CA Ninad J Panchakshari Mcom. FCA, Nashik What is Tax Planning? Tax planning is an essential part of your financial planning. Efficient tax planning enables you to reduce your tax liability to the minimum. This is done by legitimately taking advantage of all tax exemptions, deductions rebates and allowances while ensuring that your investments are in line with your long-term goals. However in a broader sense tax planning is not to save the tax for current financial year but also make an effective planning of the sources of your income. What tax planning is not… • Tax Planning is NOT tax evasion. Tax Planning is NOT just putting your money blindly into any 80C investments. • Tax Planning is NOT difficult. Selecting tax saving investments You should think about the following criteria, before selecting your tax saving investments for the year: 1. Liquidity 2. Risk and Return 3. Inflation Protection 4. Tax Exemptions Investment avenues available for Tax Planning: Normally tax planning means savings the Income Tax or lowering the burden of Income tax by investing the available funds with the instruments recognized by the Income Tax Act. Tax Planning and relevant sections of Income Tax Act:
Sec 80Deductions Under Chapter VI A Sec 22 & 24Deduction on account of Interest paid on housing Loan Sec 64Clubbing Provisions. Read with Sec 56(2) (v) Individual Tax Planning: Section 80 and Sec 22 are useful for the purpose of Individual tax planning. 1. Section 80C: Investment in specified instruments and expenses Section 80C gives every income tax payer up to a maximum of Rs. 1,00,000 tax free income in a year if they invest in or buy the following instruments. Please note that this is a combined total of Rs. 1,00,000 and not an individual figure for every instrument: 2.
Section 80D: Health Insurance Premium 3. Section 80E: Interest paid on educational loans 4. Section 80G: Donations to Charitable institutions 5. Section 24: Interest paid on housing loan Tax Planning of Salaried Persons In case of salaries person the designing of the salary is the starting point of tax planning. Apart from the above avenues the salaries person can use save the tax by designing the salary in such a way that the tax should be deducted less at the source as well as take home salary may be more. 1. Section 10(13A) : House Rent Allowance 2. Paying Rent to parents or relatives . Section 10 (14) Rule 2BB(10) : Transport Allowance 4. Section 17(2) : Medical Reimbursement FAMILY TAX PLANNING Now a days Family Tax planning has growing importance due to inflation, non-security, high income tax rates and shifting of EEE to EET tax structure Joint Family While doing the family tax planning one should keep in mind the provisions of Section 64 relating to Clubbing of Income. Especially in the case of gifts is that the provisions of Section 64 of Income Tax Act prohibit any direct or indirect transfer of funds between an assessee and his/her spouse. Avenues available:
A trust for minor children eliminates clubbing of income Major children can save your tax by giving the gifts to him/her. Your parents and in laws can save the tax by using the sec 56 ie gifts or loans. By preparing separate Income tax file of Daughter in Law can save the tax. Tax planning for a nuclear family The concept of joint family is cracking down. The simple methodology of tax planning for a nuclear family is to have separate income tax file for self, spouse and all children as well as the Hindu Undivided Family. Tax planning by Double Income No Kids (DINKs) Conclusion
Tax Planning is an application to reduce tax liability through the finest use of all accessible allowances, exclusions, deductions, exemptions, etc, to trim down income and/or capital profits. While tax planning the person always ensures that the investments are in line with the long term goals. Prima facie the tax planning is easy task; however it requires a thorough knowledge about the relevant laws. A better tax planning can give you the adequate liquidity with assured returns to cope in the inflationary period. Family tax planning having a great importance in today scenario.
Even though the family is joint family of nuclear family, it has immense importance. The DINKS family has better and wide options and opportunities than other to shape their future by proper tax planning. In nut shell the tax planning should be done keeping in mind the liquidity of funds, risk of returns along with the needs of the persons. So that it defers from person to person, their needs as well as the sources of income. CA NINAD J PANCHAKSHARI CHARTERED ACCOUNTANT A-5, SECOND FLOOR, KALANTRI COMPLEX NEAR NASHIKKAR PHOTO STUDIO, PANCHAVATI KARANJA PANCHAVATI NASHIK 422 003 0253 2629361, 98226 61346
