UNIT 4: DIGITAL FINANCE (BBA NOTES) Chitkara University

Aspects of Personal Tax Planning

Personal tax planning refers to the process of organizing income, expenses, and investments to minimize tax liability legally while achieving financial goals.It involves using available tax deductions, exemptions, and rebates under the Income Tax Act to ensure efficient financial management.

Objectives of Tax Planning

1. Reduction of Tax Liability – Legally lower the amount of tax payable.

2. Encouragement of Savings – Promote systematic saving through tax-beneficial schemes.

3. Financial Security – Ensure funds for emergencies, retirement, or education.

4. Avoidance of Litigation – Stay compliant with tax laws and avoid penalties.

5. Productive Investment – Direct funds into instruments that offer returns and tax benefits.

Major Aspects of Personal Tax Planning

1. Understanding the Tax System

Every individual should know:

• Their applicable income tax slabs.

• The difference between Old and New Tax Regimes.

• How to choose the regime that offers maximum tax benefit.

2. Tax-Saving Investments (Section 80C)

Maximum deduction limit: ₹1.5 lakh per financial year.Common investment options:

• Public Provident Fund (PPF)

• Employee Provident Fund (EPF)

• Equity Linked Savings Scheme (ELSS)

• National Savings Certificate (NSC)

• Life Insurance Premiums

• Sukanya Samriddhi Yojana (SSY)

• 5-Year Tax Saving Fixed Deposit

3. Health Insurance (Section 80D)

• Deduction up to ₹25,000 for self, spouse, and children.

• Additional ₹50,000 for senior citizen parents.

• Encourages individuals to plan for healthcare expenses.

4. Housing Loan Benefits

• Interest deduction: Up to ₹2,00,000 under Section 24(b).

• Principal repayment: Up to ₹1,50,000 under Section 80C.Helps in wealth creation through property ownership.

5. Retirement and Education Planning

• Section 80CCD(1B): Additional ₹50,000 deduction for investment in NPS (National Pension System).

• Section 80E: Deduction on interest paid on education loans (no upper limit).

6. Donations and Charity (Section 80G)

Donations to specified charitable institutions qualify for 50% or 100% deduction.Encourages social welfare and community support.

7. Capital Gains Management

Plan sale or transfer of assets like shares or property to reduce capital gains tax.

• Section 54, 54EC, 54F allow exemptions if reinvested in specific assets.

8. Tax-Free Income Sources

Some income categories are exempt from tax:

• Interest from PPF.

• Agricultural income.

• Maturity proceeds from life insurance (subject to conditions).

Importance of Personal Tax Planning

• Ensures maximum savings and wealth growth.

• Promotes financial discipline and awareness.

• Helps in achieving long-term financial goals efficiently.

• Encourages individuals to invest in productive sectors of the economy.

Understanding Tax Saving Schemes – Government Schemes

Introduction

Tax-saving schemes are government-backed investment options that help individuals reduce taxable income and build long-term savings.These schemes are safe, regulated, and designed to encourage people to develop financial discipline while contributing to the nation’s economic growth.

In today’s digital world, most of these schemes can be accessed or managed through mobile apps, online banking, and social media awareness campaigns.

1. National Savings Certificate (NSC)

A fixed-income savings scheme offered by the Government of India, mainly for small and medium investors.

Key Features:

• Available at Post Offices.

• Tenure: 5 years.

• Interest Rate: Decided quarterly by the government (compounded annually).

• Tax Benefit: Eligible for deduction under Section 80C (up to ₹1.5 lakh).

• Low risk, guaranteed returns.

• Can be purchased online through India Post portal or India Post Payments Bank App (IPPB).

Purpose: Safe investment option for conservative investors seeking assured returns and tax savings.

2. Public Provident Fund (PPF)

One of the most popular long-term government schemes for tax-free and secure savings.

Key Features:

• Tenure: 15 years (extendable in 5-year blocks).

• Interest Rate: Compounded annually and notified quarterly.

• Investment Limit: ₹500 to ₹1.5 lakh per year.

• Tax Benefit:

  • Deduction under Section 80C.

  • Interest and maturity proceeds are tax-free (EEE status – Exempt, Exempt, Exempt).

• Can be managed via online banking apps or India Post portal.

Purpose: Ideal for long-term goals like retirement, education, or home purchase.

3. Post Office Savings Schemes

These are simple and reliable investment options for individuals in rural and urban areas.

Popular Schemes Include:

• Post Office Monthly Income Scheme (POMIS): Fixed monthly income.

• Post Office Time Deposit (TD): Fixed deposits for 1–5 years.

• Post Office Recurring Deposit (RD): Regular savings with monthly installments.

• Senior Citizen Savings Scheme (SCSS): High-interest scheme for retirees.

Tax Benefit:

• Most schemes qualify under Section 80C for tax deduction.

• Some provide guaranteed returns backed by the government.

Digital Access:Investors can open and manage accounts through IPPB App or Post Office online services.

4. Equity Linked Savings Scheme (ELSS)

A market-linked tax-saving mutual fund that offers higher returns along with tax benefits.

Key Features:

• Lock-in Period: 3 years (shortest among 80C options).

• Investment Type: Equity mutual fund.

• Tax Benefit: Deduction under Section 80C (up to ₹1.5 lakh).

• Returns: Market-dependent but potential for high growth.

• Can be invested via Mutual Fund apps like Groww, Zerodha, or Paytm Money.

Purpose: Best suited for young investors with a higher risk appetite.

5. National Pension System (NPS)

A government-backed retirement savings scheme for employees and self-employed individuals.

Key Features:

• Regulated by: Pension Fund Regulatory and Development Authority (PFRDA).

• Investment Options: Equity, Corporate Bonds, and Government Securities.

• Tax Benefits:

  • Deduction under Section 80CCD(1) (part of 80C limit).

  • Additional deduction of ₹50,000 under Section 80CCD(1B).

• Withdrawal: Partial withdrawal allowed after 3 years for specific needs.

• Managed via NPS Mobile App, UMANG App, or official website (cra-nsdl.com).

Purpose: To build a retirement corpus with both safety and growth.

6. Use of Mobile Apps and Social Media

The government and financial institutions use technology to make tax-saving investments accessible and transparent.

Examples:

• Mobile Apps:

  • NPS App, IPPB App, BHIM UPI, Paytm, SBI YONO, ICICI iMobile, HDFC NetBanking.

• Social Media:

  • Used for spreading awareness about financial literacy and government saving schemes through campaigns, infographics, and official handles (like @mygovindia, @finminindia).

These tools help citizens track investments, calculate returns, and stay updated on new schemes and tax benefits.

Exemptions and Deductions for Individuals

Under the Income Tax Act, 1961, individuals are allowed certain exemptions and deductions to reduce their taxable income.These benefits help promote savings, investment, and financial security while ensuring tax compliance.

In simple terms:👉 Exemptions = Certain types of income are not taxable.👉 Deductions = Amounts you can subtract from total income before calculating tax.

Exemptions

Exemptions mean specific incomes are fully or partially excluded from taxation.

Common Exemptions for Individuals

Type of Income	Exemption Details
House Rent Allowance (HRA)	Exempt up to certain limits if you pay rent.
Leave Travel Allowance (LTA)	Exemption for travel expenses within India.
Gratuity	Fully/partially exempt based on employment type and amount.
Pension (Commuted)	Partially exempt for government employees.
Agricultural Income	Fully exempt from tax.
Maturity of Life Insurance Policy	Exempt under Section 10(10D) (subject to conditions).
Scholarship	Fully exempt under Section 10(16).
PF Withdrawal (after 5 years)	Fully exempt from tax.

💡 Note: Exemptions mainly apply to salary and retirement benefits.

Deductions

Deductions are amounts that can be subtracted from gross total income to determine taxable income.These are allowed under Sections 80C to 80U of the Income Tax Act.

Key Deductions Available to Individuals

A. Section 80C – Investments and Savings

Maximum limit: ₹1,50,000 per year

Eligible investments include:

• Public Provident Fund (PPF)

• Employee Provident Fund (EPF)

• Life Insurance Premiums

• Equity Linked Savings Scheme (ELSS)

• National Savings Certificate (NSC)

• Sukanya Samriddhi Yojana (SSY)

• Principal repayment of home loan

B. Section 80CCD – National Pension System (NPS)

• Additional deduction of ₹50,000 (Section 80CCD(1B)) over and above 80C limit.

• Encourages retirement savings.

C. Section 80D – Medical Insurance

• ₹25,000 deduction for self, spouse, and children.

• ₹50,000 for parents (if senior citizens).

D. Section 80E – Education Loan Interest

• Deduction on interest paid for education loan (no limit on amount).

• Available for higher education of self, spouse, or children.

E. Section 80G – Donations

• Deduction for donations to charitable institutions or relief funds (50% or 100% depending on fund type).

F. Section 24(b) – Housing Loan Interest

• Deduction up to ₹2,00,000 on home loan interest for self-occupied property.

G. Section 80TTA / 80TTB – Savings Account Interest

• 80TTA: ₹10,000 deduction on interest for individuals below 60 years.

• 80TTB: ₹50,000 deduction for senior citizens.

H. Section 80U – Disability of Individual

• Deduction of ₹75,000 for disabled individuals and ₹1,25,000 for severe disability.

Difference Between Exemption and Deduction

Basis	Exemption	Deduction
Meaning	Income excluded from total taxable income.	Amount reduced from gross total income.
Applicability	Specific income types.	Certain expenses or investments.
Examples	HRA, LTA, Agricultural Income.	80C, 80D, 80E, 80G, etc.

Importance of Exemptions and Deductions

• Helps individuals reduce overall tax burden.

• Encourages savings and investments in national schemes.

• Promotes social security and welfare contributions.

• Improves financial literacy and tax compliance among citizens.

E-Filing of Personal Tax

E-filing (Electronic Filing) is the process of submitting an individual’s Income Tax Return (ITR) through the internet, without visiting the Income Tax Office. It ensures convenience, accuracy, and transparency in tax compliance.

E-filing allows taxpayers to upload their income, deductions, and tax details on the official Income Tax e-filing portal — www.incometax.gov.in. It can be done either with a Digital Signature Certificate (DSC), through Aadhaar OTP, or by sending a signed ITR-V to the CPC (Centralized Processing Centre), Bengaluru.

Steps for E-Filing of Personal Tax

1. Register on the Income Tax Portal

   • Visit www.incometax.gov.in

   • Register using PAN (Permanent Account Number), which acts as your User ID.

2. Collect Required Documents

   • PAN Card, Aadhaar Card

   • Form 16 (Salary Certificate)

   • Form 26AS / AIS (Tax Credit Statement)

   • Bank Account Details, Investment Proofs, Rent Receipts, etc.

3. Select the Appropriate ITR Form

   • ITR-1 (Sahaj): For salaried individuals with income up to ₹50 lakh.

   • ITR-2/3: For individuals with multiple income sources.

4. Fill in Income and Deduction Details

   • Include income from salary, house property, capital gains, and other sources.

   • Claim deductions under Sections 80C to 80U.

5. Compute Tax Payable / Refundable

   • The portal auto-calculates tax based on your entries.

6. Submit and Verify the Return

   • E-verify instantly using Aadhaar OTP, Net Banking, or Digital Signature.

   • Alternatively, send the signed ITR-V to CPC Bengaluru within 30 days.

Benefits of E-Filing

• Convenient & Time-Saving: Can be done anytime, anywhere.

• Accuracy: Automated calculations reduce errors.

• Instant Acknowledgment: Immediate confirmation of submission.

• Transparency: Direct link between taxpayer and government.

• Faster Refunds: Verified returns are processed quickly.

• Eco-Friendly: Paperless filing system.

Precautions During E-Filing

• Ensure correct PAN, bank details, and income figures.

• Always verify your return after filing — unverified ITR is considered invalid.

• Use secure internet connection to prevent data theft.

• Keep acknowledgment (ITR-V) for future reference.