Taxation Planning

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Tax Planning

Tax planning is a process of analyzing one’s financial situation logically with an aim to reduce tax liability through the best use of all available allowances, exclusions, deductions and exemptions under the income tax act 1961.
The Income Tax Act contains a total of 23 chapters and 298 sections according to the official website of the Income Tax Department of India.These different sections deal with various aspects of taxation in India. The various heads for which you have to pay income tax include:

  • Salary
  • Income from house property
  • Capital gains
  • Profit and gains from business or profession
  • Income from other sources

Short Term Tax Planning

Short-range planning means planning made annually to fulfill the limited or specific objectives. It is executed at the end of the year to reduce taxable income legally. Also, in short-range tax planning there is no permanent commitment. An individual may invest in NSCs (National savings certificate) or PPF (Public Provident Fund) within the prescribed limit when income is increased. It is not advisable to take LIC/ULIP/Pension Plan etc

Long Term Tax Planning

Long range tax planning means a definite plan chalked out at the beginning of the income year to be followed around the year. This type of planning does not help immediately as in the case of short range planning but is likely to help in the long run ; Long range tax planning refers to the practices undertaken by the assesse. Long term planning is done at the beginning or the income year to be followed around the year. Long term planning does not help immediately, For example transfer of assets without consideration to minor child. In this acase, the income will be combined to transferor up to the child in minor but once the child turns 18, this will be the child’s income.

Permissive tax planning

Permissive tax planning refers to the plans which are permissible under various provisions of the law, for example planning of earning income covered by Section 10, Section 10(1), planning of taking advantage of various deductions, incentives for getting benefit of different tax concessions etc. In other words, it means planning made as per provision of the taxation laws.

Purposive tax planning

Purposive tax planning means applying tax provisions in an intellectual manner so as to avail the tax benefits based on national priorities. It includes tax planning with a purpose of getting the maximum benefit by making suitable program for replacement of assets, correct selection of investment, varying the residential status and diversifying business activities and income. Also, Under Income Tax Act, Section 60 to Section 65 is related to the income of other persons included in the income of assesse. Here, assesse can plan in a way that the provisions do not get attracted so as to increase the disposable resources. This is known as purposive tax planning.

Objective of tax Planning


The primary objectives of your tax planning should be the following:

  • Reduction in overall tax liability
  • Economic stability
  • Growth of economy
  • Litigation minimization
  • Productive investment.
Section Permissible limit Type of investment, expense or income Eligible claimants
80C Maximum Rs. 1,50,000 (aggregate of 80C, 80CCC and 80CCD) PPF, EPF, Bank FD's, NSC, LIC premium, tuition fees Individuals, HUFs
80CCC Maximum Rs. 1,50,000 (aggregate of 80C, 80CCC and 80CCD) Pension funds Individuals
80CCD Maximum Rs. 1,50,000 (aggregate of 80C, 80CCC and 80CCD) Pension fund initiated by central government Individuals
80TTA Up to Rs. 10,000 per year Interest on bank savings account Individuals and HUFs
80CCG 50% of amount invested subject maximum of Rs. 25,000 Equity saving schemes Individuals
80CCF Up to Rs. 20, 000 Long term infrastructure bonds Individuals and HUFs
80D For individual taxpayers- Premium up to Rs. 25,000 in case of individuals and up to Rs. 30,000 for senior citizens Medical insurance premium and Health check up Individuals and HUFs
For HUFs- Premium up to Rs. 25,000 and up to Rs. 30,000 in case the member insured is a senior citizen or super senior citizen
80E No limit defined Interest on repayment of Education loan Individuals
80EE Maximum Rs. 50,000 Interest on loan payable for acquiring a residential house property Individuals
80G Differs with the amount of donation General donations of any recognized society Individuals, HUF's, Companies, Firms
80GGA Depends on quantum of donation Donations to Scientific Research or Rural development Those who do not have income from business or profession
80GGB Depends on quantum of donation Donations to political parties Indian companies
80GG Rs. 5000 per month or 25% of total income whichever is less Rent paid if HRA is not received Individuals not receiving HRA

INCOME TAX  SLAB & RATES-FY 2019-20(AY 2020-21)

Income Slabs

Individuals

Age less than 60 yrs

Sr.Citizens

Age 60-80 yrs

 Sr. Citizens

Age 80 yrs & above

0- Rs2.5 Lakhs

Nil

Nil

Nil

Rs2.5-Rs3.0 Lakhs

5%

Nil

Nil

Rs3.0- Rs5.0 Lakhs

5%

5%

Nil

Rs5.0- Rs10.0 Lakhs

20%

20%

20%

Rs10.0 and above

30%

30%

30%

Surcharge:10% surcharge on income tax if the total income exceeds Rs.50 Lakhs but below Rs.1 Cr.

15% surcharge on income tax if the total income exceeds Rs.1 Cr.

Health and Education cess:4% Cess on income tax including surcharge. It is replaced with earlier 2% Education Cess and 1% Secondary and Higher Education Cess from Budget 2018.