Tax Planning and Personal Finance Notes
Subject Overview
The fourth Accounting and Finance elective, teaching tax management and personal financial planning — the distinction between tax planning, avoidance and evasion, tax planning across the five heads of income, personal financial planning fundamentals and time value of money, and personal risk and investment planning across tax-saving, mutual fund, fixed-income and capital market instruments. A 4-credit elective theory paper.
Subject at a glance
4
Units
30
Topics
4
Credits
4
Infographics
Unit-wise Syllabus
4 units — open any unit for detailed topic-wise notes, diagrams and important exam questions
- Introduction to tax management
- features and scope
- differentiating tax planning/avoidance/evasion
- meaning
- need
- scope
- objectives and methods of tax planning
Tax planning
Yes, within the spirit of the law
Investing in ELSS under 80C
Tax avoidance
Legal in form, against the spirit
Artificial arrangements; GAAR targets these
Tax evasion
No: illegal
Hiding income, fake expenses
Study guide
This unit covers tax management, features and scope, the difference between tax planning, avoidance and evasion and the objectives and methods of tax planning. Know where legitimate planning ends and evasion begins.
- Tax planning for salary
- house property
- business/profession
- capital gains and other sources income
- tax planning with reference to residential status
- exempted incomes
- permissible deductions
- clubbing of income
- setting off/carry forward of losses
Salary
Structure allowances, choose the regime
House property
Home loan interest and principal
Business
Depreciation, presumptive taxation
Capital gains
Holding period, Section 54 exemptions
Other sources
Tax-free instruments
Study guide
You study tax planning for each income head, residential status, exempt incomes, deductions, clubbing and loss set-off. Prepare a tax plan for a salaried individual.
- Introduction
- features
- objectives and scope of personal financial planning
- environmental factors affecting planning
- time value of money — present and future value calculations and their impact on personal financial statements
Future value
FV = PV (1 + r)^n
Present value
PV = FV / (1 + r)^n
Future value of SIP
P × [((1 + r)^n − 1) / r] × (1 + r)
Real return
≈ nominal return − inflation
Study guide
You study personal financial planning, its objectives and scope, environmental factors, the time value of money and personal financial statements. Draw up your own personal balance sheet.
- Personal risk management — risk measurement and identification
- life and general insurance
- insurance planning for individuals and families
- investment planning objectives (retirement, tax saving, capital growth, liquidity, safety)
- tax-saving instruments (PF, PPF, ELSS, NPS)
- mutual funds
- fixed-income securities
- capital market and money market instruments
- real assets
PPF
15 years
Very low, government-backed
ELSS
3 years
Market-linked equity
NPS
Till 60
Market-linked, mixed
Tax-saver FD
5 years
Low
Life insurance premium
Policy term
Low
Study guide
You study personal risk management, insurance planning, investment planning objectives and tax-saving instruments (PF, PPF, ELSS, NPS), mutual funds, fixed income, capital and money market instruments and real assets. Compare the tax-saving options by return, lock-in and risk.
Why Tax Planning and Personal Finance Matters
Tax and personal finance advice are practical, in-demand services, and the skills help you manage your own finances and advise others.
How to Prepare for Tax Planning and Personal Finance
- Prepare a real tax plan with current slabs and deductions.
- Use online calculators for SIP and retirement.
- Compare tax-saving instruments in a table.
Tax Planning and Personal Finance: Frequently Asked Questions
What is the difference between tax planning and tax evasion?
Tax planning is lawful use of exemptions and deductions to reduce tax, while evasion is illegal concealment to avoid paying tax.