As per the Finance Bill, 2012 very reasonable income-tax rate slabs have been introduced which would help the process of tax planning.
Thus, for a financial year if an individual derives net taxable income of up to `2,00,000, then there is no liability to income tax. The first simple tax planning that should therefore be adopted in a family is to have net taxable income upto 2,00,000 in a year in the name of each and every male individual. This is possible if a little care is taken to plan the personal income tax files of all individuals in the family.
Tax saving becomes a reality if all the family members derive separate income from different sources of income and thus each and every family member becomes a taxpayer so as to have a separate income tax file and be called as a separate income tax assessee under the provisions of Income-Tax Act, 1961. Thus, the theme of having separate individual income of all family members which results into their separate income tax files would surely go a long way in saving income tax for the family.
The common modes resorted to for the said purpose have been the employment of the spouse as a highly-paid employee or the sole selling agent, creation of separate nucleus for the spouse and children, formation of trust for children and would-be children and admission of minors to the benefits of partnership by taking advantage of the provisions of the Income Tax Law and formation of private limited companies with wife, minor children and other close relatives as the principal shareholders, etc.
It is lawful to plan one’s tax affairs in such a manner that by resorting to lawful means and within the ambit of the Income Tax Law, an individual can still have a separate file for his minor child or his wife or his minor grandchild or his daughter-in-law or have a trust for a would be son or would be daughter-in-law, etc.
In this chapter we shall be discussing the various means still available to an individual by means of which he is able to plan his tax affairs properly and legally reduce his income tax liability to a minimum by having “family tax planning” for more income in the family and less taxes.