Hints of tax planning under the Income Tax Act:

• Understand the various tax deductions and exemptions available: The Income Tax Act provides for a number of tax deductions and exemptions that can help you reduce your tax liability. Some of the common tax deductions include:
  • House rent allowance (HRA)
  • Leave travel allowance (LTA)
  • Medical allowance
  • Transport allowance
  • Tuition fees for children
  • Donations to charitable organizations
• Plan your investments wisely: There are a number of investment options that offer tax benefits. Some of the popular tax-saving investments include:
  • Public Provident Fund (PPF)
  • Employees’ Provident Fund (EPF)
  • National Pension System (NPS)
  • Equity Linked Savings Schemes (ELSS)
  • Unit Linked Insurance Plans (ULIPs)
• Structure your salary: You can structure your salary in such a way as to reduce your tax liability. For example, you can ask your employer to increase your HRA or LTA. You can also ask for a one-time bonus instead of a regular salary increase.
• File your tax returns on time: It is important to file your tax returns on time in order to avoid penalties. Filing your tax returns on time will also ensure that you are able to claim all of the tax benefits that you are eligible for.

Here are some additional hints for tax planning of the Income Tax Act:

• Start planning early: The earlier you start planning for your taxes, the more time you will have to make informed decisions and take advantage of all of the available tax benefits.
• Review your tax situation regularly: Your tax situation may change over time, so it is important to review your tax plan regularly and make adjustments as needed.
• Seek professional advice: If you are not sure how to plan your taxes, you can consult a tax professional.

It is important to note that tax planning is a complex topic and there is no one-size-fits-all solution. The best tax planning strategy for you will depend on your individual circumstances.

EXAMPLES

• Invest in tax-saving instruments under Section 80C OF THE Income Tax Act. This includes investments in Public Provident Fund (PPF), National Savings Certificate (NSC), Unit Linked Insurance Plans (ULIPs), and Equity Linked Savings Schemes (ELSS).
• Claim deductions for medical expenses, house rent allowance (HRA), leave travel allowance (LTA), and other eligible expenses.
• Make charitable donations. Donations to certain charitable institutions are eligible for deduction under Section 80G OF THE Income Tax Act.
• Restructure your salary. You can ask your employer to increase your HRA and LTA, and reduce your basic salary. This will reduce your taxable income.
• Invest in your spouse’s name. If your spouse is in a lower tax bracket than you, you can invest in their name to reduce your overall tax liability.

Set up a Hindu Undivided Family (HUF). An HUF is a separate tax-paying entity. You can transfer income-generating assets to your HUF to reduce your overall tax liability.

• Take advantage of tax exemptions for senior citizens and super senior citizens. Senior citizens and super senior citizens are eligible for certain tax exemptions.
• Here are some specific examples of how you can use these hints to reduce your tax liability of the Set up a Hindu Undivided under Income tax act.

If you are expecting a bonus in the current financial year, you can invest a portion of it in an ELSS fund before the end of the financial year. This will help you to reduce your taxable income and save tax.

• If you are paying rent for your house, you can claim deduction for HRA. However, the deduction is limited to the least of the following under Set up a Hindu Undivided under Income tax act:
  • Actual HRA received from your employer
  • 50% of your basic salary + DA
  • Rent paid minus 10% of your basic salary + DA
• If you are traveling for official work, you can claim deduction for LTA. The deduction is limited to the actual LTA received from your employer.
• If you have made charitable donations, you can claim deduction for them under Section 80G under Income tax act. However, the deduction is limited to 50% of the donation amount.
• If you are a senior citizen or super senior citizen, you are eligible for certain tax exemptions. For example, senior citizens are eligible for a deduction of Rs.50,000 on their income.

It is important to note that tax planning is a complex process and there is no one-size-fits-all solution. The best tax planning strategy for you will depend on your individual circumstances. It is advisable to consult a tax professional to get personalized advice.

FAQ QUESTION

• McDowell & Co Ltd v. CTO (1985): The Supreme Court held that tax planning is legitimate provided it is within the framework of law. However, colour able devices cannot be part of tax planning.
• CIT v. Reliance Industries Ltd (1999): The Supreme Court held that the assessed has the right to arrange his affairs in such a way as to reduce his tax liability. However, the assessed cannot resort to colourable devices or artificial transactions.
• CIT v. Vodafone International Holdings BV (2012): The Supreme Court held that the assessed is entitled to plan its tax affairs in the most advantageous manner, provided it acts within the letter of the law. However, the assessed cannot resort to tax avoidance schemes.

These case laws provide the following hints on tax planning under the Income Tax Act:

• Tax planning should be within the framework of law.
• The assessed should avoid colourable devices and artificial transactions.
• The assessed should avoid tax avoidance schemes.

Here are some specific examples of tax planning under the Income Tax Act:

• Investing in tax-saving instruments such as Public Provident Fund (PPF), National Savings Certificate (NSC), and Equity Linked Savings Scheme (ELSS) mutual funds.
• Availing deductions for medical expenses, house rent allowance, and leave travel allowance.
• Claiming deduction for donation to charity.
• Clubbing income with spouse and minor children.
• Filing tax returns on time.

Capital gains

Section 48 of the Income Tax Act, 1961 deals with the computation of capital gains. It provides that the income chargeable under the head “Capital gains” shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely:

• Expenditure incurred wholly and exclusively in connection with such transfer;
• The cost of acquisition of the asset and the cost of any improvement thereto.

Some important points to note about Section 48 under Income tax actare:

• The cost of acquisition of the asset includes the original purchase price of the asset, as well as any incidental expenses incurred at the time of purchase, such as stamp duty and registration charges.
• The cost of improvement to the asset includes any expenditure incurred on the asset after its purchase, which has increased its value or utility.
• In the case of a non-resident assessee, the cost of acquisition and expenditure incurred on the transfer of shares or debentures of an Indian company shall be converted into the same foreign currency as was initially utilised in the purchase of the shares or debentures.

Section 48 under Income tax act also contains some special provisions for the computation of capital gains in certain cases, such as when the capital asset is transferred as a gift or under an irrevocable trust.

EXAMPLES

Suppose an individual purchases a share of a company for ₹100 and sells it for ₹200 after one year. During the year, he also incurs an expenditure of ₹5 on the transfer of the share. In this case, the capital gain of the individual would be computed as follows:

Full value of consideration received = ₹200 Expenditure incurred on transfer = ₹5 Cost of acquisition = ₹100

Capital gain = ₹200 – ₹5 – ₹100 = ₹95

The individual would be liable to pay income tax on the capital gain of ₹95

An individual purchases a share of a company for Rs.100 in 2020. In 2023, he sells the share for Rs.150. The full value of consideration received or accruing as a result of the transfer of the capital asset in this case is Rs.150.

Example 2:

An individual purchases a house for Rs.20 lakhs in 2010. In 2023, he sells the house for Rs.50 lakhs. The full value of consideration received or accruing as a result of the transfer of the capital asset in this case is Rs.50 lakhs.

Companies Act, 2013

Example 3:

A company issues bonus shares to its shareholders in proportion to their existing shareholding. This is an example of variation of shareholders’ rights under Section 48 of the Income tax act Companies Act, 2013.

Example 4:

A company consolidates its shares by reducing the number of shares outstanding. This is also an example of variation of shareholders’ rights under Section 48 of the Companies Act, 2013.

Insolvency and Bankruptcy Code, 2016

Example 5:

A corporate debtor sells its assets to a third party for a price that is undervalued. The Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016, may pass an order under Section 48 of the Income tax act Code to require the third party to pay such consideration for the transaction as may be determined by an independent expert.

CASE LAWS

CIT v. Ram Narain (1977) 107 ITR 640 (SC)

The Supreme Court held that the term “wholly and exclusively” used in Section 48(i) of the Income tax act has to be strictly construed. This means that only expenses that are incurred solely for the purpose of transferring the capital asset can be deducted.

CIT v. V.C. Shah (1996) 219 ITR 449 (SC)

The Supreme Court held that the cost of improvement to a capital asset includes the cost of removing any impediments or encumbrances on the asset that prevent its transfer.

CIT v. Smt. Nitaben M. Patel (2012) 12 Taxmann.com 594 (ITAT Ahmedabad)

The Income Tax Appellate Tribunal (ITAT) held that the expenses incurred to remove impediments or encumbrances in the way of transfer of a capital asset are allowable as deduction under the head “cost of improvement” while computing taxable amount of capital gain.

CIT v. M/s. Reliance Industries Ltd. (2013) 353 ITR 476 (SC)

The Supreme Court held that the cost of acquiring a capital asset includes the cost of borrowing funds to acquire the asset, if the interest on the borrowed funds is capitalized.

ACIT v. M/s. Shree Ram Mills Ltd. (2020) 421 ITR 133 (ITAT Delhi)

The ITAT held that the cost of acquiring a capital asset also includes the cost of acquiring a subsidiary company, if the subsidiary company is held as a capital asset.

These are just a few examples of case laws related to Section 48 of the Income Tax Act, 1961. It is important to note that the interpretation of Section 48 can vary depending on the specific facts of each case. If you have any questions about the application of Section 48 of the Income tax act, it is advisable to consult with a qualified tax advisor

FAQ QUESTIONS

What is Section 48 of the Income tax act Internal Revenue Code?

Section 48 of the Income tax act Internal Revenue Code allows businesses to claim a tax credit for certain qualified property. The credit is designed to encourage investment in new equipment and technologies.

What types of property qualify for the Section 48 of the Income tax act credit?

The following types of property qualify for the Section 48 credit:

• Machinery and equipment
• Energy property
• Alternative fuel vehicles
• Land improvement
• Reforestation property

What is the amount of the Section 48 of the Income tax act credit?

The amount of the Section 48 of the Income tax act credit varies depending on the type of property. The credit is typically 5% of the cost of the property, but it can be as high as 30% for certain types of energy property.

How do I claim the Section 48 of the Income tax act credit?

To claim the Section 48 of the Income tax act credit, you must file Form 3468 with your tax return. You must also attach a copy of Form 4562 if you are claiming the credit for energy property.

What are the deadlines for claiming the Section of the Income tax act48 credit?

You must claim the Section 48 of the Income tax act credit on your tax return for the year in which the property is placed in service. You can file an amended return to claim the credit if you missed the deadline on your original return.

Are there any special rules for claiming the Section 48 of the Income tax act credit?

Yes, there are a number of special rules for claiming the Section 48 of the Income tax act credit. For example, there is a limit on the amount of credit that you can claim each year. There are also special rules for claiming the credit for certain types of property, such as energy property and alternative fuel vehicles.

Here are some additional FAQ questions about Section 48:

Q: What is the difference between the Section 48 of the Income tax act credit and the Section 179 deduction?

A: The Section 48 of the Income tax act credit and the Section 179 deduction are both tax benefits designed to encourage investment in new equipment and technologies. However, there are some key differences between the two.

The Section 48 of the Income tax act credit is a credit against your income tax liability, while the Section 179 deduction is a deduction from your income. This means that the Section 48 credit can reduce your tax liability dollar-for-dollar, while the Section 179 of the Income tax act deduction can only reduce your taxable income.

Another difference between the two is that the Section 48 of the Income tax act credit is spread out over multiple years, while the Section 179 of the Income tax act deduction is taken all at once in the year in which the property is placed in service.

Q: Can I claim both the Section 48 of the Income tax act credit and the Section 179 deduction for the same property?

A: No, you cannot claim both the Section 48 of the Income tax act credit and the Section 179 deduction for the same property. You must choose one or the other.

Q: What should I do if I have more questions about Section 48 of the Income tax act?

A: If you have more questions about Section 48 of the Income tax act, you should consult with a tax professional. They can help you determine whether you qualify for the credit and how to claim it on your tax return.