5 Rules of Tax Planning

The first step in tax saving is to adopt the concept of divide and rule. The simple rule is that each family member must have his or her independent source of income so as to legally become an independent tax payer under the provisions of the income tax law. In case the entire income of a family belongs to just one member, the tax liability is much higher than when the same income is spread among different members of the family.

Now, under the income tax law it is not possible to arbitrarily divide one’s income amongst different members of the family and then pay lower tax in the names of different family members. However, this goal can be achieved by intelligent use of the facility of gifts and settlements.

The second step of tax planning lies in claiming all the exemptions and deductions which are permissible under the Income Tax Law. A list of most such exemptions and deductions is contained in Section 10 of the Income Tax Act. This list has to be optimized depending on your facts and circumstances. If you and your family members are not claiming the optimum benefit of exemptions and deductions, then it is time to focus on investment planning in the group so that every family member gets full benefit of tax exemptions and tax deductions.

Various tax deductions are available under the I.T. Law. One should try to avail of the benefit of these deductions for each and every member of the family. The various investment options that offer tax rebates should be reviewed keeping in mind various aspects like the age factor, etc. Check whether each and every tax paying family member is claiming these. If special care is taken of this aspect, then it is legally possible to save a lot of income tax.

TAX DEDUCTIONSTax payers now enjoy straight deduction in terms of Section 80C in respect of stipulated investments and expenditure to the tune of 1.5 Lakh. Moreover, such investment can be made in any single stipulated item, or a combination of the stipulated avenues of investment. Similarly, within the above limit the investment can also be made in Pension Plans in terms of Section 8OCCC.

Additional deduction upto Rs 50.000/- over and above the deductions under section 80C is available for contribution to the new pension scheme. A further tax deduction on Rs. 50.000/- is available on investments under RGESS, 2012, as per section 80CCG, and this deductions is available for 3 consecutive years.

There are innumerable incomes under the Income Tax Law which are exempted from the purview of tax. These incomes are known as exempted incomes.
For example, interest income from tax-free bonds as also any income from agriculture are some items of exempted incomes.

There are other exempted incomes also. Proper planning of your investments in a way so as to generate tax exempt incomes is another golden rule of tax planning.

Easy, simple, hassle-free should be the objectives of your tax planning approach. The message which we want to bring to you is that you should adopt tax planning but never overdo it; just remember the key points highlighted in this website which will help you fulfill your tax planning mission without going overboard.

Saving tax legally is a reality but only for those who plan their taxes based on such principles. This would also result in avoiding all the worries and tensions as all their incomes, assets and investments are duly accounted for from the point of view of taxation.