1 : Pay Zero Income Tax ! How is it Legally Possible ?

One of the commonest questions we are asked is:

 

Is it legally possible to not pay any income tax at all?

 

Indeed, this is possible in several situations…

 
An individual is not required to pay any income tax at all if he can plan his tax affairs as described here.

 

The golden rule for this purpose is that a person’s total taxable income should not exceed the exemption limit, i.e. ` 2,00,000 during the F.Y. 2012-13, relevant to the assessment year 2013-2014.

This may sound common place but it contains the essence of tax planning.

  • Thus, if an assessee’s total income is likely to exceed ` 2,00,000 for the F.Y. 2012-2013, he should plan the tax affairs of his family such that each male member of the family has a total taxable income up to ` 2,00,000, and thus become entitled to complete income tax exemption.

  • This amount, of ` 2,00,000 which is completely exempt from income tax in the case of a male individual assessee is, of course, to be computed after taking into consideration several deductions that are admissible in computing total income and are mentioned in various tips in this book at appropriate places.
    • For example, deduction in full is allowed upto  ` 1 lakh under Section 80C for various investments, such as payments towards life insurance premium, provident fund contributions, N.S.C., etc. Only after the deduction of these items, the net resultant income becomes the total taxable income considered for income tax purposes.

  • Thus, if the net taxable total income is kept within ` 2,00,000 for the F.Y. 2012-2013 through tax planning, an individual can enjoy his income completely tax-free.

  • A senior citizen is entitled to an initial exemption of ` 2,50,000 for the A.Y. 2013-2014.

  • The exemption limit for very senior citizens for financial year 2012-
    2013 would be
    ` 5,00,000 for all those who are of 80 years and above.

  • As per the Finance Act 2012 the income-tax slabs for the financial year 2012-2013 relevant to the assessment year 2013-2014 are changed as under:

In the case of a male/female individual tax payer:


Upto  
` 2,00,000                              Nil


` 2,00,001 to  ` 5,00,000                  10 per cent


` 5,00,001 to ` 10,00,000                 20 percent


Above
` 10,00,000                           30 per cent

 

In the case of every individual, being a resident in India, who is of the age of sixty years (60 Years)  or more but less than eighty years (80 Years) at any time during the previous year:


Upto
` 2,50,000                                 Nil


` 2,50,001 to ` 5,00,000                   10 per cent


` 5,00,001 to ` 10,00,000                 20 per cent


Above
` 10,00,000                            30 per cent

 

In the case of every senior citizen, being a resident in India, who is of the age of eighty years (80 Years)  or more at any time during the previous year:


Upto
` 5,00,000                                 Nil


` 5,00,001 to ` 10,00,000                 20 per cent


Above
` 10,00,000                            30 per cent

 

In all the above three cases there will he no surcharge.

In the case of co-operative societies, the rates of income-tax will continue to be the same as those specified for assessment year 2013- 2014. [ No surcharge will be levied. ]

  • Similarly, for payments made towards Medi-Claim Policy, a taxpayer is entitled deduction up to ` 15,000 (` 20,000 for a Senior Citizen). Besides, additional deduction is available for parents. Further, in case some donation is paid to a recognised charity trust, then a further deduction is available under Section 80G of the Income Tax Act, 1961.

  • The theme of not paying income tax is also helped if a taxpayer were to buy a residential self-occupied house property with the help of a loan, deduction is available on the interest on loan up to a maximum extent of ` 1.5 lakh. This one single aspect is so very important that it would bring a tax saving to the extent of about `45,000.

     
  • Thus, if a family were to spread its income among different family members, and plan their incomes as well as investments keeping in mind the available deduction, then they may not pay any income tax at all on substantial amount of income derived by them because a person can individually enjoy tax-free income up to ` 2,00,000 per annum. This figure could easily go up to over ` 3 lakh per person and still no payment of income tax in case they liberally take advantage of provisions relating to deduction by making investments as per Section 80C.

  • If a person receives money by way of gift or on inheritance, then too he does not pay any income tax on gift amount received or the assets inherited.

It should be kept in mind, however, that the definition of income was amended by the Finance (No. 2) Act, 2004 whereby gifts received from non-relatives are now taxed as income. However, gifts up to ` 50,000 would be exempted. Also, gifts received on the occasion of marriage from non-relatives would not be taxed as income.

 

As per the Finance (No. 2) Act, 2009 not only cash gifts but even gifts in kind like property, jewellery, shares, etc. in excess of ` 50,000 received during the year from non-relatives are to be taxed as income.

 

As per the Finance Act 2010 w.e.f. 1-6-2010 even “Bullion” received from non-relatives would be subject to tax in case the present day value exceeds ` 50.000, However, marriage gifts even from non-relatives are never treated as income.
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Investigation by Income Tax Department:
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Power to Call for Information U/s Sec. 133(6) of Income Tax Act.
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The provisions relating to search and seizure are contained in section 132 of the Income Tax Act, 1961.
 
Sec. 143(3) : Scrutiny Assessments by Income Tax Department
Scrutiny assessment refers to the examination of a return of income by giving an opportunity to the assessee to substantiate the income declared and the expenses, deductions, losses, exemptions, etc. claimed in the return with the help of evidence..
 
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Penalties by way of monetary payments are charged under the Income Tax Act for various defaults relating to payment of taxes, maintenance of accounts, for noncompliance and non co-operation during proceedings, for evasion of tax, etc..
 
Income of Individuals And HUFs – As a Tax Payers Under Income Tax Act, 1961.
The individual tax payers and also the HUFs while proceeding to calculate the net taxable income in the first phase are required to arrive at the gross total income under different heads of income...
 
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The following types of incomes are mainly subject to deduction of tax at source: (a) Salaries Section 192. (b) Interest on securities Section 193..
 
Pre-Requisite For Claiming Income Tax Refund
For claiming income tax refund the first prerequisite is that there should have been excess tax paid or deducted at source on the basis of return of income.
 
Section-139(1) : Provision for Voluntary Income Tax Return
Every person,— (a) being a company or a firm; (whether having income or loss) or (b) being a person other than a company or a firm if his total income or the total ncome of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall file a return of his income in the prescribed form.
 
Benefits of Filing Income Tax Returnsn
We have heard many a times that every individual whose total income exceeds the maximum exemption limit is obligated to furnish his/her Income Tax Return or ITR.
 
Section-139(9): Defective Tax Return
Where the Assessing Officer considers that the return of income furnished by the assessee is defective, he may intimate the defect to the assessee and give him an opportunity to rectify the defect within a period of 15 days from the date of intimation.
 
Section 139(5) : Revised Income Tax Return
If any person, having furnished a return u/s 139(1), or in pursuance of a notice issued under section 142(1), discovers any omission or any wrong statement therein, he may furnish a revised return at any time.
 
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Every person in receipt of income derived from property held under trust or other legal obligation wholly or partly for charitable or religious purposes or of income being voluntary contributions referred to in section 2(24)(iia) shall.
 
Section-139(4) : Belated Income Tax Return
If an assessee has not furnished a return of his income within the time allowed to him under section 139(1) or within the time allowed under a notice issued under section 142(1).
 
 
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