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Tax planning through family settlement!

Distribution of assets under a family arrangement is not treated as a ‘transfer’ and can help save tax, stamp duty!

The Halsbury’s Laws of England’ has defined a Family Settlement or Family Arrangement as an agreement between the members of the same family intended to be generally or reasonably for the benefit of the family, either by compromising doubtful or disputed rights or by preserving the family property or peace and security of the family by avoiding litigation. (more…)


Head of the household must do some smart thinking for maximizing the family’s tax benefits u/s.80C!

A significant relaxation announced at the time of the passing of the Finance Bill, 2005, related to the abolition of the proposed condition for deduction of upto Rs.1,00,000 under Section 80C requiring that “the eligible investments must be made out of a taxpayer’s income chargeable to tax.”  With this restriction removed, it became possible for taxpayers to invest in various tax saving schemes or incur eligible expenditure, even by securing loans or gifts or withdrawing out of their exempt incomes or accumulations.  This point can be better appreciated by the illustration hereunder:

Illustration:  Mr. Smart’s gross taxable income is Rs.9,00,000, on which the income-tax payable for FY 2011-12 would work out to Rs.1,25,660.  He is under strain to invest Rs.1,00,000 and avail deduction under Section 80C, since he needs the entire income of Rs.7,74,340 (after tax provision of Rs.1,25,660) for meeting his family obligations.

Mr. Smart is in a position to withdraw Rs.70,000 from his PPF A/c and avail Rs.30,000 as a short term loan from his friend.  He should plan to raise this resource of Rs.1,00,000 and out of the same invest Rs.70,000 back in his PPF A/c and also invest Rs.30,000 in any other eligible investment under Section 80C.  He would thus be entitled to avail the benefit of deduction of Rs.1,00,000 under Section 80C, which would mean that his taxable income would now work out to Rs.8,00,000, the income-tax payable thereon amounting to Rs.94,760.  Out of the tax saved Rs.30,900 (1,25,660 – 94,760), he can smartly repay his friend’s loan of Rs.30,000 and draw satisfaction of having made the new 80C investment of Rs.30,000. (more…)


With exemption of interest & deduction for investment PPF can effectively yield a return of upto 16.75% !

        Section 80C of the Income-tax Act was amended by the Finance Act of 2005 with effect from Financial Year 2005-06, permitting an individual and HUF to avail of higher deduction for specified investments and allocations of upto Rs.1,00,000, revising it upwards from the earlier limit of Rs.70,000. 

        However, even after six years of the aforesaid amendment under the tax laws, the erstwhile limit of maximum investment under the Public Provident Fund (PPF) Scheme during a Financial Year having not been revised, it still continues to be Rs.70,000 only. As a result, for availing the full benefit of deduction of Rs.1,00,000 under Section 80C, a taxpayer is required to look at other avenues of savings, investments or allocations after exhausting his choice for PPF investment of Rs.70,000. (more…)


SC holds that for TDS purposes Employer can grant exemption to Employee without supporting evidence

Section 10 of the Income-tax Act grants tax exemption in the case of salaried employees, in respect of various allowances such as leave travel concession (LTC) under Section 10(5), conveyance allowance under Section 10(14) and the like, within the scope of prescribed conditions and monetary limits. Similarly, Section 17(2) provides that reimbursement of medical expenses within prescribed limits shall also enjoy tax exemption in the hands of employees.

In the above regard, one of the moot questions that has always been a matter of debate is whether an employer, for purposes of tax deduction at source (TDS), can grant exemption to such an allowance or reimbursement claimed exempt by the employee, on the basis of a declaration made by him in the matter or whether the employer is required under law to collect and examine supporting evidence in this regard before entertaining the employee’s claim. (more…)

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