A STUDY OF INCOME TAX PLANNING WITH RESPECT TO

INDIVIDUALS

A Project Submitted to

University of Mumbai for partial completion of the degree of

Bachelor in Commerce (Accounting and Finance)

Under the Faculty of Commerce

By
Manoj Mangesh Gaonkar
Roll No. 10

Under the Guidance of

Prof. Keval Kandu

D.T.S.S. COLLEGE OF COMMERCE

MALAD (EAST), MUMBAI

2019-2020

1
 Declaration by learner
I undersigned Mr. Manoj Mangesh Gaonkar hereby declare that the work
embodied in this project work Title” “A Study Of Income Tax Planning With
Respect To Individuals”

forms my own contribution to the research work carried out under the guidance
of

Prof. Keval Kandu is a result of my own research work and has not been
previously submitted to any other Degree/ Diploma to this or any other
University.

Wherever reference has been made to previous works of others, it has been
clearly indicated as such and included in the bibliography.

I, here by further declare that all information of this document has been
obtained and presented in accordance with academic rules and ethical conduct.

Name and Signature of learner

(Manoj Mangesh Gaonkar)

Certified by

Name and Signature of the guiding Teacher

(Prof. Keval Kandu)

2
 Acknowledgment
To list who all have helped me is difficult because they are so numerous and
the depth is so enormous.

I would like to acknowledge the following as being idealistic channels and

fresh dimensions in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me

chance to do this project.

I would like to thank my Principal, Dr. Sussmita Daxini for providing the
necessary facilities
required for completion of this project.

I take this opportunity to thank our Coordinator, Prof. Nagaraju Kanduri for
her moral
support and guidance.

I would also like to express my sincere gratitude towards my project guide

Prof. Keval Kandu whose guidance and care made the project successful.

I would like to thank my College Library, for having provided various

reference books and magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly
helped me in the completion of the project especially my Parents and Peers
who supported me throughout my project.

3
 Table of Contents
Serial No. Particulars Page No.

1 Declaration 2
2 Certificate
3 Acknowledgement 3

4 Table of Content 4
5 Index 5&6
6 List of Tables 7
7 List of Graph / Diagram/ Chart 8
8 Chapter 1 Introduction 9 – 41
9 Chapter 2 Literature Review 42 – 44
10 Chapter 3 Research Methodology 45 – 48
11 Chapter 4 Data Analysis & Interpretation 49 – 65
Chapter 5 Finding, Conclusion and
12 66 – 71
Suggestions,
Bibliography 72 & 73
Annexure
Appendix Questionnaire 74 – 76

4
 Index
Page
Chapter Particulars
No. No.
Introduction Of Income Tax Planning With Respect To
9 – 41
1 Individual
1.1 Introduction 9 & 10
1.2 Income Tax 10 & 12
1.3 Income Tax Assessee 12 & 14
1.4 Scope of Total Income 14
1.5 Heads of Income 14 – 19
1.6 Income Tax Calculation 19 & 20
1.7 Introduction to Tax Planning 20 – 25
1.8 Tax Planning for Salaried Assessees 25 – 38
1.9 Mistake Done While Doing Tax Planning 39 – 41
2 Literature Review 42 – 44
2.1 Introduction 42
2.2 Published Research Paper / Articles 42 – 44
3 Research Methodology 45 – 48
3.1 Introduction 45
3.2 Objectives of the study 45
3.3 Selection of the problem 46
3.4 Research Methodology 46 - 47
3.4.1 Area of Research 46
3.4.2 Research Design 46
3.4.3 Sampling Method 46
3.4.4 Sample Size 46
3.4.5 Methods of data collection 46 & 47
3.4.6 Techniques of Data analysis 47
3.4.7 Research Tool 47
3.5 Scope and Significance of the Study 47 & 48

5
 3.6 Limitation of the study 48
4 Data Analysis and Interpretation 49 – 65
5 Findings, Conclusion and Suggestion 66 – 71
5.1 Findings & Conclusion 66 – 69
5.2 Suggestions 69 – 71

6
 List of Tables

Table No. Particulars Page No.

Income Tax Slabs For Individuals Who Are Below Age

1.1 27
Of 60 Years Old
Income Tax Slabs For Senior Citizens Who Are
1.2 27
Between 60 Years And 80 Years Old
Income Tax Slabs For Super Senior Citizens Who Are
1.3 28
Above 80 Years Old
4.1 Gender Wise Information 49
4.2 Age Wise Information 50
4.3 Income Wise Information 51
4.4 Tax Payers Information 52
4.5 Awareness About Tax Planning 53
4.6 Perception About Tax Planning 54
4.7 Tax Plan Formation 55
4.8 Services Of Tax Consultant 56
4.9 Classification As Per Investment Option 57
4.10 Awareness About Exemptions 59
4.11 Awareness About Deductions Under Section 80C 60
4.12 Taxation Procedure 63
4.13 Awareness About The Benefits 64
4.14 Annual Savings 65

7
 List of Graphs /Diagrams / Charts

Chart No. Particulars Page No.

4.1 Gender wise information 49
4.2 Age wise information 50
4.3 Income wise information 51
4.4 Tax payers information 52
4.5 Awareness about tax planning 53
4.6 Perception about tax planning 54
4.7 Tax plan formation 55
4.8 Services of tax consultant 56
4.9 Classification as per investment option 57
4.10 Awareness about exemptions 59
4.11 Awareness about deductions under section 80C 61
4.12 Taxation procedure 63
4.13 Awareness about the benefits 64
4.14 Annual savings 65

8
 CHAPTER 1
INTRODUCTION

1.1 INTRODUCTION
Tax planning is the analysis of a financial situation or plan from a tax perspective.
The purpose of tax planning is to ensure tax efficiency. Through tax planning, all
elements of the financial plan work together in the most tax-efficient manner possible.
Tax planning is an essential part of a financial plan. Reduction of tax liability and
maximizing the ability to contribute to retirement plans are crucial for success. As
responsible citizens of the country, paying Income Tax on time, on your income is
mandatory for the country to grow.
Income Tax Act, 1961 governs the taxation of incomes generated within India and of
incomes generated by Indians overseas. This study aims at presenting a lucid yet
simple understanding of taxation structure of an individual’s income in India.

Income Tax Act, 1961 is the guiding baseline for all the content in this report and the
tax saving tips provided herein are a result of analysis of options available in current
market. Every individual should know that tax planning in order to avail all the
incentives provided by the Government of India under different statures is legal. This
project covers the basics of the Income Tax Act, 1961 as amended by the Finance Act
2019, and broadly presents the nuances of prudent tax planning and tax saving options

9
provided under these laws. Any other hideous means to avoid or evade tax is a
cognizable offence under the Indian constitution and all the citizens should refrain
from such acts.

1.2 INCOME TAX

An income tax is a tax that governments impose on income generated by businesses
and individuals within their jurisdiction. By law, taxpayers must file an income tax
return annually to determine their tax obligations. Income taxes are a source of
revenue for governments. They are used to fund public services, pay government
obligations, and provide goods for citizens. Certain investments, like housing
authority bonds, tend to be exempt from income taxes.

1.2.1 INCOME TAX ACT 1961

The Income Tax Act was passed in the year 1961. This act was come in to force on
the 1st April, 1962 to the whole India and is the statute under which everything related
to taxation is listed. This includes levy, collection, administration and recovery of
income tax. The act basically aims to consolidate and amend the rules related to
taxation in the country.
An Income Tax Act contains 298 sections and 14 schedules with numerous
subsections. It laid out a system by which taxes are to be assessed and collected and
specifies a procedure by which disputes with tax authorities are to be addressed. The
important provisions provided in the Income Tax Act were enlisted below.
Under the Income Tax Act, every person, who is an assessee and whose income
exceeds the maximum exemption limit, shall be chargeable to the 68 income tax at the
rate or rates prescribed in the Finance Act, such income tax will be paid on the total
income of the previous year in the relevant assessment year. Assessment year is a
period of 12 months starting from 1st day of April every year and ending on 31st day
of March of the next year and previous year/financial year is the 12 months period
before the assessment year.
The year in which income is earned is called previous year and the one in which it is
charged to tax is called assessment year.

10
Taxes are collected by the government in three ways:

1) Voluntary payment by taxpayers to designated banks, like advance tax and self-
assessment tax.

2) TDS or Taxes Deducted at Source is the ones which are deducted from your
monthly income, before you receive it.

3) TCS or Taxes Collected at Source.

1.2.2 TYPES OF INCOME TAX

Taxes in India can be categorized as direct and indirect taxes. Direct tax is a tax you pay
on your income directly to the government. Indirect tax is a tax that somebody else
collects on your behalf and pays to the government e.g. restaurants, theatres and e-
commerce websites recover taxes from you on goods you purchase or a service you
avail. This tax is, in turn, passed down to the government.

Direct Taxes are broadly classified as:

1. Income Tax –
This is taxes an individual or a Hindu Undivided Family or any taxpayer other than
companies, pay on the income received. The law prescribes the rate at which such
income should be taxed

2. Corporate Tax –
This is the tax that companies pay on the profits they make from their businesses.
Here again, a specific rate of tax for corporates has been prescribed by the income tax
laws of India.

Indirect taxes take many forms:

Service tax on restaurant bills and movie tickets, value-added tax or VAT on goods
such as clothes and electronics. Goods and services tax, which has recently been
introduced, is a unified tax that has replaced all the indirect taxes that business owners
have to deal with.

11
1.2.3 WHO PAYS INCOME TAX AND WHY IS IT NEEDED?
Income tax is applicable to be paid by individuals, corporates, businesses, and all
other establishments that generate income. The collection, recovery, and
administration of income tax in India is regulated by Income Tax Act, 1961. The
government deploys this tax amount for a number of reasons ranging from building
the infrastructure to paying the state and central government employees their salaries.
Income tax helps the government generate a steady source of income which is
eventually used for the development of the nation. Even though income tax is paid
every month from the monthly earnings, it is calculated on an annual basis. The
amount of income tax an individual has to pay depends on a number of factors.

1.3 INCOME TAX ASSESSEE:

An Assessee is any individual who is liable to pay taxes to the government against
any kind of income earned or any losses incurred by him for a particular assessment
year. Each and every person who has been taxed in the previous years for income
earned by him is treated as an Assessee under the Income Tax Act, 1961.An Assessee
may be any individual liable to pay taxes for himself or to pay tax on behalf of else.
The Income Tax Act, 1961 has classified Assessee in different categories. An
Assessee may either be a normal Assessee, a Representative Assessee, a Deemed
Assessee or an Assessee in Default.

The various categories of Assesses as laid down in the Act are and who all belong
to the respective categories of being an Assessee:

1. Normal Assessee:
A normal Assessee is an individual who is liable to pay taxes for the income earned
by him for a particular financial year. Each and every Individual who has paid taxes in
preceding years against the income earned or losses incurred by him is liable to make
payments to the government in the form of tax. Any individual who is supposed to
make payments to the government in the form of interest or penalty or anybody who
is entitled to tax refund under the IT Act is an Assessee. All such individuals are
grouped under the category of Normal Assessee.

12
 2. Representative Assessee:
Many times, it so happens that an individual is liable to pay taxes for income or losses
incurred not only by him, but also for income or losses incurred by a third party. Such
an individual is known as Representative Assessee. Basically, he acts as a
representative for people who themselves are not in a position to file and pay their
taxes themselves. Generally, the people who need representatives are no, minors or
lunatics. And the people representing them are either their agents or guardians. Such
people are deemed to be Representative Assesses

3. Deemed Assessee:
i. Deemed Assessee is an individual who is put in a position to pay taxes for some
other person by the legal authorities. Generally, the individuals who are treated as
Deemed Assesses are:
ii. The executors or the legal heir of the property of a deceased person, who in
written has passed on his property to the executor, is treated as a Deemed
Assessee.
iii. The eldest son or any other legal heir of a deceased individual (who has expired
without writing his will) is treated as a Deemed Assessee.
iv. The guardian of a minor, a lunatic or an idiot is treated as a Deemed Assessee.
v. The agent of a Non-Resident Indian (having Income Sources in India) is treated as
a deemed Assessee.

PERSONS:
A person in India, for the purpose of income tax includes:
1. Individual
2. Hindu Undivided Family (HUF)
3. Association of persons (AOP)
4. Body of Individual (BOI)
5. Company
6. Firm
7. A local authority and
8. Every artificial judicial person not falling within any of the preceding categories

13
Each of these taxpayers is taxed differently under the Indian income tax laws. While
firms and Indian companies have a fixed rate of tax of 30% of profits, the individual,
HUF, AOP and BOI taxpayers are taxed based on the income slab they fall under.
People’s incomes are grouped into blocks called tax brackets or tax slabs. And each
tax slab has a different tax rate.

The total income of an individual is determined on the basis of his residential status in
India. For tax purposes, an individual may be resident, non-resident or not ordinarily
resident.

1.4 SCOPE OF TOTAL INCOME:

Under the Income Tax Act, 1961, total income of any previous year of a person who
is a resident includes all income from whatever source derived which: is received or is
deemed to be received in India in such year by or on behalf of such person; accrues or
arises or is deemed to accrue or arise to him in India during such year; or accrues or
arises to him outside India during such year:
Provided that, in the case of a person not ordinarily resident in India, the income
which accrues or arises to him outside India shall not be included unless it is derived
from a business controlled in or a profession set up in India.
Total Income
For the purposes of chargeability of income-tax and computation of total income, The
Income Tax Act, 1961 classifies the earning under the following heads of income.

1.5 HEADS OF INCOME:

From the following heads of income the total income is to be
calculated:
1.5.1 Income From Salaries
1.5.2 Income from house property
1.5.3 Income From Capital gains
1.5.4 Income From business or profession
1.5.5 Income from other sources

14
1.5.1. INCOME FROM SALARIES:
Existence of ‘master-servant’ or ‘employer-employee’ relationship is absolutely
essential for taxing income under the head “Salaries”. When a person receives a pay
for his job from a company it is called as salary. There must be a contract existing as
per the rule of law, which can established that the payer is the employer and the
receiver is the employee. Where such relationship does not exist income is taxable
under some other head as in the case of partner of a firm, advocates, chartered
accountants, LIC agents, small saving agents, commission agents, etc. Besides, only
those payments which have a nexus with the employment are taxable under the head
‘Salaries’. Salary is chargeable to income-tax on due or paid basis, whichever is
earlier. Any arrears of salary paid in the previous year, if not taxed in any earlier
previous year, shall be taxable in the year of payment. Salary also should include the
basic wages or salary, advance salary, pension, commission, gratuity, perquisites as
well as the annual bonus.

1.5.2. INCOME FROM HOUSE PROPERTY:

Rental Income from properties owned by a person other than those which are
occupied by him is charged as income from house property. The annual value of a
house property is taxable as income in the hands of the owner of the property. House
property consists of any building or land, or its part or attached area, of which the
assessee is the owner. The part or attached area may be in the form of a courtyard or
compound forming part of the building. But such land is to be distinguished from an
open plot of land, which is not charged under this head but under the head ‘Income
from Other Sources’ or ‘Business Income’, as the case may be. Besides, house
property includes flats, shops, office space, factory sheds, agricultural land and farm
houses.
However, following incomes shall be taxable under the head ‘Income from
House Property'.

1. Income from letting of any farm house agricultural land appurtenant thereto for
any purpose other than agriculture shall not be deemed as agricultural income, but
taxable as income from house property.
2. Any arrears of rent, not taxed u/s 23, received in a subsequent year, shall be
taxable in the year.

15
Even if the house property is situated outside India it is taxable in India if the owner-
assessee is resident in India. Incomes Excluded from House Property Income:

The following incomes are excluded from the charge of income tax under this head:

1. The Annual value of house property used for business purposes

2. Income of rent received from vacant land.
3. Income from house property in the immediate vicinity of agricultural land and
used as a store house, dwelling house etc. by the cultivators.

1.5.3. INCOME FROM CAPITAL GAIN:

Any profits or gains arising from the transfer of capital assets affected during the
previous year is chargeable to income-tax under the head “Capital gains” and shall be
deemed to be the income of that previous year in which the transfer takes place.
Taxation of capital gains, thus, depends on two aspects – ‘capital assets’ and transfer’.
Capital gains’ means any profit or gains arising from transfer of a capital asset. 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. A capital gain is the
difference between the price at which the capital asset was acquired and the price at
which the same asset was sold. In technical terms, capital gain is the difference
between the cost of acquisition and the fair market value on the date of sale or transfer
of asset.

Capital Asset:
‘Capital Asset’ means property of any kind held by an assessee including property of
his business or profession, but excludes non-capital assets. It includes all kinds of
property, movable or immovable, tangible or intangible, fixed or circulating. Thus
land and building, plant and machinery, goodwill, trademark, mutual fund etc. are
capital assets.

Capital assets are of two types:

1. Short term capital assets
2. Long term capital assets

16
1. Short-term capital asset:
This is an asset that is held for not more than 36 months immediately preceding the
date of its transfer. This period of 36 months is substituted to 12 months in case of
certain assets like equity or preference shares held in a company, any other security
listed on a recognised stock exchange of India, Units of specific equity mutual funds
and Zero coupon bonds.

2. Long term capital asset:

This is an asset that is held for more than 36 months or 12 months as the case may be.
Transfer is defined as the sale of the asset, giving up of rights on the asset, forceful
takeover by law or maturity of the asset. Many transactions are not considered as
transfer, for example, transfer of a capital asset under a will. Stocks and units of
equity diversified mutual funds qualify for long term capital gains if held for more
than a year. In case of real estate, it qualifies for long term capital gains if it is held for
more than two years. Earlier to the Finance Act 2017, real estate was considered as a
long term capital asset only if it was held for more than three years.

1.5.4. INCOME FROM BUSINESS AND PROFESSION:

Income from Business/Profession:

Income from Business/Profession means any income which is shown in profit and
loss account after considering all allowed expenditures.

Income chargeable under business/profession:

The following are few examples of incomes which are chargeable under this head:-
1. Normal Profit from general activities as per profit and loss account of business
entity.
2. Profit from speculation business should be kept separate from business income
and shown separately.
3. Any profit other than regular activities of a business should be shown as casual
income and will be shown under “income from other sources” head.
4. Profit earned on sale of REP License/Exim scrip, cash assistance against export or
duty drawback of custom or excise.

17
5. The value of any benefits whether convertible into money or no from
business/profession activities.
6. Any interest, salary, commission etc. received by the partner of a firm will be
treated as business/professional income in hand of partner. However, the share of
profit from partnership firm is exempt in hand of partner.
7. Amount recovered on account of bad debts which were already adjusted in profit
in earlier years etc.

1.5.5. INCOME FROM OTHER SOURCES:

Sections 56 to 59 deal with the provisions for computation of income under the head
‘income from other sources’. This is a residuary head covering all incomes which do
not specifically fall under any of the heads mentioned earlier.
Income from other sources consists of two main categories and they are recurring
income and non-recurring income.

1) Recurring income:
Any income received at regularly at equal intervals. This generally includes interest
income from the savings bank, post office savings, fixed deposits, recurring deposits
etc.
2) Non-recurring income:
Any income received only once. This generally includes Income from the
lottery, gambling, horse racing etc.

Next, let us see the items which come under this type of income.

List of items under Income from Other Sources

1. Dividend: Dividend is chargeable at a rate of 10% if the aggregate amount of

dividend during that year exceeds Rs. 10,00,000. This is applicable to
individuals/HUFs. If you receive a dividend from a domestic company and it is
chargeable under dividend distribution tax, then you will get an exemption.
2. One-time income: Income from lotteries, crossword puzzles, horse races, games,
gambling or betting.
3. Interest on securities if it is not taxable under “Profits and Gains of Business or
Profession”.

18
4. Income from machinery, plant or furniture belonging to taxpayer and let on hire.
This is applicable if income is not chargeable to tax under the head ‘Profits and
Gains of Business or Profession’.
5. Composite rental income from letting of plant, machinery or furniture with
buildings, where such letting is inseparable. Again, this is applicable if this
income is not taxable under the head ‘Profits and Gains of Business or
Profession’.
6. If an employee receives any compensation due to the termination of his
employment or modification of terms and conditions relating to the job, then that
amount will be taxable.
7. Any sum of money received as an advance or otherwise in the course of
negotiations for the transfer of a capital asset shall be charged to tax under this
head, if:

a) The sum is forfeited; and

b) The negotiations do not result in the transfer of such capital asset.

1.6 INCOME TAX CALCULATION:

Every income that you are received should form part of your income tax return. Of
course, the law does provide for exemption of certain incomes e.g. dividend income
from an Indian company, LTCG on listed equity shares unto Rs 1 lakh in any
financial year etc.
Therefore, here is a quick guideline you can probably follow to compute taxes due on
your income:
1. List down all your income – be it salary, rental income, capital gains, interest
income or profits from your business or profession.
2. Remove incomes that are exempt under law
3. Claim all applicable deductions available under every source of income. E.g.
claim standard deduction of Rs 40,000 from salary income, claim municipal taxes
from rental income, claim business related expenses from your business turnover
etc.

19
4. Claim all applicable exemptions under every head of income e.g. amount
reinvested in another house property can be claimed as exemption from capital
gains income etc.
5. Claim applicable deductions from your total income e.g. the 80 deductions
like 80C, 80D, 80TTA, 80TTB etc.

1.7 INTRODUCTION TO TAX PLANNING:

In an organized society, tax is unavoidable because it is the price paid for

administrative and political stability by the public to the Government. It is the duty of
each citizen to pay due taxes in time and not to resort to any device to evade the
payment of taxes. An effective tax strategy is vital for successful financial planning
since payment of taxes reduces the disposable income of the tax payers. To solve the
problem of tax burden, the concept of tax planning has been introduced in the Income
Tax Act. Tax planning may be defined as an arrangement of one’s financial affairs in
such a way that without violating in any way the legal provisions, full advantage is
taken of all tax exemptions, rebates, allowances and other reliefs or benefits permitted
under the Act. This will reduce the burden of taxation on the assessees as far as
possible.
Tax planning may be regarded as a method of intelligent application of expert
knowledge of planning one’s economic affairs with a view to securing the consciously
provided tax benefits on the basis of national priorities in keeping with the legislative
and judicial opinion. But it does not imply taking undue advantage of loopholes in tax
laws or evading tax liability. Hence tax planning is defined as the methods used by a
tax payer to reduce his burden of Contents. Tax planning may be legitimate provided
it is within the frame work of tax laws. Hence tax evasion and tax avoidance must be
understood as distinct from tax planning.
The present chapter discusses the concepts of tax planning and explains the
deductions and relief available to individual income tax assessees under the
provisions of the Income Tax Act for the period under study. The chapter is organized
in to two parts. While the first part explains the concepts of tax planning, second part
discusses tax planning of employees under the provisions of Income Tax Act, 1961.

20
1.7.1 FEATURES OF TAX PLANNING:

1. Reduction in Tax Liability:

The first and foremost characteristic of tax planning is that it results in the reduction
in tax liability of an individual which ensure that an individual has more disposable
income which can be used by an individual for consumption for making investments
which can come in handy in future. Hence for example, if an individual is able to save
money due to tax planning and invest it wisely .Which can be of great help when an
individual take retirement.

2. Advance Planning Is Needed:

Another feature of taxation planning is that one needs to plan in advance regarding
how to make sure that tax liability is reduced to maximum possible extent by
investing in tax saving instruments right from start of the financial year because if you
are thinking that you can reduce your tax liability by doing taxation planning night
before the last date for filing income tax returns than you will be in for
disappointment.

3. Investment in Tax Saving Instruments:

Tax planning can be done only by investing in tax saving instruments which can be
through bonds or mutual funds or fixed deposits of banks. In simple words, one
cannot claim tax relief by making an investment in any asset rather one has to make
an investment in instruments for investments available in the market if one wants to
claim tax relief from tax authorities.

4. Made Every Year:

Taxation planning is one thing which has to be made every year and unlike other
investments like real estate or stocks where one has to review the investment after 2
or 3 years. In simple words just like you get increment in your job every year in the
same way taxation planning has to be done every year unless you stop earning enough
money to be tax liable.

21
5. Dynamic in Nature:
Tax planning is dynamic in nature because every year assessee have to modify tax
plan according to rules framed by the government as the government keeps changing
tax laws which in turn keep the tax planner on toes as he or she has to change his or
her investment in tax saving instruments accordingly.
As one can see from the above features of tax planning that it is of great help not only
in saving money for the current period but also make sure that on your retirement you
receive a good amount of money out of saving generated due to taxation planning.

1.7.2 OBJECTIVES OF TAX PLANNING

1. Reduction of tax liability:

An assessee can save the maximum amount of tax, by properly arranging his/her
operations as per the requirements of the law, within the framework of the statute. It is
helps to reduce tax liability with the use of deductions and exemptions gives by
income tax law.

2. Minimization of litigation:
There is a war-like situation between the taxpayers and tax collectors as the former
wants the tax liability to be minimum while the latter attempts to extract the
maximum. So, proper tax planning aims at conforming to the provisions of the tax
law, in such a way that incidence of litigation is minimized.

3. Productive investment:
One of the major objectives of tax planning is the channelization of taxable income to
different investment plans. It aims at the optimum utilization of resources for
productive causes and relieving the assessee from tax liability.

4. Healthy growth of economy:

The growth and development of the economy greatly depend on the growth of its
citizens. Tax planning measures involve generating white money that flows freely and
results in the sound progress of the economy.

22
5. Economic stability:
Proper tax planning brings economic stability by various techniques such as
mobilizing resources for national projects or availing ways for investments which are
productive in nature. Tax Planning follows an honest approach, to achieve maximum
benefits of tax laws, by applying the script and moral of law. Therefore the objectives
do not in any way contradict the concept of tax laws.

1.7.3 TYPES OF TAX PLANNING

Here are the three types of tax planning:
1. Purposive tax planning
2. Permissive tax planning
3. Long range and Short range tax planning

1. Purposive tax planning:

Purposive tax planning means applying tax provisions in an intellectual manner so 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
assessee. Here, assessee 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.

2. 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.

3. Long range and Short range tax planning:

Short-range planning means planning made annually to fulfil the limited or specific
objectives. It is executed at the end of the year to reduce taxable income legally. Also,

23
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 range tax planning refers to the practices
undertaken by the assessee. 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 case, 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

1.7.4 CONCEPT USED IN TAX PLANNING:

1. Tax Evasion
Tax Evasion means not paying taxes as per the provisions of the law or minimizing
tax by illegitimate and hence illegal means. Tax Evasion can be achieved by
concealment of income or inflation of expenses or falsification of accounts or by
conscious deliberate violation of law. Tax Evasion is an act executed knowingly
wilfully, with the intent to deceive so that the tax reported by the taxpayer is less than
the tax payable under the law.

2. Tax Avoidance
Tax Avoidance is the art of dodging tax without breaking the law. While remaining
well within the four corners of the law, a citizen so arranges his affairs that he walks
out of the clutches of the law and pays no tax or pays minimum tax. Tax avoidance is
therefore legal and frequently resorted to. In any tax avoidance exercise, the attempt is
always to exploit a loophole in the law. A transaction is artificially made to appear as
falling squarely in the loophole and thereby minimize the tax. In India, loopholes in
the law, when detected by the tax authorities, tend to be plugged by an amendment in
the law, too often retrospectively. Hence tax avoidance though legal, is not long
lasting. It lasts till the law is amended.

24
3. Tax Planning
Tax Planning has been described as a refined form of ‘tax avoidance’ and implies
arrangement of a person’s financial affairs in such a way that it reduces the tax
liability. This is achieved by taking full advantage of all the tax exemptions,
deductions, concessions, rebates, reliefs, allowances and other benefits granted by the
tax laws so that the incidence of tax is reduced. Exercise in tax planning is based on
the law itself and is therefore legal and permanent.

4. Tax Management
Tax Management is an expression which implies actual implementation of tax
planning ideas. While that tax planning is only an idea, a plan, a scheme, an
arrangement, tax management is the actual action, implementation, the reality, the
final result.
To sum up all these four expressions, we may say that:
1. Tax Evasion is fraudulent and hence illegal. It violates the spirit and the letter of
the law.
2. Tax Avoidance, being based on a loophole in the law is legal since it violates only
the spirit of the law but not the letter of the law.
3. Tax Planning does not violate the spirit nor the letter of the law since it is entirely
based on the specific provision of the law itself.
4. Tax Management is actual implementation of a tax planning provision. The net
result of tax reduction by taking action of fulfilling the conditions of law is tax
management.

.
1.8 TAX PLANNING FOR SALARIED ASSESSEES:
Tax planning means an arrangement of one’s financial activities in such a way to get
maximum tax benefit. At the very outset, it is necessary to clear the misconception
about the tax planning that prevails among the salaried assessees. They seem to
misunderstand that tax planning means paying no tax. This may not be possible in all
cases. Tax liability cannot be totally avoided, once the income crosses a particular
limit. This is because of the fact that the avenues for tax savings are quite limited and
even the available avenues have their own in-built ceiling limit. Hence, tax planning

25
means reducing tax liability to the absolute minimum by adopting proper tax planning
measures.
For a salaried assessee, the approach for tax planning must be three fold:
First is investing in savings schemes out of the current year income, so as to reduce
the tax liability to the absolute minimum.
Next is effecting proper investment of the surplus, if any, after meeting expenses
(including taxes) so as to reap (i) the maximum tax benefit on the income from such
investments and (ii) to obtain maximum returns on the investments.
Finally, planning some special measures in the pre-retirement stage as well as
effecting investment of retirement benefits in appropriate areas so as to ensure regular
and adequate flow of income after retirement.
As a prelude to the above approach, it is essential and necessary for the assessees to
arm themselves with information on the following aspects:
a. The various tax saving schemes available under the Act.
b. The identification of the proper avenues, which suit their requirements.
c. The effecting of the savings in a planned manner well in time.
Tax planning is a sensible decision taken by the income tax assessees to reduce their
tax liability while investing their hard earned money in various investment and tax
saving schemes. Before making an investment one has to plan where, when and how
to invest his/her money. The investment option that suits one may not suit others. One
has to choose an investment option that is highly suitable to him. To select a suitable
investment option the assessees should know the various tax planning measures
available. Hence, in this chapter various tax-planning options available for the
salaried assessees.
Such as:

1.8.1 INCOME TAX SLABS OF SALARIED EMPLOYEES

1.8.2 ALLOWANCES FOR SALARIED ASSESSEE
1.8.3 EXEMTIONS FOR SALARIED ASSESSEE
1.8.4 DEDUCTIONS FROM GROSS TOTAL INCOME

26
1.8.1 INCOME TAX SLABS OF SALARIED EMPLOYEES
Individuals have been categorized into three categories of taxpayers:

Table 1.1: Income Tax Slab for Individuals Who Are Below Age of 60 Years

Income Tax Slabs (Rs.) Tax Rate for Individual Below the Age Of 60 Years

0 to 2,50,000* Nil

2,50,001 to 5,00,000 5% of total income exceeding 2,50,000

Tax Amount of 12,500 for the income up to 5,00,000

5,00,001 to 10,00,000
+20% of total income exceeding 5,00,000

Tax Amount of 1,12,500 for the income up to 10,00,000

Above 10,00,000
+30% of total income exceeding 10,00,000

Table 1.2: Income Tax Slabs for Senior Citizens Who Are Between 60 Years and
80 Years Old.

Income Tax Slab (Rs) Tax Rate for Individual above the Age Of 60 Years

0 to 2,50,000* Nil

2,5 0,001 to 5,00,000 5% of total income exceeding 2,50,000

Tax Amount of 12,500 for the income up to 5,00,000

5,00,001 to 10,00,000
+20% of total income exceeding 5,00,000

Tax Amount of 1,12,500 for the income up to 10,00,000

Above 10,00,000
+30% of total income exceeding 10,00,000

27
Table 1.3: Income Tax Slabs for Super Senior Citizens Who Are Above 80 Years
Old.

Income Tax Slab (Rs.) Super Senior Citizens of and above 80 years of age

Up to 5,00,000 Nil

5,00,001 to 10,00,000 20% of income exceeding 5,00,000

Tax Amount of 1,00,000for the income up to

Above 10,00,000
10,00,000 + 30% of total income exceeding 10,00,000

SOME IMPORTANT POINTS:

The income tax rates are applied to the annual income calculated. Thereafter
Surcharge and Cess is added to the tax payable.

A surcharge is also applicable slab wise. The surcharge is calculated on the Tax
amount. If the income is:

1. Above Rs.50,00,000 and up to Rs.1 crore – then 10% surcharge is applicable

2. Above Rs.1 crore and up to Rs.2 crore – then 15% surcharge is applicable.

In the Union Budget 2019-20, a new surcharge on income tax for super-rich
individuals has been levied. So, individuals earning:

1. Between Rs.2 crores and up to Rs.5 crore –then 25% surcharge is applicable;
2. For Above Rs. 5 crore – then 37% surcharge is applicable.

An additional Cess of 4% for Health & Education is applicable to the income tax plus
surcharge.

28
1.8.2 ALLOWANCES FOR SALARIED ASSESSEE

1. House Rent Allowance

A salaried individual having a rented accommodation can get the benefit of HRA
(House Rent Allowance). This could be totally or partially exempted from income tax.
However, if you aren’t living in any rented accommodation and still continue to
receive HRA, it will be taxable.
If you couldn’t submit rent receipts to your employer as proof to claim HRA, you can
receipts and evidence of any payment made towards rent. You may claim the least of
the following as HRA exemption.
a. Total HRA received from your employer
b. Rent paid less 10% of (Basic salary +DA)
c. 40% of salary (Basic+DA) for non-metros and 50% of salary (Basic+DA) for
metros

2. Standard Deduction
The Indian Finance Minister, while presenting the Union Budget 2018, announced a
standard deduction amounting to Rs. 40,000 for salaried employees. This was in the
place of the transport allowance (Rs. 19,200) and medical reimbursement (Rs.
15,000). As a result, salaried people could avail an additional income tax exemption
of Rs. 5,800 in FY 2018-19. The limit of Rs. 40,000 has been increased to Rs. 50,000
in the Interim Budget 2019.

3. Leave Travel Allowance (LTA)

The income tax law also provides for an LTA exemption to salaried employees,
restricted to travel expenses incurred during leaves by them. Please note that the
exemption doesn’t include costs incurred for the entire trip such as shopping, food
expenses, entertainment and leisure among others.
You can claim LTA twice in a block of four years. In case an individual doesn’t use
this exemption within a block, he/she could carry the same to the next block.
Below are the restrictions which are applicable to LTA:
1. LTA only covers domestic travel and not the cost of international travel
2. The mode of such travel must be railway, air travel, or public transport

29
4. Mobile reimbursement
A taxpayer may incur expenses on mobile and telephone used at residence. The
income tax law allows an employee to claim a tax free reimbursement of expenses
incurred. An employee can claim reimbursement of the actual bill amount paid or
amount provided in the salary package, whichever is lower.

5. Books and Periodicals

Employees incur expenses on books, newspapers, periodicals, journals and so on. The
income tax law allows an employee to claim a tax free reimbursement of the expenses
incurred. The reimbursement allowed to an employee is the lower of the bill amount
or the amount provided in the salary package.

6. Food coupons
Your employer may provide you with meal coupons such as sodexo. Such food
coupons are taxable as perquisite in the hands of the employee. However, such meal
coupons are tax exempt up to Rs 50 per meal. A calculation based on 22 working days
and 2 meals a day results in a monthly benefit of Rs 2,200. Consequently, the yearly
exemption works up to Rs 26,400.

7. Entertainment Allowance
Entertainment allowance is the amount of money given to an employee to make
payments towards hospitality of their customers for drinks, meals, business outings,
client meetings, hotels and more. The allowance is completely taxable for all private
sector employees. However, government employees can claim exemption on this tax,
as quoted under section 16 (ii) and the amount of exemption is limited to the lowest of
following:
i) 20% of gross salary (excluding all other allowance, perks and benefits),
ii) Actual entertainment allowance and iii) Rs. 5,000.

8. City Compensatory Allowance (CCA)

CCA is taxable as it is a personal allowance granted to meet expenses wholly,
necessarily and exclusively incurred in the performance of special duties unless such
allowance is related to the place of his posting or residence. Certain allowances
prescribed under Rule 2BB, granted to the employee either to meet his personal

30
expenses at the place where the duties of his office of employment are performed by
him or at the place where he ordinarily resides, or to compensate him for increased
cost of living are also exempt.

1.8.3 EXEMPTIONS FOR SALARIED ASSESSEE:

The Income Tax Act allows various Income Tax Exemptions for Salaried
Employees which are very effective in saving taxes. A salaried employee would be
required to intimate his employer that he is claiming these income tax exemptions
available for Salaried Employees and then the Employer would compute the Tax on
the balance income as per the Income Tax Slabs and deduct TDS on Salary
accordingly.
Income Tax Exemptions for Salaried Employees. The various Income Tax
Exemptions for Salaried Employees have been mentioned below. These Income Tax
Exemptions for Salaried Employees are highly advisable to everyone as they help in
saving tax legally thereby reducing the tax burden on the Salaried Employee.

1. HRA Exemption For Salaried Employees :

Many employers give House Rent Allowance (HRA) to their employees for them to
reside at a good place. A portion of the House Rent Allowance given by an employer
to an employee is exempted from the levy of the Income Tax and Income Tax is only
levied on the remaining part. HRA Exemption is one of the most useful income tax
exemptions for Salaried Employees as it can be easily claimed and the amount of
exemption allowed is also large.

2. Income Tax Exemption On Leave Travel Allowance :

Many employers also give allowances to their employees to go on a vacation with
their respective families. The amount given by the employer to an employee to go on
a vacation is exempted from the levy of tax to a certain extent provided that the
amount given was for a vacation in India only. Leave Travel Allowance is also an
effective income tax exemption for Salaried Employees. However, this amount can
only be claimed if the employee actually goes on a vacation as bills for the same
would be required to be furnished.

31
3. Exemption On Encashment Of Leaves For Salaried Employees :
Most employers give all their employees a certain no. of days which can be claimed
as leaves. However, in case a person does not claim these leaves, many employers
also give their employees the option for en-cashing these leaves i.e. the employers
pays extra to the employees for the leaves which were allowed to be taken but were
not taken. This amount received as Leave Encashment is also allowed to be claimed
as an exemption up to a certain extent.

4. Tax Exemption From Pension Income For Salaried Employees :

On retirement of an employee, many employers pay a pension to their employees.
Sometimes, the employer pays pension from his own pocket and in some cases, the
employer purchases an annuity and then the pension is being paid by the organisation
from whom the annuity has been purchased. The Pension can be of 2 types i.e.
Commuted and Uncommuted. In commuted pension, the whole amount of pension is
received in lump-sum whereas in Uncommuted Pension, the amount is paid in
instalments at regular intervals.
Irrespective of the type of Pension, Income Tax Exemption is given in both types of
pensions up to a certain limit.

5. Income Tax Exemption On Gratuity For Salaried Employees

Gratuity is a gift made by the employer to his employee in appreciation of the past
services rendered by the employee. Gratuity can either be received by:-
a) The employee himself at the time of his retirement
b) The legal heir at the time of the death of the employee
For the purpose of computing Income Tax Exemptions for Salaried Employees who
have received gratuity, the employees can be segregated into 3 parts and then the
exemption is allowed depending on the category they are into:-
Govt. Employees and employees of Local Authorities
Employees not covered in any of the 2 above.

6. Income Tax Exemption On VRS Received:

Many employees opt for Voluntary Retirement before the actual age of retirement (i.e.
60 years). In such cases, the employer sometimes gives some money to the employee
on his voluntary retirement. The amount received or receivable by the employee on

32
voluntary retirement under the golden handshake scheme is exempted under Section
10(10C).

7. Income Tax Exemption For Perquisites:

Some employers also give their employees various perquisites/facilities like Car,
Mobile phones, Rent Free accommodation.
Such perquisites are not fully tax free. A specific value of such facilities is allowed as
an exemption and value of the balance facilities allowed is allowed as an exemption.

1.8.4 DEDUCTIONS FROM GROSS TOTAL INCOME

1. Section 80C
Deductions on Investments
You can claim a deduction of Rs 1.5 lakh your total income under section 80C. In
simple terms, you can reduce up to Rs 1,50,000 from your total taxable income, and it
is available for individuals and HUFs.

2. Section 80CCC – Insurance Premium

Deduction for Premium Paid for Annuity Plan of LIC or Other Insurer
Section 80CCC provides a deduction to an individual for any amount paid or
deposited in any annuity plan of LIC or any other insurer. The plan must be for
receiving a pension from a fund referred to in Section 10(23AAB). Pension received
from the annuity or amount received upon surrender of the annuity, including interest
or bonus accrued on the annuity, is taxable in the year of receipt.

3. Section 80CCD – Pension Contribution

Deduction for Contribution to Pension Account
a. Employee’s contribution under Section 80CCD
You can claim this if you deposit in your pension account. Maximum deduction you
can avail is 10% of salary (in case the taxpayer is an employee) or 20% of gross total
income (in case the taxpayer being self-employed) or Rs 1.5 lakh – whichever is less.
Until FY 2016-17, maximum deduction allowed was 10% of gross total income for
self-employed individuals.

33
b.Deduction for self-contribution to NPS – section 80CCD
A new section 80CCD (1B) has been introduced for an additional deduction of up to
Rs 50,000 for the amount deposited by a taxpayer to their NPS account. Contributions
to Atal Pension Yojana are also eligible.

c. Employer’s contribution to NPS – Section 80CCD

Claim additional deduction on your contribution to employee’s pension account for
up to 10% of your salary. There is no monetary ceiling on this deduction.

4. Section 80GG – House Rent Paid

Deduction for House Rent Paid Where HRA is not Received
a. Section 80GG deduction is available for rent paid when HRA is not received. The
taxpayer, spouse or minor child should not own residential accommodation at the
place of employment
b. The taxpayer should not have self-occupied residential property in any other place
c. The taxpayer must be living on rent and paying rent
d. The deduction is available to all individuals.

Deduction available is the least of the following:

a. Rent paid minus 10% of adjusted total income
b. Rs 5,000/- per month
c. 25% of adjusted total income*
*Adjusted Gross Total Income is arrived at after adjusting the Gross Total Income for
certain deductions, exempt income, long-term capital gains and income related to
non-residents and foreign companies.
From FY 2016-17 available deductions have been raised to Rs 5,000 a month from Rs
2,000 per month.

5. Section 80GGA – Scientific Research or Rural Development

Donations for scientific research or rural development

Section 80GGA allows deductions for donations made towards scientific research or
rural development. This deduction is allowed to all assessees except those who have
an income (or loss) from a business and/or a profession.

34
Mode of payment: Donations can be made in the form of a cheque or by a draft or in
cash; however cash donations in excess of Rs 10,000 are not allowed as deductions.
100% of the amount that is donated or contributed is considered eligible for
deductions.

6. Section 80E – Interest on Education Loan

Deduction for Interest on Education Loan for Higher Studies
A deduction is allowed to an individual for interest on loans taken for pursuing higher
education. This loan may have been taken for the taxpayer, spouse or children or for a
student for whom the taxpayer is a legal guardian.80E deduction is available for a
maximum of 8 years (beginning the year in which the interest starts getting repaid) or
till the entire interest is repaid, whichever is earlier. There is no restriction on the
amount that can be claimed.

7. Section 80D – Medical Insurance

Deduction for the premium paid for Medical Insurance
An individual or HUF can claim a deduction of Rs.25,000 under section 80D on
insurance for self, spouse and dependent children. An additional deduction for
insurance of parents is available up to Rs 25,000, if they are less than 60 years of age.
If the parents are aged above 60, the deduction amount is Rs 50,000, which has been
increased in Budget 2018 from Rs 30,000.
In case, both taxpayer and parent(s) are 60 years or above, the maximum deduction
available under this section is up to Rs.1 lakh.

8. Section 80DD – Disabled Dependent

Deduction for Rehabilitation of Handicapped Dependent Relative
Section 80DD deduction is available to a resident individual or a HUF and is available
on:
a. Expenditure incurred on medical treatment (including nursing), training and
rehabilitation of handicapped dependent relative
b. Payment or deposit to specified scheme for maintenance of handicapped dependent
relative.
i. Where disability is 40% or more but less than 80% – fixed deduction of Rs 75,000.

35
ii. Where there is severe disability (disability is 80% or more) – fixed deduction of Rs
1,25,000.
To claim this deduction a certificate of disability is required from prescribed medical
authority. From FY 2015-16 – The deduction limit of Rs 50,000 has been raised to Rs
75,000 and Rs 1, 00,000 has been raised to Rs 1, 25,000.

9. Section 80DDB – Medical Expenditure

Deduction for Medical Expenditure on Self or Dependent Relative
A. For individuals and HUFs below age 60
A deduction up to Rs.40,000 is available to a resident individual or a HUF. It is
available with respect to any expense incurred towards treatment of specified medical
diseases or ailments for himself or any of his dependents. For an HUF, such a
deduction is available with respect to medical expenses incurred towards these
prescribed ailments for any of the HUF members
B. For senior citizens and super senior citizens
In case the individual on behalf of whom such expenses are incurred is a senior
citizen, the individual or HUF taxpayer can claim a deduction up to Rs 1 lakh. Until
FY 2017-18, the deduction that could be claimed for a senior citizen and a super
senior citizen was Rs 60,000 and Rs 80,000 respectively. This has now become a
common deduction available upto Rs 1 lakh for all senior citizens (including super
senior citizens) unlike earlier.
C. For reimbursement claims
Any reimbursement of medical expenses by an insurer or employer shall be reduced
from the quantum of deduction the taxpayer can claim under this section.
Also remember that you need to get a prescription for such medical treatment from
the concerned specialist in order to claim such deduction.

10. Section 80U – Physical Disability

Deduction for Person suffering from Physical Disability
A deduction of Rs.75,000 is available to a resident individual who suffers from a
physical disability (including blindness) or mental retardation. In case of severe
disability, one can claim a deduction of Rs 1, 25,000.
From FY 2015-16 – Section 80U deduction limit of Rs 50,000 has been raised to Rs
75,000 and Rs 1, 00,000 has been raised to Rs 1, 25,000.

36
11. Section 80G – Donations
Deduction for donations towards Social Causes
The various donations specified in u/s 80G are eligible for deduction up to either
100% or 50% with or without restriction. From FY 2017-18 any donations made in
cash exceeding Rs 2,000 will not be allowed as deduction. The donations above Rs
2000 should be made in any mode other than cash to qualify for 80G deduction.

a. Donations with 100% deduction without any qualifying limit

1) National Defence Fund set up by the Central Government
2) Prime Minister’s National Relief Fund
3) National Foundation for Communal Harmony
4) An approved university/educational institution of National eminence
5) Fund set up by a State Government for the medical relief to the poor
6) National Illness Assistance Fund
7) National Blood Transfusion Council or to any State Blood Transfusion Council
8) National Sports Fund, National Cultural Fund, National Children’s Fund
9) Fund for Technology Development and Application
10) Swachh Bharat Kosh (applicable from financial year 2014-15)
11) Clean Ganga Fund (applicable from financial year 2014-15)
12) National Fund for Control of Drug Abuse (applicable from financial year 2015-16
etc.

b. Donations with 50% deduction without any qualifying limit

1) Jawaharlal Nehru Memorial Fund
2) Prime Minister’s Drought Relief Fund
3) Indira Gandhi Memorial Trust
4) The Rajiv Gandhi Foundation

c. Donations to the following are eligible for 100% deduction subject to 10% of
adjusted gross total income
1) Government or any approved local authority, institution or association to be
utilized for the purpose of promoting family planning.
2) Donation by a Company to the Indian Olympic Association or to any other
notified association or institution established in India for the development of

37
 infrastructure for sports and games in India or the sponsorship of sports and games
in India.

d. Donations to the following are eligible for 50% deduction subject to 10% of
adjusted gross total income
1) Any other fund or any institution which satisfies conditions mentioned in Section
80G(5).
2) Government or any local authority to be utilized for any charitable purpose other
than the purpose of promoting family planning.
3) Any authority constituted in India for the purpose of dealing with and satisfying
the need for housing accommodation or for the purpose of planning, development
or improvement of cities, towns, villages or both.
4) For repairs or renovation of any notified temple, mosque, gurudwara, church or
other places.

12. Section 80GGC – Contribution to Political Parties

Deduction on contributions given by any person to Political Parties
Deduction under section 80GGC is allowed to an individual taxpayer for any amount
contributed to a political party or an electoral trust. It is not available for companies,
local authorities and an artificial juridical person wholly or partly funded by the
government. You can avail this deduction only if you pay by any way other than
cash.

13. Section 80RRB – Royalty of a Patent

Deduction with respect to any Income by way of Royalty of a Patent
80RRB Deduction for any income by way of royalty for a patent, registered on or
after 1 April 2003 under the Patents Act 1970, shall be available for up to Rs.3 lakh or
the income received, whichever is less. The taxpayer must be an individual patentee
and an Indian resident. The taxpayer must furnish a certificate in the prescribed form
duly signed by the prescribed authority.

38
1.9 MISTAKE DONE WHILE DOING TAX PLANNING:

1.9.1 Delaying Tax-Saving Investments And Hurrying To Save Taxes In The

Last Quarter:
They key to building a good investment portfolio, lies in making systematic
investments over the year. People who are unaware of tax deductions tend to hurry
and take a call in making tax-saving investments in the last minute.
Little do they know that rushed investments can lead to erroneous decisions. Also
making tax-saving investments at the last moment will not allow you to reap its full
benefits. A large one time investment can make your monthly budget go haywire.
What to Do:
Timing is very important when it comes to tax-saving investments. Start investing in
tax-saving schemes at the beginning of the financial year and create a diversified
investment portfolio. Take the effort to give a deep thought regarding your
investments, in order to make the most of it.

1.9.2 Ignoring Expenses That Are Tax-Exempt:

Being ignorant is the biggest folly of all. Most of the people are not even aware that
the expenses they make towards health insurance premium, children’s tuition fees,
house loan payment, house rent etc. qualify as valid tax deductions. Hence, they don’t
declare such expenses and end up paying more taxes.
One of the common unknown allowances is that of the House Rent Allowance
(HRA). Typically most of the employees get HRA from employers and if you fail to
get this allowance, you can claim deduction up to Rs.2000 per month in your income
tax returns.
Moreover, when it comes to tax-saving investments, people tend to limit their
declarations to Section 80C alone. They are unaware of other tax deductions of
medical expenses, interest on housing and educational loans, expenses toward social
donations and more.
What to Do:
Be informed about all expenses that qualify as tax deductions. The money that you
have already spent should not go waste by paying more taxes on top of it. Ensure to

39
claim the deductions you can and don’t just focus on Section 80C tax benefits. There
are several other tax-saving avenues.

1.9.3 Investing in Tax-Inefficient Schemes:

A common tax-saving strategy that is preferred by most is investing in long term fixed
deposits (FD) or acquiring national saving certificates (NSC). You can make a one-
time claim on the investment you make, however the interest you earn on both Fds
and NSCs are taxable. This makes such products tax-inefficient.
Distinguish tax-saving schemes like PPF and other pension schemes, from usual
investments of fixed deposits or recurring deposits and make the most out of them.
Investments made in PPF (public provident fund) are eligible for tax deduction and at
the same time the interest earned out of them are tax-free. Look for such effective tax-
saving schemes.
Also, your investment portfolio should have the right mix of equity and debt
investment funds. You can opt for tax-saving mutual funds with exposure to equities
or stock market and also invest in debt funds with endowment plans, PPF, etc.
Allocate funds accordingly and build the right portfolio to save more.
What to Do:
Allocate part of your portfolio to Equity investment schemes in order to save tax and
earn high returns in the long run. Consider your financial goals, risk appetite and age
and invest in effective tax-saving schemes.

1.9.4 Investing Too Much in Endowment Insurance Plans:

Endowment insurance plans are life insurance schemes that are good for tax-saving
and essential investment. However, investing a big chunk of your hard-earned money
on Endowment plans alone will not fetch you great returns.
When you walk into a bank or ask your insurance agent for tax-saving schemes, they
always recommend endowment life insurance plans. Since they earn the highest
commission usually at the rate of 35% of the first-year premium and 5% on
subsequent premiums, they tend to convince and sell it to you.
These plans are very long term usually in the range of 10-20 years, in which you need
to keep investing. If you redeem in between, then you will not even get your initial
investment back. Many taxpayers make the mistake of investing almost the entire

40
eligible amount of Section 80 C in endowment plans and fail to look at other effective
tax-saving schemes.
What to Do:
Invest in term plans, which also qualify for tax deduction under Section 80 C as
opposed to endowment insurance plans. Do not invest a major chunk of tax-deduction
money on endowment plans and consider other options as well.

1.9.5 Not Fulfilling The Section 80C Limit:

Under section 80, an individual taxpayer is eligible for tax deductions up to Rs.
1,50,`000. However, not everyone is aware and able to meet the limit. Often, they end
up shelling out more income taxes that they need to, because they are unable to utilize
the limit of Section 80C.
Also be aware of the rules well. Tax benefits always come with underlying terms and
conditions that you need to know prior to investing. For example, the entire life
insurance premium is not tax deductible and applies only up to 10% of the sum
assured amount. There is a common misconception among investors, that the entire
premium is eligible for tax deduction. This makes them rush into such products in
order to save taxes. So, always know the rules well and then make correct decisions.
What to Do:
It is not mandatory to invest the entire Rs. 1.5 Lakhs to save taxes. Invest as much as
you can and plan you tax-saving investments to reap the full benefits of the available
tax deductions under Section 80C. Awareness of the underlying rules will definitely
help you plan your finances better.

41
 CHAPTER 2
REVIEW OF LITERATURE

2.1 INTRODUCTION
The tax planning is the arrangement of one’s financial affairs in such a way that
without violating in any way the legal provisions, full advantage is taken to allow tax
exemptions, deductions, concessions, rebates, allowances and other reliefs or benefits
permitted under the Income Tax Act.

For every research work, it is necessary to take the review of the literature pertaining
to the research subject, because the review of literature helps to determine the precise
subject area and to arrange research work in proper way. For my research topic I have
obtained data from various published sources like books, journals, research papers
and articles.

2.2 RESEARCH PAPERS / ARTICLES / BOOKS

Mrs.R.Vasanthi (2015)1 - In her research paper “A Study on Tax Planning Pattern of

Salaried Assessee”, has studied that Tax planning is not a post time of a few but it is
necessity for all honest tax payers. A wrong decision can mean an unbearable burden
while a right step in the right direction after proper tax planning can mean a lot of tax
saving”- S.P.Metha.
Tax planning is nothing but tax avoiding formulates, it is a great art, which does not
break law, yet, its bonafide. It helps in saving the tax, the salient aspect to so call good
tax planning is, i) Bonafide nature of arrangements ii) Provision that laws are not
violated.

Geetha (2014)2 - In her research paper “A study on tax planning measures adopted by
the salaried class in Kerala” has investigated the differences in the savings and
investment pattern of the employees belonging to the private sector and public sector.
Even if people have awareness about tax planning, the implementation of tax planning
measures adopted by the employees was not up to the mark even by high tax slab
groups. Employees showed greater awareness for PF, insurance; Professional Tax and

42
Housing Loan but have a lower awareness regarding capital gains and relief. In last
few years peoples are more aware about he capital gain. They are investing in
different tax saving investment plans for getting benefits.

Sheety (2013)3 – In his research paper “An Analysis of Investors Attitude Towards
Various Tax Saving Schemes” empirically analysed and concluded that individual in
order to reduce their tax burden through tax planning does resort to tax saving
investments. While investing, all the benefits available in a particular investment are
not known to individual investors they must make all possible efforts to see that the
terms of investment are known.

K.Saravanan & Dr.K.MuthuLakshmi (2017)4 - In their research paper “Tax Saving

Instruments of Income Tax in India: A Study on Tax Assessee” has concluded that ,
Tax planning can be defined as an arrangement of one's financial and business affairs
by taking legitimately in full benefit of all deductions, exemptions, allowances and
rebates so that tax liability reduces to minimum. In other words, all arrangements by
which the tax is saved by ways and means which comply with the legal obligations
and requirements and are not colorable devices or tactics to meet the letters of law but
the spirit behind these, would constitute tax planning. Actually the exemptions,
deductions, rebates and reliefs have been provided by the legislature to achieve
certain social and economic goals.

Shivaji Lande (2015)5 - In his project report “Income Tax Planning with respect to
Individual Assessee” has concluded that , Proper tax planning is a basic duty of
every person which should be carried out religiously. Every citizen has a fundamental
right to avail all the tax incentives provided by the Government. Therefore, through
prudent tax planning not only income-tax liability is reduced but also a better future is
ensured due to compulsory savings in highly safe Government schemes. We should
plan our investments in such a way, that the post-tax yield is the highest possible
keeping in view the basic parameters of safety and liquidity.

R.N.Lakhotia and Subhash Lakhotia (2017)6 - In their book “How to save income
tax through tax planning” has explained that make tax planning as possible as easy in
their books they explain 5 golden rules of tax planning. They said that your spread the

43
taxable income among various members in your family. Take full advantages of tax
exemptions available under the law. Take full advantages of permissible tax
deductions and rebates available on stipulated tax saving investments. Make optimum
use of tax-exempted incomes. According to R.N.Lakhotia and Subhash Lakhotia
simple tax planning is smart tax planning.

Ahammad & Lakshmanna (2017)7 - In their research paper “A study on investment

preferences among employees” has studied the different options of investments
available as well as the factors that play an important role while selecting the
investment tool with the salaried employees. The study concludes that people are fully
aware of the available options but still the investment in metals, bank deposits, chits,
and real estate are the most opted options. The study also found safety and liquidity as
the most considerable factor while investing. Employees want a more secure and
steady flow of funds on the investment made in the past.

44
 CHAPTER 3
RESEARCH METHODOLOGY

3.1 INTRODUCTION
The Indian Income Tax law is a highly complicated and confusing piece of document.
For the common man the task of understanding the procedure and provisions of law is
daunting. Not only the process of tax calculation is very difficult but its practical
implementation is also tedious and unmanageable. However under the law, the tax
payer is legitimately entitled to plan his taxes in such a manner that his tax liability is
minimal. As long as you are within the framework of law, you can plan your financial
affairs.

But the framework of law with related to individual tax payers is difficult at least for
common people. Hence selected topic is more important to the society as well as to
the Government. From the commercial and economic point of view the procedure of
Income Tax is equally important to Government also. Hence I have also tried to find out
the reasons behind the policy of the Government and to find out respondents oriented
schemes.

It is quite clear that within the frame work of law one can plan his/her financial affairs,
however under the pre text of tax planning one cannot indulge in Tax Avoidance or Tax
Evasion.

3.2 OBJECTIVES OF THE STUDY

1. To study the concept of tax planning for salaried class.

2. To understand the level of awareness of the salaried class on various tax planning
measures available under the Income Tax Act.
3. To analyse perception of respondents towards tax planning and their tax planning
methods.
4. To study the benefits of tax planning.

45
3.3 SELECTION OF THE PROBLEM
The topic was selected to know about the tax planning for the salaried class. From this
research work I was able to know about the concept of tax planning in details and the
different methods use by the tax payers to reduce tax liability during the financial
year.

3.4 RESEARCH METHODOLOGY

The process used to collect information and data for the purpose of making business
decisions. The methodology may include publication research, interviews, surveys
and other research techniques, and could include both present and historical
information. It is a document written by researcher to describe the idea for an
investigation on a certain topic.

3.4.1 Area of Research :

For this research work I collected the from Mumbai city.

3.4.2 Research Design :

A research design is a logical and systematic plan for directing a research study. The
research gives a blueprint for research work. For this study simple random sampling
research design method has been used. Primary data were used.

3.4.3 Sampling Method :

In this research work for collection, analysis and presentation of data I chose simple
random sampling method.

3.4.4 Sample Size :

The sample size selected by me for the research study was 100 respondents.

3.4.5 Methods of Data Collection :

For the purpose of research study I collected data from primary as well as secondary
data method.

46
1. Primary Data:-

Primary data have been collected from individual salaried class. For the purpose of
primary data collection the Questionnaire was prepared for the required information.
Questionnaires were circulated to the respondents. Accordingly primary data was
collected. Also the survey has been conducted for collection of data.

2. Secondary Data:-
The secondary data was collected from various sources such as journals, books,
websites, and published and unpublished research papers.

3.4.6 Techniques of Analysis :

For the purpose of research work the technique used for analysis was bar diagram,
graphs, pie charts and line charts etc.

3.4.7 Research Tools :

The questionnaire given in the appendix was used to collect data from the various
respondents.

3.4 SCOPE OF THE STUDY AND SIGNIFICANCE OF THE

STUDY
Taxation is considered as a complex matter affecting financial planning of each
individual income tax respondents. The scope of the present study is limited to the tax
planning measures adopted by the salaried income tax respondents. The study also
evaluates the extent of awareness of employees on tax laws and tax planning
measures. The savings habits, investment pattern, repayment of liabilities, tax
planning measures adopted for tax planning. The period under study and the level of
awareness of employees on tax laws and tax planning measures were studied and
evaluated.
“An individual assessee”, is very sensitive area as this of tax planning and tax liability
relates to their individual finance. Taking into consideration this aspect the
information is collected, analysis and conclusion are drawn, and findings arrived there
on. Suggestions are given to overcome the difficulties would hopefully be addition to

47
the knowledge and useful for making certain concrete changes in the Income Tax Act, so
as to change the mindset of respondents for obeying the rules of the Act and which would
ultimately help to the nation.

3.5 LIMITATION OF THE STUDY

1) Time :
The study is related to the period of three months but this period is not sufficient for
the comparative study of tax planning. Within three months it is not possible to collect
data from respondents and it is limitation for the research work.

2) Respondent’s bias :
As the topic is related to individuals tax planning, many respondents were opposed to
give details regarding tax related matters income. Study is related to individual tax
matter hence mostly respondents have not responded fully and accurately.

3) Area of research :
For this topic the three months time period is less, Therefore the area selected for the
research study is also limited.

48
 CHAPTER 4
DATA ANALYSIS AND INTERPRETATION

Q.A.ii) Gender
a) Male b) Female

Table 4.1: Gender Wise Information

Particulars Percentage (%)

Male 63%
Female 37%
Total 100%

Figure 4.1: Gender Wise Information

Gender

37%
Male
Female
63%

In the above diagram, The classification is based on the gender of the respondents
were out of the 100% respondent I got the responses of 63% of male and 37% of
female respondents. This shows majority of male respondents as compare to the
female respondents. Where all are salaried employees.

49
Q.A.iii) Age
a) 18-25 b) 26-45 c) Above 45

Table 4.2: Age Wise Information

Particulars Percentage (%)

18 -25 55%
26 - 45 38%
Above 45 7%
Total 100%

Figure 4.2: Age Wise Information

Age

7%

18 -25

38% 26 - 45
55% Above 45

In the above diagram, classification has done on the basis of the age of the
respondents. Out of the 100% respondents I found that 55% respondents are between
18-25 year, 38% respondents are between 26-45 year and remaining 7% respondents
are above 45 year. Where 67 respondents are male and 37 respondents are female
employees. It shows that most of majority of respondent’s age is between 18-25 years
and the response from age group above 45 years is very less.

50
Q.A.iv) Income
a) Below 300000 b) 300000 – 500000
c) 500001 – 1000000 d) Above 1000000

Table 4.3: Income Wise Information

Particulars Percentage (%)

Below 300000 49%
300000 – 500000 23%
500000 – 1000000 20%
Above 1000000 8%
Total 100%

Figure 4.3: Income Wise Information

Income

8%

20% Below 300000

49% 300000 - 500000

500000 - 1000000
Above 1000000

23%

The above classification based on the income of the respondents. Where out of the
100 respondents 49% respondents income is below 300000 rupees, 23% respondents
income is between 300000 to 500000 rupees other 20% has income between rupees
500001 to 1000000 and the remaining 8% has income above 1000000 rupees. As per
this survey it show that most of the peoples have income below 300000 rupees and
very few peoples have income above rupees 1000000.

51
Q.B.1. Are you regular tax payer?

a) Yes b) No

Table 4.4: Tax Payers Information

Particulars Percentage (%)

Yes 66%
No 34%
Total 100%

Figure 4.4: Tax Payers Information

Tax Payers

34%

Yes
No

66%

The above diagram shows classification between the regular tax payer and irregular
tax payer. Out of the 100 respondents 66% salaried employees are regular tax payer
and remaining 34% salaried employees are irregular tax payers who are not paying
tax on time and try to avoid tax sometimes. It shows that the most of the peoples are
paying tax regularly which helps for the growth of economy of the country. And less
than 50% of peoples are not paying tax on the regular basis.

52
Q.B.2. Do you know about tax planning?

a) Yes b) No

Table 4.5: Awareness about Tax Planning

Particulars Percentage (%)

Yes 67%
No 33%
Total 100%

Figure 4.5: Awareness about Tax Planning

33%

Yes
No

67%

The above diagram shows that how many salaried employees are know about the
income tax planning. Out of my 100 respondents 67% peoples are aware about the tax
planning and other 33% peoples are not having that much knowledge about the tax
planning and how it is useful for saving tax.

It shows that most of the salaried employees are know about the tax planning and
there are very less peoples who don’t know about the tax planning.

53
Q.B.3. Do you agree that the tax planning helps to reduce tax liability?

a) Agree b) Disagree

Table 4.6: Perception about Tax Planning

Particulars Percentage (%)

Agree 73%
Disagree 27%
Total 100%

Figure 4.6: Perception about Tax Planning

27%

Agree
Disagree

73%

The above diagram shows that how many salaried employees are think that the tax
planning helps to reduce tax liability and how many are disagree with that statement.
In my survey out of the 100 respondents 73% of the salaried employees are think that
the tax planning reduce the tax liability and other 27% think that the tax planning is
not helps to reduce tax liability.

54
Q.B.4. When do you formulate your tax plan during a financial year?

a) Beginning of the year b) End of the year

c) At any time d) No planning at all

Table 4.7: Tax Plan Formation

Particulars Percentage (%)

Beginning of the year 24%
End of the year 33%
At any time 15%
No planning at all 28%
Total 100%

Figure 4.7: Tax Plan Formation

24%
28%
Beginning of the year
End of the year
At any time
No planning at all
15%
33%

The above diagram shows that when the respondents are formulating their tax plan
during the year. Were out of the 100 respondents I found that 24% of the salaried
employees formulating tax plan at the beginning of the year, 33 percent of salaried
employees are formulating tax plan at the end of the financial year and 15 percent of
the employees are formulate tax plan at any time during the financial year. Remaining
23 percent of salaried employees are did not formulate tax plan in the year.

55
Q.B.5. Do you seek the services of tax consultant for tax planning?

a) Always b) Occasionally
c) Rarely d) Never

Table 4.8: Services of Tax Consultant

Particulars Percentage (%)

Always 21%
Occasionally 27%
Rarely 24%
Never 28%
Total 100%

Figure 4.8: Services of Tax Consultant

21%
28%
Always
Occasionlly
Rarely
Never
27%
24%

The above diagram shows the information regarding to the salaried employees who
seeking services of tax consultant for a good tax planning. As per the diagram out of
100 salaried employees 21 percent of employees are always take service of tax
consultant for tax planning, 27 percent of employees are seek the tax consultant
service occasionally 24 percent employees are rarely seeking the service of tax
consultant and remaining 28 percent salaried employees are not seeking the service of
tax consultant for tax planning.

56
Q.B.6. Which investment option you prefer for tax planning?

a) Equity b) fixed Deposits

c) Public Provident Fund d) Mutual Fund
e) Post Office Saving

Table 4.9: Classification as Per Investment Option

Particulars Percentage (%)

Equity 12%
Fixed Deposits 27%
Public Provident Fund 32%
Mutual Fund 19%
Post office Saving 10%
Total 100%

Figure 4.9: Classification as Per Investment Options

Post office Saving 10%

Mutual Fund 19% Equity

Fixed Deposits
Public Provident Fund 32%
Public Provident Fund
Mutual Fund
Fixed Deposits 27%
Post office Saving

Equity 12%

0% 10% 20% 30% 40%

The above diagram explains that which investment option is selected by the salaried
employees are choose for the investment while doing tax planning. As per the above
data 12 percent of employees are invest in equity shares, 27 percent of employees
invest their money in fixed deposits with bank, 32 percent of employees invest in
Public Provident Fund, 19 percent of employees invest their income in Mutual Fund
and 10 percent employees invest in Post Office Saving fund.

57
The above data shows that most of salaried employees are prefer to invest in Public
Provident Fund and Fixed Deposits for tax saving, then some investors choose mutual
fund for investment and very few peoples are choose Equity shares and Post Office
Savings for investment as compare to the PPF and FD with bank.

58
Q.B.7. Do you aware about the exemptions given under Income Tax Act for
salaried class?
a) Yes b) No c) May be

Table 4.10: Awareness about Exemptions

Particulars Percentage (%)

Yes 36 %
No 36 %
May be 28 %
Total 100 %

Figure 4.10: Awareness about Exemptions

28%
36%
Yes
No
May be

36%

The above diagram shows the awareness of the salaried employees towards the
exemption given by the income tax act to the salaried class. In this survey out of 100
salaried employees 36 percent of employees are fully aware about the exemption
given to the by income tax act, other 36 percent are unaware about the benefits of
exemption available to the salaried employees and remaining 28 percent of employees
are partly aware about the exemptions given by the Income Tax Act to them.

59
Q.B.8. Extent your awareness regarding to the various deductions under Section
80C of Income Tax Act.

Fully Partly
Sr.
Particulars Aware Aware Unaware
No

1 Insurance Premium
2 Contribution To Provident Fund
3 Investment In National Saving Certificate
4 Investment In Post Office Saving
5 Subscription To Mutual Fund
6 Repayment Of Housing Loan

7 Fixed Deposits In Schedule Bank

Table 4.11: Awareness about Deductions under Section 80C

Percentage (%)
Sr.
Particulars Fully Partly
No. Unaware
aware Aware
1 Insurance Premium 52% 25% 23%

2 Contribution To Provident Fund 41% 45% 14%

3 Investment In NSC 19% 30% 51%

4 Investment In Post Office Saving 27% 44% 29%

5 Subscription To Mutual Fund 29% 39% 32%

6 Repayment Of Housing Loan 23% 46% 31%

7 Fixed Deposits In Schedule Bank 43% 42% 15%

60
 Figure 4.11: Awareness about Deductions under Section 80C

60%

50%

40%

30%

20%
Percentage Fully aware
10%
Percentage Partly Aware
0% Percentage Unaware

The diagram explains the awareness of the salaried employees regarding to the
various deductions available under section 80C of Income Tax Act.

As per the survey out of the 100 respondents 52 percent of salaried employees are
fully aware about the deductions on insurance premium, 25 percent of employees are
partly aware about the benefits of the deduction on insurance premium and remaining
23 percent of salaried employees are not aware about deduction available on
insurance premium.

The diagram shows that out of the 100 respondents 41 percent of employees are fully
aware about the deductions available on contribution to provident fund, 45 percent of
salaried employees are partly aware about the deduction on contribution to provident
fund and other 14 percent are unaware about deduction given by Income Tax Act on
the provident fund.

As per the diagram only 19 percent of the employees are fully aware about the
deduction available on the investment in National Saving Certificate, 30 percent of
salaried employees are partly aware about the benefits of deduction on the investment
in NSC and 51 percent of employees are do not aware about deduction available on
Investment in NSC. It means that most of the salaried employees are not have
knowledge about investment in National Saving Certificate.

61
As per the diagram 27 percent of salaried employees are fully aware about deductions
available under section 80c to them, 44 percent of employees are partly aware about
deduction available on Investment in Post Office Saving and remaining 29 percent of
respondents are unaware about the benefits of deduction on investment in post office
savings.

In my survey I found that out of 100 responses 29 percent of salaried employees are
fully aware about the deductions available on subscription to mutual fund, 39 percent
of employees are partly aware about the benefits of deduction on subscription to
mutual fund and remaining 32 percent of respondents are unaware about deduction
available on subscription to mutual fund.

The diagram shows that out of the 100 salaried employees 23 percent are fully aware
about the deductions available on repayment of housing loan and 46 percent are partly
aware about the deduction on housing loan. Remaining 31 percent salaried employees
are unaware about the benefits of deduction available on repayment of housing loan.

As per my survey 43 percent of salaried employees are fully aware about the
deduction given by income tax act on the fixed deposits with schedule banks, 42
percent of respondents are partly aware about the deduction and remaining 15 percent
are not aware about the deduction available on fixed deposits with schedule banks.

62
Q.B.9. Do you think that taxation procedure is complex and difficult to
understand?

a) Yes b) No

Table 4.12: Taxation Procedure

Particulars Percentage (%)

Yes 61%
No 39%
Total 100%

Figure 4.12: Taxation Procedure

39%
Yes
No
61%

In my survey I found that out of the 100 salaried employees 61 percent of employees
are think that the procedure of tax planning is complex and difficult to understand to
them while formulating tax plan during the year and remaining 31 percent of salaried
employees are think the taxation procedure isn’t complex and difficult to understand
during tax planning. It explains that most of the salaried employees are think that the
taxation procedure is complex and difficult.

63
Q.B.10. Do you think tax planning is beneficial?
a) Yes b) No

Table 4.13: Awareness about the Benefits

Particulars Percentage (%)

Yes 71%
No 29%
Total 100%

Figure 4.13: Awareness about the Benefits

29%

Yes
No

71%

As per the above data the classification is based on tax planning is beneficial or not.
As my survey I found that out of the 100 respondents 71 percent of salaried
employees are think that tax planning is beneficial for them and 29 percent employees
are think the tax planning is not beneficial for them.
The survey explains that most of the salaried employees are thinking that tax planning
is beneficial and very few are thinking that it is not beneficial to them.

64
Q.B.11.How much your income in a year is saved?
a) Below 10% b) 10% - 20%
c) 20% - 30% d) Above 30%

Table 4.14: Annual Saving

Particulars Percentage (%)

Below 10% 45%

10% - 20% 30%
21% - 30% 15%
Above 31% 10%
Total 100%

Figure 4.14: Annual Saving

10%

15% Below 10%

45% 10% - 20%
21% - 30%
Above 31%
30%

In the above diagram the classification is based on the income is saved by the
employees during the financial year. As per the data out of the 100 respondents 45
percent of salaried employees are saved less than10 % of their income during the
year, 30 percent of employees saved 10% to 20% of their income in the year, 15
percent of employees saves 21% to 30% of their income in the financial year and only
10 percent salaried employees saved more than 31% of their income during the
financial year.

65
 CHAPTER 5
FINDINGS, CONCLUSIONS AND SUGGESTIONS

5.1 FINDINGS AND CONCLUSION

FINDINGS:

1) Analysing the classification between the regular tax payer and irregular tax payer,
it was revealed that 66% salaried employees are regular tax payer and remaining
34% salaried employees are not regular tax payers. It shows that the most of the
peoples are paying tax regularly.

2) While studying the awareness of the salaried employees about the concept of tax
planning, it was revealed that 67% peoples are aware about the tax planning and
there are very few peoples, about 33% not having that much knowledge about the
tax planning.

3) While evaluating the responses related to that how many salaried employees are
think that the tax planning helps to reduce tax liability or not. As per survey 73%
of the salaried employees are think that the tax planning reduce the tax liability
and other 27% think that the tax planning is not helps to reduce tax liability.

4) As per my survey, I observed that 24 percent of the salaried employees

formulating tax plan at the beginning of the year, 33 percent of are formulate at
the end of the financial year and 15 percent of the employees are formulate tax
plan at any time during the financial year. Remaining 23 percent of salaried
employees are did not formulate tax plan.

5) According to my survey 21 percent of employees are always take service of tax

consultant for tax planning, 27 percent of employees are seek the service
occasionally, 24 percent employees are rarely seeking the service of tax consultant
and remaining 28 percent salaried employees are not seeking the service of tax
consultant for tax planning.

66
6) Analysing the investment pattern of the salaried employees it was revealed that 12
percent of employees are invest in equity shares, 27 percent of employees invest
in fixed deposits with bank, 32 percent of employees invest in Public Provident
Fund, 19 percent of employees invest in Mutual Fund and 10 percent employees
invest in Post Office Saving fund.

7) As per my survey nearly 36 percent of employees are fully aware about the
exemption given by income tax act, other 36 percent are unaware about the
benefits of exemption and remaining 28 percent of employees are partly aware
about it.

8) While evaluating the awareness of the salaried class towards the deductions
available under section 80C of the Income Tax Act, I found the following data:

i) As per my survey 52 percent of salaried employees are fully aware about the
deductions on insurance premium, 25 percent of employees are partly aware about
it and remaining 23 percent are not aware about deduction on insurance premium.

ii) The survey revealed that 41 percent of employees are fully aware about the
deductions available on contribution to provident fund, 45 percent are partly
aware about it and other 14 percent are unaware about deduction on the provident
fund.

iii) According to the survey only 19 percent of the employees are fully aware about
the deduction available on the investment in National Saving Certificate, 30
percent of are partly aware about the deduction on NSC and 51 percent of
employees are not aware about this deduction.

iv) The survey explains that 27 percent of salaried employees are fully aware about
deductions available on Post Office Saving, 44 percent of employees are partly
aware about it and remaining 29 percent of respondents are unaware about the
deduction post office savings.

67
v) In my survey 29 percent of salaried employees are fully aware about the
deductions available on subscription to mutual fund, 39 percent of employees are
partly aware about the deduction on mutual fund and remaining 32 percent of
respondents are unaware.

vi) According to my survey 23 percent persons are fully aware about the deductions
available on repayment of housing loan, 46 percent are partly aware about this
deduction and remaining 31 percent salaried employees are unaware about it.

vii) As per my survey 43 percent of salaried employees are fully aware about the
deduction on the fixed deposits, 42 percent of respondents are partly aware about
the deduction and remaining 15 percent are not aware about the deduction.

9) According to my survey, most of the persons, nearly 61 percent of employees are

think that the procedure of tax planning is complex and difficult to understand and
remaining 31 percent of salaried employees are think the taxation procedure isn’t
complex and difficult to understand during tax planning.

10) During the data analysis I found that most of the peoples, nearly 71 percent of
salaried employees are think that tax planning is beneficial for them and 29
percent employees are think the tax planning is not beneficial for them.

11) According to my survey, I observed that 45 percent of salaried employees are

saved less than10 % of their income, 30 percent of employees saved 10% to 20%
of their income in the year, 15 percent of employees saves 21% to 30% of their
income in the year and only 10 percent salaried employees saved more than 30%
of their income during the financial year.

CONCLUSION:

Tax is a major source of income for the government. Paying taxes is not just
important, it is legal necessity. However, the amount of tax that may be due from an
individual may be so high that it could not maintain standard of living. That is why

68
 tax exemptions and deductions are allowed. Planning the income and how to utilize
the funds will allow for the maximum savings on tax to be paid. Without a proper tax
planning the assessee will be responsible to pay a large amount of tax. Tax planning
helps to analyze the income and helps to achieve the financial goals. It helps in the
better control on money by estimating taxable income. The tax planning can create the
effective and legitimate tax strategies to overall tax obligation.

From the study it is concluded that the majority of the employees are known about the
tax planning but they do not have proper knowledge about how to formulate it. As
compared to other investment option most the salaried employees choose public
provident fund and fixed deposits for investing their money. It is concluded that still
the employees in Mumbai are not properly aware regarding to the various exemptions
given by the Income Tax Act. It is revealed that most of the salaried employees think
that tax planning is beneficial and it’s helps to reduce tax liability during the financial
year. But as per their thinking the taxation procedure is complex and difficult to
understand.

Tax planning has a wider philosophy and is closely associated with what the salaried
assessee earns and his liability to consume. The gap between the same called as
savings and if that savings can helps to reduce tax, then the tax planning is effective.
The assessees want a rationalized, simplified, operational tax system where an
assessee is assessed but not feel exploited.

5.2 SUGGESTIONS

Suggestion are made on the basis of responses from respondents on the basis of data
collected from experts and finally on the basis of findings of the study.

1. Suggestions to the Government:

As per the studies and data collected from the respondents, suggestions given to the
government for improving tax planning measures and taxation procedures included
tax rates should be lowered. Nominal rates should be deducted from all employees at
source, thereby avoiding the necessity for filing returns. Tax liability should be

69
 minimized and total tax revenue to the Government should be enhanced through
widening the net tax. Cost of tax administration can be reduced where monthly tax is
deducted at source. Investments in selected avenues should be promoted by providing
tax incentives. Tax planning education should be provided and E-filing should be
popularized by the government for the assessees.

It was observed that lowering tax rates and widening the tax net received the
maximum priority in either sector. Nominal rates should be deducted from all
employees at source and providing tax plan education received third priority
respectively in taxation for assessees.

2. Suggestions to Experts:

Tax planning is a continuous and consistent process. It is not something to be

undertaken at the end of the financial year. It was observed that assessees generally
indulge in tax planning efforts only towards the end of the year and non availability of
funds often prevent taking advantage of tax planning measures.

The official website of the Income Tax Department as well as income tax
advertisements brought out by the Department can show information on tax planning
measures in periodic intervals throughout the year. It must be in line with the present
system of posting advertisements relating to the payment of tax before due date and
filing of income tax returns.

Such advertisements can educate the assessees on various provisions of the Income
Tax Act relating to infrastructure bonds, relief u/s 89, benefits from various
investments, possibility for liquid cash and ways and means of filing returns including
e - filing. Wise investment policies are used and returns are linked with tax benefits
can be conveyed.

It was commonly observed that certain steps envisaged in the Income Tax Act like
provident fund, insurance policies and long term bank deposits were well taken while
income tax provisions relating to infrastructure bonds and capital market securities
were least understood or adopted. So also the practice of annual return filing and
deduction of tax by the employer was not taken as a timely measure. Employers need
to be directed on conveying tax liability through proper estimation of the same right

70
 from the beginning of the year and making the tax liability into equated monthly
installments.

3. Suggestions based on the findings of the study:

As far as the salaried assessees are concerned, it was observed that tax planning
measures through the investments route alone will not be sufficient. Providing an
alternate channel which is supportive to present consumption or immediate
consumption is recommended. Ensuring liquidity in tax planning would strengthen
the tax planning process. Tax planning essentially depends on provisions in the
Finance Act and the Budget. Educating the masses of the provisions of the same and
creating awareness on availing the benefits is recommended.

Hence, it is suggested in this respect that the institutions offering tax-saving schemes
such as Post-office, Mutual Fund, Tax Consultants should come forward to arrange
periodical programs to educate these types of assessees (i.e. the assessees belonging to
the group of young age, studied upto SSC, State Government, professional, village
area, bachelors and employees who have put in less than 10 years of service) about
timely tax planning. They may bring out suitable handouts about the various tax
planning options available and their features. Frequent meetings may be arranged to
update their knowledge in tax laws and recent amendments in tax laws. Special
meetings may be arranged for the salaried assessees, in each institution to motivate
them to invest in tax saving schemes. In these meetings informative pamphlets in
vernacular may be distributed. Mass media such as newspapers and televisions can be
used in this respect.

71
 BIBLIOGRAPHY

BOOKS:

1) Ainapure Varsha & Ainapure Mukund (2018). Direct Tax, Mumbai. Manan
Prakashan, pp.72 – 84.

2) Lakhotia R. & Lakhotia Subhash (2017). How to Save Income Tax through Tax
Planning, New Delhi. Vision Books, pp.1 – 20.

RESEARCH PAPERS / ARTICALS:

1) Savita & Gautam Lokesh. (2013). Income Tax Planning: A Study of Tax Saving
Instruments, International Journal of Management and Social Science Research,
Volume No. 2, Issue No. 5, pp. 83 & 84.
2) Saravanan K. & Dr. Muthulakshmi K. (2016). Tax saving instrument of income
tax in India, journal of Trend in scientific research and development, Volume
no.1. Issue no.5.
3) Mrs.Vasanthi. (2015).A Study on Tax Planning Pattern of Salaried Assessee,
Research Journal of Finance and Accounting, Volume no.6, Issue No.1, pp. 170-
173.
4) Kalgutkar Preeti. (2018). Tax Awareness and Tax Planning On Wealth Creation
of Individual Assessees, Sahyadri Journal of Management, Volume No. 2, Issue
No.1.

WEBSITE:

https://cleartax.in/s/income-tax-allowances-and-deductions

https://www.legalraasta.com/itr/income-tax-heads/

https://shodhganga.inflibnet.ac.in/handle/10603/25992

https://www.exidelife.in/knowledge-centre/blogs-and-articles/types-of-tax-
planning

https://www.letslearnfinance.com/features-of-tax-planning.html

72
https://www.charteredclub.com/allowances-exempt-under-section-10/

https://www.academia.edu/35857830/Income_Tax_Planning_with_respect_to_In
dividual_Assessee

https://www.hdfclife.com/insurance-knowledge-centre/tax-saving-
insurance/income-tax-slab-2019-20

73
 APPENDIX
QUESTIONNAIRE

SECTION A: PERSONAL DETAILS

i. Name : _____________________________________________________

ii. Gender : a) Male b) Female

iii. Age : a) 18-25 b) 26-45

b) Above 45

iv. Income: a) Below 300000 b) 300000-500000

c) 500001-1000000 d) Above 1000000

SECTION B: TAX PLANNING

Q.1. Are you regular tax payer?

a) Yes b) No

Q.2. Do you know about tax planning?

a) Yes b) No

Q.3. Do you agree that the tax planning helps to reduce tax liability?

a) Yes b) No

Q.4. When do you formulate your tax during a financial year?

a) Beginning of the year b) End of the year

c) At any time d) No planning at all

74
Q.5. Do you seek the services of tax consultant for tax planning?

a) Always b) Occasionally
c) Rarely d) Never

Q.6. Which investment option you prefer for tax planning?

a) Equity b) Fixed Deposits

c) Public Provident Fund d) Mutual Fund
e) Post Office Saving

Q.7. Do you aware about the exemptions given under income tax act for salaried
class?

a) Yes b) No c) May be

Q.8. Extent your awareness regarding various deductions under Section 80C of the
Income Tax Act. (By (✔) in column)

Sr. Fully Partly

Particulars Unaware
no. Aware Aware

1 Insurance Premium

2 Contribution To Provident Fund

3 Investment In National Saving Certificate

4 Investment In Post Office Saving

5 Subscription To Mutual Fund

6 Repayment Of Housing Loan

7 Fixed Deposits In Schedule Bank

Q.9. Do you think that taxation procedure is complex and difficult to understand?

a) Yes b) No

75
Q.10. Do you think tax planning is beneficial?

a) Yes b) No

Q.11. How much your income in a year is saved?

a) Below 10% b) 10% - 20%

c) 21% - 30% d) Above 30%

Q.12. Give suggestion/comment on tax planning.

76