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Choice of Accounting System

The document discusses various options for structuring an effective tax plan as a salaried employee to reduce tax liability. It recommends: 1) Restructuring annual compensation to include tax-exempt allowances like transport, medical reimbursements, and food coupons. 2) Utilizing maximum exemptions under sections 80C, 80CCF, and 80D by investing in eligible instruments up to specified limits. 3) Structuring housing loans jointly to maximize tax deductions on principal and interest payments. 4) Integrating tax planning with overall financial goals and avoiding last-minute rushed investments.

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Ankush At Shiv Shakti
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79 views4 pages

Choice of Accounting System

The document discusses various options for structuring an effective tax plan as a salaried employee to reduce tax liability. It recommends: 1) Restructuring annual compensation to include tax-exempt allowances like transport, medical reimbursements, and food coupons. 2) Utilizing maximum exemptions under sections 80C, 80CCF, and 80D by investing in eligible instruments up to specified limits. 3) Structuring housing loans jointly to maximize tax deductions on principal and interest payments. 4) Integrating tax planning with overall financial goals and avoiding last-minute rushed investments.

Uploaded by

Ankush At Shiv Shakti
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Choice of Accounting System One of the many decisions to be made on starting a business is about how you are going

to keep your accounting records. The need for good record keeping undoubtedly is key attribute for business success helping in the smooth and profitable running of any venture. Being on top of the figures can also make for a more effective working relationship with your accountants. There time with you being spent more on the business plans as opposed to sorting out poor record keeping. The choice of system or method for keeping your accounting records will depend on a number of key issues not least the nature of your business, your appreciation and level of comfort over such matters, a desire to keep in control of your finances ; as well cost and time constraints. The easy answer for some may be to out source the solution to a bookkeeper or accountant. In the main though most will look for an in house solution, through use of either a paper based manual bookkeeping package, use of computerised spreadsheets or an off the shelf computerised accounting packages. The table on the following page aims to highlight aspects to consider when looking at what option to take or what might suit your needs best. When considering your own requirements it may well be beneficial talking to your accountant as to what they feel suits you. Experience shows that making the right choice over your accounting system makes running a business easier and the preparation of end of year accounts much simpler.

Tax Planning for Salaried Employees


We have stressed the need for investors to do their whole years tax planning at the beginning of financial year to reduce tax liability and avoid last minute rush. It has been observed that most of investors who do tax saving near closing of the financial year end up buying policies which dont match their financial objectives and are also an easy prey to agents selling bad financial products. So why dont you spend some time on organizing your tax plan? 1) Proper Allocation of Annual compensation Restructuring your salary with some additional components can reduce your tax liability. This restructuring doesnt require any additional cash outflow. The following components can be efficiently used to reduce your income tax liability.

- Transport allowance to the extend of Rs.800 is exempt - Medical expenses which are reimbursed by the employer are exempt to the tune of Rs.15000 - Food coupons like sodexo or ticket restaurant are exempt from tax up to Rs.60000 - Individuals who are all living in a rented accommodation can include House Rent Allowance ( HRA ) as a part of their salary - Leave Travel Allowance (LTA) can be part of your salary as this can be claimed twice in a block of 4 years. 2) Effective Utilization of Tax Exemption As far as possible utilize the maximum exemptions available under section 80 C, 80 CCF and 80 D. The maximum exemption available under section 80 C is Rs. 1,00,000. Under this section Rs.1,00,000 investment or contribution can be made in PPF, NSC, Life insurance premium, 5 year FD with banks and Post offices, Mutual Fund ELSS, Principal Repayment of housing loan, and the tuition fees paid for childrens education. Under Section 80 CCF, you can invest up to Rs.20,000 in infrastructure bonds. Under Sec 80 D, the premium paid towards the mediclaim policies are exempt. The maximum limit of exemption is Rs.15,000 and for senior citizens the limit is Rs.20,000 and for covering senior citizen parents there is an additional exemption to the extend of Rs.15,000. 3) Properly Structure your Housing Loan The Principal repayment of a housing loan is eligible for a deduction up to Rs.1,00,000. The interest paid on a housing loan is eligible for a deduction up to Rs.1,50,000. If the housing loan is for a sizeable amount, then it is possible that the principal repayment and interest may exceed the specified tax exemption limit. To

utilise the maximum tax benefit, an individual can consider going for a joint home loan with his/her spouse or parent or sibling. This will make sure that both the coowners can claim tax deductions in the proportion of their holding in the loan. 4) Tax Plan in Sync with Overall Financial Plan You should not do your tax plan in isolation. You need to do it in sync with your overall financial plan. So a tax plan is not only to just save taxes and also it should assist you in achieving your other financial goals like childrens higher education, buying a home or retirement. 5) Avoid Last Minute Rush In fact the right time to do the tax plan is the beginning of the financial year. If you postpone your tax planning even now and do it in the last minute, then you will not be able to choose the right investment. In the last minute rush, you will be forced to choose a scheme which gives the proof immediately. Is the investment sound and profitable? Is there any other better options? You will not be able to choose the best scheme and you may settle with a mediocre one. 6) Invest Some Quality Time Before investing your money, you need to invest your time. You need to take some quality time to understand the various tax saving options and compare their benefits and limitations. 7) Check for Future Commitments Some tax saving options like NSC or ELSS need only one time investment. Some other tax saving options like PPF, Ulips need periodical investments year after year. You need to be careful in choosing a tax saving scheme where you need to commit for periodical future payments. You need to check on a few things like; do you need such a future commitment? Will you be able to meet the future commitments at ease? The law may change and you may not get any tax exemption for your future payments. Would you consider the scheme irrespective of tax benefit for the future payments? 8 ) Changed Your Job; Redo your Tax Plan

Did you switch your job in the middle of the financial year? Then you need to redo your tax plan with consolidating the income from both the companies. It is advisable to inform the new company about the income during the particular financial year from the old company. So that your new company will deduct the right amount of TDS. Otherwise you may need to pay extra tax at the end of the financial year. Whenever you change your job, you need to have a sitting with your financial planner or tax advisor. So that the required changes in your tax plan can be done proactively. With proper tax planning you can reduce your tax liability; save more; invest better and become wealthier.

Tax Deduction @ Source:


Tax deducted at source is one of the modes of collecting Income-tax from the assessees in India. Such collection of tax is effected at the source when income arises or accrues. Hence where any specified type of income arises or accrues to any one, the Income-tax Act enjoins on the payer of such income to deduct a stipulated percentage of such income by way of Income-tax and pay only the balance amount to the recipient of such income. The tax so deducted at source by the payer, has to be deposited in the Government treasury to the credit of Central Govt. within the specified time. The tax so deducted from the income of the recipient is deemed to be payment of Income-tax by the recipient at the time of his assessment. Income from several sources is subjected to tax deduction at source. Presently this concept of T.D.S. is also used as an instrument in enlarging the tax base. Some of such income subjected to T.D.S. are salary, interest, dividend, interest on securities, winnings from lottery, horse races, commission and brokerage, rent, fees for professional and technical services, payments to non-residents etc. It is always considered as an Advance tax which is paid to the government when we are being paid for provision made by us in the form of products or services.

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