1. The document discusses various tax planning strategies for individuals based on their residential status and income sources. It provides tips to minimize tax liability for income from salaries, house property, business/profession, capital gains, and other sources. 2. Key recommendations include choosing residential status to avoid being a resident in India, deducting interest on home loans, investing in tax-free bonds or dividends, and transferring property between family members to avoid income clubbing. 3. The document also discusses tax planning strategies like timing of asset sales, expense payments, and depreciation claims to reduce tax outflows.

1. Post Graduate and Research Department of Commerce
TAX PLANNING
AND MANAGEMENT
Dr. S. CHANDRASEKARAN
Assistant Professor of Commerce
PG & Research Department of Commerce
Vivekananda College
Tiruvedakam West
Madurai

2. TAX PLANNING FOR INDIVIDUALS

3. TAX PLANNING BASED ON RESIDENTIAL
STATUS
1. An individual should not stay in India for more
than 181 days during previous year, otherwise he will
be resident in India,
2. If an individual was in India for 365 days or
more in four years preceding the previous year, he
should not stay in India for more than 59 days during
the previous year otherwise he will be resident in India.

4. 3. An individual, citizen of India or person of Indian
origin comes on a visit in India, he should not stay in India
for more than 181 days during previous year.
If he wants to stay in India for more than 181 days
(upto 362 days), he should plan his stay in two previous
years (181 days each previous year).
4. If a citizen of India is going outside India for
employment purposes, he should not stay in India for
more than 181 days during previous year.
5. NOR or NR should not receive foreign income in
India. If he receives it in India, it will be added to his
income on the basis of income received in India.

5. SOME OTHER ASPECTS OF TAX PLANNING
An individual can save tax keeping in view the following
aspects:
1. Agricultural Income :
2. Continuance of Hindu undivided family:
3. Gifts:
4. Income of minor child :
5. Income of spouse:
6. Income of daughter-in-law:

6. HEAD-WISE TAX PLANNING
TAX PLANNING UNDER THE HEAD SALARIES
 1. Allowances.
 2. Advance salary versus loan.
 3. Allowances versus facility.
 4. Salary versus fringe benefits.
 5. House rent allowance versus rent-free house
 6. Payment of part of salary in future.
 7. Encashment of earned leave.
 8. Savings and investment.
(1) Standard deduction from salary income shall be allowed
upto` 40,000 (upto` 50,000 w.e.f AY 2020-21).
(2) Reimbursement of medical expenses upto` 15,000 shall
not be exempt.
(3) Transport allowance to non-disabled person upto` 1,600
p.m. shall not be exempt.

7. TAX PLANNING IN RELATION TO INCOME FROM
HOUSE PROPERTY
1. A house property may be purchased or constructed by
taking a loan. The interest on loan is deductible fully in
computing income from house property. This will reduce his
taxable income.
2. If a person wants to purchase or construct a house for
his own residence he should borrow the funds for this
purpose. The interest upto` 2,00,000 is deductible in
computing his income. This loss can be set-off either the
income from other house property or income under other
heads of income.
However, w.e.f. AY 2018-19, set-off ofloss from house
property against any other head of income shall be restricted
to two lakh rupees for any assessment year.

8. 3. If the assessee has funds to purchase or construct the house,
he should invest the funds intax-free securities.
4. If the assessee has borrowed the funds for purchase or
construction of the house and interest is payable outside India tax
on interest should be deducted at source, otherwise the deduction
for interest will not be allowed in computing the income.
5. If an assessee has option either to live in Own house or live
in rented house and rented his own house, he should live in his own
house because the annual value of self-occupied house is taken as
nil.
6. If an assessee is using more than two houses for his
residential purposes, he should transfer one house to his daughter-
in-law without consideration. Now the annual value of three houses
will be taken as nil.

9. 7. If the house has been let-out and the rent includes the value
of benefits provided by the landlord to the tenant, in an agreement
deed it should be mentioned clearly that how much amount is for
facilities (Electricity, water, lift, etc.) otherwise such expenses will
not be deducted in computing the gross annual value of the house.
8. If there is unrealised rent, the assessee should try to fulfil
the conditions of Rule 4, so that he may claim deduction regarding
unrealised rent.
9. The deduction regarding municipal tax (including service
tax) is allowed on actual payment. Hence, as far as possible the tax
should be paid before the end of the financial year.
10. If an assessee has let-out more than one house, he should
transfer one or more houses to the members of his family who are
having least income. However, he should not transfer the house to
his spouse, daughter-in-law or a minor child, otherwise the
clubbing provisions will apply.

10. 11. If deductible expenses are more than the annual
value, there will be loss from house property. This loss can
be set-off against income from other house property
and/or income under other head of incomes (upto`
2,00,000 w.e.f Assessment Year 2018-19). If the full
amount of loss cannot be set-off the balance loss can be
carried forward and set-off against the income from house
property in the following eight assessment years.
.

11. TAX PLANNING IN RELATION TO PROFITS AND
GAINS OF BUSINESS OR PROFESSION
1. Location of Business. The businessman should
select a place of business carefully. If it is located in Free
Trade Zone or backward district or special category states,
he will be entitled to exemption or deduction (uls 10AA/80-
IB/80-IC). It will reduce his tax liability.
2. Nature of Business. He should select such a
business the income is either exempt or deduction is
allowed at a prescribed rate from such income. For
example, agricultural income is exempt and in case of hotel
business, he will get deduction from gross total income.

12. 3. Capital. If he needs capital he should borrow it from
friends or relatives instead of taking gifts. The interest on
loan is a deductible expenditure. This will reduce his tax
liability.
4. Expenses. He should not incur such expenses which
are not deductible in computing business income. For
example, payment of tax on the value of perquisites provided
to an employee. Instead of payment of tax directly, he should
pay income-tax allowance to the employee which is a
deductible expense. Similarly, he should not incur such
expenses which are prohibited by law.
5. Payment of an expense. If the payment of an expense
exceeds f 10,000, it should be paid by account payee cheque
or account payee draft or any other electronic clearing
system otherwise such payment will be treated as disallowed
expense.

13. 6. Acquisition of assets on which depreciation is
allowed. If an assessee requires a building, plant,
machinery or furniture for his business, he should acquire it
and put to use for at least 180 days during previous year, so
that he may claim deduction of depreciation on it for full
year.

14. TAX PLANNING IN RELATION TO CAPITAL GAINS
1. If the asset is long-term capital asset, its cost of acquisition
and cost of improvement are indexed for computation of capital
gains. Hence, as far as possible, the securities should be
transferred after holding for more than 12 months and other assets
should be transferred after holding for more than 24/36 months.
This will reduce the amount of capital gains.
2.The tax is levied on long-term capital gains at a lower rate.
3.The capital gains may be invested in prescribed
assets/bonds within a prescribed time to reduce tax liability.
4. If such assets have been transferred on which depreciation
has been claimed the gains will be treated as short-term capital
gains. To avoid the payment of tax on such gains new assets in the
same block may be purchased before the close of the financial
year. Thus, a part of the cost of new assets can be met by tax
savings.

15. 5. If a shareholder has received bonus shares on his
shares and he wants to sell some shares immediately, he
should sell original shares so that he may get the benefit of
long-term capital gain tax.
6. If a shareholder wants to sell listed bonus shares he
should sell after holding for more than twelve months. On
long-term capital gains he will be liable to pay tax@ 10%.
7. Tax on capital gains on transfer of equity shares in a
company or units of an equity oriented fund. If an assessee
transfers aforesaid shares or units and pays securities
transaction tax, on such transactions, he shall be liable to pay
tax on capital gains at the following rates:
(i) Short-term capital gains-15%. (Sec. ll1A)
(ii) On transfer of aforesaid assets, LTCG (computed
without indexation) exceeding ` 1,00,000 income tax shall be
charged @ 10%.

16. TAX PLANNING IN RELATION TO INCOME FROM
OTHER SOURCES
1. The tax-payers who are liable to pay tax at the
maximum marginal rate, they should invest their funds in
tax-free bonds. .
2. The dividends on shares of a domestic company
and income from units of mutual fund are tax-free. Hence,
people may invest in shares or units to save tax.

17.  TAX PLANNING IN RELATION TO CLUBBING OF
INCOME
1. The parents should transfer the property to major son
or major daughter instead of minor children, so that the
income from such property may not be included in their
income.
2. If the minor child is handicapped, the property may be
transferred to him. The income from such property will not be
included in the income of parent.
3. If minor child is helping in running a business,
reasonable remuneration should be paid to him. He is earning
this income by manual work. Hence, such income will not be
included in the income of parent.
4. An individual should transfer his property to his
parents or brother or sister instead of spouse or daughter-in-
law. The income from such property will not be included in
the income of transferor.

18.  5. If an individual transfers his property to his
spouse, minor children or daughter-in-law, he should
invest it in such bonds or investments, the income from
which is exempt from tax. In such a case the liability of
transferor will not increase.
 6. A member of HUF should not transfer his
property to HUF of which he is a member. He should
transfer the property to such HUF of which he is not a
member (e.g., the HUF of son).
 The income from such property will not be included in
his income. .
 7. If a HUF wants to reduce its tax liability the
Karta should transfer the property to the members of the
HUF. The income from transferred assets will not be
included in the income of the HUF.