JAGRAN LAKECITY UNIVERSITY

RESEARCH PAPER ON TAX PLANNING AND ITS TAX SAVING

INSTRUMENT
 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 professor Mr. Rohit Mishra 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.

SHANU RAJPUT
LLB FIRST YEAR
ABSTRACT

Meaning of tax planning is some assessment of an individual’s financial affairs without

violating laws and regulations , legislation of an act that is by lawful means. It ofcaurse
reduces the burden of tax of an assesse by taking full use of exemptions, deductions,
rebates, and relief which are permitted under the legislation . in todays world Tax planning
becomes very important part of our financial planning .because Efficient tax planning helps
us to reduce our tax liability to the minimum extent which up to which it can.. This is made
by legitimately that is lawful means and by taking advantage of all tax exemptions,
deductions rebates, and interests while it ensures that your finance is in parallel with their
long-term motives. My study of research paper will begin with an introduction of tax
planning, objectives of tax planning, and types of tax planning. It will also include some of
the popular tax-saving instruments given in the 80c-80e section of the income tax act.
INTRODUCTION TO TAX PLANNING

Concept of tax planning-

Planning is the method of a system that in its implementation is designed to accomplish a particular
result. Economic planning is the privilege of the nation; tax planning is that of the subject. Men,
material, and money are the resources which are available at the disposal of a nation and to conserve
the equal, the State resorts to economic making plans. Tax planning targets to lessen the outflow of
cash resources made available to the Government by the way of taxes of taxes in order so that the
equal may also be effectively utilized for the advantage of the man or woman or the business, as the
case may also be. Just as sound economic planning is integral for a welfare State, sound tax planning
is equally essential for the welfare of the citizen.

“Before getting into a transaction or before beginning a business, one usually considers its
profitability and further aspects. Amongst distinct aspects, the tax implications of the transactions of
the business has to be thought out before really embarking on the deal. Otherwise, one can be caught
unwittingly in large tax liability.

Planning from the view of taxation helps in generating more financial savings of investible surplus.
Tax planning can be defined as an arrangement of one’s financial affairs in such a manner that,
without violating in any manner the legal provisions, the complete gain is taken of all tax exemptions,
deductions, concessions, rebates, allowances, and other reliefs or benefits approved under the Act so
that the load of taxation at the assesse is decreased to the minimum.

It includes arranging one’s financial affairs by intelligently expecting the results which the tax laws
will have at the arrangements now being adopted. As such it is a highly stimulating intellectual
exercise. Any tax planning scheme must be a natural one and must not provide an appearance of an
artificial arrangement at the face of it. The tax planner or the tax adviser must practice extraordinary
care and caution in designing any tax planning scheme as its failure will bring about high-quality
problems and a heavy load of tax on the assessee for whom the scheme is evolved”. i1

A fee is charged with the using of government authorities on a product, earnings, or interest is
known as tax. There are different types of taxes, as we know that tax is levied directly on the
earnings or the wealth of a individual, and such tax is known as direct tax. Example - Income tax, If
tax is levied at the rate of products or of Direct Taxes is taken care of the management of direct taxes 2.
“Income tax is an annual tax on earnings. The earnings of preceding 12 months is taxable in the
subsequent following assessment 12 months on the fee or rates relevant to that evaluation 12 months.
The tax fee is constant with the aid of using the Annual Finance Act. Income tax is charged on the
overall earnings of each individual”. “The individual by whom any tax or another sum of cash is
payable below earnings tax act 1961 is known as assesse.

In different term all preparations by which the tax is stored by ways and means, which comply with
the legal responsibility and situation and are now no longer colorable gadgets or tactics to meet the

1
Savita , Income Tax Planning: A Study of Tax Saving Instruments ,vo l 2 , (ILMSSR ) 83 (2013)
2
© The Institute of Chartered Accountants of India.
letters of law still now no longer the sprite at the back of those, might represent tax making plans. Tax
making plans have to now no longer be done with an reason to defraud the revenue, All transactions
entered into by an assessee could be legally accurate, but at the entire those transactions can be
devised to defraud the revenue. All such things in which status is accompanied in strict phrases
however sincerely spirit at the back of the statute is defaced might be termed as colourable gadgets
and they do not shape part of the tax planning. All transactions in respects of tax making plans must
be in according with the true spirit of statute and have to be accurate in shape and substance.

Tax planning is the arrangement of one’s affairs in such a way that the tax planner may either reduce
the incident of tax completely or lessen it to most possible extent as can also additionally be
permissible with the framework of taxation and It does now no longer amount to evasion of tax. It is
an act of care and farsightedness on the part of the taxpayer who is entitle to lessen the load of his tax
legal responsibility to the most viable quantity under the existing Tax planning ensures not only
accruals of tax benefit within the four corners of law, but it also ensures that the tax obligations are
properly executed to avoid punishing.3

 TAX PLANNING TAX EVASION TAX AVOIDANCE

So there are mainly Three methods of saving taxes which have been developed in maximum nations
of the world in the past few decades: which are tax evasion, tax avoidance and tax planning.
Reduction of taxes by means of the legitimate method may take 2 forms — that is tax planning and
tax avoidance. Now the ‘Tax planning’ is wider in scope. the difference among ‘tax avoidance and
‘tax evasion can be noted down. The distinction between between tax evasion and tax avoidance is
very thin and very difficult to understand . The Direct Taxes Enquiry Committee that is (Wanchoo
Committee) has also even try to draw a difference among these two:-

The difference among ‘evasion’ and ‘avoidance’, therefore, is basically depending on the difference in
strategies of escape resorted to. Some are instances of simply availing, strictly with the accordance of
law, which are the tax exemptions or tax privileges offered by the Government. “Others are
maneuvers comprising an element of deceit, deception of facts, falsification of accounting
calculations, or downright cheat” that is unlawful means.. The first represents what absolutely tax
planning is all about, and the latter is tax evasion. However, among these two s, there lies a massive
domain for choosing a variety of methods which, though technically satisfying the requirements of the
law, in fact, circumvent it with a view to delete or lessen the tax burden. It is these smethods that
constitute “tax avoidance”. Thus, in general terms we can say that tax evasion refers to any attempt to
avoid payment of taxes by the use of unlawful means which even are morally unethical.

Some of the common varieties of tax evasion are:

• falsification or suppression of facts;

• failure to file investments in books of account;

• claim of expenditure not substantiated via means of any evidence;

• recording of any incorrect entry in books of account; • failure to record any receipt in books of
account having a bearing on overall total income; and

• failure to report any worldwide transaction or deemed international transaction or specified

domestic transaction under Chapter X. These represent misreporting of earnings attracting penalty @
200 percent low phase 270A. If a manufacturer units up his industry in Punjab is Tax planning. But he
3
brings a nearly almost prepared product to Punjab only for minor operations and sells it in Punjab.
This is known as tax Avoidance. Here the reason of government becomes defeated. If a manufacturer
manufactures the good some other place and dispatches it there however shows that product
manufacture and offered in Punjab. This is a Tax Evasion. In simple words, we can say that tax
Planning is an activity conducted by the tax payer to reduce the ; tax liable upon him/her by making
most utmost use of all possible deductions, allowances, exclusions, etc. feasible under law. In other
words, it is the study of a financial situation from the taxation point of view. The purpose behind tax
planning is insurance of tax efficiency. Tax planning allows all components of the financial plan to
function in sync to deliver highest tax efficiency.

To conclude all these four expressions, we can say that: Tax Avoidance, being primarily based totally
on a loophole in the Law and regulation is legal because it violates only the spirit of the law however
not the letter of the law.

But on the other hand We can also say that Tax Planning does not violate the spirit nor the
letter of the law and regulation on that as it is far absolutely primarily based totally on the
specific provision of the regulation law Itself.

TAX MANAGEMENT:-
Tax management- Tax planning is not always not going to be viable without tax
management. Because Tax control (management)is an internal part of tax planning. It takes
necessary precautions to conform with the legal formalities to avail the tax exemptions,and
reductions. Tax administration also protects an assessee towards penalty and prosecution by
charging tax responsibilities on time.
Tax Planning(objectives)
“ Minimal Litigation: There is always friction between the collector and the person who is
paying the tax . In this type of situation , it important that the compliance regarding tax
payment is followed and used correctly so that friction is minimum.
Productivity: Among all the important objectives of tax planning the most important one is
channelization of taxable income to various investment plans.
Reduction of Tax Liability: being a tax payer , you can save the maximum amount from
payable tax amount by using a proper arrangement of your enterprise working as per the
needed laws”.
Tax planning Excludes
Tax Planning is not tax evasion. It entails realistic making plans of your earnings income
and investments. It is not tax evasion, which is unlawful under Indian laws. Tax Planning
isn't simply placing your cash blindly into any 80C investments. Tax Planning is now no
longer difficult. Tax Planning is easy. It can be practiced by everyone and with a very little
time dedication as long as one is prepared with their finances
Types of tax planning
Short Term Tax Planning : Short variety Tax Planning method means making plans
thought of and performed on the end of the earnings year to lessen taxable earnings in a legal
way. Example : Suppose , on the end of the income year, an assessee reveals his taxes
were too excessive in evaluation with last year and he intends to decrease it. Now, he might
also additionally do that, to an extraordinary volume through making right preparations to get
the most tax rebate u/s 88. Such plan does not contain any long time commitment, but it
consequences in huge financial savings in tax.
Long Term Tax Planning : Long range tax making plans chaled out at the starting or the
income year to be followed across 1 year. This kind of making plans does not assist straight
away as in the case of short range making plans however is possibly to assist in the long run ;
example -If an assessee transferred shares through him to his minor son or spouse, though
the income from such transferred shares will be clubbed together along with his income u/s
64, but the income which is invested by either the son or spouse, then the income from such
sources will be treated as earnings of the son or Moreover, if the company raise difficulty in
any bonus shards for the shares transferred , that will also be handled as income on either on
the son or spouse
Permissive tax Planning :Permissive Tax Planning are the plans which is permitted under
various provisions of the law, such as of income earnings which is given in Sec.10, specially
through Sec. 10(1) , Planning of taking gain of numerous incentives and reductions, planning
for availing awesome tax concessions etc.
Purposive Tax Planning : “making plans with precise motive to ensure the provision of
maximum benefits to the assesse by taking correct preference of investment, making
suitable programme for replacement of assets, varying the residential status and diversifying
company activities and income etc”.
As the well-known saying goes ‘ A penny saved is a penny earned ‘. Tax making plans are
one of the methods which can help you save on taxes and boom your earnings. The income
tax act provides deductions for numerous investments, financial savings and expenditure
incurred by the taxpayer in a specific financial year. We will talk some of the avenues which
assist and help you to save taxes.
AN OVERVIEW OF TAX SAVING
INSTRUMENTS:
Deduction under section 80c
This new section has been added from the Financial Year 2005-06. Under this section, a
reduction of up to Rs.1,00,000 is allowed from Taxable Income in regard of investments
made in some particular schemes. The specified schemes are the same which were there in
section 88 but without any sectoral caps (besides in PPF). The maximum tax release limit
under Section 80C is Rs 1.5 Lakh. The main investment avenues or expenses that can be
claimed as tax deductions under section 80c are as below; PPF- Public Provident Fund •
EPF - Employees’ Provident Fund
 • Five year Post office or bank Tax saving Deposits ;
• [National Savings Certificates ] NSC
• ELSS (Mutual Funds)- Equity-Linked Saving Schemes
• Kid’s Tuition Fees
• Post office Senior Citizen Savings Scheme [SCSS]
• Principal repayment of Home Loan
• National Pension System(NPS)
• Life Insurance Premium (LIC)
• Sukanya Samriddhi Account Deposit Scheme ;.
NOTE FOR SECTION( 80C) :-
“There are no sectoral caps except in public provident fund on investment in the new section
and the assessee is free to invest Rs 1,00,000 in any one or more of the specific instruments.
Amount invested in these instruments would be given us as deduction irrespective of the fact
that whether (or not) such investment is made out of income chargeable to tax. Section 80C
deduction is allowed irrespective of the assessee's income level. Even persons with taxable
income above Rs. 10,00,000 can also avail the advantage of section 80C.. As the deduction
is allowed from taxable income, the exact savings in tax will depend upon the tax slab of the
individual. Thus, a person in 30% tax slab can save income tax up to Rs. 30,600 (or Rs.
33,660 annual income exceeds Rs. 10,00,000) by investing Rs. 1,00,000 in the specified
schemes under section 80C”.
SECTION (80CCC)
under this section 80CCC of income tax act contribution to annuity plan of LIC or any other
Life Insurance Company is considered for tax the benefit of Rs 1. 5 Lakh for receiving
pension from the fund. Reduction in respect of contribution to certain Pension Funds:
Deduction isin respect of contribution to certain Pension Funds: Deduction is permitted for
the amount paid or deposited by the assesse during the preceding year out of his chargeable
income to the annuity plan ( Jeevan Suraksha) of Life Insurance Corporation of India or
annuity plan of other insurance companies for receiving a pension from the fund mentioned
in section Amount of Deduction: Highest of Rs. 10,000/-
SECTION( 80CCD)
An employee can make a contribution to the Government notified Pension Schemes Example
:- National Pension Scheme. The contributions Can be up to 10% of the salary (salaried
individuals) and Rs 50,000 additional tax advantage u/s 80CCD (1b) was proposed in Budget
2015. Individual aside from the the salaried class can make a contribution of up to 20% of
their gross income and can be deducted from the taxable income. According to the financial
year 2018-2019 the entire deduction under section 80C, 80CCC and 80CCD collectively can't
exceed Rs.1,50,000 and additional tax reduction of Rs 50,000 u/s 80CCD.
SECTION (80D)
Medical Insurance Premium Deduction is allowed for any medical health insurance premium
under any authorized scheme of General Insurance Corporation of India which is popularly
known (Ahmed claim) or of any other insurance company, paid through cheque, out of
assessee’s taxable income during the preceding year, in respect of the following in case of
an individual – insurance on the health of the assesse , or spouse or husband, or mother
father children who are dependent .In the case of a hindu undivided family whom we call
HUF – insurance on the health of any family member amount of deductionis Maximum Rs.
10,000, in case the if the person ninsuring is a senior citizen ( that is exceeding sixty-five
years of age) the most maximum deduction permitted will be Rs.15,000/- The maximum tax
deduction boundary for senior citizens under Section 80D for Financial Year 2017-18 is Rs.
30,000. Under the section ; 80D a person can claim a deduction in respect of payments
towards annual premium on health insurance policy, precautionary health check-up or
medical expenses in respect of senior citizen (above 60 years of age). • the seniors who are
senior citizens (who are above 80 years of age), in case they don’t have health insurance can
claim a reduction of up to Rs 30,000 incurred towards clinical expenditure. in addition
further deduction can be claimed by People who pay premiums for their dependent senior
citizens mother and father can on health insurance premium (or) clinical expenditure.
Note: Preventive health checkup costs to the range of Rs 5,000/- per family can be claimed
as tax reductions.
SECTION( 80DD )
“Deduction in respect of maintenance which include medical treatment of handicapped
dependent: Deduction is permitted in respect of – any expenditure incurred through an
assesse , during the preceding year, for the medical treatment training and rehabilitation of
one or more dependent persons with disability; and Amount deposited, under an authorised
scheme of the Life Insurance Corporation or other insurance company or the Unit Trust of
India, for the advantage of a dependent individual with a disability. Amount of deduction:
the deduction admissible is Rs. 50,000 ( Rs . 40,000 for A.Y. 2003-2004) in aggregate for any
of or both the purposes particular above, irrespective of the actual amount of expenditure
incurred. Thus, if the overall expenditure incurred and the deposit made in the approved
scheme is R s. 45,000, the deduction allowable for A.Y. 2004-2005, is R s. 50,00”.
SECTION (80DDB)
“Deduction in respect of medical treatment resident individual or Hindu Undivided family
deduction is permitted in respect of during a year for the medical treatment of specified
disease or ailment for himself or a dependent or a member of a Hindu undivided family.
Amount of Reduction Amount actually paid or Rs. 40,000 whichever is less(for A.Y. 2003-
2004, a reduction of R s. 40,000 is allowable In case of the amount is paid in respect of the
assesse , or a person dependent on him, who's a senior citizen the deduction allowable shall
be Rs. 60,000”.
SECTION( 80E)
medical treatment resident individual or Hindu Undivided family the deduction is permitted
in respect of during a year for the medical treatment of particular disease or ailment for
himself or a dependent or even a member of a Hindu undivided family. Amount of
Subtraction Amount actually paid or Rs. 40,000 whichever is less among these(for A.Y.
2003-2004, a subtraction of Rs.40,000 is allowable . In case of the amount is paid in respect
of the assesse , or a person dependent on him, who's a senior citizen that is above the 65 years
of age the deduction is increased and allowable shall be Rs.60,000. Deduction in respect of
Repayment of Loan taken for Higher Education by man or woman assesse who has taken a
loan from any financial institution or any accepted charitable institution for the motive of
pursuing his higher education that is for studies ,full-time studies for any graduate or
postgraduate course in engineering medicine, the management or for a post-graduate course
or in applied sciences or pure sciences consisting of mathematics and statistics .then Any
amount which paid by the assesse in the previous year, out of his taxable income, by way of
repayment of loan or hobby thereon, limited to a maximum of Rs. 40,000.
SECTION (80EE)
“Eligible home buyers can claim exemption of Rs. 50,000/- for interest on home loan from
assessment year beginning from 1st April 2017 and subsequent years”.4
SECTION( 80G)
Contributions which are made by cheque or draft or in cash to certain relief funds and
charitable foundations can be claimed as a deduction. Social welfare like giving things such
as meal, material, clothes, medical and many others did not give us the opportunity for
deduction under this act. The donations made to any Political parties can be claimed under
section 80GGC and in the FY 2017-18, the restriction of deduction is decreased from current
Rs 10,000 to Rs 2,000 under section 80G / 80GGC for donations made in cash only.
SECTION (80GG)
Under this section total amount of tax deduction that can be claimed as Rs.60,000 per annum.
Section 80GG is applicable to an individual who don’t have residential house & do not
receive HRA. The amount of tax deduction will be restricted to the least amount of the
following; • Excess of rent paid over 10 percent the adjusted total income. • Rs 5,000 per
month; or • 25 % of the total income.
SECTION( 80TTA) AND( 80TTB )
The Interest income which is earned on Fixed Deposits & Recurring Deposits (Banks / Post
office schemes) will be exempt up to Rs 50,000 (FY 2017-18 limit is up to Rs 10,000), for
senior citizens. This deduction can be claimed under new Section that is 80TTB, but, no
deductions under existing 80TTA section can be claimed if 80TTB tax benefit has also been
claimed (the limit for FY 2017-18 & FY 2018-19 is Rs 10,000 u/s 80TTA

4
Tax2win.
SECTION( 80U)

 There are certain sections under the income tax laws of India which give tax benefits
to people if either they or any iof their family members are suffering from certain
disabilities. Section 80U gives tax reduction if an individual suffers a disability, at the
same time as Section 80DD gives tax deduction if an individual taxpayer’s
dependent family member(any) suffers from a disability. A resident person who has
been certified as someone with a incapacity by the medical authority can claim the
tax advantage under this Section 80U. For the purpose of this section, someone with a
incapacity is described as someone who has at the least forty percentage disability,
and is certified by the medical authorities. Disabilities has been defined such as –
Blindness, Low vision, Leprosy-cured, Hearing impairment, Loco motor disability
Mental retardation, Mental illness. The section also provides a definition for a
excessive incapacity which refers to a situation wherein the incapacity is eighty
percentage or even more. Severe incapacity also consists of more than one
disabilities, autism and cerebral palsy.
Quantum of Deduction under 80U - A deduction of Rs. 75,000 is permitted for
people with disabilities, and Rs. 1,25,000 deduction for human beings with excessive
incapacity.
 CONCLUSION AND SUGGESTIONS

With the end of this study, we can say that with the growing requirements of Indian
individuals and upward economic system of the nation, correct tax planning before-hand is
must for all of the citizens to make the efficient use of their incomes. However, the mix of tax
saving instruments, planning horizon might depend upon an individual’s overall taxable
income and age in the particular financial year. Tax planning is not always the only strategy
to reduce individuals tax liability. It just enables an individual to save tax by making more
investments in Government Securities. Tax planning is not only to reduces the tax liabilityof
an individual but also offers mental satisfaction to them. As when we first approach the tax
return filing deadline, there are tax-paying people scurrying around to report their income tax
returns. While those people who already had planned their taxes in advance are relaxed,
there are the others who would possibly have overlooked out on availing of certain tax
exceptions. No one wishes their hard earned money to be engulfed by tax liabilities. This is
why you want to adopt tax planning on the start of the financial year. If you’ve not already
executed so, it’s not too late to begin now. A right manner to start tax making plans is to
identify any modifications for your personal situation that might have an effect on your tax
outgoes. increase in age, better earnings, change in profession, availing of a home loan, or
other life events are likely to have a tax effect. Similarly, any changes in tax laws can also
have a useful or unfavourable effect for your financial plan.
REFERENCES
[1] Banks, J., Andrew Dilnot and Sarah Tanner (1997):
“Taxing Household Saving”
[2.] Capital Tax Group (1989): “ Neutrality in the
Taxation of Savings: An Extended Role for PEPs”,
Commentary No. 17 , London: Institute for Fiscal
Studies.

BOOKS
1)  T. N. Manoharan  (2007), Direct Tax Laws (7
th edition), Snow white Publications P Ltd., New Delhi.
2)Dr. Vinod K. Singhania (2007), Students Guide to Income Tax, Taxman Publications, New
Delhi

WEBSITES
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sessee
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