Question 1

What are the key tax planning opportunities for a salaried individual?

Accepted Answer

Old regime deductions: Section 80C — up to ₹1.5 lakh (ELSS, PPF, LIC, EPF, tuition fees, housing loan principal); Section 80D — mediclaim premium (₹25,000–₹75,000 for senior parent combination); Section 80CCD(1B) — NPS additional ₹50,000; Section 24(b) — housing loan interest ₹2 lakh for self-occupied; HRA exemption (Section 10(13A) + Rule 2A); LTA (Section 10(5)). New regime: standard deduction ₹75,000 only — most other deductions are not available. Run a comparative computation: old regime is typically better when total deductions exceed ₹4–5 lakh.

Question 2

What are the key tax planning opportunities for a business owner?

Accepted Answer

Legitimate planning: (a) salary to spouse or family members for genuine services — deductible at market rate (Section 40A(2) arm's-length); (b) HUF formation — separate ₹3 lakh basic exemption (new regime); (c) timing of capital expenditure — depreciation in the year of purchase, not completion, for tax purposes (Section 32); (d) Section 80-IAC — 3-year tax holiday for DPIIT-registered startups; (e) Section 10AA — SEZ unit profits fully deductible for the first 5 years; (f) accelerated depreciation on green energy assets (40% WDV). Document every decision.

Question 3

What is the new tax regime under Section 115BAC and when should it be chosen?

Accepted Answer

Section 115BAC (individuals and HUFs from AY 2024-25, new regime is default): slabs — nil up to ₹3 lakh, 5% up to ₹7 lakh, 10% up to ₹10 lakh, 15% up to ₹12 lakh, 20% up to ₹15 lakh, 30% above ₹15 lakh. Standard deduction ₹75,000 for salaried employees. Available deductions: Section 80CCD(2) (employer NPS contribution). Not available: 80C, 80D, HRA, housing loan interest (Section 24(b)), LTA. Rebate under Section 87A: nil tax up to ₹7 lakh income. Choose new regime when deductions are low or income is below ₹12–15 lakh.

Question 4

What is tax loss harvesting and how is it used?

Accepted Answer

Tax loss harvesting: realising capital losses before 31 March to set off against capital gains for the year. STCL (Short-Term Capital Loss): can be set off against both STCG and LTCG. LTCL (Long-Term Capital Loss): can only be set off against LTCG. Both can be carried forward for 8 years (Section 74). For listed equity: unrealised losses on equity before 31 January 2018 (grandfathering date for Finance Act 2018 LTCG) cannot be harvested post-2018 without selling and re-purchasing. Coordinate with your equity portfolio manager before 31 March.

Question 5

When should a company pay a dividend vs. retain earnings?

Accepted Answer

Post Finance Act 2020 (dividend taxable in shareholders' hands): dividend is taxable at the shareholder's marginal rate. For HNI shareholders above ₹5 crore income: marginal rate 42.74% (30% + 25% surcharge + cess). Retaining earnings: company pays tax at 22–25% (domestic) or 15% (new manufacturing). Dividend vs. buyback: post Finance Act 2024, buyback proceeds are also taxable as dividend in the shareholder's hands (Section 115QA abolished from 1 October 2024). Optimal: retain earnings in the company if the shareholder's marginal rate exceeds the corporate rate; dividend when cash is needed at the shareholder level.

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