Tax Planning for FY 2019-20 (AY 2020-21)

Tax planning is an activity which is carried out by a taxpayer in order to reduce the liable tax. This can be done by the optimum use of the available allowances, deductions, rebates, concessions, etc. that are available under the Tax laws. Precisely, tax planning is an art by which you are managing your income and taxes in such a way that you pay the minimum amount of tax on your total income.

Objectives of tax planning

Let us know about the major objectives of tax planning.

• Reduction in tax liability
  It can be feasible for a taxpayer to save a huge amount of tax if he can properly arrange his operations that are related to taxation.
  
  
• Minimal litigation
  There is always a clash going on between the taxpayers and the tax collectors. The taxpayers will always try to minimize the tax liability whereas the tax collectors will want o collect maximum amount of taxes. So, by proper tax planning, you are carrying on all operations according to the legal framework as a result of which the litigation would be minimized.
  
  
• Growth in Economy
  Growth in economy occurs when there is growth in the citizens of a country. By tax planning, there would be generation of white money in the economy and this will lead to healthy growth in the economy.
  
  
• Economic Stability
  When there is proper tax planning, it will bring economic stability along with it by the use of various techniques like mobilizing resources for particular National projects or for having methods which are productive in nature.
  
  
• Productive Investment
  It is a major objective of tax planning i.e. channelization of the income into different plans for investment.
  
  

Types of tax planning

The types of tax planning can be listed below:

• Short-range and long-range tax planning
  Short-range tax planning is done to achieve certain objectives annually whereas long-range tax planning is those tax planning which does not involve any immediate pay-offs.
  
  
• Permissive tax planning
  Those taxes planning which is done according to the legal framework are known as permissive tax planning.
  
  
• Purposive Tax planning
  Purposive tax planning is done by using the loopholes which are present in the law system.

Income Tax Slab Rates for Financial Year 2019-20

With the Annual budget for Financial Year 2019-20 being tabled in the Indian Parliament, there have been certain changes in the rules of Income Tax and these new rules would be effective from April 2019 onwards. However, the Income Tax Slab rates remain unchanged for the current financial year and can be represented below in a tabular format.

Tax planning in India 

According to the Indian laws, there are quite a lot of options provided to the taxpayers for deductions and concessions by which their tax liability would be minimized.

• From Section 80C to 80U, there are tax deductions available which are of great importance for taxpayers.
• As per the Income Tax Act, 1961 there are a number of sections like exemptions and tax credits which can be helpful in reducing your tax liabilities.

How to plan your taxes in India?

For tax planning, you need to follow a step-by-step procedure.

• Calculation of Gross Taxable Income.
  Gross Taxable Income= Income obtained from different Income Heads= Income from Salary + Income obtained from house property + Income obtained from profits and gains +Income  from Long term capital gains and short term capital gains+ Income from other sources
  
  
• Tax Saving Deductibles
  Now, let us have a look at some of the popular tax saving options which can reduce your liable tax.
  
  
• Making investments under Investment options in Section 80C
  The maximum tax exemption limit under Section 80C has been kept as INR1.5 lakhs. There is a list of investment methods and investments made under these avenues can be claimed as tax deductions.
• Public Provident Fund(PPF)
• Employees Provident Fund(EPF)
• National Savings Certificate(NSC)
• National Pension System(NPS)
• Tuition fees for kids
• Home loan’s principal amount repayment
  
  
• Section 80CCC
  The maximum allowable tax deduction limit under this Section is INR 1.5 lakhs. If an individual is contributing towards annuity plan of Life Insurance Corporation of India or any other Life Insurance Company for the receipt of pension from the fund; then it is considered as a tax benefit and the individual can claim the tax deduction for this.
  
  
• Section 80CCD
  Employees can contribute towards the Government’s pension schemes like National Pension scheme and can avail the tax benefits related to it. In case of salaried individuals, the contribution can be up to 10% of the salary and INR 50,000 additional tax benefit as per Section 80CCD(1b). However, for self- employed individuals, the contribution can be up to 20%of their gross income and can be deducted from the taxable income.
  
  
• Section 80E
  If an individual has taken a study loan for higher education studies, then tax deductions can be claimed under Section 80E, for the interest that the individual has to pay with respect to the loan taken.  This loan can be for the individual herself or for her spouse or kids or for a student for whom she is a legal guardian. There is no certain limit on the amount of interest which can be claimed as tax deduction u/s Section 80E.
  
  
• Section 80D
  Insurance premium paid by individuals can be claimed as deductions under Section 80D. An individual can claim a deduction of up to INR 25, 000 for the premium paid for health insurance for self, spouse as well as children. If you are a senior citizen then the deduction limit permissible is up to INR 50,000. Moreover, if you are purchasing a health insurance plan for your senior citizen parents and paying the premium; then you would be allowed to claim a deduction of INR50, 000 more. 
  
  
• Other Tax Saving Avenues
  In addition to the deductions made under Sections 80, there are some other tax saving options like making donations to charitable organizations and trusts. The amount which has been donated can be claimed for tax deduction and can act as a tax-saving measure.
  
  
• Tax saving by set-off of Capital Gains
  An individual is liable to pay taxes on the capital gains made by his investments. However, the capital losses can be set off against your Capital gains and also your capital losses can be carried forward for consecutive 8 years.
  
  
• Allowances available in Financial Year 2019-20
  In addition to the deductions, there are quite a large number of allowances available which can be very helpful in tax saving. Let us have a look at some of these allowances.
  
  
• Standard Deductions
  This benefit is available for salaried people and pensioners. A salaried person or pensioner can claim a Standard deduction of INR 50,000 as per the norms of the annual budget for FY 2019-20.
  
  
• House Rent Allowance
  All salaried individual who is living in rented house or accommodation can claim House Rent Allowance. The HRA which can be claimed by an individual is the least out of the following.
• Total HRA or House Rent Alowance received
• Total amount of rent that is paid minus 10% of (Basic Salary + Daily Allowance)
• 50% of the total salary for metro-cities and 40% for non-metros
  
  
• Leave Travel Allowance
  By this allowance, the bills of travel of an individual can be claimed for exemption against LTA. In a block of four years, you can claim LTA twice. Moreover, it is feasible to carry forward your unclaimed LTA to the next year as well.
  
  
• Calculation of net taxable income
  The Income-tax is always levied on the net taxable income and in the final step net taxable income is calculated.
  
  Net Taxable Income= Gross Total Income – Tax Savings
  
  After the calculation of net taxable income, your tax liability can be decided based on the Income-tax slab rates for FY 2019-20.

Hence, the Government has provided quite a lot of options for tax saving in the budget for FY 2019-20. There are options for both tax exemptions and tax deductions as well. It is the responsibility of the taxpayer now to plan the operation of taxes in such a way that his liability towards tax payment is 

Minimum and channelization of investments towards meeting financial goals are maximum.