Kala : The Journal of Indian Art History Congress

ISSN : 0975-7945
INCOME TAX PLANNING FOR INDIVIDUALS IN INDIA FOR THE
ASSESSMENT YEAR 2021-2022

Dr. L. Cesis Dastan

Associate Professor and Research Supervisor, Post Graduate and Research Department of Commerce,
Presidency College (Autonomous), Chennai.

S. Samuel Thangaraj
Research Scholar (Ph.D. Part-time), Post Graduate and Research, Department of Commerce,
Presidency College (Autonomous), Affiliated to University of Madras, Chennai.

M. Mary Peter Shirley

Assistant Professor, Department of Commerce, Holy Cross College (Autonomous), Tiruchirappalli.

Abstract:
People play a dominant role in any society. Any system in a country can be implemented effectively only when there is full
cooperation from its citizens. People contribute to the country’s income by way of taxation. Taxes are levied on the incomes of the
people, as well as on sales, property and in various other ways. Taxes can be broadly classified as direct and indirect taxes. Income
tax falls under the category of direct taxes as it is imposed and levied on the same person and cannot be shifted. The word ‘person’
in Income Tax Act, 1961 includes individuals, Hindu Undivided Families, Companies, Firms, Association of Persons, Body of
Individuals, local authorities and artificial juridical persons. Every person tries to reduce the amount of tax payable by him and thus
undertakes various measures to ensure the same. This study has been undertaken to analyse the income tax planning process and
tax reduction measures for individuals for the Assessment Year 2021-2022.
Key Words: Tax, Individual, Income, Planning, Assessment year

Introduction:
Income tax is a tax levied on the total income of a person in a financial year called previous year. It is imposed directly on the tax
payer and paid by the person to whom it is imposed. Shifting of the responsibility of paying income tax is not possible. A person
can try to minimise the tax burden by using the provisions of the Income Tax Act, called tax planning. One can avail exemptions
and deductions specified in the Act. In financial decision making, one has to give due consideration to income tax also. This study
focusses on income tax planning for individuals for the assessment year 2021-2022.

Objective of the Study:

The main objective of the study is to give ideas to minimise the tax burden of individuals for the assessment year 2021-2022.

Methodology:
The study is based on secondary data. Secondary data were collected from books and websites. The data collected were analysed
from the tax minimisation point of view.

Scope of the Study:

There are several provisions of the Income Tax Act, which can be used for tax planning. In this study, only selected provisions are
taken for analysis. Analysis is made for an individual who is at the age of less than 60 years in the previous year 2020-2021.

Review of Literature:
Dhongde, Siddhaarth, and Vilas Epper (2020) investigate the various tax saving investment strategies among salaried individuals.
The need of the study is to create awareness among salaried individuals to reduce tax liability and maximise the use of all available
deductions. This paper analyses investment products available for tax saving purpose. The aim of this research paper is to
understand tax saving investment management strategies among salaried individuals. Study outcome reveals that the foremost
adopted combination of tax saving instruments is Public Provident Fund, which got the primary rank in this study, followed by
LIC, Home Loan, NPS and other priority is given to Medical Insurance followed by National saving certificates and Fixed Deposits.
The study concludes that tax benefits are given the highest preference of the salaried individuals for their investment decision.
Kalgutkar, Preeti (2018) discussed the personal financial aspects of individual assessee. The need of the study is to create tax
awareness which helps the individual to construct effective tax planning. Self-assessment system requires individuals to have full
understanding of tax rules. The study reveals that the tax planning is not meant avoiding the payment of income tax; it is simply
efficient allocation of earned income in various tax savings investment to get maximum benefits by individual assessee. The aim
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of the researcher is to analyse the connection between tax awareness and planning on wealth creation of individual assessees as
various investments which is prescribed by income tax laws. The study concludes that an individual assessee must invest their hard
earned money on law prescribed investment avenues to get more relaxation on tax.
Savita and Lokesh Gautam (2013) explores tax planning is a fundamental part of financial planning. Furthermore, the study conveys
the effective tax planning procedures to lessen tax liability to the minimum. This is done by truly exploiting all tax exemptions,
deductions rebate and allowances, while guaranteeing that the investments are in accordance with their drawn out objectives. The
study is aimed at to discover the most reasonable and popular tax saving instrument used to save tax and the sum saved by utilizing
that instrument. Over all findings reveal that the most accepted tax saving instrument is Life Insurance policy, which got the primary
position in this investigation and the second most accepted tax saving instrument is Provident Fund.

Analysis and Interpretation:

In this study, five aspects are considered for tax planning which are as follows:
I - Option 1 and Option 2 in computing income tax
In India, for the assessment year 2021-2022, the individual tax payer is given two options regarding computation of income tax.
Tax rates are different under two options. If option 1 is chosen, the individual can avail all deductions and exemptions eligible for
him or her. If option 2 is chosen only deductions under Section 80CCD(2), 80JJA and Sec.87A are available and hence HRA,
Professional Tax paid, Standard deduction, Deduction under Section 80C, etc., cannot be availed.

Tax rates – Option 1 (Old)

Table 1: Income Tax Rate for individuals [Less than 60 years of age]
Taxable Income Option 1 Taxable Income Option 2
Up to Rs.2,50,000 Nil Up to Rs.2,50,000 Nil
Rs.2,50,001 to Rs.5,00,000 5% Rs.2,50,001 to Rs.5,00,000 5%
Rs.5,00,001 to Rs.10,00,000 20% Rs.5,00,001 to Rs.7,50,000 10%
More than Rs.10,00,000 30% Rs.7,50,001 to Rs.10,00,000 15%
Rs.10,00,001 to Rs.12,50,000 20%
Rs.12,50,001 to Rs.15,00,000 25%
More than Rs.15,00,000 30%
Tax rates are lesser for taxable income exceeding Rs.5,00,000 under option 2.

II - Option 1 and Option 2: Which is better under different circumstances?

Analysis is made by taking different situations to choose between option 1 and option 2.
Situation 1: Only income no deductions: If an individual has salary and other income but no deductions or exemptions, then for
taxable income less than Rs.6,00,020, option 1 is better as the amount of tax to be paid is lesser. It is due to the standard deduction
of Rs.50,000 under Section 16(i). When the taxable income is Rs.6,00,020, there is no difference between option 1 and option 2 as
the income tax amount payable is Rs.23,400 in both the cases. When the taxable income is above Rs.6,00,020, option 2 is better.
Situation 2: Professional Tax paid Rs.2,500 and deduction under Section 80C Rs.1,50,000: If an individual has salary and
other income and he or she also pays professional tax of Rs.2,500 and avails maximum deduction under Section 80C of Rs.1,50,000,
then for income less than Rs.12,32,510 before any deduction, option 1 is better as the amount of tax to be paid is lesser. When the
income is Rs.12,32,510 before any deduction, there is no difference between option 1 and option 2 as the income tax amount
payable is Rs.1,26,360 in both the cases. When the income before any deduction is above Rs.12,32,510, option 2 is better.
Situation 3: HRA deduction of Rs.4,300 per month, Professional Tax paid Rs.2,500, deduction under Section 80C
Rs.1,50,000 and deduction under Section 80D Rs.2,160: If an individual has salary and other income and he or she claims
deduction of House Rent Allowance of Rs.4,300 per month, pays professional tax of Rs.2,500 and avails maximum deduction under
Section 80C of Rs.1,50,000 and deduction under Section 80D Rs.2,160, then option 1 is better as the amount of tax to be paid is
lesser.
Situation 4: HRA deduction of Rs.4,300 per month, Professional Tax paid Rs.2,500, deduction under Section 80C
Rs.1,50,000, deduction under Section 80CCD(1B) of Rs.50,000 and deduction under Section 80D Rs.2,160: If an individual
has salary and other income and he or she claims deduction of House Rent Allowance of Rs.4,300 per month, pays professional tax
of Rs.2,500 and avails maximum deduction under Section 80C of Rs.1,50,000, deduction under Section 80CCD(1B) of Rs.50,000
and deduction under Section 80D Rs.2,160, then option 1 is better as the amount of tax to be paid is lesser.
Situation 5: Professional Tax paid Rs.2,500, Interest on borrowed capital for self-occupied house property of Rs.2,00,000
and deduction under Section 80C Rs.1,50,000: If an individual has salary and other income and pays professional tax of Rs.2,500,
claims deduction for interest on borrowed capital or self-occupied residential house property and avails maximum deduction under
Section 80C of Rs.1,50,000, then option 1 is better as the amount of tax to be paid is lesser.
The above situations are summarised in table 2.
Table 2: Option 1 or Option 2 - Which is better?

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Kala : The Journal of Indian Art History Congress
ISSN : 0975-7945
S. No. Situation Better Option
1. Only income no deduction
 Taxable income less than Rs.6,00,020 Option 1
 Taxable income is above Rs. 6,00,020 Option 2
2. Professional Tax paid Rs.2,500 and deduction under Section 80C –
Rs.1,50,000
 Taxable income less than Rs.12,32,510 Option 1
 Taxable income is above Rs.12,32,510 Option 2
3. HRA deduction of Rs.4,300 per month, Professional Tax paid Rs.2,500, Option 1
deduction under Section 80C Rs.1,50,000 and deduction under Section 80D
Rs.2,160
4. HRA deduction of Rs.4,300 per month, Professional Tax paid Rs.2,500, Option 1
deduction under Section 80C Rs.1,50,000, deduction under Section
80CCD(1B) of Rs.50,000 and deduction under Section 80D Rs.2,160
5. Professional Tax paid Rs.2,500, Interest on borrowed capital for self- Option 1
occupied house property of Rs.2,00,000 and deduction under Section 80C
Rs.1,50,000

III - When taxable income is between Rs.5,00,001 and Rs.5,50,000

When taxable income, that is, income after deductions under Section 80C to 80U is between Rs.5,00,001 and Rs.5,50,000, the
income tax for the different levels is as follows under option1:
Table 3: Tax under Option 1 for taxable income from Rs.5,00,000 to Rs.5,50,000
Taxable income (Rs.) Tax under Option 1 (Rs.)
5,00,000 Nil
5,00,010 13,000
5,01,000 13,210
5,10,000 15,080
5,15,000 16,120
5,16,420 16,420
5,16,430 16,420
5,20,000 17,160
5,50,000 23,400

From the above table it is inferred that if the taxable income is increased by Rs.10 from Rs.5,00,000 to Rs.5,00,010, the income tax
is increased by Rs.13,000. If the income is increased by Rs.1,000 from Rs.5,00,000 to Rs.5,01,000, the income tax is increased by
Rs.13,210 and so on. It is because Rebate under Section 87A could not be availed. The amount of rebate under Section 87A is 100
per cent of income tax or Rs.12,500 whichever is less. It is deductible from income tax before calculating health and education
cess.
An individual can plan in such a way that he or she can minimise the tax burden in the above cases by using rebate under Section
87A. If the individual has not claimed deduction under Section 80C fully, that is, maximum amount of Rs.1,50,000 is not availed,
then he can invest in 80C to minimise tax. For example, if the taxable income is Rs.5,00,010, the income tax is Rs.13,000. To
minimise the tax of Rs.13,000, the taxable income is to be reduced by Rs.10. Therefore, the individual can invest in schemes
available under Section 80C a minimum amount of Rs.250 in in a year for 15 years for a girl below the age of 10 years for 15 years
or minimum amount of Rs.500 in a year for 15 years (Interest rate around 7.1%) in Public provident fund or minimum amount of
Rs.1,000 in NSC VIII issue at interest rate of 6.8% in which after 5 years he or she can get Rs.1,389.49.
If the individual has already claimed the maximum amount of Rs.1,50,000 in 80C, he or she can avail deduction under Section
80CCD(1B) additional deduction of Rs.50,000 for contribution made in the National Pension Scheme.
If the individual has already claimed the maximum amount in 80C and 80CCD(1B), then he or she can try to avail deduction under
Section 80D by paying insurance premium for the health of the individual, spouse and dependent children, the maximum amount
being Rs.25,000, if any one of the family members is a senior citizen, then upto Rs.50,000 can be claimed. Senior citizen refers to
individual Resident in India of the age of 60 years or more at any time during the relevant previous year. Further deduction upto
Rs.25,000 can be claimed if the medical insurance premium is paid for parents. If any of the parents is a senior citizen the maximum
amount is Rs.50,000 instead of Rs.25,000.
If the individual has already claimed deduction under Section 80C, 80CCD(1B) and 80D fully, then he or she claim deduction
under Section 80G by making contribution or donations to certain funds or charitable institutions. There are four categories. The
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amount of deduction varies with the category in which it comes under. In category 1 one can claim 100% deduction without any
qualifying limit. In category 2, 50% without any qualifying limit. In category 3, 100% with qualifying limit and in category 4, 50%
with qualifying limit. Qualifying limit means 10% of the Adjusted Gross Total Income. Adjusted Gross Total Income refers to
Gross Total Income after subtracting deduction under Section 80s. Donation in kind is not allowed for deduction. Donation
exceeding Rs.2,000 is to be made by a mode other than cash.
The following table shows the taxable income, amount of tax, the investment or contribution made, revised tax and savings in tax
and savings in cash outflow.
Table 4: Savings in Tax and Cash outflow for taxable income from Rs.5,00,000 to Rs.5,50,000
Investment / Savings in Cash
Taxable income Tax Contribution Revised Tax Savings in Tax outflow
5,00,000 Nil Nil Nil Nil Nil
5,00,010 13,000 50/250 Nil 13,000 12,950/12,750
5,10,000 15,080 10,000 Nil 15,080 5,080
5,15,000 16,120 15,000 Nil 16,120 1,120
5,16,420 16,420 16,420 Nil 16,420 Nil
5,16,430 16,420 16,430 Nil 16,420 -10
5,20,000 17,160 20,000 Nil 17,160 -2,840
5,50,000 23,400 50,000 Nil 23,400 -26,600

IV - Tax planning on housing loan for self-occupied residential house property

Where the property consists of a house or part of a house which (a) is in the occupation of the owner for the purposes of his own
residence; or (b) cannot actually be occupied by the owner owing to his employment, business or profession carried on at any other
place, he has to reside at that other place in a building not belonging to him, that property is considered to be the self-occupied
house property and the annual value of such house or part of the house is taken to be nil. Interest on capital borrowed for acquisition,
construction, repairs and renewal or reconstruction can be claimed.
Where the property referred to above consists of more than 2 houses the provisions of that sub-section shall apply only in respect
of 2 of such houses, which the assessee may, at his option, specify in this behalf.
Deduction on home loan interest cannot be claimed when the house is under construction. It can be claimed only after the
construction is finished. The period from borrowing money until construction of the house is completed is called pre-construction
period. Interest paid during this time can be claimed as a tax deduction in five equal instalments starting from the previous year in
which the construction of the property is completed.
Deduction under Section 80C: In relation to housing loan, the registration fee, stamp duty and other expenses on transfer paid can
be claimed under Section 80C subject to a maximum amount of Rs.1,50,000 along with other deductions which come under that
section.
Repayment of principal amount can also be claimed under Section 80C subject to a maximum amount of Rs.1,50,000 along with
other deductions which come under that section. It is subject to a condition that if the assessee transfers the house property before
the expiry of 5 years from the end of the financial year in which possession of such property is obtained by him, then no deduction
shall be allowed to the assessee with reference to any of the sums, paid in such previous year; and the aggregate amount of the
deductions of income so allowed in respect of the previous year or years preceding such previous year, shall be deemed to be the
income of the assessee of such previous year and shall be liable to tax in the assessment year relevant to such previous year.
Deduction under Section 24(b): Interest payable on borrowed capital: Under Section 24(b), interest payable on two self-occupied
house properties is allowed. It is allowed on accrual basis and not on payment basis. Therefore, if the interest is due but not paid, it
can be claimed.
(a) If the capital is borrowed before 1.4.1999 for acquisition, construction, repairs, renewals or reconstruction, the maximum
deduction on interest on borrowed capital allowed is Rs.30,000.
(b) If the capital is borrowed on or after 1.4.1999:
(i) For repairs, renewals, reconstruction: Maximum deduction on interest on borrowed capital is Rs.30,000.
(ii) For acquisition or construction: Maximum deduction on interest on borrowed capital is Rs.2,00,000 if such acquisition or
construction is completed within 5 years from the end of the financial year in which capital was borrowed. Otherwise, it is
Rs.30,000.
The aggregate of deduction on interest on borrowed capital under Section 24(b) is Rs.2,00,000.
The assessee should furnish a certificate, from the person to whom any interest is payable on the capital borrowed, specifying the
amount of interest payable by the assessee for the purpose of such acquisition or construction of the property.
Deduction under Section 80EE Interest payable on loan borrowed: Interest payable on loan borrowed for acquisition of house
property by an individual is deductible under this section subject to the following conditions:
1. The assessee should not own any residential house on the date of sanction of loan
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2. The value of house is less than or equal to Rs.50 lakhs.
3. Loan sanctioned is less than or equal to Rs.35 lakhs.
4. Loan should be sanctioned by a financial institution during the previous year 2016-17.
The maximum deduction: Rs.50,000.
This is over and above the deduction of upto Rs.2,00,000 available under Section 24(b) for interest on loan borrowed for acquisition
of self-occupied property. Sec24(b) and Sec 80EE put together one can claim Rs. 2,50,000.
Deduction under Section 80EEA Interest payable on loan borrowed: Interest payable on loan borrowed for acquisition of house
property by an individual is deductible under this section subject to the following conditions:
1. The assesses should not own any residential house on the date of sanction of loan
2. Stamp duty value of the house is less than or equal to Rs.45 lakhs.
3. The individual should not be eligible to claim deduction under Section 80EE.
4. Loan should be sanctioned by a financial institution during the previous year 2019-20.
The maximum deduction: Rs.1,50,000.
This is over and above the deduction of upto Rs.2,00,000 available under Section 24(b) for interest on loan borrowed for acquisition
of self-occupied property. Sec24(b) and Sec 80EEA put together one can claim Rs. 3,50,000.
The above discussion is summarised in table 5.
Table 5: Deductions for housing loan
Description Section Maximum
amount (Rs.)
Stamp duty and registration fee paid 80C 1,50,000
Repayment of housing loan principal amount 80C 1,50,000
Interest payable on loan borrowed [two houses]: 24(b)
 Repairs 30,000
 Acquisition or construction of residential house property
- Loan borrowed before 1.4.1999 30,000
- Loan borrowed on or after 1.4.1999 2,00,000
Interest payable for loan sanctioned during 2016-17 for acquisition of 80EE 50,000
residential house property
Interest payable for loan sanctioned during 2019-20 for acquisition of 80EEA 1,50,000
residential house property

V Claiming HRA and Interest on borrowed capital

House rent allowance [Sec. 10(13A)]: Least of the following is exempt from tax:
1. An amount equal to 50 per cent of salary, where residential house is situated at Bombay, Calcutta, Delhi or Madras and an
amount equal to 40 per cent of salary where residential house is situated at any other place.
2. House rent allowance received by the employee in respect of the period during which rental accommodation is occupied by the
employee during the previous year.
3. The excess of rent paid over 10 per cent of salary.
Salary for this purpose means basic salary and includes dearness allowance if it forms part of salary for retirement benefits. It also
includes commission based on fixed percentage of turnover achieved by an employee as per terms of contract of employment.
The amount of exemption in respect of house rent allowance received by an employee depends upon the following –
a) Salary of the employee, b) house rent allowance, c) rent paid and d) the place where house is taken on rent. When these four are
same throughout the previous year, the exemption should be calculated on annual basis. When there is a change in respect of any
of the aforesaid factors, then the exemption shall be worked out on monthly basis.

If the owner of the house property (maximum 2 house properties) cannot occupy the house by the reason of the fact that owing to
his employment, business or profession carried on at any other place, he has to reside at other place in a building not belonging to
him for which he pays rent and receives HRA, then he can claim both HRA exemption and interest on borrowed capital under
Section 24(b).

Conclusion
A country can succeed in all aspects only when the government and the people work together efficiently. Taxes contribute
significantly to the country’s revenue and thus boost up the country’s growth to a great extent. So, the government imposes tax on
various levels, but, at the same time, enables the citizens to reduce their tax liability by means of deductions and exemptions. So,
the people who fall under the purview of taxation have the duty to pay taxes to the government. They also exercise the right to
claim the various deductions and exemptions available to them. Tax planning, if properly executed, is beneficial to both government
as well as individuals. So, it is up to the citizens to undertake proper tax planning measures so that it is not detrimental to their own

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interests as well as beneficial to the government.

References:
1. Dhongde, Siddhaarth, and Vilas Epper. "Tax Saving Investment Strategies among Salaried Individuals in Aurangabad City."
2. Kalgutkar, Preeti. "Tax awareness and tax planning on wealth creation of individual assessees." SJOM Journal of Management
2.1 (2018): 11-23.
3. Graham, John R., et al. "Incentives for tax planning and avoidance: Evidence from the field", The Accounting Review 89.3
(2014): 991-1023.
4. Savita and Gautam Lokesh. "Income tax planning: A study of tax saving instruments." International Journal of Management and
Social Sciences Research 2.5 (2013): 83-91.
5. Vinod K. Singhania and Monica Singhania, Students’ Guide to Income Tax including GST, 62nd Edition, Taxmann Publications
Pvt. Ltd., New Delhi.
6. [Link]

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