Tax Planning & Advisory

The regime under section 115BAC is the default. Staying on the old one is now an election you make, and for a good many people it is still the right election — but it has to be worked rather than assumed.

• The arithmetic, on your numbers: The new regime offers wider slabs and a lower top surcharge, the old one offers deductions. Which wins turns on how much you actually claim, not on what you could claim in principle. We compute both on your figures before the year begins, not in March.
• The one-way door for business income: A salaried person may choose afresh each year. A person with business or professional income who opts out of the new regime may return to it only once, and having returned cannot leave again. That is a decision taken once for many years.
• What survives in the new regime: Employer contribution to the National Pension System under section 80CCD(2), the standard deduction on salary, and gratuity, leave encashment and retirement benefits. Most of the rest — 80C, 80D, housing loan interest on a self-occupied property — does not.

Structuring is worth less than it was and is not worth nothing. What it is worth depends entirely on the regime the employee is in, and most salary structures were designed for the one they are no longer on.

• Redesigning for the default regime: Allowances that were exempt only under the old regime are now taxable salary paid in an inconvenient form. The employer contribution to the National Pension System is the one meaningful deduction left, and it is systematically underused.
• Perquisites against allowances: A car, accommodation or a loan provided by the employer is valued by rule rather than by cost, and the gap between the two is where the planning is.
• Timing of bonus and of exercise: Income is taxed when it is received or when the right to it accrues. Where that date is movable across a year end, moving it is planning; where it is not, claiming it is was never planning.

The capital gains rules changed materially on 23 July 2024, and the holding you bought before that date is governed differently from the one you bought after it.

• The present structure: Long-term gains are taxed at twelve and a half per cent across asset classes without indexation, with listed equity and equity funds under section 112A carrying an exempt slice of ₹1.25 lakh a year. Short-term gains on listed equity are at twenty per cent.
• Land and buildings acquired before 23 July 2024: A resident individual or Hindu undivided family may compute the tax both ways — twelve and a half per cent without indexation, or twenty per cent with it — and pay the lower. This is a calculation, and it is frequently not done.
• Reinvestment: Sections 54 and 54F for residential property, now subject to a ₹10 crore ceiling on the investment, and section 54EC bonds up to ₹50 lakh within six months. Each has a date that cannot be extended once missed, which is why the planning is done before the sale rather than after.
• Harvesting and set-off: Using the exempt slice each year, and setting losses against gains of the right character before the year closes.

For an owner-managed business the questions are the rate the entity pays, what comes out as salary and what as dividend, and whether the presumptive scheme is a saving or a trap.

• Presumptive taxation: Section 44AD for business, with the turnover ceiling at ₹3 crore where cash receipts and payments stay within five per cent, and section 44ADA for specified professionals at ₹75 lakh on the same condition. Declaring below the presumptive rate pulls in audit and books, which is the part that is usually discovered late.
• The company rate: Section 115BAA at twenty-two per cent plus surcharge and cess for a domestic company that forgoes the specified incentives, and the manufacturing rate under section 115BAB where it applies. The election is irrevocable, so it is made with the loss and credit position in view.
• Salary, interest and dividend out of the business: What the entity pays the owner is deductible to it and taxable to them, and the mix is a real decision rather than a formality — particularly where the alternate minimum tax is in play.
• Capital structure: Interest is deductible where the borrowing is for the business and the trail shows it. The documentation decides the deduction, not the intention.

Most of what a taxpayer loses to the Act in an ordinary year is not tax. It is interest, and it is avoidable.

• The instalments: Fifteen per cent by 15 June, forty-five by 15 September, seventy-five by 15 December and the whole by 15 March, with interest under sections 234B and 234C where they are short. A professional on presumptive taxation pays in one instalment by 15 March.
• Capital gains and windfalls: Interest under section 234C is not charged on the earlier instalments for a capital gain that had not arisen, provided the tax is paid in the instalment falling after it. Knowing this changes what you do in the week after a sale.
• Tax deducted and collected: Credit that does not appear in Form 26AS or the annual information statement is credit you will argue for. We reconcile these before the return rather than after the intimation.
• The year-end check: What has to be done before 31 March, and what can still be done after it, is set out in our note on tax planning before 31 March.

Planning that outlives the year it was done in, and the two situations where the tax position is decided by something other than the arithmetic.

• Family entities and the clubbing rules: A Hindu undivided family is a separate assessee with its own exemption. Income transferred to a spouse or to a minor is clubbed back under section 64, and a gift to a relative is outside section 56(2)(x) while one to anybody else above the threshold is not. The structure has to respect both.
• Succession: A will, and the holding period and cost that a legatee inherits with the asset. Nomination is not succession, and the distinction surfaces at the worst possible time.
• Returning residents: The residential status for the year decides whether your global income is taxable in India at all, and a returning Indian may hold "resident but not ordinarily resident" status for a window in which foreign income stays outside the net. Both are worked out in our notes on residential status and, where there are undeclared foreign assets, on the FAST-DS window.