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"Rule 1:  Spread Your Income Among Your Family Members"


The first step in tax saving is to adopt the concept of divide and rule. The simple rule is that each family member must have his or her independent source of income so as to legally become an independent tax payer under the provisions of the income tax law. In case the entire income of a family belongs to just one member, the tax liability is much higher than when the same income is spread among different members of the family.

Now, under the income tax law it is not possible to arbitrarily divide one’s income amongst different members of the family and then pay lower tax in the names of different family members. However, this goal can be achieved by intelligent use of the facility of gifts and settlements.

Some Gifts You Receive Are Not Your Income

Generally, any gift you receive from various members of your family and specified relatives is not considered your income but a capital receipt. Thus, no income tax is payable on gifts received from relatives and also gifts received from parties other than relatives upto a sum of ` 5O,OOO during one year and at the time of marriage up to any amount.

All gifts received from ‘other parties’ are subject to tax by including them as “Income from other sources (See Chapter VIII). Care should also be taken to ensure that any gift which is received should be a genuine one. The person making the gift, called the donor, should have proof of his or her having the source for making the gift.

The other important point to keep in mind in the case of gifts is that the provisions of Section 64 of Income Tax Act prohibit any direct or indirect transfer of funds between an assessee and his/her


No income tax on your inheritance

No income tax is payable on any amount received or inherited by you, whether in the form of movable assets or immovable assets, consequent to the demise of your friend or relative. Moreover, there is no upper limit to this exemption. Hence, whenever you receive either bank fixed deposit, shares or immovable property consequent to the demise of a person, you don’t have to pay any income tax at all on the value of all inherited assets The simple rule is that the asset so inherited by you is not your income; it is a capital receipt. Hence you are not liable to pay any income tax on the money and assets you inherit.

However, you will be required to pay income tax in subsequent years on any income arising to you from the use of assets you inherit. For example, a person receives a bank fixed deposit of
` 52 Lakh on the demise of his grandfather. No income tax would be payable by him on this amount. The recipient of this amount will be required to make income tax payment only on the interest income of, say, ` 4 Lakh thereafter arising from the said bank fixed deposit.


spouse. Thus, a husband should not make any gift to his wife; likewise, the wife should not make a gift to her husband. If the gift is made between spouses, it would attract the provision of Section 64 and lead to clubbing of the incomes of the spouses.

To achieve the best results f gift, and to avoid clubbing of income, you may receive gift from any relative other than your spouse, and, in the case of a daughter-in-law from her father-in-law and mother-in-law.

The first rule of tax planning requires that one develops income tax files for oneself, one’s spouse, one’s major children, the Hindu Undivided family, and for all other major relatives in the family, including one’s parents. The development of different files of major family members can be achieved through the process of gifts and settlement. Even if, the parents of the taxpayer are not paying income tax today but if they receive some gift from friends or relatives or from anyone else in the world, the income so generated would belong to them. Thus, independent income tax files can be started for different family members by developing independent funds of each person through gifts thereby resulting in separate independent sources of income which would then be taxed


A Trust  For Minor Children Eliminates Clubbing Of Income

The gifts made to a minor child would similarly result in clubbing of income. Hence, from the point of view of tax planning a trust could be created for the welfare of the minor child with a specific condition that no part of income should be spent on the minor child during the period of minority. If this simple technique is adopted then there will be no clubbing of income of the minor child with the, income of the parents. The clubbing provisions do not apply when you make gifts to your major children.


separately to income tax. Once the income is spread among more people, chances are some of them would attract lower rates of tax. Also, each one would then be entitled to independently claim exemptions, deductions, rebates, etc.

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Rule-1 : Spread Your Income Among Your Family Members under Income Tax Act.
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Rule-3 : Take Full Advantage Of Tax Deductions under Income Tax Act.
Rule-4 : Exempted Incomes under Income Tax Act.
Rule-5 : Don’t Overdo It — Keep Tax Planning Simple under 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..
“Penalties” Under Income Tax Act. 1956
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.
Section-139(4A) : Income Tax Return of Charitable and Religious Trusts
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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