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You can plan to pay tax of Rs.4,01,700 on family income of Rs.33 lakhs, at an average tax rate of just 12.17%!

        Just consider some tax facts of the past eight years as highlighted hereunder:

  • In FY 2004-05, the basic Income-tax exemption limit was Rs.50,000 and taxable income exceeding Rs.1,50,000 attracted the maximum tax rate of 30%.

  • Today in FY 2012-13, the basic Income-tax exemption limit is Rs.2,00,000 and the maximum tax rate of 30% is attracted only if the taxable income exceeds Rs.10,00,000.

  • In FY 2004-05, the Income-tax payable on taxable income of Rs.10,00,000 was  Rs.3,07,428, on the basis of which the average rate of tax worked out to 30.74%.

  • Today in FY 2012-13, the Income-tax payable on the same taxable income of Rs.10,00,000 is Rs.1,33,900, resulting in an average tax rate of just 13.39%.  

  • Thus, during the past eight years, taxpayers earning taxable income of Rs.10,00,000 or more, have effectively enjoyed a tax relief of Rs.1,73,528.


               Imagine yourself to be on Kaun Banega Crorepati’s (KBC’s) Hot Seat and Big B asking you this Rapid Fire Question: ‘How much Income-tax would you need to pay in FY 2012-13 on Taxable Family Income of Rs.33,00,000?’  You are given your four choices A – Rs.4,01,700; B – Rs.5,68,560; C – Rs.7,83,250 and D – Rs.8,52,840.

               Your tax-saving instinct would tempt you to go for the lowest sum of Rs.4,01,700, though you would not be sure how to justify it?  Much to your delight, you would be told ‘Aapka Jawab bilkul sahi hai!’

               Believe it or not, but it is true! As the following illustration will highlight, it is now possible for a family of an Individual, his Wife and his Hindu Undivided Family (HUF) to earn collectively taxable income of Rs.33,00,000 and end up paying income-tax of only Rs.4,01,700, at an average rate of just around 12.17%

Illustration:  Mr. AM, Mrs. AM and the HUF of AM plan to earn taxable income of Rs.11,00,000 in each case, totaling to Rs.33,00,000 in all.  They plan to make savings and allocations of Rs.1 lakh in each case and avail the benefit of deduction under Section 80C. On the taxable balance of Rs.10,00,000 in the three cases, as per the tax rates as effective from FY 2012-13, the Income-tax (including 3% Education Cess)  payable would be Rs.1,33,900 each, in the case of Mr. AM, Mrs. AM and HUF of AM. Thus the tax for the three would total to Rs. 4,01,700 (Rs.1,33,900 + Rs. 1,33,900 + Rs. 1,33,900), at an average rate of just around 12.17%.


                                          Mr. TP    Mrs. TP     HUF of TP         Total  

                                               Rs.          Rs.             Rs.            Rs.  

Gross Total Income          11,00,000   11,00,000   11,00,000      33,00,000

Less : Deduction

           u/s80C                    1,00,000     1,00,000     1,00,000          

Taxable Income                 10,00,000    10,00,000    10,00,000         

Income-tax (including

3% Education Cess)

thereon                            1,33,900      1,33,900      1,33,900       4,01,700

              Even after allocating the resources of Rs.3,00,000 for deduction under Section 80C and the tax payment of Rs.4,01,700, the AM family would still enjoy a liquidity of Rs.25,98,300, giving them the freedom to spend more than Rs.2,16,525 per month, the way they like.


              The above illustration has not taken into consideration other commonly availed deductions like payment of premium for medical insurance of upto Rs.15,000 under Section 80D, deduction of upto Rs.1,50,000 under Section 24 for payment of interest on housing loan, etc.

              The above illustration has also not taken into consideration the scope of earning additional incomes by way of PPF interest, dividends and long term capital gains from listed securities, which are totally exempt from income-tax under Section 10.  Moreover, if either Mr. AM or Mrs. AM is a salaried employee, he or she can plan to receive specified allowances and perquisites which are also tax exempt.

                             LIQUIDITY RESOURCES OF FAMILY

                                               Mr. TP             Mrs. TP        HUF of TP       Total  

                                                 Rs.                   Rs.                Rs.              Rs.  

 Total Liquid Resources        11,00,000         11,00,000      11,00,000       33,00,000


 Compulsory Savings                   

 under Section80C                    1,00,000          1,00,000        1,00,000         3,00,000

 Less: Income-tax                     1,33,900          1,33,900        1,33,900         4,01,700

 Liquidity for Spending           8,66,100          8,66,100       8,66,100        25,98,300

               The above illustration merely goes to highlight that it is indeed possible to maintain high levels of income with low levels of tax, if imaginative tax and investment planning are resorted to.

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