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3.1 Taxation Planning

  • We should try to reduce the effective taxation amount by making proper Tax planning
  • Try to avoid tax but don't evade tax
  • Taxable Income = Salary - Exemption - Deduction

3.2 Exemption

  • Tax Free Income
  • Do not have to pay any tax for income coming from some particular source
  • Income from agriculture is exempted under tax
  • Long term capital gain (LTCG) less than 1 Lakh
    • Eg: Buy stock now and sell after 1 yr to get LTCG

3.3 Deduction options

3.3.1 Standard Deduction

  • 50k

3.3.2 Section 10(13A) –> (HRA)

  • Minimum of
    1. Actual HRA(On payslip)
    2. 50% of Basic in Metro or 40% of Basic in non-Metro
    3. Rent - 10% of Basic
  • HRA calculator
  • If Annual rent > 1L –> rentee PAN card required
    • Better to declare < 1L

3.3.3 Section 80GG

  • If you do not receive HRA from your employer
  • Rs.5,000 per month = Rs 60,000
  • Check Form 10BA

3.3.4 Section 80C

  • Tax Deduction upto 1.5 Lakhs from taxable income
  • Various options availavle:
  * Insurance
    * Term plan --> Good option
  * Housing loan `principal repayment`
  * Tax saving FD
    * Locked for 5yrs
    * Taxable
  * Public Provident Fund(PPF)
    * Locked for 15 yrs
    * Not taxable
    * Anyone can open, where as PF is opened by Salaried person
    * Guaranteed return -- 7.9% (2019)
    * Max 1.5 Lakhs/yr can be invested
  * EPF
    * Investment(EPF)+ pension(EPS) + Life insurance(EDLI)
    * For salaried person
    * Upto 1.5L
    * Tax free
  * NSC
    * In post office
    * Taxable
  * NPS
    * Upto 1.5L
    * Tax free
    * Lock-in till 60
    * Open through --> Paytm/ET Money
  * Child Tution fee
  * ELSS
    * Best way
    * Locked for 3yrs

EPF

  1. EPF (Employee Provident Fund)
  2. EPS (Employee Pension Scheme)
  3. EDLI (Employee Deposit Linked Insurance)

3.3.5 Section 80CCD

  • National Pension System
    • Tax Deduction upto 50 K from taxable income

3.3.6 Section 80D

  • Medical/Health insurance
    • Applicable for Individual + Family(Parents + child)
    • Tax Deduction from 25K to 65 K from taxable income
    • plus, preventive health checkup upto 5K

3.3.7 Section 80E

  • Education Loan
    • Interest of education loan
    • No limit

3.3.8 Section 80G

  • Donation
    • Category 1: Deduction of 100% of donation
    • Category 2: Deduction of 50% of donation

3.3.9 Section 24

  • Housing loan Interest repayment
    • Deduction of 2 Lakhs of Interest for self-house but not given for Rent
    • Deduction of 100% of Interest for self-house but given for Rented

Audit

  • You are required to get your accounts audited if your turnover or gross receipts exceeds Rs. 2 Cr. (in case of Business) and Rs. 50 lakhs(in case of profession).

Reference