Tax Planning

Tax planning is arranging your affairs, lawfully, so that less tax is payable. It is not aggressive structuring and it is not evasion. It is mostly a set of ordinary decisions — which regime, how salary is structured, when an asset is sold, which entity earns the income — made deliberately rather than by default.

The distinguishing feature is timing. A capital gain realised on 25 March and one realised on 5 April fall in different years. An investment made on 31 March counts; one made on 2 April does not. None of this can be fixed at filing.

For most people the biggest single decision is the regime, and the second biggest is how income is split across family members and entities.

Model the regime, do not assume it

The new regime is the default and, for assessment year 2026-27, leaves income up to ₹12 lakh untaxed after the section 87A rebate, with a ₹75,000 standard deduction on top for salaried taxpayers. It is the right answer for most people who do not have a home loan. But a taxpayer with substantial housing interest, metro HRA and full 80C utilisation can still be better off under the old regime, sometimes by a lot. This takes ten minutes to compute and is worth doing every year.

Employer NPS survives in the new regime

Most deductions disappear under the new regime, but the employer’s contribution to NPS under section 80CCD(2) remains deductible. For salaried taxpayers who have moved to the new regime, restructuring part of the package as employer NPS contribution is one of the few genuine levers left.

Harvest losses against gains

Capital losses can be set against capital gains and, to the extent unabsorbed, carried forward for eight years — but only if the return is filed by the due date. Selling a loss-making holding before 31 March to offset a realised gain is simple, legitimate and routinely forgotten.

Split income where the law permits

Income earned by a spouse or adult child in their own right is taxed in their hands, using their own exemption and slabs. Clubbing provisions restrict transfers of income-producing assets, so the structuring has to be genuine — but a family with one earner and three unused basic exemptions is leaving money on the table.

Pay advance tax on schedule

Interest under sections 234B and 234C accrues at 1% a month on shortfalls in advance tax. It is not a penalty that can be argued about, and it is entirely avoidable by paying the correct instalment on 15 June, 15 September, 15 December and 15 March.

Planning is not evasion

Everything above involves choosing between lawful alternatives. Backdated documents, artificial transactions and undisclosed income are a different thing entirely, and the General Anti-Avoidance Rules exist precisely to strike down arrangements whose only purpose is a tax benefit. We do not do that work.

Current rates, forms and utilities are published by the Income Tax Department.

Decisions have to be implemented, not just agreed. Salary restructuring needs your employer to action it, investments need to be made before 31 March, and asset sales need to settle in the intended year. We diarise each action and check them off in February.

Keep the documentation. A deduction claimed without proof is a deduction that fails on scrutiny, and the burden of substantiating it sits with you.

Revisit annually. Rates, thresholds and the relative merits of the two regimes change with each Budget, and a plan built on last year’s law may point the wrong way this year.