Tax Planning, Deductions, and Compliance Explained

Posted on Mar 9, 2025 in Business Administration and Innovation Management

Gross Total Income (GTI)

Gross Total Income (GTI) is the total income earned before deductions. It includes income from all sources without any deductions. GTI is the starting point for calculating taxable income.

GTI = Salary Income + House Property Income + Business/Profession Income + Capital Gains + Other Sources Income + Clubbed Income – Set off of Losses.

Canons of Taxation

• Canon of Equity: Tax burden should be distributed based on the ability to pay.
• Canon of Certainty: Taxpayers should be certain about their tax obligations.
• Canon of Convenience: Taxes should be levied and collected conveniently for taxpayers.
• Canon of Economy: The cost of collecting taxes should be kept low.

Section 35 of the Income Tax Act, 1961

Deduction for Scientific Research

Section 35 provides tax deductions for expenditure on scientific research, promoting innovation and technological advancement in India.

Eligible Expenditure & Sub-sections

• Section 35(1)(i): 100% deduction on revenue expenditure for in-house scientific research.
• Section 35(1)(ii): 100% deduction for contributions to approved scientific research institutions.
• Section 35(1)(iia): 100% deduction for donations to approved research companies.
• Section 35(1)(iii): 100% deduction for contributions to approved social science or statistical research institutions.
• Section 35(2AA): 100% deduction for donations to national laboratories, IITs, and specified research institutions.
• Section 35(2AB): 100% deduction (earlier 200%) for companies engaged in in-house research in notified sectors, provided R&D facilities are approved by the Department of Scientific and Industrial Research (DSIR).

Additional Key Points

• Pre-Commencement Research (Section 35(1)): Expenditure incurred up to 3 years before starting a business is deductible.
• Capital Expenditure (excluding land & buildings) (Section 35(2)): Allowed for scientific research purposes.
• Approval Requirement: Institutions must be approved by prescribed authorities like DSIR, CBDT, or relevant government bodies.

Conclusion

Section 35 incentivizes research by reducing the tax burden on R&D investments. Businesses and individuals contributing to research benefit from significant tax deductions, promoting scientific and industrial growth in India.

Tax Planning vs. Tax Evasion

Key Tax Terms

• Assessment Year (AY): The 12-month period (April 1st to March 31st) following the Previous Year, when income is assessed and taxed.
• Previous Year (PY): The financial year (April 1st to March 31st) in which income is earned.
• Tax Management: Complying with tax laws, ensuring timely payments, filing returns, and maintaining records to avoid penalties.
• Person (Under Section 2(31) of the Income Tax Act, 1961): Includes individuals, HUFs, companies, firms, AOPs, BOIs, local authorities, and artificial juridical persons.

Residential Status Example

Question: R’s residential status for the assessment year 2024-25?

Answer: Resident

Explanation:

Basic conditions for a person to be a Resident of India (under section 6(1) Income Tax Act) are:

1. If he/she is in India in the previous year for at least 182 days.
2. If he/she has been in India for at least 60 days during the previous year and 365 days during the 4 years preceding the previous year.

If a person does not satisfy any of these basic conditions, he will be considered as “Non-Resident of India”.

Case Details:

• R came to India on 20/03/2023 and left on 01/09/2023 (165 days).
• R came back to India on 26th February 2024 (34 days).

Calculation:

R’s stay in India in the previous year = 165 days + 34 days = 199 days

According to rule (i) of u/s 6(1) of Income Tax Act, R’s Residential Status for the assessment year 2024-25 will be considered as “Resident” as he stayed for more than 182 days (199 days) in the PY 2023-24.

Conclusion: Residential Status of R is “Resident”.