TAX STRATEGY

TAX Planning
Common Goals include:  Knowing the current tax laws & regulations affect you.  Maintaining complete and appropriate tax records  Making purchase & investment decisions that can reduce your tax liability

INCOME
All incomes earned by persons are classified into 5 different heads, such as:
    

Income from Salary Income from House property Income from Business or Profession Income from capital gains Income from other sources

Tax on Income
Taxes are collected by three means:
1.

Voluntary payment by persons into various designated Banks. For E.g. Advance Tax and Self Assessment Tax

2.

Taxes deducted at source [TDS] on your behalf from the payments receivable by you.

3.

Taxes collected at source [TCS] on your behalf at the time of spending.

Tax On Purchases


Sales Tax Paid

 

Central or State government Consumption tax charged at the point of your purchase of a certain commodity.

The government levies Sales Tax principally on intra-state sale of goods.

VAT: It is based on the value of the goods, added by the transferor. It is the tax only on the "value added" to a product, material or service.

Excise Tax (on specific goods)

Tax On Property
 Personal property  Real estate

taxes

property

Taxes on Wealth


Direct tax legislation, which came into existence on 1st April 1957.

Wealth tax is levied on the benefits derived from property ownership.

Tax is to be paid year after year on the same property on its market value, whether or not such property yield any income.

Taxes on CAPITAL Gains

If any Capital Asset is sold or transferred, the profits arising out of such sale are taxable as capital gains in the year in which the transfer takes place. Capital gains are to be computed by deducting the following three amounts received on transfer of the asset:
   

The actual cost of the asset or its estimated market value . The cost of improvement, if any, for the asset; Expenses incurred on transfer of the asset; and In case of a long-term capital asset, the costs are increased as per a Cost inflation index for the year.

Assessment year Period of 12 months commencing from 1 Apr to 31 is earned is called In simpler terms, the year in which incomeMar every year.
st st

previous year & the next during which income is computed & It is the period year in which such the income of a put to tax for tax. person is to be assessed is known as


Previous Year it is the income earned during the previous year which is to be assessed to tax in the assessment year.

Assessment year.

REFERENCES
 

http://www.incometaxindia.gov.in/ http://india.gov.in/citizen/taxes.php

TAX CALCULATION

TAXES


Any individual income i.e., income of a public sector employee and income of private sector employee is taxable under the Income Tax Act of India.

The tax calculation in India is done on the basis of the income of an individual under various defined heads of income

Tax Slabs in India:

MEN Income Tax Slab (in Rs.) 0-1,80,000 1, 80,001 to 5,00,000 5,00,001 to 8,00,000 Above 800,000 TAX WOMEN Income Tax Slab (in Rs.) 0-1,90,000 1,90,001 to 5,00,000 5,00,001 to 8,00,000 Above 8,00,000 TAX SENIOR CITIZEN Income Tax Slab (in Rs.) 0 to 2,50,000 2,50,001 to 5,00,000 5,00,001 to 8,00,000 Above 8,00,000 TAX

Nil 10%

NIL 10%

NIL 10%

20%

20%

20%

30%

30%

30%

Concepts of Income tax

year  Previous year  Person  Assesse  Charge of income tax  Income  Gross total income  Residential status and tax incidence
 Assessment

Person
individual  A HUF  A company  A firm  An association of persons or body of individuals incorporated or not  Local authority  Every person not falling within these categories
 An

Assesse
 A person

by whom any tax or any other sum of money is payable under the Act  Every person in respect of whom any proceeding under the Act has been taken for the assessment of his/her income or the amount of refund due to him/her  A person who is assessable in respect of income or loss of another person or who is deemed to be an assesse, or an assessee in default under any provisions of the act

Residential status
 If one

resides for 182 days during the year or for 60 days during the year and 365 days during the preceding 4 years.  Resident not present in India for 730 days during the preceding 7 years or who was nonresident in 9 out of 10 years (not ordinary resident)  NRI- any Indian or Foreigner who does not fall under above provisions.

Tax Incidence

Residential status Resident and Ordinary resident

Indian Income Taxable

Foreign Income Taxable Nontaxable Nontaxable

Resident but not ordinary Taxable resident Nonresident Taxable

Ethical considerations
 Filling

income tax return on the total income of the person  Permanent account number  Tax avoidance  Tax evasion

Tax planning
 Three steps

involved: Compute the taxable income under all heads. Calculate the tax liability on gross taxable income for whole financial year. Options to choose from: No tax planning Minimize your tax liability through tax planning

Cont.
 Tax provisions

available  Prevailing income tax rates  Applicable tax exemptions  Allowances These should be taken into account while computing tax liability.

Main provisions of income tax

Tax Act,1961  Wealth Tax,1957
 Income

Exemptions
income  Receipts from HUF  Gratuities received from the employer  Commutation of pension  Leave salary of central government employees  Voluntary retirement or separation payment  Life insurance receipts
 Agricultural

Cont
received from provident funds  Certain specified interest payments:  Income by way of interest , premium on redemption or other payment on such securities, bonds, savings certificates .  Annuity received on 12-year annuity certificates issued by government.  Interest on gold deposit bonds
 Payment

Interest from 10-year treasury savings deposit certificates  Interest from 10 and 12 year national plan savings certificates  Interest from deposits in post office savings bank  Interest on bonds of local authorities as notified


Cont..
Interest on 6.5% savings bonds (exempt) issued by RBI  Interest on notified debentures of public sector companies  Scholarships and awards  Dividends on shares and units  Long term capital gains from transfer of securities  Amount received by the way of gifts..etc


Payments exempt from income tax

insurance premium  Annuity paid to keep in force the deferred annuity plan  Medical insurance premium  Provident fund set up by central or state  Approved superannuation fund  Subscription to any security or deposit scheme of central govt.
 Life

Cont..
 Subscription

to any savings certificates as defined in clause(C) of sec2(14) of the government savings certificate Act,1959 such as National Savings Certificate VI & VII  Contribution to ULIP of UTI, LIC, and other private life insurance companies.  Mutual fund schemes (central govt.)

Calculation of Income tax on salaried Income

 Calculation

of Income From salary  Perquisites value of any benefit or amenity granted or provided free of cost or at concessional rate by the employer. It refers to the benefits or tangible monetary value provided to an employee.

Taxable Perquisites
 Taxable

perquisites any value of rent free accommodation or concession in rent, any life insurance , health insurance, free meals, gifts, or use of any movable assets.  Tax-free perquisites- medical facilities, recreational facilities ,refreshments during working hrs & gifts up to Rs 5000.  Perquisites taxable only in the hands of the specified employees.

Allowances
fixed amount ,in addition to the salary & perquisites provided by the employer regularly in connection with the services rendered by an employee.  These can be: Taxable allowances Tax free allowances Allowances taxable to certain extent.
 An

Qualifying amount
 Under

section 80C ,all savings , bank deposits , postal savings , PPF, Investments in mutual funds, Insurance premiums etc qualify for tax deduction from the total Income. Further deductions will be available under sec 80 CC, contribution toward annuity and 80 CCD is also included in the qualifying amount.

Calculation of Tax on income from house property

 Provisions

relating to house property Annual value/ market value of the property. The purpose of tax calculation, annual value of the property will be :Municipal valuation of the property Fair rent of the property Standard rent of the property.

Cont.
 Standard

rent under the Rent control ActIt is the rent fixed as the reasonable expected rent in the same locality. As per the Rent control act, the fair rent or municipal valuation of the property cannot exceed the standard rent.

Tax calculation on capital gains and income from other sources

      

Capital assets - any physical assets such as house property , gold , jewellary & financial assets such as shares,govt.securities etc. Capital Gains does not include:Stock-in trade ,raw materials held for the purpose of business or profession Personal objects meant for household purpose. Agriculture land in India situated outside the jurisdiction of a municipality or a cantonment board . 6.5% gold bonds or 7% gold bonds National Defense Gold Bonds . Gold deposit Bonds issued under the Gold deposit Scheme.

Cont..
 Short-term capital

assets-3 years or less incase of financial assets such as shares, govt. securities & mutual funds period is restricted to 1 year.  Long-term assets- movable or immovable property .In case of financial assets the period is more than 12 months.  Transfer of capital assets- sale, exchange or transfer of capital assets.

Cont..
 Short term

capital gains- any profit arising from sale of physical assets held for less than 36 months or financial assets held for less than 12 months.  Long term capital gains- (more than 36 months or 12 months in case of financial securities )  Cost of acquisition asset acquired by the assessee.

Strategies to manage tax

 Investment in

various fixed income plans  Life insurance to protect the family  Procurement of housing loans  Equity shares and mutual funds  Retirement plans  Health Insurance  Educational loan  Provision of gifts and donations

Implementing plan
all your plans into action  Provide maximum benefits at lower cost  Risk aptitude, risk-return ratio, liquidity, and tax benefits  Assets should be well balanced and diversified.  Consider insurance needs  Presale as well as post sales services.
 Putting