Page 192 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Unit 11: Taxation Planning

Define the meaning of exempted income; Notes
State the tax provisions for income exempt from tax.

Introduction

As a first step towards understanding income tax law in India, it would be appropriate to begin
with acquiring knowledge about structure of tax regime in the country. Taxes are the basic
source of revenue to the government. Revenue so raised is utilized for meeting the expenses of
government as well as to carry out development works. Proper tax planning is a basic duty of
every person which should be carried out religiously. Basically, there are three steps in tax
planning exercise. These three steps in tax planning are:
(a) Calculate your taxable income under all heads i.e., Income from Salary, House Property,
Business & Profession, Capital Gains and Income from other Sources.

(b) Calculate tax payable on gross taxable income for whole financial year (i.e., from 1st April
to 31st March).
(c) After you have calculated the amount of your tax liability you have two options to choose
from:
Pay your tax (No tax planning required)

Minimise your tax through prudent tax planning.
Most people rightly choose second option. Here you have to compare the advantages of several
taxes saving schemes and depending upon your age, social liabilities, tax slabs and personal
preferences, decide upon a right mix of investments, which shall reduce your 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.

11.1 Types of Taxes

There are basically two types of taxes, Direct and Indirect taxes. Direct taxes are collected by the
government directly from the tax payer through levies such as income tax, wealth tax and
interest tax. Whereas indirect taxes are collected indirectly as a part of prices of goods and
services on which these are levied. In our country these comprise of excise duty, sales tax,
customs duty and value added tax. While direct taxes form 30 percent of government’s revenue
indirect taxes contribute a large chunk of 70 percent. Gift tax and estate duty were part of the
direct tax revenue. As an ongoing process of simplification and rationalization of the direct tax
structure in India, the government repealed the Gift Tax Act in 1998 and the Estate Duty Act in
the late eighties.

Task Check out the current tax rates applicable for all direct and indirect taxes in India.
11.2 Tax Planning and Tax Evasion

The Indian Income Tax law is a highly complicated piece of legislation. Hence knowledge about
its key features is useful for business managers and others because under the law, a taxpayer is

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