TAX PLANNING HINTS

1. TAX PLANNING HINTS ICWAI MODULAR TRAINING

2. Salary • Hall marks of good tax planning under this head are a) Ensuring that what the employee takes home is the maximum • .b) The employer does not face any disallowances / additional levies • c) Minimising the tax liability of Employee • d) Improving the morale of employees/ reducing atrition rate • e) Should cover maximum earnings in the evening of the employee’s life

3. Salary • To ensure that Commission based on fixed percentage of sales forms part of salary • DA, DP to form part of salary for retirement benefits 3) To ensure that the terms include commutation of pension 4) Salary to be structured so as to include allowances and perks that are tax free – The employer also stands to benefit as he can claim these as a deduction

4. Salary 5) To ensure formation of Approved SAF, RPF etc 6) LTC 7) HRA to form part of salary 8) Perks vs Allowances - Twin, nay benefits 9) Rent free accomodation – Lease of house belonging to spouse or even self lease

5. Salary 10) Salary recd in advance Vs Advance against salary 11) ESOP scheme – Attendant tax benefits including LTCG 12) Others like free refreshments, Telephone and mobile facility/ facility for using Laptop/ Computer/ Coupons Upto Rs 50 per day / recreation facility/ int free lonas or lonas with concessional interest

6. INCOME FROM HOUSE PRIOPERTY • Interest benefits for self occupation affords lot of scope – Joint ownership of self occupied HP by spouses - each of the spouse can claim upto Rs 1.50 Lakhs deduction 2) Interest benefit available for let out properties without any deduction – Combine this with HRA / Rent free accomodation if the house is owned by spouse/ close relative

7. INCOME FROM HOUSE PRIOPERTY 3) Principal repayment on HL qualifies for deduction u/s 80 C - Loans for addition or extension to property do not qualify 4) Interest can be claimed even on accrual basis – Other aspects about interest including prior year interest to be discussed 5) Municipal taxes – cliam on cash basis only

8. INCOME FROM HOUSE PRIOPERTY 6) More than one house self occupied – Only one house to be chosen for Self occupation benefit 7) Interest on Loans to NR – Ensure tax deduction 8) Trf of HP to spouse Vs Cash gift to her 9) Trf of HP w/o consideration to son’s wife 10) Portion of HP used for Business or profession

9. INCOME FROM HOUSE PRIOPERTY 11) Amenities may be provided by the non owning spouse

10. PROFITS AND GAINS OF BUISNESS OR PROFESSION • More relevant from the Employer’s perspective – We should put ourselves in Employer’s shoes if we are employees – If we are carrying on our own buisness/ profession the importance of tax planning need not be over emphasised 1) To avoid disallowances u/s 40 A(2), 40A(3), 43 B, 36 (1) (va) and most importantly 40 a - Nothing can be more damaging or damning than having expenses disallowed

11. PROFITS AND GAINS OF BUISNESS OR PROFESSION 2) Choice of legal status of assessement/ entity 3) Tax planning u/s 32 - Sec 32 Vs Sec 50 (1) – Scope for tax planning – Using Tax savings to part fund capital cost 4) To avail applicable tax benefits depending on nature of business and its location – Eg 10 B, 10 B , 10 AA, 80 IB, 80 IC etc

12. PROFITS AND GAINS OF BUISNESS OR PROFESSION 5) Fillip for Scientific Research – Sec 35 (1) 35(1)(ii), 35 (2AB) , 35(2AA) 6) Planning for better retention of profit and maximisation of wealth of owners – Own capital Vs Borrowed Capital – Proper Debt Equity ratio 7) Closely held domestic Company – Effectiveness of dividends 8) Other provisions of closely held domestic Company – Guard against Sec 2(22e) and Sec 79

13. PROFITS AND GAINS OF BUISNESS OR PROFESSION 9) Claim of interest – Sec 36(1) (iii) and Explanation 8 to Sec 43(1) 10) Valuation of inventories – Beware of sec 145 A 11) Filing of Returns on time 12) Amalgamation, de merger and Buisness re organistaion – Benefits U/s 72 A and Sec 47

14. CAPITAL GAINS • Trf the asset after it becomes Long Term unless it is an extremely emergent situation 2) Remember the provisions of Sec 49(1) for period of holding as well as cost of acquisition 3) Exemption provisions u/s 54 etc 4) In case of LTCL on trf of listed share – Consider trf to friend/ relative to avail LTCL 5) JV agreement wherein BUA is received as consideration – Only licence to enter and build to be given to the builder to avoid Sec 53 A

15. PROFITS AND GAINS OF BUISNESS OR PROFESSION 6) Sec 45(2) Year of taxability can be planned 7) Deposit int CG Scheme account – Advantage in case of non utilisation

16. INCOME FROM OTHER SOURCES • Int on borrowings for the purpose of investment or grant of Loans is allowable as dedn 2) Avoid Sec 2(22e)