Indian Income Tax Provisions for

Individual Tax Planning

(Salary Perspective)

- By Asst. Prof. B S Sharath

JSS-CMS, Mysore.

Outline
Concepts, Meaning & Definitions.

Categories of Allowance.
Tax Exemption & Tax Deduction.

Income Tax
Concepts, Meaning & Definitions

What is an Income?
Income means a receipt in the form of money
or moneys worth which is derived from
definite source with some sort of regularity or
expected regularity.
Income could be classified into 2, they are
Active / Linear Earnings from ones time,
skill & hard work.
Passive / Exponential Earnings from ones
savings or investments.
4

Salary
Any remuneration paid by an employer to an
employee in consideration of his services is called
salary.
It includes monetary value of those benefits and
facilities, which are provided by the employer and
are taxable.
Salaries include wages, allowances, fees,
commission, bonus, perquisites or profits in lieu of
salary, annuity / pension, gratuity, advance of
salary, amount transferred from unrecognized PF
to a recognized PF, PF contribution by employer in
excess of the prescribed limit, leave encashment.
5

Allowances
Allowance is a fixed monetary amount paid by
the employer to the employee (over and
above the basic salary) for meeting certain
expenses, weather personal or for the
discharge of his duties.
These allowances are generally taxable and
are included in gross salary unless specific
exemption is provided in respect of such
allowance.
6

Perquisites
Perquisite may be defined as any casual emolument
or benefit attached to an office or position in
addition to salary or wages.
Perquisite is defined u/s 17(2) of the income tax act
as including
Value of rent-free / concessional rent accommodation,
benefits / amenity provided by the employer.
Any sum paid by the employer in respect of an obligation
which was actually payable by the assessee.
Value of Sweat Equity allotted / transferred free of cost or
at a concessional rate to an assessee.
Contribution made to an approved superannuation fund
by the employer in respect of the assessee, to the extent
it exceeds one lakh rupees.
7

Arrears
Arrears are fully taxable.
Employee has a provision to claim exemption
u/s 89(1).
Employee will have to compute income tax on
arrears if it would have been received in the
actual year.
Difference of income tax between payment
year and actual year would be allowed for
deduction from tax liability.
Illustration
8

Gratuity
Gratuity is non-taxable up to Rs. 10 lakh in
case of non-government servants.
In case of Government service employees, it
would be fully non taxable.
If amount is received before completion of
five years of service with employer, it would
be taxable.

What is Tax?
A fee charged / levied by a government on a
product, income or activity.
If tax is levied directly on personal income or
corporate income it is termed as Direct Tax.
If tax is levied on the price of a good or
service, it is termed as Indirect Tax.
Our Direct Taxation system is based on Ability
to Pay, i.e. the more we earn, the more taxes
we pay. The opposite is also true.
10

Ability to Pay Tax Slabs

(For the FY / PY 2014 15 & AY 2015 16)

General Public
(There are no separate slabs for Male & Female assessee)

Rs.00,00,000 to Rs.02,50,000

NIL

Rs.02,50,001 to Rs.05,00,000

10%

Rs.05,00,001 to Rs.10,00,000

20%

Rs.10,00,001 & above

30%

Additional Cess -

3% on Income Tax
(2% Education Cess, 1% Higher Education Cess)11

Ability to Pay Tax Slabs

(For the FY / PY 2014 15 & AY 2015 16)

Senior Citizen (Aged above 60 years)

(There are no separate slabs for Male & Female assessee)

Rs.00,00,000 to Rs.03,00,000

NIL

Rs.03,00,001 to Rs.05,00,000

10%

Rs.05,00,001 to Rs.10,00,000

20%

Rs.10,00,001 & above

30%

Additional Cess -

3% on Income Tax
(2% Education Cess, 1% Higher Education Cess)12

Ability to Pay Tax Slabs

(For the FY / PY 2014 15 & AY 2015 16)

Super Senior Citizen (Aged above 80 years)

(There are no separate slabs for Male & Female assessee)

Rs.00,00,000 to Rs.05,00,000

NIL

Rs.05,00,001 to Rs.10,00,000

20%

Rs.10,00,001 & above

30%

Additional Cess -

3% on Income Tax
(2% Education Cess, 1% Higher Education Cess)
13

Tax Evasion
&
Tax Avoidance

What is Tax Evasion?

Tax Evasion is

An exercise involving an element of deceit

Misrepresentation of facts
Falsification of accounts
Indulging in downright fraud.

15

What is Tax Avoidance?

Tax Avoidance / TAX Planning is not Tax
Evasion.
Tax planning is merely availing, strictly in
accordance with the law, tax exemptions or
privileges offered by the government.
Tax planning could also be termed as tax
avoidance within the purview of government
rules and regulations with an intention to
reduce ones tax liability.
Tax planning / tax avoidance is legal.
16

Income Tax
Categories of Allowances

Categories of Allowances
For the purpose of tax treatment, the allowances could be
categorized into 3 heads as follows
1. Fully Taxable Cash Allowances
a)
b)
c)
d)
e)
f)
g)
h)
i)
j)
k)

Dearness Allowance / Dearness Pay

Grade / Special / Management / Supplementary Allowance
City Compensatory Allowance
Tiffin / Lunch Allowance
Non Practice Allowance
Warden or Proctor Allowance
Deputation Allowance
Overtime Allowance
Fixed Medical Allowance
Servant Allowance
Other Allowances which are not addressed under specific
exemption category.
Cont.

18

Categories of Allowances (cont.)

2. Partly Exempt Allowances
a) House Rent Allowance (H.R.A.)
Allowance given to an employee by the
employer to meet expenditure incurred on
payment of rent in respect of residential
accommodation occupied by him.
(exempted H.R.A. calculation discussed in subsequent slide).
b) Entertainment Allowance (applicable only
to government employees, Rs.5,000 or
20% of salary or actual amount whichever
is less).
Cont.

19

Categories of Allowances (cont.)

c) Special allowance for performance of official
duties.
d) Special allowance for meeting personal expenses
like:
i)

Children Education Allowance (Rs.100 pm per child,

max for 2 children)
ii) Children Hostel Allowance (Rs.300 pm per child, max
for 2 children)
iii) Transport Allowance (Rs.800 pm or Rs.1600 for blind
or handicap employee)
iv) Out of Station Allowance (70% or Rs.10,000 pm,
whichever is less)
Cont.

20

Categories of Allowances (cont.)

3. Fully Exempt Allowances
a) Foreign Allowance (applicable only to
government employees posted abroad).
b) Allowance to Supreme Court or High Court
Judges.
c) Allowance from UNO to its employees.

21

Tax Exemption (on Income / Salary)

&
Tax Deduction (on Spending)

Income Exemption from Tax

Leave Travel Allowance (L.T.A.) (Partial Exemption)

Medical Allowance.
Uniform / Dress Allowance.
Dividends from Equity & Equity Related Instruments.
Profits received from a partnership firm.
Profits received by a member of H.U.F from H.U.F.
earnings.
Long Term Capital Gains from Equity & Equity Related
Instruments.
Interest received on PPF investment.
Interest received on Tax Free Bonds.
Disability Pension (Defense).
23

Tax Deductions u/s

80C Savings,
80CCC Pension Plans and
80CCD Contributory Pension Plan
(max of 10% of salary)
80CCG RGESS
Aggregate amount of deductions under all
the above sections (except 80CCG) are
subject to an overall ceiling of
Rs. 1,50,000 only.

Investments Eligible u/s 80C

Equity Linked Savings Scheme (ELSS), notified u/s
10(23D)
Five Years Tax Saver Bank Deposits
Public Provident Fund (PPF)
National Savings Certificate (NSC)
Life Insurance Premium
Unit Linked Insurance Plans (ULIP)
Employee Provident Fund (EPF)
Home Loan Principal Repayment (only in case the
assessee has got the possession)
Tuition Fees Paid for Children Education, for a
maximum of 2 children.
25

Rajiv Gandhi Equity Saving Scheme

u/s 80CCG
Provides income tax deduction of 50% for a New Retail
Investor.
Maximum investment upto Rs.50,000 directly into equities.
An assessee whose income is less than Rs.10 lakh is eligible to
claim under this scheme.
Subject to a three -year lock in.
ETFs and Mutual Funds listed on stock exchange or equity
shares, on the day of purchase falling in the list of equity
declared as a BSE 100 / CNX 100 stock.
Acquiring Equity shares or subscribing to IPO / FPO of PSUs
which are categorized as Maharatna, Navaratna or Miniratna
by the Central Government.
IPO of a PSU wherein the government shareholding is at least
51%, which is scheduled for getting listed and whose turnover
is not less than Rs.4,000 crores during each of the preceding 3
years.
26

Tax Deductions u/s

80D Medical Insurance Premium,
80DD Medical Treatment
(dependent handicapped relative)and
80DDB Medical Treatment
(self or dependent relative)

Deduction u/s 80D

Medical Insurance Premium
Upto Rs.15,000 for self / family.
Additional of Rs.15,000 / Rs.20,000 (if either of
the parents are senior citizen) for parent(s) of the
assessee.

Deduction u/s 80DD

Medical Treatment of Handicapped Dependant
Upto Rs.50,000
Upto Rs.1,00,000 (expenditure incurred on
handicapped dependant with severe disability).
28

Deduction u/s 80DDB

Medical Treatment of Specified Diseases
Upto Rs.40,000.
Upto Rs.60,000 in case of a senior citizen
assessee.
Applicable for self, spouse, children, siblings
and parents, wholly dependent on assessee.

29

Tax Deductions u/s

80G Donations Towards Social Cause
&
80GG House Rent and H.R.A

Deductions u/s 80G - Donations

Categorization of donations u/s 80G for claiming
deductions
Donations with 100% deduction without any
qualifying limit.
Donations with 50% deduction without any
qualifying limit.
Donations with 100% deduction subject to 10%
of the Adjusted Gross Total Income.
Donations with 50% deduction subject to 10% of
the Adjusted Gross Total Income.
(AGTI = Gross Total Income Capital Gains all
deductions u/s 80CCC to 80U other than 80G)
Details

31

Deduction u/s 80GG

If the assessee is not receiving H.R.A. and
stays in a rented house, least of the following
could be claimed
25% of the total income.
Rs.2,000 per month, or
Excess of rent paid over 10% of total income.

This deduction would not be applicable if the

assessee, spouse or minor child of the
assessee owns a residential accommodation in
the location where the assessee resides or
performs office duties.
Cont.

32

Deduction u/s 80GG (cont.)

If the assessee is receiving H.R.A. and stays in a
rented house, then the minimum of the following
3 is available as exemption
i. The actual H.R.A. received from the employer.
ii. The actual rent paid, minus 10% of salary (basic +
DA)
iii. An amount equal to 40% (non-metro) / 50% (metro)
of salary.

This deduction would not be applicable if the

assessee, spouse or minor child of the assessee
owns a residential accommodation in the location
where the assessee resides or performs office
duties.
Illustration

Cont.

33

Other Deductions Under Various

Sections
Professional / Employment Tax paid.
Interest on loan taken for higher studies, allowed as
deduction over a period of 8 years, u/s 80E
Interest from savings bank account upto
Rs.10,000/-, u/s 80TTA.
In some cases, deduction for both H.R.A. and
home loan interest (u/s. 24) can be taken together
in case own house is not in the same city or not at
a commutable distance to workplace.
Interest on housing loan for self occupancy
deduction upto Rs.2,00,000 u/s 24.
Contributions to political parties by an assessee.
34

There are 3 types of people when it comes to

Money. They are
SPENDERS Who dont even try to walk their
way to wealth creation.
= SAVERS Who walk their way towards wealth
creation but, put their savings in wrong assets.
INVESTORS Who drive their way towards
wealth creation.

~~~

Thank You ~~~

35