Tax Saving

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Overview

Tax Computation

Perquisites

Allowances

Exemptions

Deductions

Deductions of Chapter VI A

Rebate

Relief

Deductions

Deduction from salary

Standard Deduction : Rs. 50,000 or the amount of salary, whichever is lower

Employment Tax/Professional Tax: Amount actually paid during the year is deductible. However, if professional tax is paid by the employer on behalf of its employee than it is first included in the salary of the employee as a perquisite and then same amount is allowed as deduction.

Entertainment Allowance received by the Government employees (Fully taxable in case of other employees)

Least of the following is deductible :

a) Rs 5,000

b) 1/5th of salary (excluding any allowance, benefits or other perquisite)

c) Actual entertainment allowance received

Deduction from house property

Municipal Taxes

Municipal taxes including service-taxes levied by any local authority in respect of house property is allowed as deduction, if:

a) Taxes are borne by the owner; and

b) Taxes are actually paid by him during the year.

Standard Deduction

30% of net annual value of the house property is allowed as deduction if property is let-out during the previous year.

Interest on Borrowed Capital

a) In respect of let-out property, actual interest incurred on capital borrowed for the purpose of acquisition, construction, repairing, re-construction shall be allowed as deduction

b) In respect of self-occupied residential house property, interest incurred on capital borrowed for the purpose of acquisition or construction of house property shall be allowed as deduction up to Rs. 2 lakhs. The deduction shall be allowed if capital is borrowed on or after 01-04-1999 and acquisition or construction of house property is completed within 5 years.

c) In respect of self-occupied residential house property, interest incurred on capital borrowed for the purpose of reconstruction, repairs or renewals of a house property shall be allowed as deduction up to Rs. 30,000.

Deduction from other sources

Dividend or Interest on securities

house Any reasonable sum paid by way of commission or remuneration to banker or any other person for purpose of realizing dividend or interest on securities

Employee’s contribution towards Provident Fund, Superannuation Fund, ESI Fund or any other fund setup for the welfare of such employees

If employees’ contribution is credited to their account in relevant fund on or before the due date

Rental income letting of plant, machinery, furniture or building

Rent, rates, taxes, repairs, insurance and depreciation etc.

Family Pension

1/3rd of family pension subject to maximum of Rs. 15,000.

Any other income

Any other expenditure (not being capital expenditure) expended wholly and exclusively for earning such income

Interest on compensation or enhanced compensation

50% of such interest (subject to certain conditions)

Income from activity of owning and maintaining race horses.

All expenditure relating to such activity.

Note: Deductions in business is being incorporated in business tax section

Overview

Business Tax Planning: Due to the complex nature and heterogeneity of business planning differs on a case to case basis. Contact us with your case to plan your tax effectively and efficiently.

However, tax planning for the salaried or non-business individual can be done within the time frame allowed in income tax. It is pertinent to know about a few terms.

Tax Evasion: Illegal

Tax Evasion is an illegal way to minimize tax liability through fraudulent techniques like understating the taxable income knowingly or claiming fake investments. Tax evasion is a criminal offense and shall be punishable under the law. We shall never advise, promote, or support this method of reducing the tax burden.

Tax Avoidance: Legal but unethical

Tax avoidance is an act of using legal loopholes to reduce the tax burden. To err is human. And people who drafted the laws are also human. In spite of pouring due care, some framing inconsistencies may creep in the laws which were not the intent of the laws. And those inconsistencies can be exploited by the taxpayers. But, we have our ethical responsibility to not promote and support any type of tax avoidance at any cost or benefit.

Tax Planning: Legal and promoted by the government.

Tax planning is an act of using the several benefits given under the laws by the government to reduce the tax burden. These methods are completely legal. There are different types of benefits given under the laws. We have tried to enumerate them according to their types.

Allowances: Salary includes various other monetary benefits other than basic salary which are known as salary allowances. Eg House rent allowances, leave travel allowances. All allowances are not fully taxable.

Deductions: Deductions are the amount which is deducted from total income to reach taxable income.

Exemptions: Certain incomes which do not form part of total income at all are exempted incomes. Eg maturity proceeds received from a life insurance company continues to be exempted from tax under section 10(10D) in the new tax regime
Rebate: Rebate is the amount which is reduced from tax amount calculated on the taxable income.