SOME TIPS ON TAX PLANNING.

[Guest guest]

1/1/2003.

Friends,

I am not a tax consultant. But I have learnt a few things the hard way.

I am just trying to help our Alumini in a small way.

First of all have as many income tax assesment files as there are major heads

in the family.

How to create the income or transfer capital it depends on individual to

individual.

Next if Hindu have a HUF file created. This can enjoy all the benefits an

individual can enjoy.

Then you may have HUF ppf account opened. Capitalise money in HUF-PPF share

speculation etc.

Make use of the fact that Gift Tax is exempt to any limit. You can capitalise

on this point for

generating capital in childrens name.

Childrens money can be put in such instruments which are tax free so there is

no question of

clubbing of income with parents income.

Start a ppf account in name of child as soon as child is born. In the present

time 9.5% p.a. tax

free income is the best tax free return.

You may put a minimum of rs 100/ pa and maximum of Rs 60,000/= in this way you

can capatalise

a lot of money in childs name till child is 18 years and then you may make the

child an assesse or extend the ppf period for another block period of 5 years.

Of course I have not mentioned about section 80 CC benefits.

I have also not mentioned about section 80 L benefits. (interest upto 7,000/

annum and 3,000/ p.a. for

unit trust are exempt from tax)

Take gifts from friends and relatives and deposit the same in saving bank and

then deposit the same

in PPF of the child.

It is believed that one can get upto Rs 400/ month per child for school

eductional allowance deduction

per year per child.

Then for higher education after 12th std. may it be any line,(management,

medicine, enginerring, computer science etc) the parent mother or father and

both

may get a deduction of upto 40,000/= year on instalment plus interest per

child/per assesse.

i.e. if there are 2 children and bith parents are tax payees then one parent can

take deduction of

40,000/= in taxable income per year. This is section 80E.

Section 80 E says about loans taken with interest for eduction but I had an

online chat with Shanbhag tax expert and he said even if loan is not taken

expenditure incurred upto 40,000/= per year can be taken as deduction.

This can be appealed against if disallowed.

Senior Citizens beyond 65 years get special rebate and exemption of basic limit.

Widows also get special deductions.

There is professional tax to be paid in maharashtra I dont know if there is

such tax outside

maharashtra. Senior citizens beyond the age of 65 years do not have to pay

professional tax

and are exempt.

Of course this years budget is going to be more attractive. Tax exemption is

likely to be 1 lakh basic for all. Then above 1 lakh to 4 lakhs 20% flat rate

and above 4 lakhs it will be 30%.

Besides this special benefits shall be there for senior citizens and widows.

Lets seen if savings are going to be encouraged or not.

Make sure you have adequate cover of mediclaim for full family as you get family

discount of 10%.

Sec 80 D allows a deduction of upto 15,000/ per year on premium paid for

mediclaim.

If both parents are tax payers hald can be paid by each if premium total exceeds

15,000/= so both can

benefit.

Capital gains is very important.

Shares to be held for 1 year to get benefit of long term capital gain.

Real estate to be held for 3 years to get long term benefit.

Short term benefity is added to taxable income and taxed accordingly.

Long term capital gain can be paid flat at rate of 10% on profit or 20% after

indexing cost.

Standard Charts are available for indexing costs of acquisition since 1981.

Real extate long term gain can be reinvested in real estate and tax avoided or

can be reinvested

in sec 54E benefits of tax freebonds for 3 years.

If you do not own a property and sell shares and make a killing profit in long

term you may invest the

money in real estate and pay no tax on capital gains.

Friends who may be more knowledgeable Please correct me if I am wrong in any

point.

More in future mails after budget.

Regards

Dr.Raju Shah

1978 batch.