Individual Tax Planning

Category: Education

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PREFACE ‘Fear coupled with low compliance’ is due to lack of awareness. Ignorance means darkness. Darkness means absence of light or awareness. Ignorant is afraid. Aware but dishonest is also afraid. Why an honest should be afraid? Just for want of awareness!

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Income tax is boring and its payment is painful. Price for civilization. Nothing is sure except death and taxes. Being Socio-Economic law, various exemptions and deductions have been provided. Life is changing fast, so is Income Tax law; hence also called one time ticket.

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General awareness means to know what income is taxable or exempt, what are deductions, how to calculate tax and how to file Income-tax return; Computerization has made it very easy.



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Website:- HTTP://INCOMETAXINDIA.GOV.IN/ After not including exempt income, income is calculated as per Income Tax Act and deductions are also made therefrom such as payment of LIC, PF, interest on education loan etc.

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TERMS P.A.N .: ‘Permanent Account Number’ is a person’s identification number, or it can be termed as “ SHRI GANESH OF INCOME TAX ”

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TRANSACTIONS IN WHICH QUOTING OF PAN IS MANDATORY Purchase and sale of immovable property . Purchase and sale of motor vehicles. Transaction in shares exceeding Rs.50,000. Opening of new bank accounts.

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Fixed deposits of more than Rs.50,000. Application for allotment of telephone connections. Payment of hotel Bills exceeding Rs.25,000.

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Assessee : In income-tax a person who has to comply his tax obligation or to get refund or against whom any proceedings are taken is called an ‘assessee’. Assessment Year : Assessment year means the period of 12 months starting from 1st April of every year and ending on 31st March of the next year. Financial year : Income earned in a financial year is taxable in the next year called Assessment Year.

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FORMS TO BE USED:- The forms to be used for filing the return of income are mentioned below:- ITR 1: For Individuals having income from Salary/ Pension/family pension & Interest; ITR 2: For Individuals and HUFs not having income from Business or Profession.

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TAX RATES FOR FINANCIAL YEAR 10-11 A.Y. 11-12 In the case of a Senior Citizen , income upto Rs. 2,40,000 is exempt; [Attains age of 65 ( 60 w.e.f.1.4.11 ) at any time during the Financial Year] In the case of women income upto Rs. 1,90,000 is exempt; In the case of others income Up to Rs. 1,60,000 is exempt.

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Income Tax Rates for Current Financial Year and Asstt.Year Rs. 1,60,001 – 5,00,000 10%. Rs. 5,00,001 – 8,00,000 20% Rs. 8,00,001 upwards 30%

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EXEMPT INCOMES IN GENERAL ARE:- Agricultural income; Leave Travel concession death-cum-retirement gratuity @ 15 days salary for each completed year of service; i.e. No. of years/2 would give months. Commutation of pension Leave encashment at the time of retirement

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VRS or Golden Shake Hand: Any amount received or receivable by an employee of – Government, public sector undertakings, local bodies or notified institutions under Voluntary Retirement Scheme Maximum exempt amount is Rs.5,00,000/-

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Any sum received under a life insurance policy, Any payment from a provident fund under that Act or notified by it in this behalf in the Official Gazette; Any House Rent Allowance to the extent of least of the following: (a) the actual allowance received by the assessee (b) paid in excess of one-tenth of salary (c) an amount equal to 40% of salary.

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Scholarships granted to meet the cost of education Pension received by a person who has been awarded " Param Vir Chakra " or "Maha Vir Chakra" or " Vir Chakra " or family pension received by any member of his family

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HEADS OF INCOME A.-Salaries. B.-Income from house property. C.-Profits and gains of business or profession. D.-Capital gains. E.-Income from other sources.

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SALARY Salary received or receivable from the employer; If received by a partner from the firm it is not salary income. "Salary", "perquisite" and "profits in lieu of salary" defined. Salary, wages, fees commission, advance salary, leave encashment

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“ PERQUISITE " includes- Rent-free accommodation or Concession provided by the employer; In case of furnished accommodation, increase it by 10%. Any sum paid by the employer in respect of any obligation payable by the employee;

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Benefit or amenity but not the following : Medical treatment in a Hospital maintained by the Employer Reimbursement of indoor-medical treatment Fifteen thousand reimbursement for outdoor medical treatment.

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" Profits in lieu of salary " includes- Any payment which is not exempt from tax Any payment received from the employer before joining and after leaving the service.

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HOUSE PROPERTY Annual Rental income from any building: Received or reasonable rent that it can fetch, whichever is higher. But it shall not include: Unrealized rent; or If it is self-occupied.

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Deductions from income from house property. (a) a sum equal to thirty per cent. of the annual value; (b) Interest on borrowed capital for the property but not more than 1,50,000/- (no limit if given on rent) (c) If it is taken on installments, then the interest payable on each installment. Property owned by co-owners It shall be taxed not jointly but as per their shares which are definite and ascertainable.

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BUSINESS-PROFESSIONAL INCOME Total profits or gains shall be reduced by: Rent, taxes, repairs and insurance for buildings. Repairs and insurance of machinery, plant and furniture.

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DEPRECIATION. On buildings, machinery, plant or furniture, being tangible assets; owned, wholly or partly, by the assessee and used for the purposes of the business or profession

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GENERAL Any expenditure not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of business or profession

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Amounts not deductible. Any interest, commission or amounts payable to a contractor etc. on which tax has not been deducted; or TDS deducted has not been paid on or before the due date specified in sub-section (1) of section 139: Certain deductions to be only on actual payment. (a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, shall be allowed in that previous year in which such sum is actually paid by him.

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Maintenance of accounts by certain persons carrying on profession or business. Persons carrying on legal, medical, engineering or architectural profession to keep books to arrive at taxable income; or If his receipt is more than a certain limit (10 lacs at present) or his income is more than 1,20,000/.

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Audit of accounts of certain persons carrying on business or profession. Turnover more than 60 lacs; Professional receipt is more than 15 lacs.

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CAPITAL GAINS On the transfer of a capital asset voluntarily or by way of compulsory acquisition under any law, CG=Sale price – cost + improvements; Cost has to be increased as per cost index, Property of 100 in 1981, if sold now for 711 (present cost index) there would be no gain.

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PROFIT ON SALE OF PROPERTY USED FOR RESIDENCE. It shall be exempt if Profit is utilized by the assessee in acquiring: another house within a period of one year before or two years after the sale or has within a period of three years after that date constructed, a residential house,

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Profit on transfer of land used for agricultural purposes If another land is purchased within two years. Capital gain not to be charged on investment in certain bonds. If within a period of six months of the sale, the profit is used for purchasing following bonds for an amount not more than Rs.50 lacs in a financial year : Issued by the National Highways Authority of India; or Issued by the Rural Electrification Corporation Limited,

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Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house. within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house

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INCOME FROM OTHER SOURCES. Any income which does not fall under any head shall be taxed under this head: Any cash or property, more than 50,000/-, received in a year without consideration ; But not if received: from any relative ; or on the occasion of the marriage of the individual; or under a will or by way of inheritance.


PENSION AND FAMILY PENSION PENSION: It is nothing but deferred salary in lieu of past services; DEDUCTION: No standard deduction on salary or on pension; FAMILY PENSION: One-third, > Rs.15,000/-

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DEDUCTIONS Deduction in respect of life insurance premia , provident fund, etc. but not more than Rs.1. 2 lac Any sums paid towards: Insurance premium Contribution to Provident Fund National Saving Certificates Tuition Fees of self, spouse or child (not more than 2) Installment of housing loan

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FDR for period of not less than five years with a scheduled bank, as per scheme notified by Central Govt. Deduction in respect of health insurance premium: [Upto Rs. 15,000/-, and in the case of senior Citizen it is Rs. 20,000/-] Rs.20,000/- infrastructural bonds.

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Deduction in respect of maintenance including medical treatment of a dependant who is a person with disability. Rs. 50,000/- In case of severe disability it is Rs. one lac . [Medical certificate is required to be attached with the return.]

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DEDUCTION IN RESPECT OF MEDICAL TREATMENT, ETC. Rs. 40,000/-; but in the case of a senior citizen it is Rs.60,000/-; Provided it is actually spent for the specified ailments.

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Deduction in respect of interest on loan taken for higher education. For self, spouse, dependent child or for whom assessee is guardian Beginning year and four immediately following years.

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Deduction in respect of donations paid in cash only 100% of the following: ( i ) the National Defense Fund; or (ii) Prime Minister's National Relief Fund; (iii) National Foundation for Communal Harmony; or (iv) Local authority any for the purposes of improvement of primary education in villages and towns (v) National or State Blood Transfusion Council

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(vi) State Government Fund to provide medical relief to the poor; or (vii) Armed forces Central Welfare Fund for the welfare of the past and present members of such forces or their dependants; or (viii) National Sports Fund; or (ix) the National Cultural Fund; or (x) Fund for any Govt. for the purpose of promoting family planning;

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50% of the following: (v) Fund for of the Government or any local authority, for any charitable purpose; or (vi) an authority for satisfying the need for housing accommodation (b) any sums as donations for the renovation or repair of any such temple, mosque, gurdwara, church or other place of extraordinary importance;

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80U. Deduction in case of a person with disability. Rs. 50,000/- to resident individual with disability; Rs. 75,000/- (now Rs.1 lac) with severe disability. Certificate from the Prescribed medial authority shall be attached with the return of income.


GRATITUDE GRATEFUL TO ALL OF YOU RAVI SHANKAR, EX-I.R.S., Advocate; Legal & Taxation Adviser #5860, Duplex, MHC, Manimajra 9815078950,0172-2731111