Objectives of the Report

To study taxation provisions of The Income Tax Act, 1961 as amended by Finance Act, 2007. To explore and simplify the tax planning procedure from a laymans perspective. This project studies the tax planning for individuals assessed to Income Tax. The study relates to generalized tax planning, eliminating the need of sample/population analysis. This study covers individual tax planning only and does not hold good for corporate taxpayers.

Taxation System in India

India has a well developed tax structure with the authority to levy taxes divided between the Union Government and the State Governments. The Union Government levies direct taxes such as personal income tax and corporate tax, and indirect taxes like custom duties, excise duties and central sales tax. The states are empowered to levy state sales tax apart from various other local taxes like entry tax, octroi etc.Taxation has always played an important role in the formulation of the government's industrial policy. One of the objectives of the recent economic reforms is the rationalisation of the tax structure in the country. Income tax was introduced in 1860, abolished in 1873 and reintroduced in1886 Income tax levels in India were very high during 1950-1980, in 1970-71 there were 11 tax slabs with highest tax rate being 93.5% including surcharges. In 1973-74 highest rate was 97.75%. But to reduce tax evasion tax rates were reduced later on, by 199293 maximum tax rates were reduced to 40%. The tax regime in India has undergone elaborate reforms over the last couple of decades in order to enhance rationality, ensure simplicity and improve compliance. The tax authorities constantly review the system in order to remain relevant. India has a federal system of Government with clear demarcation of powers between the Central Government and the State Governments. Like governance, the tax administration is also based on principle of separation therefore well defined and demarcated between Central and State Governments and local bodies. The tax on incomes, customs duties, central excise and service tax are levied by the Central Government. The state Government levies agricultural income tax (income from plantations only), Value Added Tax (VAT)/ Sales Tax, Stamp Duty, State Excise, Land Revenue, Luxury

Tax and Tax On Professions. The local bodies have the authority to levy tax on properties, octroi/entry tax and tax for utilities like water supply, drainage etc.

Tax is imposition financial charge or other levy upon a taxpayer by a state or other the
functional equivalent of the state. An income tax is a tax levied on the financial income of persons, corporations, or other legal entities.

Direct Taxes
In case of direct taxes (income tax, wealth tax, etc.), the burden directly falls on the taxpayer. The provisions relating to income tax are contained in the Income Tax Act 1961 and the Income Tax Rules 1962. The Income Tax Department is governed by the Central Board for Direct Taxes (CBDT) which is part of the Department of Revenue under the Ministry of Finance. In terms of the Income Tax Act, 1961, a tax on income is levied on individuals, corporations and body of persons.

In the case of Individuals, incomes from salary, house and property, business & profession, capital gains and other sources are subject to tax. Women and Senior citizens are extended some special privileges. Individuals incomes are subjected to a progressive rate system. Tax treatment differs depending on the residence status.

Wealth Tax Wealth tax, in India, is levied under Wealth-tax Act, 1957. Wealth tax is a tax on the benefits derived from property ownership. The tax is to be paid year after year on the same property on its market value, whether or not such property yields any income. Similar to income tax the liability to pay wealth tax also depends upon the residential status of the assessee. The assets chargeable to wealth tax are Guest house, residential house, commercial building, Motor car, Jewelry, bullion, utensils of gold, silver, Yachts, boats and aircrafts, urban land, cash in hand (in excess of INR 50,000 for Individual & HUF only),etc. But in reality majority of the potential tax payers do not pay this tax as most of the movable items such as jewelry, bullion etc are stashed away from accounting.

Capital Gains Tax The central government also charges tax on the capital gains that is derived from the sale of the assets. The capital gain is the difference between the money received from selling the asset and the price paid for it. To restrict the misuse of this provision, the definition of capital asset is being widened to include personal effects such as archaeological collections, drawings, paintings, sculptures or any work of art.Capital gain also includes gain that arises on transfer (includes sale, exchange) of a capital asset and is categorized into short-term gains and long-term gains. The Long-term Capital Gains Tax is charged if the capital assets are kept for more than three years or 12 months in the case of securities and shares that are listed under any recognized Indian stock exchange or mutual fund. Short-term Capital Gains Tax is applicable if the assets are held for less than the aforesaid period. In case of the long term capital gains, they are taxed at a concession rate. Normal corporate income tax rates are applicable for short term capital gains. In case of the short term and long term capital losses, they are allowed to be carried forward for 8 consecutive years.

INDIRECT TAXES Excise Duty

The central government levies excise duty under the Central Excise act of 1944 and the Central Excise Tariff Act of 1985. Central Excise duty is an indirect tax levied on goods manufactured in India and meant for domestic consumption. The Central Board of Excise and Customs under the Ministry of Finance, administers the excise duty. Central Excise Duty arises as soon as the goods are manufactured. There are three main types of excise duty

Basic Excise Duty is charged on all excisable goods other than salt at the rates mentioned in the said schedule

Additional Duties of Excise is charged on goods of special importance, in lieu of sales Tax and shared between Central and State Governments

Special Excise Duty is charged on all excisable goods on which there is a levy of Basic excise Duty. Every year the annual Budget specifies if Special Excise Duty shall be or shall not be levied and collected during the relevant financial year.

Customs Duty Customs duty is the tax levied on goods imported into India as well as on goods exported from India. Taxable event is import into or export from India. Additionally educational cess is also charged. The customs duty is evaluated on the value of the transaction of the goods. The Central Board of Excise and Customs under the Ministry of Finance manages the customs duty process in the country. The rate at which customs duty is applicable on the goods depends on the classification of the goods determined under the Customs Tariff. Service Tax Service tax was introduced in India way back in 1994 and started with mere 3 basic services viz. general insurance, stock broking and telephone. Subsequent Budgets have expanded the scope of the service tax as well as the rate of service tax. More than 100 services are subjected to tax under this provision. An education cess is also charged on the tax amount. The Central Board of Excise and Customs under the Ministry of Finance manages the administration of service tax.

STATE TAXES Apart from the central taxes, the states also levy taxes on various good and services. Main state taxes consist of: Value Added Tax (VAT)

Sales tax charged on the sales of movable goods has been replaced with VAT in most of the Indian states since 2005. This was introduced to counter the rampant double taxation issues and resultant cascading tax burden that occurred due to the flaws inherent in the previous sales tax system. VAT, chargeable only on goods and does not include services, is a multi-stage system of taxation, whereby tax is levied on value addition at each stage of transaction in the supply chain. The term value addition implies the increase in value of goods and services at each stage of production or transfer of goods and services. Stamp Duty Stamp duty is paid on instruments, which are essentially a document to create, transfer, limit, extend, extinguish or record a right or liability. Document acquires legality once it is stamped properly after the payment of the requisite stamp duty charges. Stamp duty is payable for transfer of shares, share certificate, partnership deed, bill of exchange, shares, share transfer, leave and license agreement, debentures, gift deed, bank guarantee, bonds, demat shares, development agreement, demerger, power of attorney, home loans, houses & house purchase, lease deed, loan agreement and lease agreement. State Excise Power to impose excise on alcoholic liquors, opium and narcotics is granted to States under the Constitution and it is called State Excise. The Act, Rules and rates for excise on liquor are different for each State. In addition to the above taxes by the Central and State Governments the local bodies have the authority to levy tax on properties, octroi/entry tax and tax on utilities.

Tax Deduction at Source (TDS) The Income-tax Act enjoins on the payer of specific types of income, to deduct a stipulated percentage of such income by way of Income-tax and pay only the balance amount to the recipient of such income. Some of such incomes subjected to T.D.S. are salary, interest, dividend, interest on securities, winnings from lottery, horse races, commission and brokerage, rent, fees for professional and technical services, payments to non-residents etc. Tax Collection at Source (TCS)

Tax is collected at the point of sale. It is to be collected at source from the buyer, by the seller at the point of sale. Such tax collection is to be made by the seller, at the time of debiting the amount payable to the account of the buyer or at the time of receipt of such amount from the buyer, whichever is earlier. The goods to be subjected to TCS are clearly specified and the type of buyers, sellers and purpose are clearly defined in the Act. Tax rates vary depending on the goods. Important terms

Assessee means a person responsible for payment of income tax or any other due. Person includes individuals, firm, Hindu undivided family (HUL), local bodies (Gram Panchayat, Municipality), company etc

Previous year the year in which income is earned. Gross total income sum of taxable income of all 5 sources (i.e. salary, house property, business or profession, capital gain & other sources) of assessee.

Total Income (Taxable Income) total amount of income chargeable to tax computed after deducting permissible deductions under sections 80A to 80U.

Method of Income Tax Calculation 1st step calculate gross total income by adding 5 different sources of income (i.e. salary + income from house property + income from business/profession + income from capital gains + income from other sources). 2nd step calculation of total income (after deduction of eligible deductions of VI A from gross total income). 3rd step income tax is calculated at specified rates (0, 10%, 20%, 30%) on taxable income. 4th step calculate tax payable (after deducting rebate of income tax under section 88E) 5th step if applicable add surcharge at prescribed rate and then calculate education cess @ 3% on tax plus surcharge.

Types of Income Tax Return Forms

To file tax returns Income Tax Department had issued a series of forms applicable to different type of assessees: ITR 1: This form is applicable for an individual who has no income other than Salary/ Pension and Interest. ITR 2: This form is applicable for an individual who has income under different heads but not business /profession income. ITR 3: This form is applicable for an individual who is partner in a partneship firm . ITR 4: This form is applicable for an individual who has income from business/profession. ITR 5: This form is applicable for a Firms, AOP,BOI, Local Authority. ITR 6: This form is applicable for a Company. ITR 7: This form is applicable for a Trust. ITR 8: This form is used for filing only FBT Return. What happens if I dont pay the Income Tax?

A Person, corporations or other legal entities, whose earned Income in India, exceeds a prescribed limit has to pay tax. Any person who willfully attempts to evade the payment of any tax, penalty or interest levied under Income Tax is liable to be prosecuted u/s 276C(2) of Income Tax Act, 1961.

Whether I can get refund in case I pay any extra tax by mistake?

If a person has paid more tax than he is required to pay by the tax rules, he may seek refund of the excess amount deposited. The refund will be made after processing of the income tax return.

What are the various heads of Taxable Income? a. Income from Salary b. Income from House Property

c. Income from profits and gains of Business or Profession d. Income from Capital gains e. Income from Other sources. What are the items which are included under the Head Salary? Salary includes the pay, allowances, bonus or commission payable monthly or otherwise or any monetary payment, in whatever name called from one or more employers, as the case may be, but does not include the following, namely:

dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits of the employee concerned;

employer's contribution to the provident fund account of the employee; allowances which are exempted from payment of tax;

It also includes the following: a. Wages; b. Any annuity or pension; c. Any gratuity; d. Any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages; e. Any advance of salary; f. Any payment received by an employee in respect of any period of leave not availed of by him; g. The annual accreditation to the balance at the credit of an employee participating in a recognized provident fund, to the extent to which it is chargeable to tax under Rule 6 of Part A of the Fourth Schedule. How is Income under House Property computed?

Income from House property is computed by taking what is called Annual Value. The annual value (in the case of a let out property) is the maximum of the following: Actual Rent received Municipal Valuation Fair Rent (as determined by the I-T department) If a house is not let out and not self-occupied, annual value is assumed to have accrued to the owner. Annual value in case of a self occupied house is to be taken as NIL. (However if there is more than one self occupied house then the annual value of the other house/s is taxable.) From this, deduct Municipal Tax paid and you get the Net Annual Value.

From this Net Annual Value, deduct : 30% of Net value as repair cost Interest paid or payable on a housing loan against this house In the case of a self occupied house interest paid or payable is subject to a maximum limit of Rs,1,50,000 (if loan is taken on or after 1 April 1999) and Rs.30,000 (if the loan is taken before 1 April 1999). For all non self-occupied homes, all interest is deductible, with no upper limits. The balance is added to taxable income.

Income Exemptions
What are the various Income Exemptions?

Agricultural Income Value of Leave Travel concession, only where journey is actually performed. Gratuity amount paid to the employee on the retirement on superannuation, retirement on VRS, termination, resignation or any gratuity paid to the spouse, children or dependents on his/her death subject to the limits prescribed.

Any Payment on Voluntary Retirement subject to maximum of Rs. 5 lakhs.

Payment of Provident Fund under the Provident Fund Act, 1925 or Public Provident Fund Scheme, 1968.

Payment of commutation of Pension (1/3rd) is fully exempt. Encashment of Leave on Retirement subject to a maximum limit of Rs.300000. House Rent Allowance: HRA paid to the assessee to meet the expenditure incurred on payment of rent for accommodation.

Special Allowance or Benefits : Any special allowance or benefit as may be prescribed which is not in nature of perquisites, specially granted to meet expenses wholly in performance of duties to the extent of such expenses are actually incurred for the purpose.

What are the other Permissible Deductions?

Professional Tax Interest paid on Housing Loan to the extent of Rs.30,000/- Rs.150000/- as the case may be) in respect of self occupied House.

Deduction in respect of Medical Treatment for specific ailments for self or dependents up to Rs.1.00 lakh.

Interest paid on Educational loans for self or dependents availed from any Bank / Financial Institutions/ charitable trusts is eligible for deduction.

A deduction of Rs .50,000 p.a. can be deducted from Income of the if the assessee is suffering from any disability and a deduction up to Rs.1.00 lakh can be made if suffering from severe disability

Donations made to Prime Minister / Chief Ministers Relief fund etc., are eligible for deductions @ 100%. In other cases 50% of donations paid are eligible for deduction.

Medical Insurance premium up to Rs.30,000 u/s 80D i.e. Rs. 15,000 for self, spouse, children and Rs.15,000 for parents (Rs.20,000 pa if parents are 65 years above)

Whether it is necessary to disclose tax-free income while preparing my income tax return?

You are required to disclose all the incomes whether taxable or tax-free while filing your income tax return.

What is the overall limit under Sec 80 C? The aggregate limit of deduction u/s 80 CC.and 80 CCC are subject to overall limit of Rs.1.00 lakh only. Section 80 CCC: An amount paid or deposited upto maximum of Rs.1.00 lakh by the assessee during the previous year to the annuity plan of LIC or other Insurance Companies for receiving pension from the fund referred to in section 10(23AAB). The amount within the overall limit of Rs.1.00 lakh including Sec 80C.: Section 80CCE: The aggregate limit of deduction u/s 80 CC.and 80 CCC are subject to overall limit of Rs.1.00 lakh only. Section 80D: Medical Insurance Premiums, Medical insurance, popularly known as Mediclaim Policies, provide deduction up to Rs 30,000. This deduction is additional to Rs.1,00,000 savings. For senior citizens, the deduction up to Rs. 20,000 is allowable and for non senior citizens, the limit is Rs. 15000. This deduction is available for premium paid on medical insurance for oneself, spouse,parents and children. It is also applicable to the cheques paid by proprietor firms. Section 80 DDB: Maintenance & Medical Treatment: Amount actually incurred for medical treatment for self or for spouse/children/dependant parents for specified diseases or ailments are eligible for deduction up to Rs.1.00 lakh u/s 80 DDB. Section 80E: Interest on Educational Loans: Any amount paid out of Income chargeable to tax towards interest on Education loan availed from any Bank/Financial Institution/charitable Institution for purpose of pursuing Higher Education for self, spouse or children is eligible for deduction

Section 80 U: Person with Disability for Self: U/s 80 U, a deduction of Rs.50,000 p.a. can be deducted from Income of the if the assessee is suffering from any disability and a deduction up to Rs.1.00 lakh can be made if suffering from severe disability . Section 80G: Donations made to Charitable Institutions; Donations made to Prime Minister / Chief Ministers Relief fund etc., are eligible for deductions @ 100%. In other cases 50% of donations paid are eligible for deduction.

Steps to file income tax return online

Before starting the process, keep your bank statements, Form 16 issued by employer and a copy of last year's return at hand. Next, log on to www.incometaxindiaefiling .gov.in. Follow these steps: Step1: Register yourself on the website. Your Permanent Account Number (PAN) will be your user ID. Step2:View your tax credit statement Form 26AS for the financial year 2012-13 . The statement will reflect the taxes deducted by your employer actually deposited with the I-T department. The TDS as per your Form 16 must tally with the figures in Form 26AS. If you file the return despite discrepancies, if any, you could get a notice from the I-T department later. Step 3: Under the 'Download' menu, click on Income Tax Return Forms and choose AY 2013-14 (for financial year 2012-13 ). Download the Income Tax Return (ITR) form applicable to you. If your exempt income exceeds Rs 5,000, the appropriate form will be ITR-2 . If the applicable form is ITR-1 or ITR 4S, you can complete the process on the portal itself, by using the 'Quick e-file ITR' link. Step 4: Open the downloaded Return Preparation Software (excel utility) and complete the form by entering all the details , using your Form 16. Step 5: Ascertain the tax payable by clicking the 'Calculate Tax' tab. Pay tax (if applicable) and enter the challan details in the tax return. Step 6: Confirm all the information in the worksheet by clicking the 'Validate' tab.

Step 7: Proceed to generate an XML file and save it on your computer. Step 8: Go to 'Upload Return' on the portal's left panel and upload the saved XML file after selecting 'AY 2013-2014 ' and the relevant form. You will be asked whether you wish to digitally sign the file. If you have obtained a DS (digital signature), select Yes. Or, choose 'No'. Step 9: Once the website flashes the message about successful e-filing on your screen, you can consider the process to be complete. The acknowledgment form ITRVerification (ITR-V) will be generated and you can download it. Step 10: Take a printout of the form ITR-V , sign it preferably in blue ink, and send it only by ordinary or Speed post to the Income-Tax Department-CPC , Post Bag No-1 , Electronic City Post Office, Bangalore - 560 100, Karnataka, within 120 days of filing return online.

There is nothing which hurts more than payment of taxes. One question that goes through every tax payers mind is how can I reduce my tax liability? Reducing tax liability is not always a bad or illegal exercise. There are legitimate ways to reduce taxes through proper tax planning and such methods are always encouraged. But unfortunately, there is also a tendency to reduce tax through illegal methods. They are not accepted practice and can invite problems. There are three methods which are commonly used by the taxpayers to reduce their tax liabilities

Tax Evasion, Tax Avoidance and Tax Planning

Tax evasion is the illegal evasion of taxes by individuals, corporations and trusts. Tax evasion often entails taxpayers deliberately misrepresenting the true state of their affairs to the tax authorities to reduce their tax liability and includes dishonest tax reporting, such as declaring less income, profits or gains than the amounts actually earned, or overstating deductions. One measure of the extent of tax evasion (the "tax gap") is the amount of unreported income, which is the difference between the amount of income that should be

reported to the tax authorities and the actual amount reported. Such unethical practices often create problems for the tax evaders. Tax department not only imposes huge penalties but also initiate prosecution in such cases. Tax Avoidance The use of legal methods to modify an individual's financial situation in order to lower the amount of income tax owed. This is generally accomplished by claiming the permissible deductions and credits. This practice differs from tax evasion, which is illegal.

Tax Planning Tax planning is arrangement of financial activities in such a way that maximum tax benefits, as provided in the income-tax act are availed of. It envisages use of certain exemption, deductions, rebates and reliefs provided in the act. Tax Planning involves planning in order to avail all exemptions, deductions and rebates provided in Act. The Income Tax law itself provides for various methods for Tax Planning, Generally it is provided under exemptions u/s 10, deductions u/s 80C to 80U and rebates and reliefs. Some of the provisions are enumerated below :

Investment in securities provided u/s 10(15) . Interest on such securities is fully exempt from tax.

Exemptions u/s 10A, 10B, and 10BA Residential Status of the person Choice of accounting system Choice of organization.

Where a person buys a machinery instead of hiring it, he is availing the benefit of depreciation. If is his exclusive right either to buy or lease it . In the same manner to choice the form of organization, capital structure, buy or make products are the assesses exclusive right. One may look for various tax incentives in the above said transactions provided in this Act, for reduction of tax liability. All this transaction involves tax planning. Objectives of Tax Planning-

1.To assure that the client knows if, when, and how much to pay in estimated tax payments during the year so as to avoid any underpayment penalty and interest charges. 2. To find any legitimate tax strategy that would lessen the amount of tax owed. 3. To maximize the cash inflow and minimize the cash outflow.

These are three steps in tax planning are:

Calculate taxable income under all heads i.e., Income from Salary, House Property, Business & Profession, Capital Gains and Income from Other Sources.

Calculate tax payable on gross taxable income for whole financial year (i.e., from 1st April to 31st March) using a simple tax rate table, given on next page.

After calculation of the amount of tax liability. There are two options to choose from: o Pay your tax (No tax planning required) o Minimise your tax through prudent tax planning.

Most people rightly choose Option 'B'. Here you have to compare the advantages of several tax-saving schemes and depending upon your age, social liabilities, tax slabs and personal preferences, decide upon a right mix of investments, which shall reduce tax liability to zero or the minimum possible. Every citizen has a fundamental right to avail all the tax incentives provided by the Government. Therefore, through prudent tax planning not only income-tax liability is reduced but also a better future is ensured due to compulsory savings in highly safe Government schemes. We should plan our investments in such a way, that the post-tax yield is the highest possible keeping in view the basic parameters of safety and liquidity. How tax-planning can lead to wealth creation The Section 80C limit has been set at Rs 100,000 in a financial year. This means you can invest upto Rs 100,000 every year in the stipulated investment avenues or utilise the sum for paying life insurance premium, repaying a home loan and claim tax benefits. Now the same has a two-pronged effect. First, you save tax at present, and second, by investing the monies,

you are creating an asset/income for the future. For example, investments in tax-saving funds, PPF and NSC will yield returns in the future. Life insurance premium repayment will mean that your dependents will be provided for in your absence. Finally, home loan repayment will lead to creation of an asset (a housing property). Some of the major investment avenues that offer Section 80C benefits and should form a part of your tax-planning portfolio.

Tax-saving mutual funds Tax-saving mutual funds (also called equity linked savings schemes - ELSS) are equity funds that offer tax benefits under Section 80C. Essentially, like equity funds, these funds also invest their corpus in equities. However, the differentiating factor is the 3-Yr lock-in and the tax benefits. While in a regular equity fund, the investor is free to sell his investment whenever he wishes to, in a tax-saving fund, the investor must stay invested at least for a 3-Yr period. Also, investments in a regular equity fund aren't eligible for any tax benefits, but investments in tax-saving funds are eligible for Section 80C tax benefits.

Public Provident Fund Public Provident Fund (PPF) is an assured return scheme (i.e. it offers guaranteed returns) that runs over a 15-Yr period. The scheme requires recurring investments i.e. annual investments are necessary to keep the PPF account active. The minimum and maximum investment amounts are Rs 500 and Rs 70,000 respectively pa. Investments in PPF are eligible for Section 80C deductions. Also the interest income from PPF is tax-free. At present investments in PPF offer a return of 8.0% pa, compounded annually. However, this rate is subject to revision; hence, investments in PPF may yield a higher or lower return going forward, depending on how rates are revised. You can make smaller contributions to the PPF account. The same will help you build a risk-free corpus for the future.

National Savings Certificate National Savings Certificate (NSC) is another assured return scheme. However unlike PPF, it isn't recurring in nature. Hence, an investor is required to make a lumpsum investment that matures after 6 years. The minimum investment amount is Rs 100, while there is no upper limit for investing in NSC. Interest income from NSC is paid on maturity; the same is also taxable. Interest accrued on NSC is considered to be reinvested; hence, it is eligible for reinvestment under Section 80C. You can make investments in NSC for a 6-Yr period to gainfully invest one-time surpluses and to provide for needs that will arise over a corresponding time frame.

Tax-saving fixed deposits You must be aware of fixed deposits offered by banks. Tax-saving fixed deposits aren't very different. These are fixed deposits, wherein investments upto Rs 100,000 are eligible for deduction under Section 80C. Generally, Rs 100 is the minimum investment amount. Tax-saving fixed deposits have a 5-Yr investment tenure and no premature withdrawals are permitted. At present, most banks offer a rate of return in the range of 8.0%-8.5% pa. A higher rate of return (additional 0.5%) is offered on investments made by senior citizens. Also the interest income from tax-saving fixed deposits is chargeable to tax and subject to TDS (tax deduction at source). Tax-saving fixed deposits can be utilised like NSC, to meet future needs that will arise over a predictable period.

Unit linked insurance plans Unit linked insurance plans (ULIPs) are the most "happening" offerings from the life insurance segment. Simply put, ULIPs are market-linked avenues that combine insurance and investment. Premiums paid on ULIPs are eligible for deduction under Section 80C. ULIPs have been dealt with in detail in another article in this guide.

In conclusion, remember that tax-planning is not just another dreary chore that has to be conducted annually. On the contrary, it's an opportunity for wealth creation. Give the tax-planning exercise its fair attention and time.

Methods Of Tax Planning Various methods of Tax Planning may be classified as follows:

Short Term Tax Planning: legal way.

Short range Tax Planning means the planning

thought of and executed at the end of the income year to reduce taxable income in a Example: Suppose, at the end of the income year, an assessee finds his taxes have been too high in comparison with last year and he intends to reduce it. Now, he may do that, to a great extent by making proper arrangements to get the maximum tax rebate u/s 88. Such plan does not involve any long term commitment, yet it results in substantial savings in tax.

Long Term Tax Planning:

Long range tax planning means a plan chaled out at

the beginning or the income year to be followed around 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 ; e.g. If an assessee transferred shares held by him to his minor son or spouse, though the income from such transferred shares will be clubbed with his income u/s 64, yet is the income is invested by the son or spouse, then the income from such investment will be treated as income of the son or spouse. Moreover, if the company issue any bonus shards for the shares transferred, that will also be treated as income in the hands of the son or spouse.

Permissive Tax Planning :

Permissive Tax Planning means making plans which

are permissible under different provisions of the law, such as planning of earning income covered by Sec.10, specially by Sec. 10(1) , Planning of taking advantage of different incentives and deductions, planning for availing different tax concessions etc.

Purposive Tax Planning:

It means making plans with specific purpose to ensure

the availability of maximum benefits to the assessee through correct selection of investment, making suitable programme for replacement of assets, varying the residential status and diversifying business activities and income etc.

The five simple yet effective golden rules of tax planning are: Spread the taxable income among various members in your family; Take full advantage of tax exemptions available under the law; Take full advantage of permissible tax deductions and rebates available on stipulated tax-saving investments;

Make optimum use of tax-exempted incomes; and Simple tax planning is smart tax planning.

My work in Ifians
I am grateful to be a part of such organisation and got exposure to corporate world. I would divide my period of internship in 3 phases. In 1st phase I joined the organisation on 1st June 2013 and had training sessions for a week. During this time I was given knowledge about tax system in India and various aspects of tax payment and ways to save tax i.e. legal ways of tax saving. I was constantly guided by the director of Ifians Mr. Pravin K Nagpal and his wife Puneet K Nagpal. I even learnt to operate tax base system where entries are entered and system calculates the end result. During this week I learnt basics of tax system and tax planning.

In 2nd phase I was now sent to corporate office of Amdocs in Magarpatta City. I was sent as a tax consultant for employees of Amdocs to help them pay their tax and give them advice about how they can save tax. This was a very exciting experience as with little knowledge of

tax planning I was helping other people on how they can save taxes. This was not as I had to deal with various kinds of people like some were very good to talk, some were very irritating, some were just checking knowledge etc. During this period I learnt to communicate with people and learnt to solve doubts and grievances about tax and organisation. I was able to create a good name for my organisation (got feedback from director).

In 3rd phase After filing the tax for employees of Amdocs I was called back to the office. Then I was assigned the work of e-filling as lot of work was to be completed. Then for last 1 week I was again in office and helped the back end people to finish the work were I learnt more about tax filing and also communicated with clients regarding their tax filing and gave them tax saving tips. Director Sir also helped me understand complex tax computation and how to make entries in tax base system. On the last day I was given the duty to communicate with clients and give them solution/suggestion about various queries regarding late tax filing or doubts in computation sheet etc.

ORGANIZATIONAL PROCESSES
MOTIVATIONAL FORCES I found the staff in the organization as a whole to be lacking motivation. Whatever little motivation people had was systemic in nature and was concentrated on some individuals. The system provided enough space to do without commitment and motivation of the staff. The organization is under- staffed and the work can be performed with mediocre level of motivation and commitment. This has led to the organization becoming Bureaucratic. No reward system exists and no incentives for better work are given. The only driving force, which I found in some individuals, was due to their own sense of belongingness to their work. This drive has nothing to do with better returns for the organization or the targets set by the organization. COMMUNICATION PROCESS Communication is dominantly downward. The Director Sir comes up with solutions to problems and issues. So solution is followed by everyone and keeps everyone in discipline. Doubts and complains of every employee is heard by the Director Sir. The other channel for

communication is the grapevine. Grapevine chats go along in the organization during tea breaks, lunch and other free time. This is generally within groups. Within the organization the communication used to be very casual as everyone used to call each other by the first name and there was encouragement for one to speak out what he or she felt. One could give out his ideas without any hesitation INTERACTION INFLUENCE PROCESS Teamwork in the organization is good and people help each other with their work. The organizational structure defines the authority one commands and it is clearly communicated. Absence of multiple layers of hierarchy ensures that people dont feel intimidated by authority. They are willing to stay late to share a responsibility with a colleague. Sub-ordinates are given clear instructions and communication between the head of departments and the subordinates is free and two way. There was a lot of interaction amongst the employees of the organization. This interaction was both formal and informal. DECISION MAKING PROCESES The decision making process is delegated at various levels of the organization. The employees at the field work are empowered to take decisions about their work, to a limited extent. Decision-making at the office level is done by head of organization, in consultation with the subordinates. However, the head of organization takes decision and everyone has to follow the instructions. The influence of other employees is mostly missing at this stage. This also leads to a kind of segmentation within the staff, with the organization head on one side and the rest of the organization on the other. Decisions are respected but also considered impractical and removed from the ground level operational realities. Professional and technical expertise is rarely used for decision-making and decisions are taken empirically. GOAL SETTING PROCESS The organization has become bureaucratic in nature and goal setting no longer motivate the employees. Rationale for setting the goal is not known. The goals are communicated but are

hardly adhered. There is no incentive for performance and no punishment for underperformance. In the absence of the incentive and punishment mechanism, the goal setting process is reduced to a organizational requisite. CONTROL PROCESS: Control is limited to head of organization. The office facilities are rarely misused for personal use. A lot of personal discipline exists in the employees on this account. Everyone was free to do his/her work in the manner they would the best. Nobody interfered in others work till the time things were going on the right time and in time. There was not a tight control on any of the employees in the organization. Productivity The organization was productive. The individuals were performing well in the organization. Organization was able to achieve the target set by the director. The target for organization was reviewed every year and generally a higher target was set for the next year. Even the productivity of the employees was on the rise. Absenteeism There was a very low rate of absenteeism in the organization. The employees had to be present in the organization as there was a shortage of manpower. If anyone needed leave he/she had to inform in advance to the department head. It was even compulsory for everyone to be in office on the right time as that was checked by the organization head every day. The summer trainees were also scolded if they were late. Wastes There was a lot of wastage of material in the organization. For example there was one main printer in the office, so when more than one person gave a print command it used to create a lot of problem and caused a lot of wastage of paper and ink and at times even letterheads and continuation sheets. Quality

The quality of work is given utmost importance, as it is a tax consultant the quality of service was important for the growth of the organization. It also made a difference as the employees had to take care about the quality of their work, which helped in a better quality of work. Innovation There is very less scope of innovation in the organization.

LEARNING FROM THE INTERNSHIP

As this was the first time that I was working in an organization this was the opportunity that made me experience how it was to work in an organization at the concrete level. I also realized how all the functional aspects of the business were intertwined in a single situation. In the summer training I was made aware of the organizational realities. Previously I had only heard of a 9 to 5 job but this was my chance of experiencing it firsthand. And definitely it was quiet a realization for me. I was a part of the system for eight weeks. When I started the project I realized how important was teamwork in an organization. Being in a organization and with new people to work with was a great experience and helped me learn a lot of things, which I had no idea of earlier. This being my first stint in the corporate world was a very useful one and it also helped me to know the realities of it and help it understand it slightly better. Also the internship was a gateway for me to understand the organizational process in the organization. This was very helpful to teach me about an informal organization. Also the internship gave me an insight about good performance in the organization and its criteria. This was a internship that inspired me know that there is nothing like marketing, finance or operational point of view. But everything has a business point of view, which encompasses all the issues. This made me understand the holistic approach of business in organization, which requires keen understanding of the business. In my summers I also realized how important effective communication was. If the instructions from the top were not communicated effectively then they would never be implemented which would lead to a lot of wastage. I also realized how one had to constantly

remind others to change the way in they were functioning in accordance with the new system in place. While working at Ifians I could sense that there is always an opportunity to exploit, its just that you have to be in lookout for it. This I can say because I could see a lot many loopholes in the skill levels of the employees was lower than required for the post. Also I could see employees lacking on basic computer skills, which again is sort of mandatory in todays world. As I started my work on the project under the guidance of my mentor I was given standing instructions that I could access any information that I wanted in order to pursue the project. I was given responsibility to complete the project successfully. Along with the responsibility I was also given the authority to seek any clarification that I required. So sometimes the autonomy given provided me space to think. So in all I learnt a lot in summer internship.