1) Tax filing is not part of tax planning and management. True or false?
Correct Answer: False. Tax filing is an important aspect of tax planning. This also helps you audit your finances for tax.
2) It’s better to plan taxes after investing
Correct Answer: False. Always plan your taxes before you plan to invest. There are various methods of tax planning you can use. One of the things tax planning does is identifying the tax bracket you fall in. This can help you choose investments that are tax-efficient as per your IT slab rate.
3) The concept of tax planning involves deduction and exemption. What is the difference between tax deduction and exemption?
a) Tax deduction is when you get tax-free income; tax exemption is when an expense helps you lower your taxable income.
b) Tax deduction helps lower your taxable income; Tax exemption is when an income is tax-free and thus, not a part of your taxable income.
Correct Answer: B. Tax deduction is when you make an investment or an expense that lowers your taxable income. An exemption—as the name suggests—is when something is not taxable to begin with.
4) Various types of tax planning and tax-saving investments help you…
a) Build your retirement kitty
b) Buy a house in the next 2 years
Correct Answer: Tax-saving investments have lock-in periods of 3-15 years. This helps them compound returns and thus grow money in time for retirement. It may not help a short-term goal.
5) Tax planning in India means investing in options that get you a tax deduction of up to Rs 2 lakh
Correct Answer: False. Tax planning also includes other aspects like reducing your taxable income, looking for tax-efficient investments, etc.
6) Which of the two Equity-based investments get you only tax exemptions, not deductions?
a) National Pension Scheme
b) Equity Funds
Correct Answer: NPS. All Equity Funds don’t get you a tax deduction. Only ELSS—a type of Equity Fund avails tax deductions under Section 80C. NPS, meanwhile, helps you lower your taxable income.
7) Those in the lower income tax slabs feel dividends are more tax-efficient.
Correct Answer: False. The DDT is over 28%. Such investors may find income sources that are taxed at their income tax slab rate of 5-20% or lower to be more tax efficient.
8) Members can receive a salary from the HUF. But this is taxable.
Correct Answer: False. You can receive a salary as a member, but it is tax-free.
9) Can expenses get you an income tax exemption?
Correct Answer: No. Income tax is generally levied on income—either through service, business or investments. You can only get tax deductions on expenses, not exemptions.
10) Which of the two is more tax-efficient at the final payout stage?
a) Life insurance
b) National Pension Scheme
Correct Answer: Life insurance payouts are tax-free. Meanwhile, withdrawals from NPS funds are taxable as per your IT slab rate.
How did you score?
0-3: You may want to read through and understand the chapter on Tax Planning once again. Or, speak to one of our experts for better understanding.
3-6: You’ve half-way there on your goal towards minimal taxes. But continue the efforts to be great at tax planning.
6-9: Very good. Go back to the few wrong choices and read those chapters better.
10: Congratulations! You are ready to make a tax plan of your own. Run it past one of our Tax planners for better chances of success.
Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing