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TAX PLANNING:
A STEP TOWARDS BEING A MILLIONAIRE
Proper tax planning is the basic
duty of every person, which should
be carried out religiously. Basically,
there are three steps in the tax
planning exercise:
1. Calculate your Taxable
Income for the Financial Year
(from April 1 to March 31) from
all sources such as salary /pension,
interest etc.
2. Calculate tax payable
on Annual Taxable Income using a
simple tax rate table, given below.
3. After you have calculated the
amount of your tax liability, you have
two options to choose from:
a. Pay your tax (no tax planning is
required)
b. Minimize your tax through Prudent
Tax Planning.
Most people should and do choose
Option ‘2’. Here, you have to compare
the advantages of several tax-saving
schemes and depending upon your
age, social liabilities, tax slab and
personal preferences, decide on the
right mix of investments/insurance
plans, which shall reduce your tax
liability to the “Minimum” possible.
You may consult your investment
advisor for distributing your savings
in various tax saving schemes.

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Up to Rs. 1,50,000 Nil Nil Nil

Rs. 1,50,001 to Rs. 3,00,000 10% of income above Rs. 1,50,000 Nil 3% of income tax
Rs 3,00,001 to Rs 5,00,000 Rs. 15,000 + 20% of the Nil 3% of income tax
income above Rs. 3,00,000
Rs. 5,00,001 to Rs. 10,00,000 Rs. 55,000 + 30% of Nil 3% of income tax
income above Rs. 5,00,000
Above Rs. 10,00,000 Rs. 2,05,000 + 30% of 10% of 3% of income tax
the income above Rs. 10,00,000 income tax and surcharge

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Up to Rs. 1,80,000 Nil Nil Nil

Rs. 1,80,001 to Rs. 3,00,000 10% of the income Nil 3% of income tax
above Rs. 1,80,000
Rs 3,00,001 to 5,00,000 Rs.12,000 + 20% of the Nil 3% of income tax
income above 3,00,000
Rs. 5,00,001 to Rs. 10,00,000 Rs. 52,000 + 30% of the Nil 3% of income tax
income above Rs. 5,00,000
Above Rs. 10,00,000 Rs. 2,02,000 + 30% of the income 10% of 3% of income tax
above Rs. income 10,00,000 income tax and surcharge

4 | MARCH 2009 ADVISORS

 FILING OF
INCOME TAX RETURN
1. Filing of income tax return
is compulsory for all individuals
whose gross annual income exceeds
the maximum amount which is not
chargeable to income tax i.e. Rs.
1,80,000 for Resident Women, Rs.
2,25,000 for Senior Citizens and Rs.
1,50,000 for other individuals and
HUFs.
2. The last date of filing
income tax return is July 31, in case
of individuals who are not covered in
point 3 below.
3. If the income includes
business or professional income
requiring tax audit (turnover Rs.
40 lakhs), the last date for filing the
return is September 30.
4. The penalty for non-filing of
income tax return is Rs. 5000 (after
assessment year).

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ADVISORS MARCH 2009 | 5

DEDUCTIONS FROM TAXABLE INCOME:
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This new section has been introduced
from the Financial Year 2005-06.
Under this section, a deduction of up
to Rs. 1,00,000 is allowed from Taxable
Income in respect of investments
made in some specified schemes.
Specified Investment Schemes u/s
80C and u/s 80CCC (1)-
1. Life Insurance Premiums
2. Contributions to Employees
Provident Fund/GPF
3. Public Provident Fund (maximum
Rs 70,000 in a year)
4. NSC (National Savings
Certificates)
5. Unit Linked Insurance Plan
(ULIP)
6. Repayment of Housing Loan
(Principal)
7. Equity Linked Savings Scheme
(ELSS) of Mutual Funds
8. Tuition Fees including admission
fees or college fees paid for full-
time education of any two children
of the assessee (Any development
fees or donation or payment of a
similar nature shall not be eligible
TAX DEDUCTION AT SOURCE (TDS)
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Income tax is deducted @10.3% in
case the interest exceeds Rs 5,000 in a
financial year.
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Income Tax is deducted @10.3% in
case the interest amount exceeds Rs.
6 | MARCH 2009
for deduction).
9. Infrastructure Bonds issued by
Institutions/ Banks such as IDBI,
ICICI, REC, PFC etc.
10. Interest accrued in respect of NSC
VIII issue.
11. Pension scheme of LIC of India
or any other insurance company.
12. Fixed Deposit with Banks having a
lock-in period of 5 Years
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1. There are no sectoral caps (except
in PPF) on investment in the new
section and the assessee is free to
invest Rs. 1,00,000 in any one or
more of the specified instruments.
2. Amount invested in these
instruments would be allowed as
deduction irrespective of the fact
whether (or not) such investment is
made out of income chargeable to
tax.
3. Section 80C deduction is allowed
irrespective of the assessee’s income
level. Even persons with taxable
income above Rs. 10,00,000 can
avail the benefit of section 80C.
4. Some of the popular pension plans
10,000 in a financial year. Accordingly,
in case of ICICI Tax Saving Bonds and
IDBI Flexibonds, tax is deductible at
source in case the annual payment of
interest exceeds Rs 10,000.
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Income tax is deducted @10.3% in
ADVISORS
are Jeevan Suraksha by LIC, Life
Time Pension By ICICI Prudential
Life Insurance, Aviva Life - Pension
Plus by Aviva Life Insurance, Max-
Easy Life policy by Max New York
Life, Nirvana Plus by Tata AIG
Life Insurance etc.
Please note that because the deduction
is allowed from taxable income, the
exact savings in tax will depend upon
the tax slab of the individual. Thus, a
person in the 30% tax slab can save
income tax up to Rs. 30,900 (or Rs.
33,990 if annual income exceeds Rs.
10,00,000) by investing Rs. 1,00,000 in
the specified schemes u/s 80C.
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Under this section, deduction of
up to Rs 40,000 can be claimed in
respect of premium paid by cheque
towards health insurance policy of
various General Insurance companies
like Royal Sundaram Health Shield
Gold, Reliance Healthwise etc. Such
premium can be paid towards health
insurance of spouse, dependent
parents as well as dependent children.
as per following table:
case the interest exceeds Rs. 5,000 in
a financial year .
/05&
Deduction of income tax at
source can be avoided by filing Form
15G in duplicate (15 H for senior
citizens). However, such forms can be
submitted only by individuals whose
total income in the financial year is
expected to be below the maximum
amount not chargeable to tax.
COMPUTATION OF GROSS TAXABLE INCOME
As per Income Tax , Income of
a Person is Computed under the
following 5 Heads :
1. Income from Salaries
2. Income from House Properties
3. Profit & Gains of Business &
Profession
4. Capital Gains
5. Income from Other Sources
Now we will discuss in detail about
the taxability of these sources of
income.
Salary or Pension Income
Salaried employees are issued a
certificate of tax deducted at source
from salary income by their employers
in Form No. 16. It also gives the Net
Taxable Salary figure.
Income from House Property
If the property is self occupied then
the Income from House Property is
treated as NIL. If any loan is taken
for the purchase of the property then
TAX FREE INCOME
The following incomes are completely
exempt from income tax without any
upper limit.
1. Interest on PPF/GPF/EPF.
2. Interest on GOI tax free bonds.
3. Dividends on Shares and on Mutual
Funds.
the amount paid towards interest
upto a maximum of Rs.1,50,000/- is
deducted from taxable income. In
case property is given on rent,then we
have to find out the
a. Annual Rental Income
b.From this deduct Property Tax paid
if any
c. From balance amount
– deduct 30% towards repairs &
maintenaince
d. From the residual figure
– deduct the amount of interest paid
on loan taken for the purchase of the
property.
e. The resultant figure is the
Income from House Property.
Profit from Business / profession
Income as arived on the basis of
Profit & Loss A/c
Income from Interest
Interest Income from the following
sources is also required to be included
4. Any capital receipt from life
insurance policies i.e., sums received
either on death of the insured or
on maturity of life insurance plans.
However, in case of life insurance
policies issued after March 31, 2004,
exemption on maturity payment u/
s 10(10D) is available only if the
ADVISORS
in the Gross
Taxable Income:
1. Interest on company
deposits.
2. Interest on debentures/
bonds.
3. Interest on savings bank
account/ fixed deposits with
banks.
4. Interest on post office
savings schemes like MIS, NSC, KVP
etc.
5. Interest on private loans
given
to relatives, friends or any
other entity.
6. Interest on government securities.
Note: Deduction u/s 80 L has been
omitted now and accordingly, interest
income from the above sources is fully
taxable now.
premium paid in any year does not
exceed 20% of the sum assured.
5. Interest on savings bank account in
a post office.
6. Long term capital gain on sale of
shares and equity mutual funds if
the security transaction tax is paid/
imposed on such transactions.
3. Brother or sister of the spouse
4. Brother or sister of either of the
parents of the individual
5. Any lineal ascendant or descendant
of the individual
6. Any lineal ascendant or descendant
of the spouse of the individual
7. Spouse of the person referred to in
(2) or (6)
Also, gifts received on the occasion
of marriage or under a will by way of
inheritance are also tax free
MARCH 2009 | 7