applicable .

Say Mr. X, aged 40 yrs is having a net income as follows:

Salary income Rs 12,00,000Less: Deductions under chapter VI A Rs 1,50,000

(Sec 80C, 80D, 80U etc.) ------------Total Taxable Income Rs 10,50,000

------------Tax for first Rs 200000 Rs Nil

on next 2 lakhs to 5 lakhs @ 10% Rs 30,000 on next 5 lakhs to 10 lakhs @ 20% Rs 1,00,000 on balance of Rs 50,000 @ 30% Rs 15,000

------------ Tax payable Rs 1,45,000

Add: E.Cess & SHES Cess @ 3% Rs. 4,350_____________

TOTAL TAX PAYABLE Rs. 1,49,350

------------

Tax calculation

Tax Return Filing

Preparation & filing of IT return

Basics of ITR:There are two income tax return forms, ITR-1(SAHAJ) and ITR-2, for salaried individuals. Your sources of income will decide which ITR form will be applicable on you.

Income Tax Return

ITR-1(SAHAJ) – •Income from salary, pension,•Interest income.

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

Steps: One can simply download the relevant ITR Form from

www.incometaxindiaefiling.gov.in Slide 32 Fill up the required details in the form on the basis of Form 16 in excel

utility. Prepare Login Id & Password at www.incometaxindiaefiling.gov.in 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.

Preparation of IT return

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.

Important Considerations

Site for Downloading IT forms: www.incometaxindia.gov.in

Sites for e-filing of Return: www.incometaxindia.gov.in www.incometaxindiaefiling.gov.in www.tin-nsdl.com www.taxsmile.com www.taxpanner.com www.taxsum.com

Important Income Tax Websites

Date & Timeliness (Applicable for ABHIBUS employees only)

Particulars 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.