Tips on Tax Planning and proof maintenance

Tips on Tax Planning and proof maintenance

Indian tax laws are complicated because of various deductions, exemptions, relief and rebates. Being liable to pay tax creates a responsibility for an individual to do tax planning so that he should arrange his financial activities in such a way that maximum tax benefits are enjoyed.Tax

Tax planning is an honest and rightful approach to optimize tax liability. It implies compliance with the taxation provisions in such a manner that full advantage is taken of all tax deductions and exemptions. Since, every tax payer wishes to retain the maximum part of his earnings, rather than parting with it and facing resource crunch, it would be his benefit to invest in such a way that he avails the maximum deduction from his income.

An individual is eligible to take deduction from his income maximum up to Rs. 1 Lac, if he invests under Sec 80 C of IT act. The benefits u/s 80C+80CCC+80CCD(1) cannot exceed 1 Lac.

There are many other provisions for deduction in respect of medical insurance premium, medical treatment, repayment of loan taken for higher studies, donations, rent paid, royalty income, investment in long-term infrastructure bonds, etc.

A part from deduction, there are many sources of income which are exempt from tax wholly or to some extent; like HRA (house rent allowance), gratuity, commuted pension, etc. Tips on Tax Planning and proof maintenance

So, if an employee has an opportunity to plan his salary package then he should keep the following aspects in view:-

  • The employee should opt for division of salary into basic pay and allowance and should not opt for the consolidated salary because some of the allowances are exempt from tax up to a certain extent.
  • Dearness allowance (DA) should form part of the retirement benefits. This will not only increase the employee’s retirement benefits but also reduce his tax incidence in respect of HRA, gratuity, commuted pension, etc.
  • Any commission payable should be based on turnover so as to form part of salary. This will also reduce the tax incidence.
  • The employee’s contribution to RPF (recognized provident fund) should be 12% of salary as it is exempt up to this limit. Tips on Tax Planning and proof maintenance

Why Investment/Expenses Proof is Important?

Tax payers are required to submit their investment and required expenses details with proper proof to their employer so that the employer should know about the relevant details which will further pass on to CBDT (Central Board of Direct Taxes). If the proof is not submitted during the reasonable time then the employee could not be able to avail deductions or exemptions.

If a company is not satisfied about the correctness of the proof, it will not accept it. In this case, the employee will not able to claim the genuine deduction and exemption, because it is adhered by mandate given by CBDT to all companies to satisfy themselves about the correctness of investments/payments proofs provided by employees.

A company may not accept the document from an employee due to lack of adequate proof. In that case, the employee can claim such benefits from the Income Tax Department directly while filing the return again with proper proof; however at that time it would be not be an easy task to get the things done. After filing return the assessee has to file the rectification petition to income tax authorities. Then within 6 months from the end of the month in which application has been made, the order for rectification will pass. The rectification will be made either by an Income- tax authority or by the commissioner of Income-tax (appeals).

Therefore, it is very important to provide proper proof during the reasonable time to take advantages of deduction and exemptions, which is the right of every tax payer.

Important Proofs While Filing IT Return

Following are some important list of the “proof” used for taking advantages of deductions under sec 80 C of IT act :-

  • Life Insurance Premium : Premium payment receipt having name of the insured, sum assured and payment date.
  • Provident Fund (PF) : Receipts of contribution in PF with details of total contribution in previous year.
  • National Saving Certificate (NSC) : The certificate itself is the proof. Make sure that investor’s details are correct.
  • Fixed Deposit (FD) : 5 year FD certificate that mentions the deposits is eligible for tax sever scheme.
  • Repayment of Housing Loan : The receipt of Principal amount paid for housing loan.
  • Pension Fund : The receipt of sum contributed under the pension plan of Life Insurance Corporation or the pension scheme notified by Central Govt. Tips on Tax Planning and proof maintenance


Apart from above mentioned proofs, the taxpayers should also keep proper records of expenses claimed under income tax and bills of various assets and products purchased. As per various stipulations, it is important for a taxpayer to keep tax records and supporting documents for at least 8 years. So, it is important to keep the documents safe and secure to easily handle the IT scrutiny anytime in the career.

Leave a comment

Tax Consulting, Accounting & Bookkeeping Services