Page 236 - DCOM508_CORPORATE_TAX_PLANNING

Unit 10: Tax Consideration in Specific Managerial Decisions

Notes
Calculating Your Income Tax Liability in India-2010-11
Heads Amounts (`)
Gross Total Income 1,000,000
Less: Section 80C Deductions 1,00,000
LIC Premium 70,000
ELSS Funds 30,000
Total 100,000
Less: Other Deductions 20,000
Section 80D Health Insurance Premium 10,000
Section 80G Donation to a Charity 10,000
Total Taxable Income 880,000
Income Tax Calculations Tax (`)
Tax on Income upto ` 1,60,000 0% zero
Tax on the next ` 3,40,000 (Slab ` 1,60,001 to ` 5,00,000) 10% 34,000
Tax on the next ` 3,00,000 (Slab ` 5,00,001 to ` 8,00,000) 20% 60,000
Tax on the next ` 80,000 (above ` 8,00,001) 30% 24,000
Income Tax Due 1,18,000
Surcharge on total tax (No Surcharge is payable from previous 0% Nil
year 2009-10 onwards)
Income Tax Due 1,18,000
Educational Cess @ 3% 3,540
Total Tax Payable 1,21,540

Source: http://www.itrust.in/content/tax-planning/calculating-your-income-tax-liability-in-india-2010-11
In this case, the tax payer took advantage of Section 80C availing full deduction of ` 1, 00,000.
In addition he is also availing an extra deduction of ` 20,000 for a combined contribution in
insurance policy and charity. You can simply address Rajiv as taken advantage of effective tax
planning.

From the above illustration it is clear that the tax planning in compensation management aims at
planning three basic elements:

1. Salary: The word salary is used to define the remuneration paid by employer to the
employee on periodic basis as mentioned in the employment contract.
2. Allowances: The other major component of remuneration/compensation package is
allowances which are chargeable to income tax. If, however, such payments are made to

meet expenses that are wholly, in the performance of duties of an office will be permissible
as deductions.
3. Perquisites: The third component of an employer’s remuneration is perquisites. Perquisites

are normally in the nature of voluntary payments attached to an office or employment.

Task Critically analyse your own compensation structure in terms of Tax Planning and
calculate the savings that you have accumulated out of your investment plans for a period
of say 2 to 5 years.

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