PGP-FW-06/08

Amogh Manjavkar – 05
Apurva Prasad – 08
Bhumika Goel – 10
Hitesh Patel – 20
Karan Rajasth – 25
N.Ramakrishnan – 33
S.Abilash – 60
“The difference between tax avoidance and tax evasion is the thickness of a
prison wall”. - Denis Healey

 Tax evasion includes all the methods by which tax liability is illegally
avoided and the assessee guilty of tax evasion is punishable under the
relevant laws.
 Tax avoidance refers to reduction of the tax liability by taking help of
loopholes existent in the law in its present form.
 Tax planning is often defined as an arrangement of one’s financial
and economic affairs by taking complete legitimate benefit of all
deductions, exemptions, allowances and rebates so that a person’s tax
liability reduces to the minimum.

Tax Evasion

Tax evasion is a global scourge. The “black” economy has, by some estimates,
reached 10% of GDP in advanced countries and can top 70% in developing
countries. And it is getting worse. Tax evasion is usually confronted in two ways:
audits and harsh sanctions. But, as the rising tide of tax evasion suggests, these
mechanisms amount only to a cat game of and mouse problem — and the mice, it
seems, are winning. As tax evasion becomes more pervasive, whole networks to help
hide incomes have appeared, making it far less likely that those who break the law
are punished. Moreover, because more people are evading taxes, tax administrations
are under increasing pressure to become more lenient or to accept bribes.

One strategy for weakening ties among potential evaders is to introduce various
conflicts of interests. For example, value-added tax is designed to encourage firms to
procure invoices for their inputs in order to reduce their own tax outlays. But the
results often fall short of the potential benefits, because VAT has helped inspire tax
evaders to create even stronger networks that can hide an entire chain of
transactions. The Chinese have devised a novel solution. To encourage customers to
request official receipts as proof of payment, some local tax authorities issue a type
of receipt that doubles as a lottery ticket. The receipts can be used as scratch cards

2
to win small amounts of cash, but they also serve as lottery tickets for winning larger
amounts. To prevent forgery, businesses must purchase special, patented machines
for printing these receipts. Records of the printed receipts are automatically
transmitted to the tax authorities and are used to calculate taxes. Similar systems
are in use in Taiwan and Latin America.

Another way to reward consumers for combating tax evasion is to offer subsidies.
Some developing countries have introduced a far-reaching VAT refund system for
consumers who collect official receipts. Northern Cyprus, like Turkey, offers a 2.5
percentage point refund on VAT, compared to the standard VAT rate of 13%. But
such systems are burdened by large administration and compliance costs. The
process of collecting and verifying claims is time-consuming, and the net benefit for
taxpayers is low. Moreover, the method is vulnerable to illicit practices, such as
collecting receipts issued to foreigners and students, who cannot claim their own
refunds.

Monetary subsidies to consumption are also often granted in developed countries for
a variety of purposes, not least of which is fighting tax evasion. One such subsidy is
permitting deduction of a fixed percentage of certain expenses from income tax. In
Italy, expenditures for home improvements have been partly deductible for the past
ten years, mainly to improve tax compliance by firms in the housing sector. New
regulations have recently been introduced with the specific aim of cracking down on
moonlighting. Under the 2007 financial law, those who claim the home improvement
deduction must supply an invoice from the building contractor, which must specify
the cost for labour.

In terms of reducing tax evasion, the results have been mixed. The bulk of claims for
the subsidy come from northern Italy, which is usually considered less prone to tax
evasion to begin with. While some cases of illegitimate claims are under
investigation, there is no black market for receipts; fraud seems to arise mainly
through falsified invoices.

3
Income Tax Act, 1961 – Income from Salary

Salary is chargeable either on ‘due basis’ or on ‘receipt basis’ whichever is earlier.

Normally, the place of accrual of salary is the place where the services are rendered.
For the income to be taxable under this head, the relationship of employer and
employee must exist between the payer and payee.

Section 17(1), salary includes:

-Wages
-Any annuity or pension.
-Any gratuity
-Any fees, commission, perquisite or profits in lieu of or in addition to any salary or
wages.
-Any advance of salary.
-Any payment received in respect of any period of leave not availed by the
employee.
-Portion of the annual accretion in any previous year to the balance at the credit of
an employee participating in recognized provident fund to the extent it is taxable.
-Transferred balance in a recognized provident fund to the extent it is taxable.
-The contribution made by the central government in the previous year, to the
account of an employee under a pension scheme referred to in Section 80CCD

Basis of Charge

Section 15
Salary includes:

 Any salary due from an employer to an assessee in the previous year whether
actually paid or not;
 Any salary paid or allowed to him in the previous year by or on behalf of an
employer though not due or before it became due;
 Any arrears of salary paid or allowed to him in the previous year by or on
behalf of an employer, if not charged to income tax for any previous year.

4
Deductions u/s 16

Rs. Rs.
Gross Salary XXX
Less: Deductions u/s 16
Entertainment Allowance [Sec.16(ii)] xxx
Professional Tax [16 (iii)] xxx (XXX)
Income From Salary XXX

Leave Salary [Section 10(10AA)]:

Leave encashment while in service is taxable. Encashment of sick leave is taxable.

Leave encashment received at the time of retirement is fully exempt in the case of
Government Servants. In the case of non-Govt. Employees, leave encashment is
exempt to the extent of the least of the following four amounts: -

• Rs. 3,00,000/-
• Ten months' average salary;
• Cash equivalent of the leave due at the time of retirement;
• Leave encashment actually received at the time of retirement.

Here the average salary means the average of the salary drawn during the last ten
months before retirement.

Gratuity [Section 10(10)]:

Any death cum retirement gratuity received by Government or Local Authority

employees is exempt from tax. For Non-Government Employees the taxability
depends on whether Gratuity is covered under the Gratuity Act

A) Gratuity covered under the Gratuity Act

For Gratuity covered under the Gratuity Act, total of gratuity received by an
employee, covered by the Gratuity Act, from various employers in whole of service is
exempt from tax to the extent of least of the following three amounts:

5
 • 15 days' salary, based on the last drawn salary, for each completed year of
service
• Rs. 3,50,000/-; or
• The gratuity actually received.

B) Gratuity not covered under the Gratuity Act

For Gratuity not covered under the Gratuity Act any gratuity not covered by the
Gratuity Act, is exempt from tax to the extent of least of the three amounts

• The half month's salary for each completed year of service; or

• Rs.3,50,000/-; or
• The gratuity actually received.

Pension [Section 10(10A)]:

Pension is a periodic payment of money for past service and it is received by

employee after his retirement and is taxed as salary. Uncommuted pension is taxable
in the hands of both government and non-government employees. In case
commuted pension:
1. Any amount received by Government employee as commutation of
pension is fully exempted from tax u/s 10(10A)(i).

2. But in case of non-government employee the amount exempt from tax

is:

 Where he receives gratuity: Commuted value of 1/3 of pensions which

he is normally entitled to receive; and

 When he does not get gratuity: Commuted value of 1/2 of such

pension.

Retrenchment Compensation [Section 10(10B)]:

6
Compensation received by a workman at the time of retrenchment is exempt to the
extent of least of the following:
i. An amount calculated under Industrial Disputes Act, 1947; or
ii. Rs.500000;or
iii. The amount actually received, whichever is less

Payment Received at the time of Voluntary Retirement [Section

10(10C) and Rule BA]:

The compensation received or receivable by an employee at the time of his voluntary

retirement or separation or termination is a profit in lieu of salary chargeable to tax.

Voluntary Retirement Scheme is applicable to an employee of a public sector

company or an employee who has completed 10 years of service or completed 40
years of age. It applies to all employees except the directors of the company. The
maximum amount of exemption under this scheme is Rs.500000. This exemption
once availed is no available in any later assessment year. Least of the following is
exempt:

i. Last drawn salary x 3 months x completed years of service; or last drawn

salary x remaining months of service; or
ii. Rs.500000; or
iii. Actual compensation received.

Calculation of Allowances

Most allowances are taxable like City Compensatory allowance, tiffin allowance, fixed
medical allowance and servant allowances; encashment of any concession is also
taxable.

A) House Rent Allowance

Out of house rent allowance received during the year, least of the following three
amounts will not be included in income: -

7
 • The amount equal to 50% of annual salary, for persons staying in Mumbai,
Chennai, Calcutta or Delhi, but 40%, for others
• The actual amount of house rent allowance received
• The amount of rent actually paid in excess of 10% of annual salary

Here, salary includes basic salary, dearness allowance, and commission on fixed
percentage, but not other allowances.

B) Transport allowance

Transport allowance for traveling from residence to office is exempt up to Rs 800 per
month.

C) Any allowance granted for encouraging the academic, research and other
professional pursuits

To the extent the allowance is utilised for the purpose specified.

D) Children Education Allowance

Rs. 100 per month per child up to a maximum of two children

E) Any allowance granted to an employee to meet the hostel expenditure on his

child

Rs. 300 per month per child up to a maximum of two children

8
Type of Allowance Amount exempt
Rs.800 common for various areas of
North East ,Hilly areas of U.P.,H.P. & J&K
(i) Leave Compensatory Allowance or high and Rs. 7000 per month for Siachen area
altitude allowance or climate allowance of J&K and Rs. 300 common for all
places at a height of 1000 mts or more
other than the above places.
Various amounts ranging from Rs.200
(ii)A border area allowance or remote area
per month to Rs. 1300 per month are
allowance or a difficult area allowance or
exempt for various areas specified in
disturbed area allowance.
Rule 2BB
(iii) Tribal area allowance. Available in
M.P.,Assam,U.P., Kaarnataka, West bengal Rs.200 per month.
Bihar,Orissa.
(iv) Any allowance granted to an employee
working in any transport system to meet his
70% of such allowance upto a maximum
personal expenditure during duty performed
of Rs. 6000 per month.
in the course of running of such transport
from one place to another.
Rs. 100 per month per child upto a
(v)Children education allowance
maximum of 2 children.
(vi)Allowance granted to meet hostel Rs. 300 per month per child upto a
expenditure on employee's child. maximum of two children.
(vii) Compensatory field area allowance
available in various areas of Arunachal
Rs, 2600 per month.
Pradesh, Manipur, Nagaland, Sikkim, H.P.,
U.P. & J&K.
(viii)Compensatory modified field area Rs. 1000 per month
allowance available in specified areas of

9
Punjab,
Rajsthan,Haryana,U.P.,J&K,H.P.&North East
Type of Allowance Amount exempt
(x)Transport Allowance granted to an
employee to meet his expenditure for the
Rs. 800 per month
purpose of commuting between the place of
residence & duty
(xi)Transport allowance granted to
physically disabled blind employee for the
Rs. 1600 per month.
purpose of commuting between place of
duty and residence
(xii)Underground allowance granted to an
employee working in under ground coal Rs. 800 per month
mines.
(xiii)Special allowance in the nature of high
Rs.1060 p.m.(for altitude of 9000-
altitude allowance granted to member of
15000ft.)
the armed forces
(xiv)Special allowance granted to members
of armed forces in the nature of island duty Rs.3,250/-
allowance.

Calculation of Perquisites

The following perquisites are not taxable either under the executive instructions of
the Central Board of Direct Taxes or by virtue of specific provision in the Act/Rules :

Rent-Free House

• Rent-free official residence provided to a judge of a High Court or of the

Supreme Court.
• Rent-free furnished residence (including maintenance thereof) provided to an
official of Parliament, a Union Minister or a Leader of Opposition in Parliament
• Accomodation provided in a 'remote area' to an employee working at a mining
site or an onshore oil exploration site, or a project execution site or an
accomodation provided in an offshore site of similar nature.

10
 • Accomodation provided on transfer of an employee in a hotel for not
exceeding 15 days in aggregate.

Car

• Re-imbursement of expenses in respect of car (which is owned by employee

and used for personal and official purpose) (amount not taxable is up to Rs.
1,200 per month for car having engine capacity of not more than 1600cc, Rs.
1,600 per month for car of above 1600cc and Rs. 600 per month for driver).
• Conveyance facility provided to High Court Judges and Supreme Court
Judges.
• Conveyance facility provided to an employee to cover the journey between
office and residence.

Interest-Free Loan

• Interest-free / concessional loan of an amount not exceeding Rs.20,000

Others

• Gift-in-kind up to Rs.5,000 in a year.

• Employer's contribution to staff group insurance scheme.

11
Salary restructuring & Tax Planning

It is common among salaried employees to complain about having to pay huge

taxes. An employee can structure/ restructure his salary so as to reduce the tax
outgo on his total salary by including exempt allowances or reimbursements. Some
such beneficial allowances/ reimbursements are:

Telephone facility: Telephone facility received by an employee at his residence is

not taxable in the hands of the employee as against telephone allowance, which is
always taxable.

Medical reimbursements: An employee should opt for medical reimbursements,

which are exempt up to Rs 15,000 p.a. as against any medical allowance, which is
taxable in all cases.

Children education allowance: The Act encourages children’s education by

granting an exemption of Rs 100 per month per child under the above heading.

A category often ignored, though, is the children’s hostel expenditure

allowance, which is exempt up to Rs 300 per month per child (both exemptions are
available up to a maximum of two children.)

Provident fund balance: High attrition level is the order of the day across industries.
However, the job-hoppers themselves are often unsure about the future of the
accumulated balance in their provident fund (PF) account.

Employees should ensure that in case they resign before completing five years of
continuous service with an employer, they transfer the accumulated balance in their
recognised PF account to the new employer in order to avoid paying tax on the
same.

12
After assessing tax liability, the next step is tax planning. It involves selecting the
right tax saving instruments and making investments accordingly.

Deductions from Taxable Income:

Deduction under section 80C

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. The specified schemes
are the same which were there in section 88 but without any sectoral caps (except in
PPF).

Specified Investment Schemes u/s 80C

• Life Insurance Premiums

• Contributions to Employees Provident Fund/GPF
• Public Provident Fund (maximum Rs 70,000 in a year)
• NSC
• Unit Linked Insurance Plan (ULIP)
• Repayment of Housing Loan (Principal)
• Equity Linked Savings Scheme (ELSS)
• 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 similar nature shall not be eligible for deduction).
• Infrastructure Bonds issued by Institutions/ Banks such as IDBI, ICICI, REC,
and NHAI.

Interest accrued in respect of NSC VIII issue.

Notes:

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.

13
 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 assessee's income level. Even
persons with taxable income above Rs. 10,00,000 can avail benefit of section
80C.

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 30%
tax stab can save income tax up to Rs. 30,600 (or Rs. 33,660 if annual income
exceeds Rs. 10,00,000) by investing Rs. 1,00,000 in the specified schemes u/s 80C.

Deduction under section 80 CCC (1)

This section allows a deduction of up to Rs. 10,000 to an individual in respect of

contribution to 'Pension' scheme of LIC of India or any other Insurance Co.
Accordingly, a person who is in 30% tax bracket can save income tax of Rs 3,060 (or
Rs. 3366 if annual income exceeds Rs 10,00,000) by contributing Rs 10,000 towards
Pension plan in a year. Some of the popular pension plans 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 Insurance Etc.

Section 80 CCE

Aggregate deduction u/s 80 C, u/s 80 CCC and 80 CCD can not exceed Rs. 1,00,000.

Deduction under section 80D

Under This section, a deduction up to Rs 15,000 (Rs 20,000 in case of senior

citizens) is allowed in respect of premium paid by cheque towards health insurance
policy, like "Mediclaim". Such premium can be paid towards health insurance of
spouse, dependent parents as well as dependent children.

Accordingly a person who is under/in 30% tax bracket can save income tax up to Rs
3,060 (or Rs. 3366 if annual income exceeds Rs 10,00,000) by paying Rs 10,000 as
premium in "Mediclaim" policy in a year.

14
Deduction under section 24(b)

Under this section, Interest on borrowed capital for the purpose of house purchase or
construction is deductible from taxable income up to Rs. 1,50,000 with some
conditions to be fulfilled

15
Case-1
Mr.Shyam was an employee with ABC Ltd. (pvt.sector) and retired on 31st April,
2007. He received pension of Rs.6000 per month up to 31st October 2007. On the 1st
of November, 2007 he got 2/3 of his pension commuted for Rs.400000. X received
gratuity of Rs.600000 which is not covered under Payment of Gratuity Act, 1972. His
Basic salary was Rs.10000 pm (last 12 months average) and his commission for P.Y
2006-07 has been Rs.120000. X has been in service for the past 30 years and 8
months. He’s 58 and he wants to minimize his tax liability. Minimise his tax liability
for P.Y 2007-08 & A.Y 2008-09 by suggesting suitable tax plan.

Computation of Gratuity income

Gratuity u/s 10(10)

Basic Rs. 120,000.00

Commission Rs. 120,000.00
Basic + Commission p.a Rs. 240,000.00
Basic + Commission p.m Rs. 20,000.00
Completed years of service 30 30.67
Gratuity received 600,000.00
Less: Exempt
1. [Rs.350000] 350000
2. [1/2 x Basic+Comm p.m x completed years in
service] 300000
3. [Gratuity Received] 600000
Exempt [Min. of 1.2.3] Rs. 300,000.00
Taxable Gratuity [Gratuity Received – Gratuity
Exempt] Rs. 300,000.00

Computation of Pension income

Pension u/s 17(1)(ii) -non-Govt.Employee

Uncommuted pension 6,000.00

16
p.m
Months received [1st April 2007 to 31st October 2007] 6
Months balance [1st Nov 2007 to 31st March 2008] 5
Ratio (uncommuted) 1/3 0.33
Commuted pension
ratio 2/3 0.67
[(Uncommuted pension p.m x Months
received)+ (Uncommuted pension p.m
Taxable uncommuted x uncommuted ratio x bal. months)] 46,000.00

Commuted ratio value 400,000.00

Commuted Full value [400000 x 1/ 2/3] 600,000.00
Gratuity received ? Yes
Amount Exempt [1/3 x Commuted full value] 200,000.00
[Commuted ratio value – Amount
Amount Taxable Exempt] 200,000.00
[Taxable commuted+Taxable
Total Taxable uncommuted] 246,000.00

without- 80 C 80 C
Particulars Rs Particulars Rs

Gross Salary 552,000.00 Gross Salary 552,000.00

Less:- ELSS u/s 80C -100,000.00
Taxable Income 552,000.00 Taxable Income 452,000.00
Net Tax Payable 72,718.00 Net Tax Payable 46,762.00
Gross Effective Tax Rate 13.17 % Gross Effective Tax Rate 8.47 %
Net Effective Tax Rate 13.17 % Net Effective Tax Rate 10.35 %

Note:
Gross Effective Tax Rate = (Net Tax Payable/ Gross Salary) %
Net Effective Tax Rate = (Net Tax Payable/ Taxable Income) %
For A.Y 2008-09

Taxable income slab (Rs.) Rate (%)

Up to 1,50,000
Up to 1,80,000 (for women)
Up to 2,25,000 (for resident individual of
65 years or above) NIL
1,50,000 – 3,00,000 10

17
 3,00,001 – 5,00,000 20
5,000,001 upwards 30*

• Education cess is applicable @ 3 per cent on income tax, inclusive of

surcharge if there is any.
• A surcharge of 10 per cent of the total tax liability is applicable where the
total income exceeds Rs 1,000,000.

Recommendation: - ELSS 80C [Rs.100000]

Principals Tax Savings Fund – Dividend, Open-End
NAV: Rs.95.11 Asset Size: Rs.305 crores
Record Date Dividend
(Rs/unit)
15-Jan-07 5
5-Apr-00 5

Absolute Returns (in %)

Year Qtr 1 Qtr 2 Qtr 3 Qtr 4 Annual
2007 -4.6 27.2 8.9 - -
2006 28.3 -19.1 14.5 18 43
2005 0.1 1.9 22.6 11.3 44.3
2004 -3.2 -9 17.9 24.5 34.6
2003 -4.8 18.1 31.2 31.8 94.8

Case-2
Mr. Ram resides in Mumbai and is General Manager (Branch Operations) in ICICI
Bank drawing a basic salary of Rs.500000 p.a., Other Allowance of Rs.450000 and
receives an H.R.A of Rs.250000 p.a. He’s 38 years old and resides in Borivli-W along
with his wife and two children aged 10 and 8. He pays a house rent of Rs.20000 p.m.
He wants to minimize his tax liability with the help of a suitable tax plan.

HRA u/s 10 (13A) Metro resident

18
Basic 500,000.00
Commission
Salary 500,000.00
Rent paid 240,000.00
1 Actual HRA received 250,000.00
2 Metro 250,000.00
Excess rent paid over 10% of
3 sal. 190,000.00
HRA Exempt 190,000.00
Taxable HRA 60,000.00

Income Re-Structuring

Pre Rs. Post Rs.

Other Allowance 450000 Other Allowance 400000
Children Education
Allowance 25000
Transport Allowance 25000
450000 450000

Pre Rs. Post Rs.

Basic 500000 Basic 500000
HRA 60000 HRA 60000
Other Allowance 450000 Other Allowance 400000
Children Education
Allowance 22600
Transport Allowance 15400

Tax Savings 12000

1010000 1010000

Effective Tax Saving

@30% of Rs.2000
+ @33.99% Rs.10000
= Rs.4,000

19
 without- 80 C 80 C
Particulars Rs Particulars Rs

Gross Salary 998,000.00 Gross Salary 998,000.00

Less:- ELSS u/s 80C -100,000.00
Taxable Income 998,000.00 Taxable Income 898,000.00
Net Tax Payable 210,532.00 Net Tax Payable 179,632.00
Gross Effective Tax Rate 21.10 Gross Effective Tax Rate 18.00
Net Effective Tax Rate 21.10 Net Effective Tax Rate 20.00

Note:
Gross Effective Tax Rate = (Net Tax Payable/ Gross Salary) %
Net Effective Tax Rate = (Net Tax Payable/ Taxable Income) %
For A.Y 2008-09

Taxable income slab (Rs.) Rate (%)

Up to 1,50,000
Up to 1,80,000 (for women)
Up to 2,25,000 (for resident individual of
65 years or above) NIL
1,50,000 – 3,00,000 10
3,00,001 – 5,00,000 20
5,000,001 upwards 30*

• Education cess is applicable @ 3 per cent on income tax, inclusive of

surcharge if there is any.
• A surcharge of 10 per cent of the total tax liability is applicable where the
total income exceeds Rs 1,000,000.

Recommendation: - ELSS 80 C [Rs.100000]

SBI Magnum Tax Gain Scheme (G) – Open End
NAV: Rs.52.63 Asset Size: Rs.3549 crores

Absolute Returns (in %)

Year Qtr 1 Qtr 2 Qtr 3 Qtr 4 Annual

2007 -5.6 16.4 14.8 - -

2006 19.3 -13.7 16.2 17 44.1
2005 15.1 20.3 26.2 7.1 95.7
2004 -8 -10.2 29.3 32.5 51.9

20
 2003 -15.4 33.2 32.3 52.4 133.1

Total Tax Savings = [(210532 – 179632) + 4000]

= Rs.34,900 for P.Y 2007-08 A.Y 2008-09

Case-3

Z has completed his MBA and joined ACE Financial Ltd. on 1st April 2007. His
remuneration included as follows:-
Particulars Rs.
Basic 105000 He lives with his parents in their
HRA 52500
Medical Allowance 15000 house and his expenses are limited
PF 12600 to 50% of the salary. Therefore his
Other Allowance 67150
Total Fixed Pay 252250 savings (~50% of his earnings) is
available for investments/ tax planning.

Income Re-Structuring

Pre Rs. Post Rs.

Medical Allowance 15000 Medical Reimbursement 15000

15000 15000

Pre Rs. Post Rs.

Basic 105000 Basic 105000

21
HRA 52500 HRA 52500
Medical Reimbursement
Medical Allowance 15000 [15000-15000] 0
Other Allowance 67150 Other Allowance 67150
PF 0 PF 0

Tax Savings 15000

239650 239650

Effective Tax Saving

@10% x 15000
= Rs.1,500
without- 80 C 80 C
Particulars Rs Particulars Rs

Gross Salary 224,650.00 Gross Salary 224,650.00

Less:- ELSS u/s 80C 74,650.00
Taxable Income 224,650.00 Taxable Income 150,000.00
Net Tax Payable 7,689.00 Net Tax Payable 0.00
Gross Effective Tax Rate 3.42 Gross Effective Tax Rate 0.00
Net Effective Tax Rate 3.42 Net Effective Tax Rate 0.00

Note:
Gross Effective Tax Rate = (Net Tax Payable/ Gross Salary) %
Net Effective Tax Rate = (Net Tax Payable/ Taxable Income) %
For A.Y 2008-09

Taxable income slab (Rs.) Rate (%)

Up to 1,50,000
Up to 1,80,000 (for women)
Up to 2,25,000 (for resident individual of
65 years or above) NIL
1,50,000 – 3,00,000 10
3,00,001 – 5,00,000 20
5,000,001 upwards 30*

• Education cess is applicable @ 3 per cent on income tax, inclusive of

surcharge if there is any.
• A surcharge of 10 per cent of the total tax liability is applicable where the
total income exceeds Rs 1,000,000.

22
Recommendation: - ELSS 80 C [Rs.74,650]
SBI Magnum Tax Gain Scheme (G) – Open End
NAV: Rs.52.63 Asset Size: Rs.3549 crores

Absolute Returns (in %)

Year Qtr 1 Qtr 2 Qtr 3 Qtr 4 Annual

2007 -5.6 16.4 14.8 - -

2006 19.3 -13.7 16.2 17 44.1
2005 15.1 20.3 26.2 7.1 95.7
2004 -8 -10.2 29.3 32.5 51.9
2003 -15.4 33.2 32.3 52.4 133.1

Total Tax Savings = [7689 + 1500]

= Rs.9,189 in P.Y 2007-08 A.Y 2008-09

23
Recommendation Profile

The following is an exhaustive list of all the instruments that you can invest in to get
the benefit of section 80C.

1. Premiums paid towards life insurance policy for self and immediate family

2. Any amount paid towards a deferred annuity scheme like those offered by mutual
funds.

3. For government and semi-government employees, any amount which is deducted

from your salary towards a deferred annuity scheme.

4. Your contribution towards a Provident Fund, provided that the fund is covered
under the Provident Fund Act.

5. Provident Fund opened in the name of immediate family members.

6. Contribution to a recognized provident fund.

7. Contribution to an approved superannuation fund.

8. Contribution to a government savings certificate. This would include post office

savings schemes.

9. Premium paid towards a ULIP.

10. ULIP of UTI Mutual Fund and LIC Mutual Fund.

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11. Any payments made to keep in effect an annuity plan of any insurance company.

12. Equity Linked Savings Scheme (ELSS).

13. Contribution to a pension fund set up by a mutual fund subscription.

14. Subscription to any such deposit scheme of, or as a contribution to any such
pension fund set up by, the National Housing Bank.

15. As subscription to any such deposit scheme of an authorized company which

provides long term finance for construction or purchase of residential houses.

16. Home loan principal repayment.

17. Public offerings of equity shares or debentures.

18. Pension policy where benefits were available under section 80CCC. However,
here, the sub-ceiling remains at Rs 10,000

ELSS
Investment: In equity linked savings schemes is eligible for tax break.
Returns: Returns are linked to equity market performance.
Eligibility: Individuals
Available at: Mutual Funds
Tax benefit
IT Section applicable: 80C
Limit on investment: Upto Rs 1 lakh.
Withdrawal: Tax free after 1 year

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Bibliography/ Webliography

Economic Legislation – ICFAI

CFA Study Guide – ICFAI

Economic Times

Business Line

incometaxindia.gov.in

www.corpmen.com

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