Income tax planning for Individuals for F.Y 2018-19 (AY 2019-20)

Introduction

As we put our step into the new fiscal year, it is vital that we should start tax planning for our fiscal year from today itself and one should not wait for the year-end. Further, the tax is always a very important subject matter for any person and hence, we would be discussing the tax planning according to the income of the person.

So, in order to discuss the tax planning for the individuals, we have categorized them into basically four groups;

• A person having salary income, rental income, and interest income
• A person having business income
• A person having only rental income
• A person having only interest income

Let us understand the each of the case and the related tax planning.

1. A person having salary income, rental income, and interest income

There is always very little space for tax planning in case of a salaried employee and most ways to save tax has already been known to the people and hence, we will discuss some less often used methods to save tax.

If you are having salary income, rental income, and interest income, then the first thing you should do is to divide your income so that you can avail the benefit of multiple tax slabs.

Suppose, Mr. A is earning a salary of Rs.500,000/-, rental income of Rs.240,000 and interest income of Rs.100,000/-. His total income will amount to Rs.800,000 and Mr. A will be liable to pay tax on Rs.800,000/-.

Tax planning

Suppose, Mr. A, create a HUF and open a separate bank account in the name of the HUF and transfer respective property to the HUF. Also, Mr. A transfers all this FD to his mother (who is a housewife and has no other income). Let us see the difference between tax before and after-tax planning:

One can save total tax liability of Rs.62,400/- if he can plan the tax properly as prescribed above. Further, here are some tips on traditional measures of tax planning:

• First of all, calculate the total tax liability that may be assessed on you in the coming financial year.
   
• After that calculate the total saving required reducing the proposed tax.
   
• Once the target saving is set, look for some finest investing options which can give you maximum return and limited risk.
   
• Always create a portfolio of investment into FD, bonds, mutual funds, shares etc to maximize return and minimize the risk.
   
• Always remember, all the investment options are also available to your HUF and hence, even if the income of the HUF crosses the basic exemption limit, the HUF can also invest and avail all the tax benefit like a normal person.

2. A person having business income

It is always recommended to the individuals having business income up to Rs.2 crore to avail the benefit of section 44AD under the Income tax act. Under section 44AD, 8% of the total revenue is deemed as the profit of the company. Further, if all your transactions are through the banking channels only, then the 8% is further reduced to 6%. Further, no books of accounts are to be maintained.

Let us see the impact of section 44AD on different turnovers;

One can see that the tax liability on a total turnover of Rs.1 Crore is just Rs.13,000 i.e. 0.13% of the total turnover.

3. A person having rental Income

There are various people in our country who earns their livelihood from rental income only. As such, there is no special tax planning available to them other than what has already been explained in the first step (HUF planning).

4. A person having only interest income (Senior citizen)

A very large number of people in India mostly senior citizens are dependent on the interest only. To provide a relief to all those seniors, the finance act 2018 has laid down various incentives for the senior citizens which they should be aware of. Here are following incentives to the senior citizens;

• Exemption of interest income on deposits has been increased from Rs.10000 to Rs.50,000/-
   
• The deduction limit for health benefit has been increased from Rs.30,000 to Rs.50,000/-.
   
• The senior citizens having certain critical illness will be allowed a deduction of Rs.100,000/- instead of Rs.60,000.
   
• A standard deduction of Rs.40,000 to all pensioners.

Important point

Practically, it has been observed that bank deduct TDS on the interest income and credit the balance in the account of the payee. The payee has the total income less than the basic exemption limit and hence do not file the income tax return.  Due to non filing of the income tax return, the TDS goes into the government treasury which ultimately should not.

Hence, it is recommended to file the income tax return, so that any TDS deducted will be refunded back to your account.

Conclusion

We have tried to capture as much ground as possible. However, the income tax is so huge that it cannot be covered by one article. In case you have any query, please email us at info@hubco.in.

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