Tax Planning and Services
What is Tax Planning?
Why should you do
Tax Planning?
There are a lot of options for tax saving in India. The income tax Act, 1961 has different sections which provide multiple options for tax saving and tax exemptions. Section 80C to 80U of the Income Tax Act gives all the options for possible tax deductions for the eligible taxpayers. As a taxpayer, you should be aware of the provisions available and make a legit use of those provisions to reduce your tax liabilities.
But while doing so, you should keep in mind that such tax planning is done under the legally defined framework of the Government of India. Tax planning is a legal and smart way to reduce your tax duties. But it is not a channel to avoid tax or evade tax. Tax avoiding or tax evading is illegal and can Land you in a lot of trouble and thus should be avoided. There are enough provisions and opportunities made available by the government to reduce the burden of tax on the taxpayers.
Fin System assists in
Tax Planning and Financial Analysis
The purpose of tax planning is to ensure tax efficiency and maximize your tax savings. Tax
planning is an essential part of financial planning to reduce tax liability and maximize investor
wealth. Our core service is financial planning for salaried employees and strategies to reduce
one’s taxes.
Why should you opt for
Taxation Services at Fin System?
There are many different laws, rules, and regulations that make up the Indian taxation system. Because of this, taxation services at state and national levels encompass a wide range of tax related laws. As a result, financial tax planning can become complicated for someone without a background in taxes because they might not be able to grasp the regulations.
This is where the FIN SYSTEM team’s expertise can be of assistance. A team of chartered accountants on our staff is skilled in both individual and commercial tax planning. We take pleasure in the expertise of our consultants, who are familiar with how the Indian tax system operates. We have experience in various fields, whether it is corporate tax counselling services or NRI taxation services. All of our customers are equally valuable to us, and we develop our plans with their particular needs in mind.
What are the Important Methods of Tax Planning?
Long-Term Tax Planning
This plan is chalked out at the beginning of the fiscal and the taxpayer follows this plan throughout the year. Unlike short-range tax planning, you might not be offered with immediate tax benefits but it can prove useful in the long run.
Short-Range Tax Planning
Under this method, tax planning is thought of and executed at the end of the fiscal year. Investors resort to this planning in an attempt to search for ways to limit their tax liability legally when the financial year comes to an end. This method does not partake long-term commitments. However, it can still promote substantial tax savings.
Permissive Tax Planning
This method involves planning under various provisions of the Indian taxation laws. Tax planning in India offers several provisions such as deductions, exemptions, contributions, and incentives. For instance, Section 80C of the Income Tax Act, 1961, offers several types of deductions on various tax-saving instruments.
Purposive Tax Planning
Purposive tax planning involves using tax-saver instruments with a specific purpose in mind. This ensures that you obtain optimal benefits from your investments. This includes accurately selecting the appropriate investments, creating an apt agenda to replace assets (if required), and diversification of business and income assets based on your residential status.
Old vs New Tax Regime :
Which Tax Regime is Better?
The Budget 2023 has caused a lot of confusion among taxpayers regarding the choice between the old and new tax regimes. The government has introduced various incentives in the 2023 Budget to encourage the adoption of the new regime.
The New Regime was first launched in the Budget 2020. Since then, it has evolved to be more attractive. The government brought the New Regime to simplify taxes. For many, it’s cumbersome to claim deductions and exemptions and maintain records. With the New Tax Regime, the government wants to ease all this compliance burden. You don’t have to worry about deductions, make tax-saving investments and think of ways to optimise your salary to lower your tax outgo.
If you want your tax planning to be straightforward, New Regime will be the right choice. But if you are among those who are fine with the compliances as long as you get to save the maximum tax, you will need to thoroughly compare the two and then decide
New Tax Regime Has
More Slabs, Lower Tax Rate:
The new tax regime is different from the old tax regime in three aspects.
- In the Budget 2023, the finance minister has increased the number of slab rates to six. Consequently, the tax rates are now 0%, 5%, 10%, 15%, 20% and 30% in the six slabs.
- The exemptions and deductions in the Old Regime are not available in the New one. The only benefit allowed under the New Tax Regime is the standard deduction of Rs 50,000, also available in the Old Regime.
- If the taxable income ( after all deductions) under the old regime is below 5 lakh, then the individual doesn/t need to pay tax. Under the New Regime, the entire income will be tax-free if the taxable income is under Rs 7 lakh.
Tax Slabs Under New and Old Regime
| Old Tax Regime | New Tax Regime | ||
|---|---|---|---|
| Tax Slab (₹) | Old Tax Rates | Tax Slab (₹) | New Tax Rates |
| 0 – 2.5 lakh | 0% | 0 – 3 lakh | 0% |
| 2.5 lakh-5 lakh | 5% | 3 lakh – 6 lakh | 5% |
| 5 lakh – 10 lakh | 20% | 6 lakh – 9 lakh | 10% |
| 10 lakh & above | 30% | 9 lakh – 12 lakh | 15% |
| – | – | 12 lakh – 15 lakh | 20% |
| – | – | 15 lakh & above | 30% |
What deductions and exemptions are
allowed under the new tax regime?
| Particulars | Old Tax Regime |
New tax Regime (until 31st March 2023) |
New Tax Regime (From 1st April 2023) |
|---|---|---|---|
| Income level for rebate eligibility | ₹ 5 lakhs | ₹ 5 lakhs | ₹ 7 lakhs |
| Standard Deduction | ₹ 50,000 | - | ₹ 50,000 |
| Effective Tax-Free Salary income | ₹ 5.5 lakhs | ₹ 5 lakhs | ₹ 7.5 lakhs |
| Rebate u/s 87A | ₹ 12,500 | ₹ 12,500 | ₹ 25,000 |
| HRA Exemption | ✓ | X | X |
| Leave Travel Allowance (LTA) | ✓ | X | X |
| Other allowances including food allowance of Rs 50/meal subject to 2 meals a day | ✓ | X | X |
| Standard Deduction (Rs 50,000) | ✓ | X | ✓ |
| Entertainment Allowance and Professional Tax | ✓ | X | X |
| Perquisites for official purposes | ✓ | ✓ | ✓ |
| Interest on Home Loan u/s 24b on: Self-occupied or vacant property | ✓ | X | X |
| Interest on Home Loan u/s 24b on: Let-out property | ✓ | ✓ | ✓ |
| Deduction u/s 80C (EPF | LIC | ELSS | PPF | FD | Children's tuition fee etc) | ✓ | X | X |
| Employee's (own) contribution to NPS | ✓ | X | X |
| Employee's contribution to NPS | ✓ | ✓ | ✓ |
| Medical insurance premium - 80D | ✓ | X | x |
| Disabled Individual - 80U | ✓ | X | X |
| Interest on education loan - 80E | ✓ | X | X |
| Interest on Electric vehicle loan - 80EEB | ✓ | X | X |
| Donation to Political party/trust etc - 80G | ✓ | X | X |
| Savings Bank Interest u/s 80TTA and 80TTB | ✓ | X | X |
| Other Chapter VI-A deductions | ✓ | X | X |
| All contributions to Agniveer Corpus Fund - 80CCH | ✓ | Did not exist | ✓ |
| Deduction on Family Pension Income | ✓ | ✓ | ✓ |
| Gifts up to Rs 5,000 | ✓ | ✓ | ✓ |
| Exemption on voluntary retirement 10(10C) | ✓ | ✓ | ✓ |
| Exemption on gratuity u/s 10(10) | ✓ | ✓ | ✓ |
| Exemption on Leave encashment u/s 10(10AA) | ✓ | ✓ | ✓ |
| Daily Allowance | ✓ | ✓ | ✓ |
| Conveyance Allowance | ✓ | ✓ | ✓ |
| Transport Allowance for a specially-abled person | ✓ | ✓ | ✓ |
Frequently Asked Questions (FAQs)
Income-tax is to be paid by every person. The term ‘person’ as defined under the Income-tax Act under section 2(3) covers in its ambit natural as well as artificial persons.
For the purpose of charging Income-tax, the term ‘person’ includes Individual, Hindu Undivided Families [HUFs], Association of Persons [AOPs], Body of individuals [BOIs], Firms, LLPs, Companies, Local authority and any artificial juridical person not covered under any of the above.
Thus, from the definition of the term ‘person’ it can be observed that, apart from a natural person, i.e., an individual, any sort of artificial entity will also be liable to pay Income-tax.
Section 14 of the Income-tax Act has classified the income of a taxpayer under five different heads of income, viz.:
- Salaries
- Income from house property
- Profits and gains of business or profession
- Capital gains
- Income from other sources
Section 17 of the Income-tax Act defines the term ‘salary’. However, not going into the technical definition, generally whatever is received by an employee from an employer in cash, kind or as a facility [perquisite] is considered as salary.
For quick and efficient collection of taxes, the Income-tax Law has incorporated a system of deduction of tax at the point of generation of income. This system is called as “Tax Deducted at Source”, commonly known as TDS. Under this system tax is deducted at the origin of the income. Tax is deducted by the payer and is remitted to the Government by the payer on behalf of the payee.
The provisions of deduction of tax at source are applicable to several payments such as salary, interest, commission, brokerage, professional fees, royalty, contract payments, etc. In respect of payments to which the TDS provisions apply, the payer has to deduct tax at source on the payments made by him and he has to deposit the tax deducted by him to the credit of the Government.
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