2.  Basics of taxability of salary income (FY 2008-09).
 Tax slabs and rates of tax.
 Some avenues of tax planning.
 Role of insurance in tax planning.

3. Salary Includes:
 Wages
 Annuity or Pensions
 Gratuity
 Fees, Commission, Perquisites or profits in lieu of or
in addition to any salary or wages
 Advance of Salary
 Contribution of Employer to any recognized provident
fund in excess to prescribed limit
 Leave Encashment
 Compensation as a result of variation in service
contract etc.

4. Remember 80D
{ Total : One Lacs }
80C 80CCD
80C
Instruments
Instruments (Central Govt.
Instruments
(Pension) Employee only)
10(10A)
10(10D)
80D Commutation
Exemption on
Health cover Benefit(1/3rd of
Maturity
Corpus)

5. Under Sec. 80D, total Rs. 1 lac deductions can be claimed under the
following items
1. Life Insurance premium
2. ELSS
3. NSC
4. Tuition Fee paid on Children’s
education up to two children.
5. Housing Loan Principal
6. Public Provident Fund INDIA
7. Recognized provident Fund
8. Bank FD’s (tenure of 5 years
or more)
9. Recognized superannuation
Fund
10.Specified Infrastructure
Section 80
bonds
D

6.  An investment which decreases the
amount of money used in calculating the
tax due
 A break granted by the government in
order to encourage investment to fulfill
certain long term and socially desirable
objectives (e.g. infrastructure development,
life cover for the individual, pension savings
etc.)
 Various Sections of Income Tax Act deal
with tax deductions namely section 80CCE,
80D & 80E.

7. Under Sec. 80D premium paid for
Health Insurance Policies is tax
deductible:
 In case of individual assessee –
Himself/herself, spouse, dependant
children.
 In case of HUF assessee – any
member of HUF.
 Max. limit is Rs. 15,000 if age < 65
and if age >=65, then deduction upto
Rs. 20,000 is allowed in case of self,
spouse & dependant kids.
 Additional deduction of upto Rs.
15,000 if age < 65 and if age >=65,
then deduction upto Rs. 20,000 for
dependent parent, so upto Rs. 30,000
(15,000+ 15,000) or Rs. 35,000
(15,000+20,000) can be availed.

8.  Under Sec. 80E interest amount paid
for education loan is tax deductible.
 Interest is deductible without any
limit for 8 years.
 No deduction allowable on principal.

9.  Premiums paid for Life insurance - Deduction under Sec. 80C subject to
total cap of Rs. 1lac under all avenues of Sec. 80CCE.
 20% limit : If the amount of premium paid in a financial year for a policy
is in excess of 20% of the actual sum assured, then deduction will be
allowed only for premiums up to 20% of the sum assured, exception in
case of Pension plans which is governed by Sec. 80CCC.
 The 20% rule ensures that adequate life cover is obtained by the
individual.

10. Eligible Savings : Premiums paid
or deposited by assesses to effect or
to keep in force insurance on the life
of following persons:
 In case of individual assessee –
Self/Herself, spouse, children
 In case of HUF assessee – any
member.
As per Sec. 10(10D) of the Income
Tax Act. The premium cannot
exceed 20% of sum assured
throughout the term of the policy.
 All withdrawals/surrender/
maturity proceeds/death benefit
are tax exempt under this
section

11.  Contribution to PPF (over and above your mandatory PF) should not
exceed Rs. 70,000.
 If wife & kids are dependent then all combined PPF contribution not
to exceed Rs. 70,000 or else there will be no interest paid & principal
is refunded.*
 For Pension policies, sum assured limit for tax benefit does not
apply.
* Central Govt. amendment: GSR
908(E), dated Dec 06, 2000

12. Options once a pension insurance policy matures:
 Full withdrawal (taxable).
 Commutation u/s 10(10A) - 1/3 exempt from tax, remaining
2/3rd as taxable pension.
 Full pension (taxable in the financial year in which pension is
received).
 No tax deduction at source.
Any pension received (yearly/half-yearly/ quarterly/ monthly) forms
a part of the taxable income for that financial year.

13. Capital borrowed for acquisition of a self occupied house
property is deductible upto a maximum of Rs. 1 lac under Sec.
80C from taxable income.
Under Sec. 24(b) of the IT Act the interest paid in case of a
house loan taken for acquisition is deductible subject to:
 In case of loan availed before 1st April, 1999, interest paid
is deducted subject to a maximum of Rs. 30,000/- p.a.
 In case of loan availed after 1st April, 1999 deduction is
subject to a maximum of Rs. 1,50,000/- p.a.

14. Taxable income is computed as
follows:
A) Salary
B) Allowances
C) Perquisites
D) Gross Salary ( A+B+C)
E) Professional Tax
F) Net Salary (D-E)
G) Income Tax Deductions
H) Taxable Income (F-G)

15. Rate of Tax
Total Income (Rs.) Women below 65
Senior Citizen Others
years
Upto Rs. 150,000/- Nil Nil Nil
Rs. 150,001/- to 180,000/- Nil Nil 10%
Rs. 180,001/- to 225,000/- Nil 10% 10%
Rs. 225,001 to Rs 300,000 10% 10% 10%
Rs. 300,001 to Rs 500,000 20% 20% 20%
Rs. 500,001/- and above 30% 30% 30%
Surcharge @ 10% if taxable income exceeds Rs. 10 lac.
Education cess @ 3% on the tax payable (including surcharge, if any).

16.  Annu
al n
his tax? et salary of Mr
. Raj is
 As s Rs. 5,75
hown a ,000. W
77,500( bove, th hat will
15000+ e t ax pa be
 Not 40000+ yable co
only this 22500) mes to
3% on t your cu Rs.
h stomer
 Ther e tax amount s has
efore it o calcul to pay educatio
comes
 Hen
ce total to 77,50 ated. n ce ss @
tax pay 0
able is 7 x .03 = Rs. 2,3
7,500 + 25
2325 =
Rs.79,8
25

17.  Wait… Is that all???
 Tax Deductions??
 Mr. Raj: Dear advisor, my employer deducts Rs. 14,400 every year
towards PF. He also contributes an equal amount
 Now if I invest Rs. 25,000 in Insurance, how much tax will I be able to
save?
 I have no other form of tax planning…
 Assuming, that he has a life cover of atleast Rs.1,25,000, (i.e. 5 times)
(refer slide #9) his entire insurance premium is tax deductible
 His contribution to pension is also tax deductible
 Hence total taxable income is now Rs. 5,35,600 (Rs. 5,75,000-Rs.
25,000-Rs.14,400)

18.  Tax comes to Rs. 65,680
 Education cess @ 3% of Rs. 65,680 = Rs.
1970
 Therefore total tax payable
(65,680+1970) = Rs. 67,650
 Now he pays Rs. 12,175 lesser tax than
earlier (79,825-67,650)
 Hence we may say he has EARNED
Rs.12,175 through smart TAX PLANNING

19.  An insurance advisor is on a sales call at Mr. Prasad’s office.
 Mr. Prasad: I have paid Rs. 21,280 towards my daughter’s
education (tuition fees), invested Rs. 20,000 in ELSS scheme and
Rs. 20,000 towards insurance premium.
 I am convinced with your pension plan. How much can I invest
to save tax?

21. First step is to calc
ulate income from
salary
Basic is fully taxab
le
Transport Allowan = 1,68,000
ce (Tax free up to 9600)
(12,000-9,600)
Medical Allowance = 2,400
(Reimbursement ex
empt up to Rs 1500 = 0
Perf 0)
ormance pay
(fully taxable) = 2,16,000
Taxable income
(1,68,000+2,400 = 3,86,400
+ 2,16,000)

22. Remember 80 CCE
{ Total : One Lacs }
80CCC 80CCD
80C
Instruments
Instruments (Central Govt.
Instruments
(Pension) Employee only)

23.  Rs. 21,280 towards his daughter’s education (tuition fees) - Sec. 80C
 Rs. 20,000 in ELSS scheme –Sec. 80C
 Rs. 20,000 towards- life insurance premium - Sec. 80C
 Pension Plan - Sec. 80CCC
 So, under Sec. 80CCE Rs. 61,280
 Hence, maximum tax deductible amount under pension plan is Rs.
38,720 (Rs. 1,00,000-Rs. 61,280)

24.  An insurance advisor is on a sales call at Mr. Vijay’s office
 Mr. Vijay: My taxable income is Rs. 12,00,000. I have made
investments of Rs. 1,00,000 eligible for tax deduction under
Sec. 80C. I have also paid a professional tax of Rs. 1,200
 How much tax will I have to pay? Is there any other
Investment option which will provide tax benefit?

25.  One more easy option to save tax is investing in
Health Insurance plans offered by both Life Insurance
as well as General Insurance Companies
 Insurance can be done for self, spouse, dependent
children and parents
80D
Health cover
Rs. 15,000 Rs. 20,000
(age<65 yrs) (age>=65 yrs)

26. Mr. Vijay: This is how I have calculated my tax liability
0 - 1,50,000 - @ 0% 0
1,50,001 - 3,00,000 - @10% 15,000
3,00,001 - 5,00,000 - @20% 40,000
5,00,001 - 11,00,000 - @ 30% 1,80,000
-----------------------
Total Tax Payable 2,35,000
Education Cess @ 3% (2,35,000 x3%) 7,050
-----------------------
Total Tax payable 2,42,050

27. Salary 12,00,000
Less: Professional tax paid 1,200
------------
Taxable Salary income 11,98,800
Less: Deduction u/s 80C 1,00,000
Less: Deduction u/s 80D 15,000
-------------
Taxable income 10,83,800
-------------

28. First Rs. 1,50,000 0
Next Rs. 1,50,000 will attract 10% 15,000
Next Rs. 2,00,000 will attract 20% 40,000
Remaining Rs. 5,83,800
(10.83 Lac-5.0 Lac) @30% 1,75,140
-----------------------
Total 2,30,140
Surcharge @ 10% on Rs. 2,30,140 23,014
-----------------------
Total 2,53,154
Education Cess @ 3% of Rs. 2,53,154 7,595
-----------------------
Total Tax 2,60,749

29.  An Insurance advisor is on a sales call at Ms. Reema’s office.
 Ms. Reema: My net salary is Rs. 11,50,000. I have borrowed
home loan from April 10, 2001, for which I pay Rs. 1,20,000 per
year( Rs. 30,000 towards principal and Rs. 90,000 towards interest).
 I have a PF Investment of Rs. 18,000 and also pay an Insurance
premium of Rs. 12,000 every year
 How much tax will I have to pay?

30. Net Salary 11,50,000
Less: Provident Fund (Sec. 80C) 18,000
Less: Housing Loan Principal 30,000
(Sec. 80C)
Less: Housing Loan Interest 90,000
(Sec. 24(b))
Less: Insurance Premium 12,000
(Sec. 80C)
----------------
Taxable income 10,00,000
----------------

31. For women, the tax slabs are different, hence:
First Rs. 1,80,000 will not suffer tax 0
Next Rs. 120,000 will attract 10% 12,000
Next Rs. 2,00,000 will attract 20% 40,000
Remaining Rs. 5,00,000(10 lac-5 lac)@30% 1,50,000
----------------Total
2,02,000
----------------
No Surcharge @ 10%as taxable income does not exceed Rs. 10 lac
Education Cess @ 3% of Rs. 2,02,000 6,060
------------------
Total Tax 2,08,060
------------------

32.  An insurance advisor is on a sales call at Mr. Rajan’s office.
 Mr. Rajan: I am a senior citizen aged 66 years, with no pension.
My life insurance policy has matured and I have received Rs.
10,00,000. I also received a bank interest of Rs. 3 lac from ICICI
Bank.
 Will I have to pay tax on Rs.13,00,000?

34.  Proceeds from an insurance policy is completely tax-free
under Sec. 10(10D) provided that Sum Assured is at least 5 times
of premium.
 In case this condition is violated then the entire proceeds of Rs.
10,00,000 becomes taxable as income from other sources.
 Bank Interest of Rs. 3 lac is fully taxable.
** Tax benefits are as per the Income Tax Act, 1961, and are subject to any
amendments made thereto from time to time.

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