Antim Prahar

The MOST Important

Questions
By
Dr. Anand Vyas
1 Factors that influence the personal financial
planning and meaning of financial Planning
• Financial planning is like creating a roadmap for your money. It's the
process of figuring out how to manage your finances to meet your life
goals and handle unexpected expenses. It involves setting financial
goals, creating a budget, saving, investing, and managing debt to
ensure a secure and comfortable financial future.
Factors that influence the personal financial
planning
• Income: Your earnings play a crucial role. It determines how much money
you have to allocate for different purposes like savings, bills, and
entertainment.
• Expenses: Your spending habits and monthly bills impact your financial
plan. Understanding and controlling your expenses is key to effective
financial planning.
• Goals: Your short-term and long-term goals, such as buying a house, saving
for education, or planning for retirement, guide your financial decisions.
• Savings: The amount you save regularly influences your ability to achieve
your financial goals and provides a safety net for emergencies.
• Debt: Managing and minimizing debt is important for financial stability.
High-interest debts can hinder your ability to save and invest.
• Investments: How you invest your money affects your long-term wealth. It
can provide growth and income, contributing to your financial goals.
• Risk Tolerance: Everyone has a different comfort level with risk.
Understanding how much risk you can handle helps in choosing
appropriate investments.
• Inflation: The rising cost of goods and services over time erodes the
purchasing power of your money. It's essential to consider inflation when
planning for the future.
• Insurance: Having the right insurance coverage protects you and your
assets from unexpected events, reducing financial risks.
• Taxation: Understanding the tax implications of your financial decisions can
help you optimize your savings and investments.
2 Need, myths and Process of financial
Planning and of Financial Planning
• Needs
• Goal Achievement: Financial planning helps you define and achieve your financial goals, whether
it's buying a home, funding education, or retiring comfortably.
• Risk Management: It allows you to identify and manage financial risks through strategies like
insurance, ensuring you're protected in case of unexpected events.
• Budgeting: Financial planning involves creating a budget, which helps in managing expenses,
saving, and avoiding unnecessary debt.
• Emergency Fund: Planning ensures you have an emergency fund, providing a financial cushion for
unexpected expenses like medical bills or car repairs.
• Wealth Building: It provides a roadmap for building wealth through investments, helping your
money grow over time.
• Retirement Planning: Financial planning ensures that you have a plan in place to fund your
retirement, allowing you to maintain your lifestyle even after you stop working.
• Tax Efficiency: By considering tax implications, financial planning helps you optimize your tax
strategy, minimizing liabilities and maximizing savings.
Myths of Financial Planning:
• Financial Planning is Only for the Wealthy: Financial planning is beneficial for
everyone, regardless of income. It's about making the most of what you have and
planning for a secure future.
• It's Only About Investments: While investments are a crucial part, financial
planning involves budgeting, saving, debt management, insurance, and overall
financial well-being.
• It's Too Complicated: Financial planning can be as simple or detailed as needed.
It's about creating a plan that suits your individual circumstances and goals.
• I'm Too Young for Financial Planning: The earlier you start financial planning, the
better. Starting young allows you to take advantage of compounding and build a
strong financial foundation.
• I Can Do It Myself: While some aspects of financial planning can be done
independently, seeking professional advice can provide valuable insights and
expertise, especially for complex situations.
Process of Financial Planning:
• Set Goals: Identify short-term and long-term financial goals, such as
buying a house, saving for education, or planning for retirement.
• Assess Current Financial Situation: Evaluate your income, expenses,
assets, and liabilities to understand your current financial standing.
• Create a Budget: Develop a realistic budget to manage your day-to-
day expenses, savings, and debt payments.
• Emergency Fund: Establish an emergency fund to cover unforeseen
expenses and protect against financial setbacks.
• Risk Management: Assess and manage risks through insurance to
protect yourself and your assets.
• Investment Planning: Develop an investment strategy based on your
risk tolerance, time horizon, and financial goals.
• Tax Planning: Optimize your tax strategy to minimize liabilities and
maximize savings.
• Retirement Planning: Plan for a financially secure retirement by
estimating your future needs and creating a savings strategy.
• Estate Planning: Develop a plan for the distribution of your assets and
the well-being of your family in the event of your death.
• Regular Review and Adjustment: Regularly review and adjust your
financial plan based on life changes, economic conditions, and
evolving goals.
3 Comprehensive Financial Plan; Financial Blood Test Report
A comprehensive financial plan is often likened to a "Financial Blood Test Report"
because, much like a medical blood test, it provides a detailed and holistic
snapshot of your financial health. Here's a breakdown of what such a report
might include:
1. Personal Information:
Full name, age, and contact details.
Dependents and family details.
2. Financial Goals:
Clearly defined short-term and long-term goals (e.g., buying a house, saving for
education, retirement planning).
3. Current Financial Situation:
Income details: salary, bonuses, additional sources.
Expenses: breakdown of monthly and yearly expenses.
Assets: listing of all possessions and their values.
Liabilities: debts, loans, mortgages.
4. Budget Analysis:
Detailed breakdown of spending habits.
Identification of areas for potential savings.
5. Emergency Fund:
Evaluation of the emergency fund's adequacy.
6. Risk Assessment:
Analysis of insurance coverage for life, health, property, and disability.
Identification of areas with insufficient coverage.
7. Debt Management:
Assessment of existing debts and a plan for repayment.
Strategies for minimizing and managing debt.
8. Investment Portfolio:
Overview of current investments (stocks, bonds, mutual funds, real estate).
Risk tolerance assessment for investment decisions.
Suggestions for diversification and adjustments.
9. Retirement Planning:
Estimation of retirement needs.
Evaluation of current retirement savings and strategies for improvement.
10. Tax Planning:
Analysis of tax liabilities.
Suggestions for tax-saving investments and strategies.
11. Estate Planning:
Overview of assets and their distribution plan.
Will, trusts, and other estate planning documents.
12. Regular Review and Adjustments:
Schedule for regular reviews and updates to the financial plan.
Adaptations based on life changes, economic conditions, and evolving goals.
Benefits of the Financial Blood Test Report:
Holistic Understanding: Provides a comprehensive view of your financial health.
Early Detection: Helps identify potential financial risks and challenges.
Guidance: Serves as a roadmap for achieving financial goals.
Adaptability: Allows for adjustments as circumstances change.
4 Systematic approach to investing: SIP, SWP, STP
• Systematic Investment Plan (SIP):
• What is it? SIP is a method of investing in mutual funds where you
contribute a fixed amount regularly (monthly or quarterly).
• How it works: It promotes disciplined investing, allowing you to invest even
small amounts consistently.
• Benefits: Reduces the impact of market volatility through rupee cost
averaging.
• Systematic Withdrawal Plan (SWP):
• What is it? SWP is a strategy where an investor withdraws a fixed amount
regularly from their investment, usually from mutual funds.
• How it works: Offers a steady income stream by redeeming a portion of
the invested amount at regular intervals.
• Benefits: Provides regular cash flow, and investors can customize the
withdrawal frequency and amount.
• Systematic Transfer Plan (STP):
• What is it? STP involves transferring a fixed amount from one
investment (usually debt funds) to another (usually equity funds) at
regular intervals.
• How it works: Allows investors to take advantage of market
opportunities by gradually moving funds from low-risk to higher-risk
investments.
• Benefits: Helps manage risk by spreading investments over time and
different asset classes.
5 Golden Rules and Process of retirement
planning
• Golden Rules of Retirement Planning:
• Start Early:
• The earlier you begin saving for retirement, the more time your money has to grow through
compounding.
• Set Clear Goals:
• Define specific and realistic retirement goals, considering factors like lifestyle, healthcare, and
travel.
• Regularly Review and Adjust:
• Periodically reassess your retirement plan, considering changes in income, expenses, and
market conditions. Make adjustments as needed.
• Diversify Investments:
• Spread your investments across different asset classes to minimize risk and enhance potential
returns.
• Emergency Fund:
• Maintain an emergency fund to cover unexpected expenses, preventing the need to dip into
retirement savings.
• Manage Debt:
• Aim to minimize and eliminate high-interest debts before retirement to free up more
funds for savings.
• Understand Your Risk Tolerance:
• Align your investment strategy with your risk tolerance, considering how comfortable
you are with market fluctuations.
• Healthcare Planning:
• Factor in healthcare costs in your retirement plan and consider purchasing long-term
care insurance.
• Maximize Employer Contributions:
• Contribute at least enough to your employer-sponsored retirement plan to take full
advantage of any employer matching contributions.
• Stay Informed:
• Keep yourself informed about changes in tax laws, retirement policies, and
investment options that could impact your plan.
Process of Retirement Planning:
• Define Retirement Goals:
Identify your desired lifestyle, travel plans, and any specific financial goals for
retirement.
• Assess Current Financial Situation:
• Evaluate your current income, expenses, assets, and liabilities.
• Estimate Retirement Expenses:
• Project your future expenses, accounting for inflation, healthcare, and potential changes in
lifestyle.
• Determine Retirement Income Sources:
• Identify sources of retirement income, including pensions, Social Security, and other
investments.
• Calculate Retirement Gap:
• Analyze the difference between your estimated retirement expenses and income to
determine the savings needed.
• Create a Savings Plan:
• Develop a savings strategy, considering the time horizon, risk tolerance, and investment
options
• Invest Wisely:
• Diversify your investments based on your risk tolerance and financial goals.
• Regularly Monitor and Adjust:
• Periodically review your retirement plan, making adjustments for changes in
income, expenses, and investment performance.
• Consider Tax Implications:
• Optimize your retirement plan by understanding and managing tax
implications.
• Transition to Retirement:
• As retirement approaches, gradually shift your investment portfolio to reduce
risk and ensure liquidity.
• Seek Professional Advice:
• Consult with financial advisors to ensure your retirement plan aligns with
your goals and is optimized for your unique circumstances.
6 Risk returns characteristics of assets
• The risk-return tradeoff is a fundamental concept in finance that reflects the
relationship between the potential return on an investment and the level of risk
associated with it. Here are some key characteristics of assets in terms of risk and
return:
• Higher Return, Higher Risk:
• Generally, assets with the potential for higher returns tend to come with higher levels of risk.
Investors expect to be compensated for taking on additional risk, and this is reflected in the
potential for greater returns.
• Risk Types:
• Systematic Risk (Market Risk): This type of risk is inherent in the entire market or an entire
market segment. Factors such as economic conditions, political events, and interest rate
changes affect all investments to some degree.
• Unsystematic Risk (Specific Risk): This risk is specific to an individual asset or a particular
industry. It can be minimized through diversification. Company-specific events, management
issues, or industry-specific factors contribute to unsystematic risk.
• Diversification:
• Diversification involves spreading investments across different assets or asset classes to
reduce risk. By holding a diversified portfolio, investors can mitigate the impact of poor-
performing individual assets on the overall portfolio.
• Risk Tolerance:
• Investors have different risk tolerances based on their individual financial
goals, time horizon, and personal preferences. Risk tolerance varies among
individuals, and it's important for investors to align their portfolio with their
risk tolerance.
• Volatility:
• Volatility measures the degree of variation in the price of an asset over time.
Assets with higher volatility are considered riskier. Investors often use
measures like standard deviation to assess the volatility of an investment.
• Time Horizon:
• The time horizon of an investor is crucial in determining the appropriate level
of risk. Longer investment horizons may allow investors to tolerate more
short-term fluctuations and take on higher-risk investments.
• Risk-Free Rate:
• The risk-free rate is the theoretical return on an investment with zero risk. It
serves as a benchmark for evaluating the performance of riskier assets.
Investors expect a return above the risk-free rate for taking on additional risk.
7 Definition: Cannons of Taxation Person
• The "Canons of Taxation" are principles that were introduced by the economist
Adam Smith in his seminal work "The Wealth of Nations" in 1776. These canons
serve as guidelines for designing an effective and equitable tax system. One of
the canons of taxation is related to the concept of "Person." Here is the
definition:
• Canon of Taxation: Person
• In the context of taxation, the canon related to "Person" emphasizes the principle
that taxes should be levied based on an individual's ability to pay. This canon
suggests that the tax burden should be distributed according to the taxpayer's
capacity to bear it. It takes into account the income, wealth, or other relevant
factors of the individual or entity being taxed.
• The idea is rooted in the concept of horizontal and vertical equity. Horizontal
equity implies that individuals in similar economic situations should be treated
similarly, while vertical equity suggests that individuals with greater economic
capacity should contribute more in taxes.
• In summary, the "Person" canon of taxation highlights the importance of fairness
and equity in tax systems, advocating for a distribution of the tax burden that
corresponds to the financial capacity of the individuals or entities subject to
taxation.
8 Income Tax Authorities; Their Appointment, Jurisdiction, Powers and function

• In India, the administration and enforcement of income tax laws are carried out by various
authorities. The key income tax authorities include the Central Board of Direct Taxes (CBDT), the
Income Tax Department, and various officers appointed under the Income Tax Act, 1961. Here is
an overview of their appointment, jurisdiction, powers, and functions:
• Central Board of Direct Taxes (CBDT):
• Appointment: The CBDT is a statutory authority established under the Central Boards of Revenue Act, 1963.
The members of the CBDT, including the Chairman, are appointed by the Government of India.
• Jurisdiction: The CBDT is the apex body that provides overall direction and control to the Income Tax
Department. It formulates policies and ensures the proper implementation of income tax laws.
• Powers and Functions: The CBDT exercises control over the entire income tax administration. It issues
necessary orders, instructions, and guidelines for the proper administration of tax laws. The CBDT is
responsible for the appointment and transfer of officers in the Income Tax Department.
• Income Tax Department:
• Appointment: The officers of the Income Tax Department are recruited through the civil services examination
conducted by the Union Public Service Commission (UPSC). They are appointed by the President of India.
• Jurisdiction: The Income Tax Department operates throughout the country and is organized into various
regional and specialized units. Each unit has jurisdiction over specific geographic areas or types of taxpayers.
• Powers and Functions: The Income Tax Department is responsible for the assessment, collection, and
administration of income tax. It conducts inquiries, audits, and investigations to ensure compliance with tax
laws. The officers of the department have the authority to assess income, impose penalties, and initiate legal
proceedings for tax evasion.
• Income Tax Officers (ITO), Assessing Officers (AO), and other Designated
Officers:
• Appointment: These officers are appointed by the CBDT and are part of the Income Tax
Department.
• Jurisdiction: Income Tax Officers, Assessing Officers, and other designated officers are
assigned specific jurisdictions based on geographic areas or types of taxpayers. They have the
authority to assess the income of taxpayers within their jurisdiction.
• Powers and Functions: These officers are responsible for conducting assessments,
scrutinizing tax returns, and ensuring compliance with tax laws. They have the power to
demand information, conduct searches, and initiate legal proceedings for tax evasion.
• Appellate Authorities:
• Appellate Tribunal (ITAT), Commissioner of Appeals (CIT-A): These authorities hear appeals
against the decisions of lower tax authorities. Members of the ITAT are appointed by the
President, and Commissioners of Appeals are appointed by the CBDT.
• Income Tax Settlement Commission:
• This commission is a statutory body that facilitates the settlement of income tax cases. It
consists of a Chairman and other members appointed by the CBDT.
• The Income Tax Act, 1961, empowers these authorities to carry out their
functions and duties effectively. The Act also specifies the powers of search and
seizure, assessment procedures, and penalties for non-compliance. It is essential
for taxpayers to understand these provisions and comply with the tax laws to
avoid legal consequences.
9 Residential Status & Tax Incidence
• Residential status plays a crucial role in determining the tax liability of an individual in
India. The residential status is primarily classified into three categories: Resident, Non-
Resident, and Resident but Not Ordinarily Resident (RNOR). The tax incidence (i.e., the
extent to which an individual is subject to income tax) varies based on the residential
status. Here's an overview:
• Residential Status Categories:
• Resident:
• An individual is considered a resident if he/she satisfies any of the following conditions:
• Stays in India for 182 days or more during the financial year (April 1 to March 31), OR
• Stays in India for 60 days or more during the financial year and 365 days or more in the preceding four financial
years.
• Non-Resident:
• An individual is considered a non-resident if he/she does not meet any of the conditions
mentioned above.
• Resident but Not Ordinarily Resident (RNOR):
• A resident individual qualifies as RNOR if he/she satisfies any of the following conditions:
• Was a non-resident in India in nine out of the ten previous financial years preceding the relevant financial year,
OR
• Stays in India for 729 days or less in the seven previous financial years preceding the relevant financial year.
Taxation of Specific Incomes:
• Income from Salary, House Property, Capital Gains,
Business/Profession, and Other Sources:
• Taxability depends on the residential status, and the global income is
considered for residents and RNORs.
• Foreign Income:
• Residents are required to declare and pay tax on their global income,
including income earned outside India. Non-residents and RNORs are taxed
only on income earned in India.
• Double Taxation Avoidance Agreements (DTAA):
• Non-residents can benefit from DTAA, which India has signed with many
countries. DTAA helps prevent the same income from being taxed in both
India and the country of residence.
10 Principles and factors of influences of Assets Allocation
• Principles of Asset Allocation:
• Diversification:
• Principle: Spread investments across different asset classes to reduce risk.
• Risk Tolerance:
• Principle: Align asset allocation with an investor's risk tolerance.
• Investment Goals and Time Horizon:
• Principle: Tailor asset allocation to meet specific financial goals and
timeframes.
• Market Conditions:
• Principle: Adjust asset allocation based on prevailing market conditions.
• Asset Class Characteristics:
• Principle: Understand the risk-return profiles of various asset classes.
• Liquidity Needs:
• Principle: Consider the liquidity requirements of the investor.
• Inflation Protection:
• Principle: Include assets that offer protection against inflation.
• Tax Considerations:
• Principle: Factor in the tax implications of different asset classes.
• Market Valuations:
• Principle: Consider current valuations of asset classes.
• Rebalancing:
• Principle: Periodically rebalance the portfolio to maintain the desired asset
allocation.
Influences on Asset Allocation:
• Diversification:
• Influence: Diversification helps minimize the impact of poor performance in
any single asset class, contributing to a more stable portfolio.
• Risk Tolerance:
• Influence: Investors with higher risk tolerance may allocate more to equities,
while those with lower risk tolerance may prefer a higher allocation to fixed-
income securities.
• Investment Goals and Time Horizon:
• Influence: Longer investment horizons may allow for a more aggressive
allocation, while short-term goals may warrant a more conservative approach.
• Market Conditions:
• Influence: Economic indicators, interest rates, and overall market trends can
impact the performance of different asset classes.
• Asset Class Characteristics:
• Influence: Equities typically offer higher returns with higher volatility, while fixed-
income securities provide stability but with lower returns.
• Liquidity Needs:
• Influence: Investors with short-term liquidity needs may prefer more liquid assets,
while those with a longer time horizon may hold less liquid investments.
• Inflation Protection:
• Influence: Certain assets, like real estate and commodities, may act as hedges against
inflation, preserving purchasing power.
• Tax Considerations:
• Influence: Tax-efficient asset allocation strategies can help minimize the impact of
taxes on investment returns.
• Market Valuations:
• Influence: Assets may become overvalued or undervalued over time, impacting
expected future returns and influencing allocation decisions.
• Rebalancing:
• Influence: Changes in asset values can lead to deviations from the target allocation,
requiring adjustments to bring the portfolio back in line with the intended strategy.
11 Set off & Carry forward of losses-Principles, Meaning
• Set off and carry forward of losses are provisions within the income tax laws that allow taxpayers
to offset losses against income in a particular year or carry forward the losses to set them off
against future profits. Here are the principles and meanings of set off and carry forward of losses:
• Set Off of Losses:
• Principles:
• Same Head of Income:
• Losses can be set off against income of the same head. For example, business losses can be set off against
business income.
• Intra-Year Set Off:
• Losses can be set off within the same financial year.
• Inter-Source Set Off:
• Losses from one source of income can be set off against income from another source within the same head.
• Intra-Family Set Off:
• In the case of individual taxpayers, losses of one individual can be set off against the income of another
individual within the same family.
• Mandatory Set Off Before Carry Forward:
• In certain cases, losses must be mandatorily set off against income before considering carry forward.
• Meaning: Set off of losses refers to adjusting losses against the income of the same or a different
head within the same financial year. The objective is to reduce the taxable income, thereby
decreasing the tax liability for that year.
Carry Forward of Losses:
• Principles:
• Unabsorbed Losses:
• Losses that cannot be set off entirely in a particular year due to insufficient income
can be carried forward to subsequent years.
• Carry Forward Period:
• Different types of losses have different carry forward periods. Business losses
typically have a carry forward period of 8 years, while capital losses may be carried
forward for an indefinite period.
• Same Head of Income:
• Carry forward of losses is generally allowed against the same head of income.
• Set Off Before Carry Forward:
• Before carrying forward losses, any available income in subsequent years must first
be used to set off the losses of the current year.
• Meaning: Carry forward of losses allows taxpayers to utilize unabsorbed
losses in future years when there is sufficient income to set off those
losses. This helps in optimizing tax benefits over an extended period.
12 Calculation of Taxable income (All Heads of Income)
• Calculating taxable income in India involves considering various heads of
income, deductions, exemptions, and other relevant provisions of the
Income Tax Act, 1961. Here is a general outline of the calculation process:
• Heads of Income:
• Income from Salary:
• Start with the gross salary.
• Deduct exemptions such as HRA (House Rent Allowance), standard deduction, and
professional tax.
• Add any other allowances or perquisites.
• Income from House Property:
• Include rental income from owned properties.
• Deduct property tax paid and 30% of the annual value as a standard deduction.
• Deduct interest on home loans (up to specified limits) under Section 24(b).
• Profit and Gains of Business or Profession:
• Calculate gross receipts and sales.
• Deduct allowable expenses, depreciation, and other deductions.
• Include any other income earned through business or profession.
• Capital Gains:
• Compute gains from the sale of capital assets (real estate, stocks, etc.).
• Deduct exemptions such as exemptions under Sections 54, 54F, etc.
• Differentiate between short-term and long-term capital gains.
• Income from Other Sources:
• Include income like interest, dividends, and gifts.
• Deduct exemptions and deductions available under this head.
• Deductions and Exemptions:
• Standard Deduction and Professional Tax:
• Deduct standard deduction and professional tax from salary income.
• Chapter VI-A Deductions:
• Deduct deductions under Section 80C (e.g., investments in PPF, EPF, life
insurance premiums, etc.).
• Deduct deductions under Sections 80D, 80G, 80E, etc.
• Clubbing of Income:
• Clubbing of Minor's Income:
• Include any income earned by a minor child and club it with the parent's
income.
• Clubbing of Spouse's Income:
• In certain cases, the income earned by a spouse may be clubbed with the
taxpayer's income.
• Taxable Income Calculation:
• Aggregate Income:
• Sum up income from all heads.
• Deductions:
• Deduct deductions under Chapter VI-A from the aggregate income.
• Total Taxable Income:
• The result is the total taxable income.
Tax Calculation:
• Applicable Tax Slabs:
• Identify the applicable income tax slabs for the individual.
• Calculate Tax Liability:
• Use the applicable tax rates to calculate the tax liability.
• Rebate and Surcharge:
• Apply any available rebate or surcharge based on the taxpayer's profile.
• Health and Education Cess:
• Add health and education cess to arrive at the final tax liability.
13 TDS and Refund of Tax
• TDS (Tax Deducted at Source) is a mechanism by which the government collects tax at the source
of income generation. It is applicable to various types of income, and the deductor is responsible
for deducting tax and depositing it with the government. Here's an overview of TDS and the
process of claiming a tax refund in India:
• Tax Deducted at Source (TDS):
• Applicability:
• TDS is applicable to various types of income such as salaries, interest, professional fees, rent, and more.
• Deductor and Deductee:
• The entity or person making the payment is the deductor, and the one receiving the payment is the deductee.
• TDS Rates:
• Different types of payments attract different TDS rates as prescribed by the Income Tax Act.
• TDS Deduction and Deposit:
• The deductor deducts TDS from the payment and deposits it with the government within a specified time.
• TDS Certificates:
• The deductor issues TDS certificates like Form 16 (for salaries) or Form 16A (for other payments) to the
deductee.
• TDS Returns:
• The deductor submits TDS returns containing details of TDS deducted and deposited to the income tax
department.
• TAN (Tax Deduction and Collection Account Number):
• Deductors need to obtain a TAN to fulfill their TDS obligations.
•Refund of Tax:
• Excess TDS Deducted:
• If the amount of TDS deducted is more than the actual tax liability, the taxpayer becomes
eligible for a tax refund.
• Filing Income Tax Return:
• The taxpayer needs to file an income tax return to claim the refund.
• Verification and Processing:
• The income tax department verifies the details provided in the return, and if everything is in
order, processes the refund.
• Refund Modes:
• Refunds can be issued through various modes, such as direct credit to the bank account,
issuance of a refund cheque, or through ECS (Electronic Clearing Service).
• Status Check:
• Taxpayers can check the status of their refund online through the income tax department's
website.
• Interest on Delayed Refunds:
• In case the refund is not issued within a specified time, the taxpayer may be eligible for
interest on the refund amount.
Important Points:
• Correct Filing:
• It's crucial to file the income tax return accurately, including details of income, TDS,
and eligible deductions.
• Verification of Form 26AS:
• Taxpayers should verify Form 26AS to ensure that the TDS deducted by deductors is
reflected correctly.
• Claiming Refund within Time:
• Refund claims should be filed within the stipulated time to avoid any complications.
• Communication with the Department:
• In case of any issues or discrepancies, taxpayers should communicate with the
income tax department for resolution.
• Prompt Response to Queries:
• Taxpayers should respond promptly to any queries or notices from the income tax
department regarding the refund claim.
14 Tax Avoidance & Evasion and Individual income
Exempted from Tax
• Tax Avoidance:
• Definition: Tax avoidance refers to the legal means adopted by taxpayers to
minimize their tax liability by arranging their financial affairs in a manner
that takes advantage of loopholes or favorable provisions within the tax
laws.
• Characteristics:
• Legal: Tax avoidance strategies are within the bounds of the law.
• Transparent: Taxpayers openly disclose their transactions and structure
them in a tax-efficient manner.
• Use of Tax Planning: Tax avoidance often involves strategic tax planning to
minimize tax liability while complying with the law.
• Examples: Utilizing tax deductions, exemptions, credits, and tax-deferred
investment accounts are common methods of tax avoidance.
• TAX EVASION:
• Definition: Tax evasion refers to the illegal act of deliberately
misrepresenting or concealing information to evade taxes, either by
underreporting income, inflating deductions, or engaging in other
fraudulent activities.
• Characteristics:
• Illegal: Tax evasion involves breaking the law by intentionally avoiding tax
payments.
• Concealment: Taxpayers deliberately hide or misrepresent financial
information to evade taxes.
• Penalties: Tax evasion is subject to severe penalties, including fines,
imprisonment, and other legal consequences.
• Examples: Underreporting income, hiding assets, engaging in sham
transactions, and using fake invoices are common methods of tax evasion.
• Individual Income Exempted from Tax:
In India, certain types of individual income are exempted from tax under various provisions
of the Income Tax Act, 1961. Some common examples include:
• Agricultural Income: Income derived from agricultural activities is generally exempt from
tax.
• Tax-Exempt Allowances: Certain allowances such as HRA (House Rent Allowance), LTA
(Leave Travel Allowance), and others are exempt up to specified limits under the Income
Tax Act.
• Interest Income from Savings Accounts: Interest earned from savings accounts up to a
specified limit (currently Rs. 10,000 per annum) is exempt from tax under Section 80TTA.
• Long-Term Capital Gains (LTCG) from Equities: LTCG from the sale of listed equities and
equity-oriented mutual funds is exempt from tax up to a certain limit (subject to
specified conditions).
• Gratuity: Gratuity received by employees is exempt from tax up to a specified limit based
on the provisions of the Income Tax Act.
• Retrenchment Compensation: Retrenchment compensation received by employees is
exempt from tax up to a certain limit.
• Scholarships and Awards: Certain scholarships and awards granted to students for
education purposes may be exempt from tax under specified conditions.