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Project Report ON Income Tax Planning with respect to Individual Assessee BY Shivaji Shantaram Lande AT C. A. Amir Tamboli Associates Submitted To Savitribai Phule Pune University In Partial Fulfillment of The Requirement For The Award of The Degree Of Master of Business Administration (M.B.A.) Unde...

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Project Report ON Income Tax Planning with respect to Individual Assessee BY Shivaji Shantaram Lande AT

C. A. Amir Tamboli Associates Submitted To Savitribai Phule Pune University In Partial Fulfillment of The Requirement For The Award of The Degree Of Master of Business Administration (M.B.A.) Under The Guidance Of Dr. Puja Bhardwaj Through

Dr. Vikhe Patil Foundation’s Pravara Centre for Management Research and Development Pune – 411016

2013-2015

ACKNOWLEDGEMENT

I am overwhelmed in all humbleness and gratefulness to acknowledge all those who have helped me to put the ideas, well above the level of simplicity and into something concrete. I owe a great debt to my guide Dr. Puja Bhardwaj who provided wholesome direction and support to me at every stage of this work. His wisdom, knowledge and commitment to the highest standards inspired and motivated me.

Shivaji Shantaram lande

ii

DECLARATION

I hereby declare that the project titled “Income Tax Planning in India with respect to Individual Assessee” is an original piece of research work carried out by me under the guidance of Dr. Puja Bhardwaj the information has been collected form genuine and authentic sources. The work has been submitted in practical fulfillment of the requirement of degree of Master of Business Administration to university of pune.

Date:

/

/2015

Shivaji Shantaram

Lande

Place: pune

iii

iv

v

INDEX

Chapter 1

Chapter 2

Acknowledgements

ii

Declaration

iii

Index

iv

List of Tables

vi

List of Figures

vi

Executive Summary

vii

Introduction

1

1.1 Objective for Income Taxes

3

1.2 The Basic Principles Income Taxes

3

1.3 An extract from income tax Act,1961

4

1.4 Computation of total income

9

1.5.Deduction from Taxable Income

31

Organization Profile

36

2.3 C.A. Profile

37

2.2 Introduction works of organization

37

2.3 Organization its founders

vi

37

38

2.4 Vision & Mission

Chapter 3

Statement of Problem

39

Chapter 4

Research Methodology

41

4.1 Objectives of Study

42

4.2 Need / Significance of the Study.

42

4.3 Scope / Limitations of the study

42

4.4 Data Collection - Primary/Secondary

43

4.5 Tools of Analysis

44

Data analysis & Interpretation

45

5.1 The results of general information

46

5.2 Income Tax Slabs & Rates for Assessment Year 2015-16

47

Conclusion

59

6.1 Recommendations & Suggestions

60

6.2 Conclusion

77

6.3 Learning Outcomes

78

Chapter 5

Chapter 6

vii

Appendix I

Bibliography

79

Articles

80

Books

80

Web Site

81

LIST OF TABLES Table No.

Description

Page No.

Table 1

Individual resident aged below 60 years

47

Table 2

Senior Citizen age Above 60 year

48

Table 3

Senior Citizen age Above 80 year or more

48

LIST OF FIGURES Table No.

Page No.

Figure 1

Types of Residents

5

Figure 2

Income Head of Taxation

9

Figure 3

India Personal Income Tax Rate 2004-2015

viii

46

EXECUTIVE SUMMARY The aim of the project “Income Tax Planning with respect to Individual Assessee” is to automate College administrative department and academic section. The requirement is to design and developed software that will address the drawbacks of existing manual system. Project is developed using web based technology and hence it is platform independent. The

student

section

module

includes

features

like

student

data

management, attendance, examination, assignment, report card, Time table management, notice and reports. The administrative module manages staff data, attendance, leaves, payroll and reports. The system covers all aspects to attain a paperless campus.

In manual system it is always a tedious task to manage records. The overall efficiency in the existing system is very less. There is always a time delay and lack of accuracy due to human errors.

The proposed system is on cloud and hence can be accessed from anywhere through internet on any platform. User wise and Form wise security permission is required to access the software. The system stores data on a centralized database. System is flexible to generate many combinations of reports. Overall efficiency and accuracy increased when compared to manual system .Through administrative panel the administration can control and monitor all the activities of users. Other than staff, students also can login to the system to see notifications, submit assignment and view report cards.

I was involved in development of student section which includes student registration, scheduling, attendance and reports.

ix

CHAPTER 1

INTRODUCTION

1

Introduction

Income Tax Act, 1961 governs the taxation of incomes generated within India and of incomes generated by Indians overseas. This study aims at presenting a lucid yet simple understanding of taxation structure of an individual’s income in India for the assessment year 2004-15.

Income Tax Act, 1961 is the guiding baseline for all the content in this report and the tax saving tips provided herein are a result of analysis of options available in current market. Every individual should know that tax planning in order to avail all the incentives provided by the Government of India under different statures is legal.

This project covers the basics of the Income Tax Act, 1961 as ame nded by the Finance Act 2007, and broadly presents the nuances of prudent tax planning and tax saving options provided under these laws. Any other hideous means to avoid or evade tax is a cognizable offence under the Indian constitution and all the citizens should refrain from such acts.

2

1.1 Objective for Income Taxes The objective of income taxe on an accrual basis is to recognize the amount of current and deferred taxes payable or refundable at the date of the financial statements(a) as a result of all events that have been recognized in the financial statements and (b) as measured by the provisions of enacted tax laws. Other events not yet recognized in the financial statements may affect the eventual tax consequences of some events that have been recognized in the financial statements. But that change in tax consequences would be a result of those other later events, and the Board decided that the tax consequences of an event should not be recognized until that event is recognized in the financial statements. 1.2 The Basic Principles Income Taxes To implement that objective, all of the following basic principles are applied: While tax rules vary widely, there are certain basic principles common to most income tax systems. Tax systems in Canada, China, Germany, Singapore, the United Kingdom, and the United States, among others; follow most of the principles outlined below. Some tax systems, such as India, may have significant differences from the principles outlined below. Most references below are examples; see specific articles by jurisdiction 

Taxpayers and rates

--------------Residents and nonresidents



Defining income

-------------------------Deductions allowed



Business profits

---------------------------------------- Credits



Alternative taxes



State, provincial, and local -------------------------- W age based taxes

--------------------------------------Administration

3

1.3 AN EXTRACT FROM INCOM E TAX ACT, 1961 1.3.1 Tax Regime in India The tax regime in India is currently governed under The Income Tax, 1961 as amended by The Finance Act, 2015 notwithstanding any amendments made thereof by recently announced Union Budget for assessment year 2015-15.

1.3.2 Chargeability of Income Tax As per Income Tax Act, 1961, income tax is charged for any assessment year at prevailing rates in respect of the total income of the previous year of every person. Previous year means the financial year immediately preceding the assessment year. Basic Knowledge of Income Tax According to Income Tax Act 1961, every person, who is an assessee and whose total income exceeds the maximum exemption limit, shall be chargeable to the income tax at the rate or rates prescribed in the Finance Act. Such income shall be paid on the total income of the previous year in the relevant assessment year. Assessee means a person by whom (any tax) or any other sum of money is payable under the Income Tax Act, and includes –

(a)

Every person in respect of whom any proceeding under the Income Tax Act has been taken for the assessment of his income or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person;

(b)

Every person who is deemed to be an assessee under any provisions of the Income Tax Act.

(c)

Every person who is deemed to be an assessee in default under any provision of the Income Tax Act.

4

Where a person includes:o Individual o Hindu Undivided Family (HUF) o Association of persons (AOP) o Body of Individual (BOI) o Company o Firm o A local authority and o Every artificial judicial person not falling within any of the preceding categories. Income tax is an annual tax imposed separately for each assessment year (also called the tax year). Assessment year commence from 1 st April and ends on the next 31st March.

The total income of an individual is determined on the basis of his residential status in India. For tax purposes, an individual may be resident, nonresident or not ordinarily resident.

Types of Residents

All Assessees

Resident

Non Resident

Only Individual & HUF

Resident But Not Ordinary Resident

Resident & Ordinary Resident

Figure 1 : Types of Residents

5

1.3.3 Scope of Total Income Under the Income Tax Act, 1961, total income of any previous year of a person who is a resident includes all income from whatever source derived which: 

is received or is deemed to be received in India in such year by or on



behalf of such person;



such year; or

accrues or arises or is deemed to accrue or arise to him in India during

accrues or arises to him outside India during such year:

Provided that, in the case of a person not ordinarily resident in India, the income which accrues or arises to him outside India shall not be included unless it is derived from a business controlled in or a profession set up in India.

1. Total Income For the purposes of chargeability of income-tax and computation of total income, The Income Tax Act, 1961 classifies the earning under the following heads of income:  

Salaries



Income from house property



Profits and gains of business or profession



Capital gains

Income from other sources

Concepts used in Tax Planning 2. Tax Evasion Tax Evasion means not paying taxes as per the provisions of the law or minimizing tax by illegitimate and hence illegal means. Tax Evasion can be achieved by concealment of income or inflation of expenses or falsification of accounts or by conscious deliberate violation of law. Tax Evasion is an act executed knowingly willfully, with the intent to deceive so that the tax reported by the taxpayer is less than the tax payable under the law. 6

Example: Mr. A, having rendered service to another person Mr. B, is entitled to receive a sum of say Rs. 50,000/- from Mr. B. A tells B to pay him Rs. 50,000/- in cash and thus does not account for it as his income. Mr. A has resorted to Tax Evasion.

3. Tax Avoidance Tax Avoidance is the art of dodging tax without breaking the law. While remaining well within the four corners of the law, a citizen so arranges his affairs that he walks out of the clutches of the law and pays no tax or pays minimum tax. Tax avoidance is therefore legal and frequently resorted to. In any tax avoidance exercise, the attempt is always to exploit a loophole in the law. A transaction is artificially made to appear as falling squarely in the loophole and thereby minimize the tax. In India, loopholes in the law, when detected by the tax authorities, tend to be plugged by an amendment in the law, too often retrospectively. Hence tax avoidance though legal, is not long lasting. It lasts till the law is amended.

Example: Mr. A, having rendered service to another person Mr. B, is entitled to receive a sum of say Rs. 50,000/- from Mr. B. Mr. A’s other income is Rs. 200,000/-. Mr. A tells Mr. B to pay cheque of Rs. 50,000/- in the name of Mr. C instead of in the name of Mr. A. Mr. C deposits the cheque in his bank account and account for it as his income. But Mr. C has no other income and therefore pays no tax on that income of Rs. 50,000/-. By diverting the income to Mr. C, Mr. A has resorted to Tax Avoidance.

1.3.4 Tax Planning Tax Planning has been described as a refined form of ‘tax avoidance’ and implies arrangement of a person’s financial affairs in such a way that it reduces the tax liability. This is achieved by taking full advantage of all the tax exemptions, deductions, concessions, rebates, reliefs, allowances and other benefits granted by the tax laws so that the incidence of tax is reduced. Exercise in tax planning is based on the law itself and is therefore legal and permanent. 7

Example: Mr. A having other income of Rs. 200,000/- receives income of Rs. 50,000/- from Mr. B. Mr. A to save tax deposits Rs. 60,000/- in his PPF account and saves the tax of Rs. 12,000/- and thereby pays no tax on income of Rs. 50,000. 1.3.5 Tax M anagement Tax Management is an expression which implies actual implementation of tax planning ideas. While that tax planning is only an idea, a plan, a scheme,

an

arrangement,

tax

management

is

the

actual

action,

implementation, the reality, the final result. Example: Action of Mr. A depositing Rs. 60,000 in his PPF account and saving tax of Rs. 12,000/- is Tax Management. Actual action on Tax Planning provision is Tax Management.

To sum up all these four expressions, we may say that: 

Tax Evasion is fraudulent and hence illegal. It violates the spirit and the



letter of the law.



violates only the spirit of the law but not the letter of the law.



entirely based on the specific provision of the law itself.

Tax Avoidance, being based on a loophole in the law is legal since it

Tax Planning does not violate the spirit nor the letter of the law since it is

Tax Management is actual implementation of a tax planning provision. The net result of tax reduction by taking action of fulfilling the conditions of law is tax management.

1.3.6 The Income Tax Equation For the understanding of any layman, the process of computation of income and tax liability can be outlined in following five steps. This project is also designed to follow the same.  

Calculate the Gross total income deriving from all resources.



Applying the tax rates on the taxable income.



Subtract all the deduction & exemption available.

Ascertain the tax liability.

8



Minimize the tax liability through a perfect planning using tax saving scheme

1.4 COM PUTATION OF TOTAL INCOM E

Figure 2: Income Head of Taxation

1.4.1 Income from Salaries

Incomes termed as Salaries: Existence

of

‘master-servant’

or

‘employer-employee’

relationship

is

absolutely essential for taxing income under the head “Salaries”. Where such relationship does not exist income is taxable under some other head as in the case of partner of a firm, advocates, chartered accountants, LIC agents, small saving agents, commission agents, etc. Besides, only those payments which have a nexus with the employment are taxable under the head ‘Salaries’.

Salary is chargeable to income-tax on due or paid basis, whichever is earlier. 9

Any arrears of salary paid in the previous year, if not taxed in any earlier previous year, shall be taxable in the year of payment.

Advance Salary: Advance salary is taxable in the year it is received. It is not included in the income of recipient again when it becomes due. However, loan taken from the employer against salary is not taxable.

Arrears of Salary: Salary arrears are taxable in the year in which it is received.

Bonus: Bonus is taxable in the year in which it is received.

Pension: Pension received by the employee is taxable under ‘Salary’ Benefit of standard deduction is available to pensioner also. Pension received by a widow after the death of her husband falls under the head ‘Income from Other Sources. Profits in lieu of salary: Any compensation due to or received by an employee from his employer or former employer at or in connection with the termination of his employment or modification of the terms and conditions relating thereto;

Any payment due to or received by an employee from his employer or former employer or from a provident or other fund to the extent it does not consist of contributions by the assessee or interest on such contributions or any sum/bonus received under a Keyman Insurance Policy.

Any amount whether in lump sum or otherwise, due to or received by an assessee from his employer, either before his joining employment or after cessation of employment. 10

Allowances from Salary Incomes

Dearness Allowance/Additional Dearness (DA): All dearness allowances are fully taxable City Compensatory Allowance (CCA): CCA is taxable as it is a personal allowance gra...