The Income-tax Law offers numerous incentives, concessions, exemptions and deductions for reducing the tax liability by the tax payers with in the frame work of law on compliance of the prescribed conditions. Saving tax by availing of the tax savings schemes in the I.T. Act is legal, ethical, and morally justified. There is nothing sinister about reducing tax in their manner. Even the Courts have approved taking advantage of the benefits conferred under the I.T. Act for reducing or completely wiping of tax liability by such means provided the same are genuine. Rangnath Misra, J., of the Supreme Court in McDowell & Co. v. CTO (1985) 154 ITR at 171 has said that tax planning may be legitimate provided it is within the frame work of law. Thus the tax savings routes prescribed are open for tax payers of different categories including pensioners, retired personnel and senior citizens provided they come with in the purview of the relevant provisions and satisfy the requisite conditions. In the subsequent discussion, a brief account of these is being given.

Types of Tax Benefits

Benefit of tax could broadly be availed of in three forms namely by way of total exemptions under section 19; as deductions from the gross total income under Chapter VI-A; or as rebates from tax under Chapter VIII. These are briefly explained hereinafter.

Exemptions

Section 10 exempts certain categories of income from tax. It achieves this objective by excluding certain incomes from the computation of total incomes from the computation of total income. That is to say, when an income is exempt, it does not enter into the computation of total income at all. The Assessing Officer does not take cognizance of such incomes, if these fall within the purview of one of the provisions of Section 10. There are however, exceptions to the rule. For example, agricultural income is exempt from tax under section 10(i), but it is taken into account for determining the tax which is payable by tax payer. Receipts of a casual and not recurring nature are exempt under section 10(3) only upto Rs. 5,000 in a year.

Chapter VI A Deductions

Deductions from the gross total income under Chapter VIA comprise specified subtractions from the income on account of (a) certain investments or expenditure and (b) certain incomes.

Gross total income itself is merely the aggregate of incomes under all the various heads after making deductions and other adjustments, provided under each of the heads under which the assessee has income. It is in fact the gross figure of income computed in accordance with the provisions of the Act before allowing for any deduction under Chapter VIA.

Thus in so far as certain incomes are concerned, a deduction differs from an exemption only to the extent that whereas the latter does not enter into the computation of income at all, in case of the former, however, in the first instance the income in question enters into the computation of income. Thereafter, either the whole or a part of it is deducted.

Relief/Rebate

A relief comprises a rebate from the tax determined on the total income. Unlike a deduction which goes to reduce the figure of total income, a relief goes to reduce the amount of tax determined on the total income.

Illustration

With effect from the assessment year 1991-92, deduction under section 80C is no longer be available.

Upto and including the assessment year 1990-91, deduction for savings etc., was allowed from the gross total income in respect of the amount qualifying for deduction.

From the assessment year 1991-92, instead of a deduction from the gross total income, the new relief will comprise a rebate from tax of an amount equal to twenty per cent of the qualifying investment subject to a prescribed maximum which is lower for general tax payers and slilghtly higher for specified categories of tax payers such as sportsmen, artists, musicians etc., as mentioned later.

Illustration

Mr. X whose total income for the assessment year 2001-2002 is Rs. 1,00,000/- makes investments of Rs. 20,0007- out of this income, in channels which are entitled to relief under section 88. His tax liability will be computed as under:

Tax Liability

Income tax on total income of	Rs. 1,00,000/-
On Rs. 50,000/-	NIL
On Rs. 10,000/- @ 10%	Rs. 1,000/-
On balance of Rs. 40,000/- @ 20%	Rs. 8,000/-
Amount of tax payable	Rs. 9,000/-

On investment of Rs. 20,000/-, he will be entitled to a tax rebate of Rs. 4,000 i.e. @ 20% on Rs. 20,000/-. Hence his tax liability would come down to Rs. 5,000 from Rs. 9,000/-

There are various avenues open for the investment for a person after retirement. By investing in tax-free bonds and securities, a person can be totally exempt from tax on incomes derived from such investments.

(i) Section 10(15) lists the exemptions available under this head. Briefly these are:

"Income by way of interest, premium on redemption or other payment on such securities, bonds, annuity certificates, savings certificates, other certificates, etc. issued by the Central Government and deposits as the Central Government may by notification in the official gazette prescribe in this behalf, subject to such conditions and limits as may be specified in the notification." The exemption would extend up to the maximum amount which is permitted to be invested or deposited therein.

(ii) Section 10(15)(iib)

In the case of individuals of HUF, interest on such capital investment bonds as the Central Government may specify in this behalf would be totally exempt from tax.

(iii) Section 10(15)(iic)

In the case of individual or HUF interest on such relief bonds as the Central Government may notify in this behalf in the Official Gazette. For example Relief Bonds issued by the Reserve Bank of India, presently carrying interest of 8.5% per annum have been so notified. [S. 15(iic)J. Similarly interest on bonds issued by local authorities and notified by the Government shall also be exempt.

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Mr. A retired from Central Government services on 31.3.2000. On 14.1.2000 he invested Rs.50,000/- in 5 years Relief Bonds, 1993, interest where from is exempt u/s 10(15)(iib). On the same day, he also deposited another Rs. 25,000/- in a Post Office Savings Bank Account, interest on which is exempt u/s 10(15)(i). The following interest accrued to him during the previous year ending on 31.3.2001 (assessment year 2001-2002).

Interest on Rs. 50,000 at 9% per annum invested in 5 year Relief Bonds	4,500/-
Interest on Rs. 25,000 at 7% p.a. invested in a 10 year Capital Investment Bonds	1,750/-
Interest at 5.5% on Rs. 25,000/- invested in a Post Office Savings Bank account	1,375/-
Total invest received	7,625/-

While computing Mr. A's total income interest income of Rs. 7,625 will be ignored.

Other avenues for investment with tax savings benefit and exemption from tax for individuals / HUFs generally are :

Section	Nature of exemption deduction	Who are entitled for exemption	Comments/Remarks/ major conditions
10(15) (ii)(d)	Interest on NRI bonds @11.5% notified and issued by the State Bank of India	Non-resident Indians, their nominees, survivors and persons receiveing such bonds as gifts.
10(15) (iv)(h)	Interest on notified bonds or debentures of public sector companies	All tax payes provided holders of such bonds or debentures registers his name and holdings in the company.
10(15) (iv)(l)	Interest on retirement deposit account ® 10% received by the employees of the Central Government or State Government or a Public Sector Company in accordance with a notified scheme out of moneys due to him on account of retirement whether on superannuation or otherwise. (The rate of interest is now reduced to 8.5%)	Employees of the categories referred to in Column(2)	This exemption in cases of the employees of the public sector companies, is available with effect from 1.4.91 (i.e. from the assessment year 19991-92) This has been discussed in detail in Chapter 2 earlier.

 

Tax Rebates on Certain Categories of Income

Major investments entitled to tax rebate under section 88 on satisfaction of the proscribed condition and to the extent provided for are :

Section	Nature of exemption deduction	Who are entitled for exemption	Comments/Remarks/ major conditions
88a)	Life Insurance premia	Individual/HUF Individual
b)	Payment in respect of non- commutable deferred annuity (not being annuity plan, referred to in section 80CCA)	Individual
c)	Any sum deducted from salary payable by Government for deferred annuity for making provision for wife and children limited to 20 per cent of salary	Individual
d)	Contribution towards statutory Provident Fund under the Provident Fund Act, 1925	Individual
e)	Contribution towards recog­ nised provident fund (qualifying amount limited to 20% of salary)	Individual-Salaried employee
f)	Contribution towards public provident fund	Individual/HUF	Any one can avail of this scheme
g)	Contribution towards an approved Superannuation Fund
h)	Contribution towards unit linked insurance plan of UTI or contribution for participation in unit linked insurance plan of LIC (i.e. Jeevandhara/Jeevan Akshay plan of LIC)	Individual
i)	Deposits in ten year/15 year account under the Post Office Savings Bank (CTD) Rules, 1959	Individual
j)	Any amount invested in a) debentures and equity shares in a public company engaged in infrastructure including power sector; or b) units of a Mutual Fund referred to in section (23D) and approved by the Board	Individual/HUF
	The important conditions concerning the benefit as at (j) above are : the eligible shares, debentures or units of Mutual Fund shall form of part of the public issue, which is approved by the Central Board of Direct Taxes on an application made by the company or mutual fund in a prescribed form, in a prescribed manner, setting forth the prescribed particulars; the proceeds of the issue of shares, debentures or units are wholly and exclusively utilized for the purpose of developing, maintaining and operating a new "infrastructure facility", as defined under the Act or for generating and distributing power; a lock-in-period of 3 years is provided in respect of such equity shares or debentures.  In case of any transfer of shares or debentures before 3 years of acquisition,   the   entire   amount   of debate   of tax allowed earlier in any previous year, shall be treated as tax payable in the hands of the subscriber, in the year in which it is transferred; and where a deduction is claimed and allowed, the cost of such shares, debentures or units shall not be taken into account for the purposes of section 54EA and 54EB.
Section	Nature of exemption deduction	Who are entitled for exemption	Comments/Remarks/ major conditions
k)	Subscription towards home loan account scheme of National Housing Bank	Individual/HUF
l)	Subscription towards notified savings Certificates (i.e. National Savings Certi­ficate VIII issue)	Individual/HUF/Salaried employee
m)	Payment made for Income from such Purchase or construction    property must be of residential house, chargeable under the construction of which head "income from is completed after 31.3.1987   house property", (qualifying amount limited to Rs. 20,000)		Income from such property must be chargeable uder the head "income from house property"

Other important  points  for  claiming  relief under sectioin 88 are :

Certain categories of incomes as specified in section SOL up to prescribed limit have been allowed as deduction from incomes earned from these sources. Briefly these are:

Amount  of Deduction  (Upto assessment year 2001-2002)

The deduction is equal to the aggregate of such income of Rs. 12,000/- whichever is less. However, if the interest and divident income of the assessee exceeds Rs. 12,000/- and he has income specified in (i) that is interest on any security of the Central Government or State Government; he will be allowed a further deduction equal to such remaining income or Rs. 3,000/- whichever is less. Thus is maximum deduction could be of Rs. 15,000/-.

It may be noted here that the deduction under section 80L will be allowed only out of net income, i.e., the amount of expenditure incurred in earning the income and which is allowed to be deducted under section 57(iii) shall be deducted from the gross income and only the balance left will be eligible for deduction under section 80L.

From the assessment year 2002-2003, the limit of Rs. 12,000/- has been reduced to Rs. 9,000/-. Further deduction upto Rs. 3,000 can be claimed in respect of interest income of Rs. 3,000 from Government securities (see next chapter).

Illustration

X's gross total income comprises of the following for the assessment year 2002-2003.

Interest from deposit with a:

1.     Nationalised Bank	30,000
2.     Income from business	40,000
3.     Dividend from UTI on units	15,000
4.     Dividend from XYZ & Co.	5,000
5.     Income from Mutual Fund	5,000
TOTAL INCOME	95,000

Amount deductible under section 80-L from the above incomes would be the maximum amount of Rs. 9,000 in respect of bank interest. Incomes at 3, 4 and 5 would be exempt in terms of section 10(33).