Unit 3: Personal taxation & regulatory guidelines

Tax planning is arranging one's financial affairs within the law to minimise tax liability and maximise post-tax returns.

• Objectives: reduce tax legally, align tax-saving with goals, ensure liquidity for tax payments, avoid penalties.
• Areas: choice of regime, salary structuring (HRA, NPS, meal cards), investments under 80C, insurance under 80D, home loans, capital gains timing and exemptions, gifts to family members, use of HUF.

• Tax avoidance: using loopholes — legal in form but against the intent of law (e.g., artificial arrangements). Curbed by General Anti-Avoidance Rules (GAAR) (Chapter X-A, from AY 2018-19).
• Tax management: compliance — timely filing, TDS, advance tax, record keeping.

• Gift Tax Act, 1958 was abolished in 1998; gifts are now taxed under Section 56(2)(x) as income of the recipient:
• Money or property received without consideration exceeding ₹50,000 in a year is taxable.
• Exempt: gifts from relatives (spouse, siblings, parents, lineal ascendants/descendants and their spouses), on the occasion of marriage, under a will or inheritance, in contemplation of death, from local authorities and charitable trusts.
• Clubbing: income from assets gifted to spouse or minor child is clubbed with the donor's income.
• Wealth Tax Act, 1957 was abolished from AY 2016-17; replaced by an additional surcharge on super-rich incomes; high-value assets are now tracked through returns (Schedule AL for income above ₹50 lakh — threshold raised to ₹1 crore from AY 2025-26).

Know Your Customer (KYC)

• Purpose: verify the identity and address of customers to prevent fraud, money laundering and terrorist financing.
• Documents (Officially Valid Documents): passport, driving licence, voter ID, Aadhaar (with consent), NREGA job card, letter from the National Population Register; plus PAN and photograph.
• Types: full KYC, e-KYC (Aadhaar OTP/biometric), Video KYC (V-CIP), Central KYC Registry (CKYCR) — one KYC number used across financial institutions; periodic re-KYC based on risk.

Anti-Money Laundering (AML) standards

• Prevention of Money Laundering Act (PMLA), 2002 — money laundering involves placement, layering and integration of illegal funds.
• Reporting entities (banks, brokers, insurers, MF distributors) must maintain records for 5 years and report to the Financial Intelligence Unit – India (FIU-IND): Cash Transaction Reports (above ₹10 lakh), Suspicious Transaction Reports, counterfeit currency reports.
• International standards set by the Financial Action Task Force (FATF).

Permanent Account Number (PAN)

• A 10-character alphanumeric identifier issued by the Income Tax Department (Section 139A); the fourth character indicates the type of holder (P — individual, C — company, H — HUF, F — firm).
• Mandatory for: filing returns, opening bank accounts (or Form 60), cash deposits above ₹50,000, buying property above ₹10 lakh, purchase of mutual funds, shares and insurance above limits, foreign travel payments above ₹50,000 in cash.
• PAN–Aadhaar linking mandatory; unlinked PANs become inoperative; PAN 2.0 project for a unified digital PAN system.