UNIT III

PERSONAL TAX
PLANNING
◦ Tax Structure in India for personal taxation
◦ Scope of personal tax planning
◦ Exemptions and deductions for individuals under different heads of income and gross total income
◦ Comparison of benefits-Special provisions u/s 115 BAC vis-à-vis General provisions of the Income-tax
Act, 1961
◦ Tax avoidance versus tax evasion.
TAX STRUCTURE OF INDIA
• India has a well-developed taxation structure.
• The tax system in India is mainly a three-tier system, comprising the Central government, State
government and the local government's organizations (panchayats and municipalities).
• The government cannot impose any tax unless it is passed as a law.
• The entire system is clearly demarcated with specific roles for the central and state government.
• The Central Government of India levies taxes such as customs duty, income tax, service tax and
central excise duty.
• The taxation system in India empowers the state governments to levy income tax on agricultural
income, professional tax, VAT, state excise duty, land revenue and stamp duty.
• The local bodies are allowed to collect octroi, property tax and other taxes on various services
like drainage and water supply.
TYPES OF TAXES
Direct Taxes
• Levied on individuals and corporate entities and cannot
be transferred to others (e.g., income tax, wealth tax).

Indirect Taxes
• Not directly paid by the assessee to the government
authorities (GST, Customs duty).
REVENUE AUTHORITIES
CBDT

• The Central Board of Direct Taxes (CBDT) is a part of the Department of Revenue under the Ministry of Finance.
• This body provides inputs for policy and planning of direct taxes in India and is also responsible for administration of
direct laws through the Income Tax Department.

CBEC

• The Central Board of Excise and Customs (CBEC) is also a part of the Department of Revenue under the Ministry of
Finance.
• It is the nodal agency responsible for administering customs, central excise duty and service tax in India.

CBIC

• Under the GST regime, CBEC has been renamed as CBIC (Central Board of Indirect Taxes & Customs).
• The CBIC would supervise the work of all its field formations and directorates and assist the government in policy
making in relation to GST, continuing central excise levy and custom functions.
VARIOUS HEADS UNDER INCOME
TAX
Income from salary

Income from house property

Income from profits and gains from Business or Profession

Income from capital gains

Income from other sources

INCOME TAX SLABS FOR
INDIVIDUALS
•Individuals have been categorized into three categories of taxpayers:
1. Individuals who are below the age of 60 years.
2. Senior citizens who are between 60 years and 80 years old.
3. Super senior citizens who are above 80 years old.
SECTION 115BAC
SECTION 115BAC – THE NEW TAX
REGIME
•The Budget 2020 introduces a new regime under section 115BAC giving individuals
and HUF taxpayers an option to pay income tax at lower rates.
•The new tax regime system came in force from FY 2020-21 (AY 2021-22)
•New tax regime will be the default tax regime. However, taxpayers can opt for the old regime.
 NEW TAX REGIME OLD TAX REGIME

Annual Income New Tax Slab Rate Annual Income Old Tax Slab Rate
Upto Rs. 2.5 lakh Nil
Upto Rs. 3 lakh Nil
Above Rs. 2.5 lakh to Rs. 5%
Above Rs. 3 lakh to Rs. 6 lakh 5% 5 lakh
Above Rs. 6 lakh to Rs. 9 lakh 10% Above Rs. 5 lakh to Rs. 20%
10 lakh
Above Rs. 9 lakh to Rs. 12 lakh 15%
Above Rs. 10 lakh 30%
Above Rs. 12 lakh to Rs. 15
20%
lakh
Above Rs. 15 lakh 30%
WHICH EXEMPTIONS AND DEDUCTIONS ARE
ALLOWED AND WHICH HAVE BEEN
REMOVED?
•Exemptions means the taxpayer is free from the tax burden on certain incomes.
• For example, you do not have to pay tax on income from agriculture.

•Deductions means removing certain investments and expenditures the taxpayer makes and then
calculating the gross income.
• For example, if you pay ₹20000 as health insurance premium, you can deduct this amount from your
total income.
 EXEMPTIONS AND DEDUCTIONS NOT
CLAIMABLE UNDER NEW TAX REGIME
• The standard deduction under Section 80TTA/80TTB
• Professional tax and entertainment allowance on salaries
• Leave Travel Allowance (LTA)
• House Rent Allowance (HRA)
• Minor child income allowance
• Helper allowance
• Children education allowance
• Other special allowances [Section 10(14)]
• Interest on housing loan on the self-occupied property or vacant property (Section 24)
• Chapter VI-A deduction (Section 80C, 80D, 80E and so on, except Section 80CCD(2) and Section 80JJAA)
• Exemption or deduction for any other perquisites or allowances including food allowance of Rs 50/meal subject to 2 meals a day
• Employee's (own) contribution to NPS
• Donation to Political party/trust, etc.
 EXEMPTIONS AND DEDUCTIONS
AVAILABLE UNDER THE NEW REGIME
• Transport allowances in case of a specially-abled person.
• Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment.
• Any compensation received to meet the cost of travel on tour or transfer.
• Daily allowance received to meet the ordinary regular charges or expenditure you incur on account of absence from his regular
place of duty.
• Perquisites for official purposes
• Exemption on voluntary retirement 10(10C), gratuity u/s 10(10) and Leave encashment u/s 10(10AA)
• Interest on Home Loan on let-out property (Section 24)
• Gifts up to Rs 50,000
• Deduction for employer’s contribution to NPS account [Section 80CCD(2)]
• Deduction for additional employee cost (Section 80JJA)
• Budget 2023 introduced a standard deduction of Rs 50,000 under New Tax Regime applicable from FY 2023-24
• Budget 2023 also introduced deduction under Section 57(iia) of family pension income
• Budget 2023 further introduced deduction of amount paid or deposited in the Agniveer Corpus Fund under Section 80CCH(2)
 • The old regime is the tax system that prevailed
before the introduction of the new regime.

COMPARISON OF OLD AND NEW • Under this regime, there are over 70 exemptions
and deductions available, including HRA and LTA,

TAX REGIME
that can reduce your taxable income and lower
tax payments.
• The most popular and generous deduction is
Section 80C, which allows for a reduction of
•The new regime comes with reduce tax rates of various income slabs as well as removal of
taxable income up to Rs.1.5 lakh.
rebates and exemptions.
•The individuals has to choose the new regime (where tax rates of various income slabs are lower
and no rebates and exemptions) or old regime (where exemptions and rebates can be claimed
and applicable tax as per income slab will be levied).
•The choice can be exercised every year and any regime which is beneficial can be adopted by
the individual (except for those who have income from business or profession).
•Which is better? The decision to switch to the new or remain in the old tax regime or which
regime is better for you shall be based on the tax savings deductions and exemptions you are
eligible for in the old tax regime.
 SURCHARGE
•As the name suggests, surcharge is an additional charge or tax.

•The main surcharges are that on personal income tax (on high income slabs and on super rich)
and on corporate income tax.
Surcharge Rate on the
Net Taxable Income limit
amount of income tax
Less than Rs 50 lakhs Nil
More than Rs 50 lakhs ≤ Rs
10%
1 Crore
More than Rs 1 Crore ≤ Rs
15%
2 Crore
More than Rs 2 Crore ≤ Rs
25%
5 Crore
More than Rs 5 Crore 37%*

*Budget 2023 Update: The highest surcharge of 37% has been reduced to 25% which will be applicable from 1st April 2023 (FY
2023-24)
CESS
•A cess imposed by the central government is a tax on tax, levied by the government for a specific
purpose.
•Generally, cess is expected to be levied till the time the government gets enough money for that
purpose.
•The tax calculated on the basis of such rates will be subject to health and education cess of 4%.
PROS AND CONS OF THE OLD TAX
REGIME
PROS CONS
1. The old income tax regime by enforcing 1.
investments on specified tax-saving
instruments, over the period inculcates the
savings culture in the individual.
2.
The tax benefits are available on
investments in specified investments and
also there is a specific lock-in prescribed
for most of the instruments.
The investor cannot opt for any other star-
rated funds, which may be performing
better than the specified instruments.
PROS AND CONS OF THE NEW TAX
REGIME
PROS CONS

1. Reduced tax rates and compliances 1. Non-availability of certain specified tax

deductions
2. Investor may not prefer to lock-in funds in
the prescribed instruments for the
specified period.
3. Increased liquidity in the hands of tax
payer
4. Flexibility of customising the investment
choice
Ques: Mr. A is a salaried person and earns ₹12,50,000 per annum. He has contributed ₹1,50,000 towards PPF and pays
₹2,400 professional tax. Calculate the tax liability under old and new tax regime. Which tax regime should be opted by
Mr. A and why?
 TAX PLANNING, TAX
AVOIDANCE AND TAX
EVASION
TAX PLANNING
•Tax planning is an essential part of managing your personal finances as with better Tax Planning
one can reduce one’s tax liability.
•Tax Planning involves applying various advantageous provisions which are legal and entitled the
assessee to avail all exemptions and deductions and rebates provided in the Act.
•Income Tax law provides for various methods for tax planning, generally it is provided under
exemptions u/s 10, deduction u/s 80C to 80U and rebates and reliefs.
•For availing benefits, one should resort to bonafide means by complying with the provisions of
law in letter and spirit.
TYPES OF TAX PLANNING
Short term tax planning
• mean the planning thought of and executed at the end of the income
year to reduce taxable income in a legal way.

Long term Tax Planning

• means a plan chalked out at the beginning of the fiscal and the taxpayer
follows this plan throughout the year.
• This type of planning does not help immediately as in the case of short-
range planning but is likely to help in the long run.
TYPES OF TAX PLANNING
Permissive Tax Planning
• It involves planning under various provisions
of the Indian taxation laws. Tax planning in
India offers several provisions such as
deductions, exemptions, contributions and
incentives.
TAX AVOIDANCE
•Tax avoidance is an act of using legal methods to minimize tax liability.
•It is a method of reducing the taxes that an individual or an entity is obliged to pay but in a
legitimate way.
•It is an act of dodging tax without breaking the law.
•All the tax avoidance is a legal method but it is not advisable as it could not be used for one’s
own advantage to reduce the amount of tax that is payable.
 TAX EVASION
• Any illegal method which leads to reduction of tax liability is known as tax evasion.
• It is a situation when a taxpayer deliberately avoids disclosing what is the true tax liability.
• They either choose non-payment or under Payment of taxes which is not just ignorance of any law but it
is illegal and a punishable offence .
• It is willfully practiced by not reporting income at all or showing incorrect income, also by reporting
expenses that are not legal or simply by not paying the liable taxes.
• An assessee guilty of tax evasion is punishable under the relevant laws.
• Tax evasion is resorted to by applying following dishonest means:
1. Concealing the income
2. Claiming excessive expenditure
3. Falsification of accounts
4. Willful violation of rules
SOME EXAMPLES OF TAX
EVASION
1. Under-reporting income
2. Overstating the amount of deductions
3. Making false entries in books and records
4. Submission of false financial statements
5. Hiding or transferring assets or income
6. Not reporting correct income and investing in various tax haven countries in order to reduce
tax liabilities in India
7. Claiming depreciation where no asset exist in the business
TAX MANAGEMENT
•It refers to the compliance with the Income Tax rules and regulations.
•The objective of tax management is to comply with the provisions of Income Tax law and its
allied rules.
•Covers matters relating to:
1. Taking steps to avail various tax incentives
2. Compliance with tax rules and regulations
3. Protecting from consequences of non-compliance of tax rules and regulations i.e., penalties,
prosecution etc.
4. Review of department orders and if need apply for rectification of mistake, filing appeal, tax revision
of settlement of tax cases
DIFFERENCE BETWEEN TAX
PLANNING AND TAX
MANAGEMENT
Tax Planning Tax Management
The objective of tax planning is to minimize the tax Objective of tax management is to comply with the
liability. provisions of income tax law and its allied rules.
Tax Planning also includes tax management. Tax management deals with filing of return in time,
getting the accounts audited, deducting tax at
source etc.
Tax Planning relates to future. Tax management relates to past, present, future.
Tax Planning helps in minimizing tax liability in short Tax management helps in avoiding payment of
term and in long-term. interest and penalty, prosecution etc.
Tax planning is optional. Tax management is essential for every assessee.
DIFFERENCE BETWEEN TAX
AVOIDANCE AND TAX EVASION
Tax Avoidance
Where the payment of tax is avoided by complying
with the provisions of law but defeating the
intention of the law is known as tax avoidance.
Tax avoidance is undertaken by taking advantage of
loopholes in law.
Done through non-malafide intention but
complying the provision of law.
Tax avoidance looks like a tax planning and is done
before the tax liability arises.
Tax Evasion
Where the payment of tax is avoided through illegal
means or fraud is termed as tax evasion.
Tax evasion is undertaken by employing unfair
means.
Tax evasion is an unlawful way of paying tax and
defaulter may punished.
Tax evasion is blatant fraud and is done after the tax
liability has arisen.
 Question: Indicate whether the following acts can be considered as tax evasion, tax avoidance, tax planning
or tax management:
a) Mr. X deposits ₹65,000 in the term deposit of 5 years with the Post Office to avail tax deduction under
section 80C.
b) Sushant is using a motor car for his personal purpose but charges as business expenditure.
c) XYZ Ltd. installed an air conditioner costing ₹75,000 at the residence of a director as per the terms of
his appointment but treats it as fitted in quality control section in the factory.
d) P pays premium of ₹10,000 for health insurance policy so as to reduce total income from ₹6,40,000 to
₹6,30,000 by claiming deduction u/s 80D.
e) An individual tax payer making tax saver fixed deposit of ₹1,00,000 in a nationalized bank.
f) Z debit his household expenses as business expenses in the books.
g) ABC Ltd maintains TDS register at the company so to enable timely compliance.
INCOME TAX ALLOWANCES
AND DEDUCTIONS
 EXEMPTIONS
• Tax exemption can be expenditure, income or an investment on which no tax is levied and thus reducing the
overall taxable income.
• These incomes or investments pertain to a specific head of income and can be claimed from those heads only.
• After deducting allowed exemptions from specific income head, different heads of income and total to arrive
at the gross income.
• Some examples of tax exempt items are:
a) House Rent Allowance (HRA)
b) Leave Travel Allowance (LTA)
c) Company accommodation

• After these exemptions are availed, the taxable portion of ‘Income from Salary’ would be obtained.
• All exempted items of incomes claimed by the employee must be informed to his employer before the tax
filing season. The employer then computes tax on the balance income and deduct tax at source (TDS) be used
on the specific income slab of each employee.
DEDUCTIONS
•Once you compute your gross total income, the Income Tax Act allows you to deduct some
amount from your income so that your income reduces and thereby reduces your tax liability.
•This amount is based on certain investments or expenses you make in a financial year as per
Income Tax Act called deductions.
•Allowed deductions can be found in Chapter VIA of the Income Tax Act, Sections 80C to 80U.
•Tax deductions are deducted from the gross total income or individual head to help save taxes.
DIFFERENCE BETWEEN
EXEMPTION AND DEDUCTION
Basis Tax Exemption Tax Deduction
Incidence The allowed exemptions are not included Deductions remain clubbed with your income.
in your taxable income. They are deducted Once the gross total income is calculated, the
first to arrive at your gross total income. deductions are deducted to arrive at Net
taxable income. On this income, tax slabs are
applied to calculate the tax amount.
Application Exemptions are applied at each head of Deductions are applied to your gross total
income to get taxable amount of that income.
particular head.
Significance It consists of those items which are not Deductions of those items which are taxable
taxable. but because of the provisions of the act, their
taxability has been reduced.
DIFFERENCE BETWEEN
EXEMPTION AND DEDUCTION
Basis Tax Exemption Tax Deduction
Applicability It applies to all taxpayers in the country. It applies only to those who qualify for the
For instance, the amount paid by a specific criteria. For example, Section 80D of
salaried employee as HRA is not taxable. the Income Tax Act can be used to claim
deductions on premiums paid for medical
insurance policies.
DEDUCTION AND EXEMPTION
Professional
Standard Children Education
Tax/Tax on Leave Travel
Deduction-Section Allowance and
Employment Allowance (LTA)
16(ia) Hostel Expenditure
(Section 16 (iii))

Cab Facility Heath Facility

Deductions under
Food Coupons Transport Provided Provided by
section 80
by Employer Employer

Medical
Gifts or Vouchers
Expenditure
Provided by
Incurred Outside
Employer
India on Employee
 TAXABLE, NON-TAXABLE AND
PARTIALLY TAXABLE
ALLOWANCES
TAXABLE ALLOWANCES PARTIALLY TAXABLE ALLOWANCES NON-TAXABLE ALLOWANCES
Dearness allowance Conveyance allowance exemption limit Payments to government employees posted abroad

Entertainment allowance House rent allowance (HRA) exemption limit Allowances paid to UN employees

Overtime allowance Medical allowance exemption Allowances paid to judges of HC & SC

City compensatory allowance Special allowance Compensatory allowance paid to judges of HC & SC
Interim allowance Entertainment allowance (Government employees
only)
Project allowance
Tiffin/meals allowance
Uniform allowance
Cash allowance
Non-practicing allowance
Servant allowance
Warden allowance
DEDUCTIONS, EXEMPTIONS NOT
AVAILABLE IN NEW TAX REGIME
•All deductions under Chapter VIA will not be claimable by those opting for the new tax regime,
as per Budget 2020.