Income from salary : Tax Planning, · Income from House Property : Tax Planning, . · Income from Business or Profession : Tax Planning

1. INSTITUTE OF PROFESSIONAL EDUCATION AND RESEARCH, BHOPAL
MODULE-2
• Income from salary : Tax Planning,
• Income from House Property : Tax Planning, .
• Income from Business or Profession : Tax Planning
Tax Planning Tips for Salaried Employees for 2016-17
Tax planning for the salaried employees is a matter of planning and discipline. Planning involves
making a set of decisions at the start of the financial year and discipline comes in when you are
required to adhere to the plan come what may. If an Individual has done proper Tax Planning to
save tax, such deductions would be subtracted from the gross total income and income tax would
be levied on the balance income as per the income tax slabs in force
The key CTC components which could help reduce your tax liability and boost your take home
pay are outlined below. These apply to all non-government employees.
1. House Rent Allowance (HRA) HRA is the most common CTC component. Those
staying in rented accommodation can avail of an exemption against the HRA received and
only the balance would be taxable. The exemption is limited to
(a) rent paid less 10% of basic salary or
(b) 50% of basic salary where the house is situated in any of the four cities of Delhi,
Mumbai, Kolkata or Chennai, and 40% of basic salary in other cities or
(c) actual HRA received, whichever is the lowest.
If your CTC doesn't contain an HRA component, deduction for rent paid is available from
gross taxable income, subject to various limits (maximum deduction Rs 5,000 per month or
Rs 60,000 per annum). Caution point: For claiming HRA exemption, if your annual rent
exceeds Rs 1 lakh, you should obtain not just the rental receipts but a copy of your landlord's
PAN card for submission to your accounts department.
2. Leave travel concession (LTC):
It's more than a vacation, it's a tax break Your annual holiday within India can get you a tax
break. The tax exemption on any reimbursement of your travel expense while on leave is
limited to the economy class air fare for the shortest route available to your vacation
destination. No exemption is available for expenses such as hotel, local conveyance, etc.
Keep the travel bill handy to submit to your accounts department to claim the exemption

2. INSTITUTE OF PROFESSIONAL EDUCATION AND RESEARCH, BHOPAL
Hot tip:
LTC is allowed to you as a salaried employee in respect of two journeys performed in a
block of four calendar years. The current block of four years commenced on January 1,
2014. So if you haven't taken that much-needed break last year, do so now. Keep proper
tabs, retain relevant travel bills and claim your LTC.
Caution point:
Your travel expenses for a holiday abroad are not eligible for a tax break. If you are
planning a long vacation covering destinations in India as well as a foreign country with one
air-ticket, the tax man may not allow a tax break even for your cost of journey within India.
3. Medical Allowance: Medical Allowance is levied up to Rs.15,000 provided all bills for
the same are furnished by the employees to the employer.
Income Tax Deductions for FY 2016-17,
This list can help you in planning your taxes
1. Section 80C The maximum tax exemption limit under Section 80C has been retained as
Rs 1.5 Lakh only. The various investment avenues or expenses that can be claimed as tax
deductions under section 80C are as Insurance, PPF, Mutual Funds, 5 years Tax saving
Deposits, Tuition Fees, Housing loan repayments Etc.
2. Section 80CCC Contribution to annuity plan of Life Insurance Company for
receiving pension from the fund is considered for tax benefit. The maximum allowable Tax
deduction under this section is Rs 1.5 Lakh.
3. Section 80CCD Employee can contribute to Government notified Pension Schemes (like
National Pension Scheme – NPS). The contributions can be upto 10% of the salary (or)
Gross Income and Rs 50,000 additional tax benefit u/s 80CCD (1b) was proposed in Budget
2015. Kindly note that the Total Deduction under section 80C, 80CCC and 80CCD(1)
together cannot exceed Rs 1,50,000 for the financial year 2016-17. The additional tax
deduction of Rs 50,000 u/s 80CCD (1b) is over and above this Rs 1.5 Lakh limit.
4. Section 80D Deduction u/s 80D on health insurance premium is Rs 25,000. For Senior
Citizens it is Rs 30,000. For very senior citizen above the age of 80 years who are not
eligible to take health insurance, deduction is allowed for Rs 30,000 toward medical
expenditure.
5. Section 24 (B) The interest component of home loans is allowed as deduction under
Section 24B for up to Rs 2 lakh in case of a self-occupied house. If your property is a let-out
one then the entire interest amount can be claimed as tax deduction. (Read: Understanding
Tax Implications of Income from house property)
6. Section 80EE This is a new proposal which has been made in Budget 2016-17. First time
Home Buyers can claim an additional Tax deduction of up to Rs 50,000 on home loan
interest payments u/s 80EE.
The below criteria has to be met for claiming tax deduction under section 80EE.
1. The home loan should have been sanctioned in FY 2016-17.

3. INSTITUTE OF PROFESSIONAL EDUCATION AND RESEARCH, BHOPAL
Hot tip:
LTC is allowed to you as a salaried employee in respect of two journeys performed in a
block of four calendar years. The current block of four years commenced on January 1,
2014. So if you haven't taken that much-needed break last year, do so now. Keep proper
tabs, retain relevant travel bills and claim your LTC.
Caution point:
Your travel expenses for a holiday abroad are not eligible for a tax break. If you are
planning a long vacation covering destinations in India as well as a foreign country with one
air-ticket, the tax man may not allow a tax break even for your cost of journey within India.
3. Medical Allowance: Medical Allowance is levied up to Rs.15,000 provided all bills for
the same are furnished by the employees to the employer.
Income Tax Deductions for FY 2016-17,
This list can help you in planning your taxes
1. Section 80C The maximum tax exemption limit under Section 80C has been retained as
Rs 1.5 Lakh only. The various investment avenues or expenses that can be claimed as tax
deductions under section 80C are as Insurance, PPF, Mutual Funds, 5 years Tax saving
Deposits, Tuition Fees, Housing loan repayments Etc.
2. Section 80CCC Contribution to annuity plan of Life Insurance Company for
receiving pension from the fund is considered for tax benefit. The maximum allowable Tax
deduction under this section is Rs 1.5 Lakh.
3. Section 80CCD Employee can contribute to Government notified Pension Schemes (like
National Pension Scheme – NPS). The contributions can be upto 10% of the salary (or)
Gross Income and Rs 50,000 additional tax benefit u/s 80CCD (1b) was proposed in Budget
2015. Kindly note that the Total Deduction under section 80C, 80CCC and 80CCD(1)
together cannot exceed Rs 1,50,000 for the financial year 2016-17. The additional tax
deduction of Rs 50,000 u/s 80CCD (1b) is over and above this Rs 1.5 Lakh limit.
4. Section 80D Deduction u/s 80D on health insurance premium is Rs 25,000. For Senior
Citizens it is Rs 30,000. For very senior citizen above the age of 80 years who are not
eligible to take health insurance, deduction is allowed for Rs 30,000 toward medical
expenditure.
5. Section 24 (B) The interest component of home loans is allowed as deduction under
Section 24B for up to Rs 2 lakh in case of a self-occupied house. If your property is a let-out
one then the entire interest amount can be claimed as tax deduction. (Read: Understanding
Tax Implications of Income from house property)
6. Section 80EE This is a new proposal which has been made in Budget 2016-17. First time
Home Buyers can claim an additional Tax deduction of up to Rs 50,000 on home loan
interest payments u/s 80EE.
The below criteria has to be met for claiming tax deduction under section 80EE.
1. The home loan should have been sanctioned in FY 2016-17.

4. INSTITUTE OF PROFESSIONAL EDUCATION AND RESEARCH, BHOPAL
Hot tip:
LTC is allowed to you as a salaried employee in respect of two journeys performed in a
block of four calendar years. The current block of four years commenced on January 1,
2014. So if you haven't taken that much-needed break last year, do so now. Keep proper
tabs, retain relevant travel bills and claim your LTC.
Caution point:
Your travel expenses for a holiday abroad are not eligible for a tax break. If you are
planning a long vacation covering destinations in India as well as a foreign country with one
air-ticket, the tax man may not allow a tax break even for your cost of journey within India.
3. Medical Allowance: Medical Allowance is levied up to Rs.15,000 provided all bills for
the same are furnished by the employees to the employer.
Income Tax Deductions for FY 2016-17,
This list can help you in planning your taxes
1. Section 80C The maximum tax exemption limit under Section 80C has been retained as
Rs 1.5 Lakh only. The various investment avenues or expenses that can be claimed as tax
deductions under section 80C are as Insurance, PPF, Mutual Funds, 5 years Tax saving
Deposits, Tuition Fees, Housing loan repayments Etc.
2. Section 80CCC Contribution to annuity plan of Life Insurance Company for
receiving pension from the fund is considered for tax benefit. The maximum allowable Tax
deduction under this section is Rs 1.5 Lakh.
3. Section 80CCD Employee can contribute to Government notified Pension Schemes (like
National Pension Scheme – NPS). The contributions can be upto 10% of the salary (or)
Gross Income and Rs 50,000 additional tax benefit u/s 80CCD (1b) was proposed in Budget
2015. Kindly note that the Total Deduction under section 80C, 80CCC and 80CCD(1)
together cannot exceed Rs 1,50,000 for the financial year 2016-17. The additional tax
deduction of Rs 50,000 u/s 80CCD (1b) is over and above this Rs 1.5 Lakh limit.
4. Section 80D Deduction u/s 80D on health insurance premium is Rs 25,000. For Senior
Citizens it is Rs 30,000. For very senior citizen above the age of 80 years who are not
eligible to take health insurance, deduction is allowed for Rs 30,000 toward medical
expenditure.
5. Section 24 (B) The interest component of home loans is allowed as deduction under
Section 24B for up to Rs 2 lakh in case of a self-occupied house. If your property is a let-out
one then the entire interest amount can be claimed as tax deduction. (Read: Understanding
Tax Implications of Income from house property)
6. Section 80EE This is a new proposal which has been made in Budget 2016-17. First time
Home Buyers can claim an additional Tax deduction of up to Rs 50,000 on home loan
interest payments u/s 80EE.
The below criteria has to be met for claiming tax deduction under section 80EE.
1. The home loan should have been sanctioned in FY 2016-17.

5. INSTITUTE OF PROFESSIONAL EDUCATION AND RESEARCH, BHOPAL
How do I Save Tax on Income from House Property?
Careful planning can enable you to save a sizeable amount from taxation. Some of the things you
can do to save tax are as follows:
• Joint Home Loan – If you jointly own a property with someone and also apply for a joint
home loan with your partner, you will both be eligible for tax deductions on interest up to Rs.
1,50,000 each.
• Planning a second home? If you already have one self-occupied property registered to your
name and wish to avoid paying taxes on a second home, register the second property on your
spouse/relatives name to avoid excess taxation.
• Joint ownership – Taxation on income from house property can be divided between co-
owners, and hence lessen the load.
• Ownership of more than one property – If you own multiple properties, only one of these
can be registered as your residence and fall under self-occupied property (SOP). It is important
to evaluate the tax liability on all your properties and choose the one with the highest tax
liability to call home, and let out the remaining. You can also change the SOP every year.
• Empty houses – that you own will still be taxed based on the fair rental value, so it’s
advisable to let any and all empty properties out, enabling income and no loss because of
taxation.
Rules regarding Computation of Income from House Property
(Let Out Property)
(I) If the property is Let out for full year
Annual Rental Value
( M.V. or F.R. or Actual rent whichever is more)
Less:- M.Taxes paid by the owner during the year
= Annual Value
Less- Deductions
1. S.D 3% of A.V
2. Interest on Loan
= Taxable income from property

6. INSTITUTE OF PROFESSIONAL EDUCATION AND RESEARCH, BHOPAL
(II) If the property remains vacant for some months
ARV( for 12 months)
(MV/FR/Actual rent)
Less-: Loss of actual rent due to vacancy period
= Rental value of let out period
Less:- Municipal Taxes paid
= Annual Value
Less-: Deductions:-
1. SD 30% of AV
2. Interest on Loan
Important Points : Computation of Business or Profession Income
While computing income under the head ‘Profits and Gains of Business or Profession’ the following
important guiding points should be kept in mind. A good part of Indian Income-tax Act is based
upon court judgements and these principles were the basis of so many court pronouncements which
are always kept in mind while computing income under this head. So some of the principles based
on the leading cases are as follows :
(i) Business carried on by the assessee. Under section 28, the person who carried on the business is
always changed. It is immaterial whether the assessee is doing the business or work himself or
through some of his employees, agent, manager etc. The important point to be kept in mind is that
the business should have been carried on by the assessee at any time during the previous year and
not necessarily throughout the year or even in the assessment year. The assessee should have the
right to carry on the business. In case a person is deprived of the right to carry on-’ the business, the
same person cannot be chargeable to tax under this head since he cannot be regarded as ‘carrying
on’ the business.’ Guardians for minors or receivers or trustees may be assessed under this section in
respect of profit of the business carried on by them.
(ii) Tax is levied on aggregated income from all business-professions carri&I on by the assessee
during the previous year. The net result of each business or profession carried on by the assessee is
calculated separately but when tax is to be imposed, the result of all the businesses is aggregated and
then whatever income comes, tax is imposed on that income. It means the loss from one business is
set off against the profit of another business in this aggregation.
(iii) Speculation business. The speculation business of the assessee is kept separate. If there is
profit—it will be taxed along with other business income. But if there is speculation loss—it can be
set off against profits of speculation business only and not against profits of any other business.

7. INSTITUTE OF PROFESSIONAL EDUCATION AND RESEARCH, BHOPAL
(iv) Profit on sale of assets on the winding up of a business. The profit arising from some of the
assets after winding up a business is not taxable but the profit on the sate of stock-in-trade is taxable.
If the entire business is sold in one lot for a single unapportioned consideration and the assets
include stock-in-trade, the profit in the sale of stock-in-trade is not separable; in such case the entire
profit on sale of the business will not be taxable under this head.
(v) Tax on Real owner. It is not only the legal ownership but also thern beneficial ownership that
has to be considered under section 28. The income is taxable in the hands of a person to whom it
actually accrues. No tax can be levied on benamidar in whose name the business transactions are
effected and who is not really entitled to the profits. –
(vi) Tax is levied only on the real earned profits of the previous year. When there is expectation of
profit, it cannot be taxed in anticipation. So the profit is taxed only when it has actually arisen.
Further the profit must be really a gain to the person carrying on the business. Income or gain to be
taxed must relate to the previous year. Each year is a self contained accounting period.
(vii) Business/Profession may be legal or illegal. The income from legal business or profession as
well as income from illegal business/profession is taxable under this head. However, income -from
illegal business/profession, assessee may have to face legal action, etc. under other Acts also.
(viii) Business/Profession income to be computed for each previous year. Income or gain to be
taxed must relate to the previous year in question.
(ix) Negative income from Business/Profession. - Negative income signifies loss from Business or
Profession and can be set-off against other incomes as per prescribed rules