5 golden rules of tax planning

Just as rules are important for good living, so also there are some golden rules of tax planning. The five simple yet effective rules of tax planning are:

Spread the taxable income among various members in your family;Take full advantage of tax exemptions available under the law;Take full advantage of permissible tax deductions and rebates available on stipulated tax-saving investments;Make optimum use of tax-exempted incomes; and Simple tax planning is smart tax planning.Understood and used properly these rules will help you achieve handsome tax savings.

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 taxpayer 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 among 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.

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 up to a sum of Rs. 50,000 and at the time of marriage up to any amount.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.

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.

Rule 2: Take full advantage of all tax exemptions
The second step of tax planning lies in claiming all the exemptions and deductions which are permissible under the income tax law.A list of most such exemptions and deductions is contained in Section 10 of the Income Tax Act. This list has to be optimised depending on your facts and circumstances.
If you and your family members are not claiming the optimum benefit of exemptions and deductions, then it is time to focus on investment planning in the group so that every family member gets full benefit of all permitted tax exemptions.

Rule 3: Take full advantage of tax deductions
Then, too, various tax deductions are available under the income tax law. One should try to avail of the benefit of these deductions for each and every member of the family.The various investment options that offer tax rebates should be reviewed keeping in mind various aspects like the age factor, etc. A check-list should be prepared of the various deductions permissible under the income tax law.Check whether each and every tax paying family member is claiming these. If special care is taken of this aspect, then it is legally possible to save a lot of income tax. It is suggested that a chart be prepared of tax, deductions and exemptions for every family member for purposes of overall tax planning of the family.It would be worthwhile if a group tax chart is prepared containing details relating to income tax, tax deductions, net taxable income, tax deducted at source, rebate of tax, and, finally, the net amount of income tax paid in the case of each family member.With the help of this one simple chart, you can achieve substantial tax planning as it will show up those who have not made optimum use of tax deductions.

Rule 4: Exempted incomes
There are innumerable incomes under the income tax law which are exempted from the purview of tax. These incomes are known as exempted incomes. For example, interest income from tax-free bonds as also any income from agriculture are some items of exempted incomes. There are other exempted incomes also which are discussed in this book.Proper planning of your investments in a way so as to generate tax-exempt incomes is another golden rule of tax planning.

Rule 5: Don't overdo it; keep tax planning simple
Easy, simple, hassle-free should be the objectives of your tax planning approach.

Source - Rediff.com

Money – is it everything in life?

It’s hard to be without money. To get on without it is like traveling in a foreign country without a passport – you are stopped, suspected and made ridiculous at every turn, besides being subjected to the most serious inconveniences. Money plays a crucial part in our life as well as in relationships and the truth is that, in many situations - it becomes a decisive factor. Life is just impossible without a buck in your pocket. Young or old, rich or poor, this is one thing which is equally essential for everyone, something you can’t survive without. Emotions and sentiments have got their own share in life but in day to day life, our day starts with money and perhaps - ends with MoNeY. You can’t imagine a single day stepping out of your home without your wallet. At crucial times, money lets you realize on whom you can count and depend on.

Money is one thing which doesn’t have any substitute. Even if your heart breaks today, sooner or later you will find someone else to share your grief and to make up your wounds. It may take time but it will surely heal. This is the reality. Life doesn’t stop for anyone. To put this in the crudest most materialistic way, though there’s no substitute of love, there is still substitute for your “beloved ones”, but there is no substitute of money. You can’t give up all your money and lead your life with something else.

Money as well power is like two sides of a coin. Money begets power and power begets money. I find it really heartbreaking to see this trend growing day by day when people do not hesitate to harm each other, even own brothers just for the sake of money. After all at the end of the day, what you are as a person is all that actually matters, not how much you own/earn.

Like anything else - money has its own limitations. It’s just a means to give your material comfort and time. It can save you from miseries which can be fought with factors available to purchase- like house, medicine, book, wealth etc. It can’t provide you the food for your heart and soul, your intellectual needs, the serenity and strength of your character, courage and wisdom. It can’t make you satisfied, content, relaxed and happy. After all, money is not every thing in life.

Get Set Go :)

Off late I have been very keenly interested in financial subjects. It some how mesmerizes me how the financial sector works, how transactions are done at international level, what is meant by inflation, what is stock market? I have been keeping a track of the reasons behind America's fourth-largest investment bank Lehman Brothers decline.

Albeit being new to finance I have decided to learn finance from my own perspective and what better than to start writing a blog. So, this blog is totally dedicated to finance and all other news related to finance. I am going to publish the posts not necessarily written by me but by various people and I will certainly take reference from financial books. In the end again I will be extremely happy if people pour in their comments. That serves a constant motivation for any writer.

This blog is again for my personal use so that I can be aware and have enough knowledge in finance. After all it is rightly said by Frank Herbert,” The beginning of knowledge is the discovery of something we do not understand.”