InvestmentYogi

TDS Deducted by Employer But Not Deposited

Yogi — Wed, 19 Jun 2013 08:52:00 GMT

Employer deducts TDS from the salaries of the employees. This amount is further deposited with the tax authorities by the employer directly. Now, imagine that the Tax Deducted at Source (TDS) which was taken back regularly from your salary and you had to bear the brunt of meeting the daily expenses as your salary was less than that amount was not deposited by the company to the Income Tax Department. This was the loophole that the Income Tax Department has recently plugged.

This practice was carried on for years. An employee was the sole loser in the exercise. Sometimes, he was troubled as he didn’t get the refund on time and many had to wait for years to get their refund. How will you get it on time, when your company was deliberately delaying to deposit the money to the Income Tax department? Now the Central Board of Direct Taxes (CBDT) has become more vigilant on this malpractice and has decided to slap heavy penalties on the companies that are not meeting the compliance.

Tax Deduction at Source (TDS) is a method of collection of taxes, in which a fixed percentage of amounts are deducted by a company and that fixed amount is deposited to the Government account. However, many companies fail to deposit that tax to the govt. in stipulated time frame. Now, CBDT has regulated strict instructions to charge a penalty on such companies, ranging from Rs 200 to Rs 1 Lac. The CBDT has asked all TDS range officers of the department to be sure about compliance in this area. It has also asked them to notify & make alert the entire authorized receiver regarding new action initiated by the department.

As per the new instructions issued, any receiver either government or private has to bear a compulsory fine of Rs 200 per day for delay in filling TDS or TCS beyond the permissible date of remittance and in the same manner a penalty of Rs 10,000 to Rs One Lakh on furnishing wrong information or failure to file the collection statement within due date. The assessing officials will use Section 234 E and 271 H of IT Act to make sure that TDS & TCS collection are not delayed.

Penalties on the Deductor in Case of Not Depositing TDS

According to the Government, it is the sole responsibility of employer to deduct the applicable tax at source and forward it to the credit of the govt. in the stipulated time limit. If the employer is defaulted in depositing the TDS collected, it shall be legally responsible to give the interest at the prescribed rate on the tax amount. In certain conditions, if employer is unable to give TDS certificate to the employee, it doesn’t mean liability of employee has ended. Also, the Income Tax Act has sufficient provisions to punish the defaulter and can recover the amount of TDS along with interest from the deducted person.

Under Section 201, 201 (A), the income tax department has full right to demand TDS amount which was not deposited on time and also charge 1 % per month of tax not deposited. They can also prosecute a rigorous imprisonment of not less than 3 months but which can be extendable up to 7 years with fine.

What an Employee can do in Case of Non – Timely Deposit by the Employer

A taxpayer can preserve his salary slips at least till the time he gets tax certificate. Then if form 16 is not received, he can file his returns on the basis of salary slips (as TDS deduction by employer is mentioned in it). So, in this way, employee can get his claims even if the form 16 is not available. In other words, we can say an employee need not worry about paying taxes again on his income only to get form 16 from the employer.

These are few guidelines of CBDT about the timely payment of taxes. With the new rules, employers need to focus on timely payment and on the other hand employees also need to be aware on how to claim their TDS claim in case employer has not deposited the TDS to the government.

About the Author:

Amit Sethi is an MBA (Fin) graduate and a Financial Consultant. He has spent over 10 years in Equity research, Stock broking and Financial Consultancy Sector. He can be reached at expert@investmentyogi.com

Calculators

Income Tax Calculator

Interest Payable Calculator

Creation of HUF – Tax Planning Advantage

Yogi — Tue, 18 Jun 2013 11:10:00 GMT

“Tax Planning’ is an important agenda of any individual. People often end up paying taxes even after exhausting their limits under Section 80C, 80 D and so on. However, do you know that a very important tool which is often overlooked, is formation of a HUF, which is a legitimate way of reducing your tax liability.

What is a HUF?

HUF stands for Hindu Undivided family, governed under Hindu law board and could be formed by a married couple or by members of a joint family. HUF could be formed by two members, at least one among whom should be a male member of the family. Senior most male member of the family would become ‘Karta’. Although it is governed by the Hindu law board, it can be formed by Jains, Sikhs and Buddhists as well.

Tax perspective

HUF is considered as a separate entity and is therefore taxed separately. This helps to separate tax obligations of an individual from that of his family. Tax slabs of HUF are same as that of an individual, with an exemption limit of 2 lakhs and qualifies for all the tax benefits under Section 80 C, 80D,80G,80L and so on.It also enjoys exemptions under Section 54 and 54F with respect to capital gains.

How to create HUF?

HUF has to be created keeping in mind the legal and financial requirements.

Legal requirement – A HUF is created through executing a deed, getting HUF PAN and opening a bank A/c in the name of HUF. The cost of creating a HUF is a few thousands of rupees.

Capital Infusion- HUF corpus can be created with money received as gifts from relatives or with assets received under a will or inheritance, as it enjoys tax exemption.

Caution should be taken that personal assets and funds are not transferred to the HUF account, as income generated from it shall later be clubbed under personal income under Section 64 (2).

How it works?

Although Salaried individual cannot divert his salary income into HUF, he can get a leverage if he plans to earn additional income and can do it in the name of a HUF, thereby reducing his taxable income. Suppose, an individual has a salary income of Rs. 12 Lakhs and is earning additional business income of 6 Lakhs. Now, if he creates an HUF and does business in the name of a HUF, then this total income will be taxable under HUF and he could reduce his tax liability after availing benefits under various sections which would otherwise not be allowed, had he earned it in his own name.

Apart from above, below are additional non-exhaustive techniques of reducing tax liability through HUF.

1) Rental Income from a property – Rental income from a property could be received on behalf of a HUF instead of an individual account.

2) Business Income – Profits generated out of the family business, in the name of a HUF, shall be taxed accordingly and exemptions will give more leverage on tax saving.

3) The remuneration to Karta and members – Remuneration to Karta and other family members is an allowable deduction from income of an HUF.

4) Loan to HUF members - If the business, capital or investment of the HUF is expanding, then such expansion can be done in the individual names of the members of HUF by giving loans to the members from the HUF. The HUF may or may not charge interest on the loans given.

5) Family Settlement or Arrangement - The sole purpose of the family settlement should be to settle existing or future disputes regarding property, amongst the members of the family. Since this arrangement does not involve transfer, it would not attract gift tax, capital gains tax or clubbing. In a family arrangement, tax incidence is considerably reduced or it may even become nil.

Hence, setting up of an HUF can definitely help reduce tax liability, however, HUF transactions should be carefully thought through and planned properly so as to face the precision of income-tax scrutiny given the fact that tax authorities are skeptic towards HUF returns.

About the Author:

Reenika is a Certified Financial Planner and has more than 6 years of experience in the financial service industry. She can be reached at expert@investmentyogi.com

Calculators

Income Tax Calculator

Home Loan EMI Calculator

Dividend Distribution Tax

Yogi — Tue, 11 Jun 2013 10:44:00 GMT

Finance Minister has hit the bull’s eye, yet again. A time when the entire investor community was getting attracted towards the glorious returns from debt funds, FM has put the breaks on it by increasing the Dividend Distribution Tax (DDT) on all non-equity funds. Let’s discuss dividend distribution tax, along with the nuances of new tax rate on investors.

Dividend Distribution Tax (DDT) has always been controversial because of its double taxation nature. It’s once again in the news, as in the Union Budget 2013 – 2014, finance minister has doubled the tax rate on dividend distributed by all non equity funds from 12.5 per cent to 25 per cent. This will reduce returns from debt funds and will motivate investors to opt for other options like corporate fixed deposits.

What is Dividend Distribution Tax?

Section 10(34) of the Income Tax Act, 1961 declares that in addition to the income tax paid by a domestic company against the total income for any assessment year, any amount declared, distributed or paid by such company in form of dividends, is subject to additional tax known as Dividend Distribution Tax. DDT is also applicable to debt mutual funds and is the tax that debt funds pay on the dividend distributed to retail investors.

Who needs to pay?

As the companies or mutual funds pay the dividend distribution tax, dividend income is tax-free in the hands of the investor. Before actual payment, companies and debt funds deduct DDT from the declared dividend and rest is distributed to the investor. Hence, common investor doesn’t have any tax liability on the dividend income, but the dividend income is actually not tax free.

Why Investor should be concerned?

It’s an old and controversial tax, but the renewed concern is because of recent ruling by the finance ministry to increase dividend distribution tax. Now, the tax rate on debt fund investments for retail investors is 25%, which was 12.5% earlier. This tax increase is going to impact all debt funds, gold exchange traded funds, and global funds since the post tax returns from these will be lesser now. Liquid funds are already taxed at 25% hence there is no change for them. Different people have different perception regarding the tax increase, as some say government wants more from high net worth individuals while others take it as rationalisation of returns among fixed deposit and debt funds.

How to minimize the impact?

Implementation of this law will impact retail investors who invest in debt funds like monthly income plans, gold ETFs and global funds as their returns will reduce now. This effect can be negated by shifting from dividend option to growth option. Keep in mind, shifting to growth option will make you liable for short term capital gain tax if your holding period is less than one year. Hence, the most profitable option will be to change to growth plan and hold the investment for more than a year.

Current Tax Rate for Different Categories of Funds

Earlier, only liquid funds were taxed @ 25%, but now all non-equity schemes will be taxed at the same rate. Rates for dividend distribution tax (DDT) for individual investors and corporate are shown in the table below, which can be used as reference. It’s recommended to consult income tax web site for current tax rates, before taking any investment decision.

Dividend Distribution Tax	Individuals / HUF	Corporate/Others
Equity Schemes	NIL	NIL
Non Equity Schemes (Debt Schemes , Liquid Schemes, Gold ETF, Global Funds)	25%+Surcharge+ Education Cess	30%+Surcharge+ Education Cess

About the Author:

The author Bimlesh Singh is a financial advisor. He holds a Bachelor’s degree from IIT and is a CFA Level 2 candidate. He can be reached at expert@investmentyogi.com

Calculators

Income Tax Calculator

Interest Payable Calculator

Tax Aspects: HRA and Home Loan

Yogi — Tue, 11 Jun 2013 05:26:00 GMT

Buying a home is a dream come true for many , but a bit of homework could reduce your tax liability enormously. Many of us are aware that interest on home loan enjoys tax benefits, but only few might know that House Rent Allowance, a component in your salary, could also be a big tax saver if it is combined with the home loan benefit.

House rent allowance (HRA) and home loan come under different sections of the Income tax act and operate independent of each other. While the former is dealt with under Section 10 (13A) Rule 2A and is claimed based on certain situations, the latter derives benefits under Section 80 C (Principal repayment) and under Section 24 (home loan interest payment) of Income Tax Act.

Before moving ahead, it is important to reiterate that House rent allowance can be claimed if;

The employee receives HRA as a component of his salary,
The employee is not the owner of the property for which he is claiming HRA,
The employee actually pays rent for the house he occupies as tenant and a valid rental agreement is present.

Analysis of below scenarios points out the possibilities of taking maximum advantage of HRA and home loan.

Situation 1: Self-Occupied House – If you reside in the same house for which you have taken the loan, then HRA cannot be claimed for it, but, principal repayment and interest payment under Sections 80C and 24 can be claimed respectively.

Situation 2: House owned in another city – It is common in India, people take home loan for home owned in their native city while they continue to reside in rental accommodation in a different city, due to work or other similar factors. Here, a person is eligible to claim HRA as well as principal and interest repayment.

Situation 3: House owned in a city where you work- If the home loan is taken for a property owned in a city where you work then still you can claim HRA in these possible conditions.

a) Home under-construction - If you are compelled to live in a rental home as the home for which you have taken loan is still under-construction, then you are eligible to claim HRA and principal repayment before completion of the house. However, Interest repayment can only be claimed in five equal instalments in the financial year in which construction is complete and house is ready to use. HRA could not be claimed post-construction of the house.

b) House ready to use but cannot be occupied due to genuine reasons - House brought in the same city as work but cannot be occupied due to valid reasons like house being very far from work place, etc. then Income tax act permits one to claim HRA as well as home loan benefits.

However, the tax liability will arise on notional rent even if the house remains vacant.

c) Rented own house and residing in a rented house - If a ready to use home for which home loan is taken is rented out to someone else, while you continue to reside in a rental accommodation then HRA along with the home loan benefits could be claimed.

On the other hand, since you are recipient of rental income, then the tax would be applicable to the rental income received.

Hence, in specific cases an individual can claim both HRA and home loan benefits together. Also, employers do have regulations in this regard, therefore, it is wise and advisable to cross check with the employer before you claim HRA and home loan benefits together. I hope this would clarify some your doubts regarding HRA combined with Home loan.

About the Author:

Reenika is a Certified Financial Planner and has more than 6 years of experience in the financial service industry. She can be reached at expert@investmentyogi.com

Calculators

Home Loan EMI Calculator

Income Tax Calculator

Tax Refunds Are Not A Mystery Any More

Yogi — Mon, 10 Jun 2013 12:22:00 GMT

Mr. Ramesh, an IT Professional in Delhi had filed tax for the Assessment Year 2011-12 but he is still waiting for the tax refund for the return he filed. He has even cross checked whether he filed the returns in the appropriate manner. This is not an isolated story; We all have our version of the story and a tale of anxiety and harassments with our hard earned money hanging midway. Taxpaying community, especially individuals are often a frustrated lot when it comes to refund of the taxes paid in advance.

Filing of tax has been a tedious task in itself and getting a refund done is even more cumbersome. The evolution of technology and its adaption in government departments and the increase of skill set, has decreased the problem of refund, however the problem still persists.

Why a tax refund arises?

The key reason why the situation of tax refund arises is due to high rate of interest on tax deductibles at source (TDS) compared to the actual tax payable. It has been seen that sometimes the income calculation of a person is higher when compared to advance tax liability, thereby generating the eligibility of reimbursement.

Further, eligibility comes into picture when the individual doesn't declare his full income to the employer. Medical insurance premiums, housing loans final certificates, interest on educational loans and LTAs are some common examples through which employee can claim tax refunds. Apart from that, Non Resident Indians are also eligible for tax refunds on the interest generated on the NRO account. The tax deducted is equivalent to 30.9 percent.

Eligibility Criterion:

If you are an individual whose income in the year is less than Rs. 2,00,000, then sit back and relax as you are not entitled to file income tax. The eligibility criteria is simple, you will have to calculate your tax liability according to the tax slabs of the Income Tax Act. If the taxes paid during the year were higher than the tax liability, you can get the refund. Please make sure that you have taken into account the deduction and exemptions based on the IT rules. It might also happen that you face a rejection of your refund application because of the wrong calculations of exemptions, therefore cross verify before filing the return.

Refund Status:

Income tax refunds can be checked online and the status can be known by visiting the site of income tax department and also State Bank of India dedicated mail id, which is itro@sbi.co.in. The website of IT department asks for your PAN number and the Assessment Year in which you filed the tax for the purpose of generating the refund status. State Bank of India has been assigned the duty of refunding the claims of tax payers on behalf of the IT department.

Refund Timings:

The difference between timing of offline returns and online returns are wide. The reach of online returns is not so much compared to that of offline returns in India. People are still more comfortable in going to their lawyers and Chartered Accountants for correct filing of the return and submitting the same by hand. The complications of tax calculations sometimes make this a compulsion. However, it must be noted that the refund timing vary. In case of online returns, refund process is faster and takes a maximum of six to seven months but this limit can go up to two years in case of offline returns. Sometimes, the delay is because of the change of addresses or incorrect bank account details.

Offline process is also disadvantageous in the sense that the government style of working sometimes doesn't solve the problem. You will have to visit your Assessing officer along with the documents of your income. But, it is still not guaranteed that your plea will be listened to and the next option for you in that case is to send the details to the chief commissioner of the particular area. In this case, you will have to submit the return copy. If the issue is not resolved for a long time, you can approach a tax ombudsman near you.

Refund timings have been a big issue for the Income Tax Department as many claimants have requested to ease the process and make it faster and user friendly. When you file the return on time with all the necessary documents and guidelines, you want a system that will ensure safety of your reimbursement. In all the cases, sometimes a wait of two years is too much to handle.

Income Tax refund is no longer a mystery that causes sweat beads to appear, all you have to be is bit proactive and be sure of the data entered by you. To have an instance valuation of your income tax, Investment Yogi has an Income Tax Calculator devised at your disposal.

About the Author:

Calculators

Income Tax Calculator

Retirement Corpus Calculator

Common Mistakes While E-filing Tax Returns

Yogi — Thu, 06 Jun 2013 05:50:00 GMT

Electronic Filing or E-filing of Income tax returns is mandatory for Individuals having taxable income exceeding INR 5 lakhs. It’s important that there are zero errors while e-filing and all mandatory columns are filled properly, as erroneous returns will be classified as defective or invalid based on the severity of mistake. If you are going to file your income-tax returns electronically for the first time, it is crucial that you take certain precautions so that your tax return is not rendered defective or invalid.

Most common mistakes while e-filing returns are related to data and behavioural aspects. Through this article we will try to address these mistakes, their implications and steps to avoid them.

Behavioural Errors

As humans we do not tend to move unless we are neck deep in water. In case of e-filing also, we follow the same instinct and wait till 30th of July to start the process. There are many who will be in the waiting list even on 31st and when they start the process they will start cribbing about the system. Government has made the process very easy and if you avoid last hour rush, 99% of the errors will automatically get fixed. To avoid this last hour rush, it’s recommended to e-file your returns one month in advance.

Failing to send ITR-V before deadline

Your income tax return is designated legally filed only when you send a signed copy of the ITR-V form to Income tax Bangalore office. Once you complete the e-filing and submit the return, you are informed about the same, but again the lethargic psychology comes into picture and we start counting the 120 days available at hand. Most of the time, we forget and simply do not send it leading to invalidity of return. To avoid this situation make it a rule to send the ITR-V the next day you file the return. It only takes an hour to post it, so why wait for 120 days.

Data Errors

These are the most common form of mistakes while e-filing tax returns. They can be primarily classified into personal data errors and financial data errors.

Mistakes in Personal Data

One needs to register on income tax website before he becomes eligible for e-filing. You need to create a user id, which is your PAN. While e-filing tax returns one needs to furnish personal details like mailing address, DOB, status, email, mobile number. One should ensure that these details are correctly filled in the designated columns. Senior citizens should be careful while filling their date of birth, as any mistake might put them into higher tax bracket.

Mistakes in filling Banking Data

Furnishing bank account details is mandatory even if you are not liable for refund (check refund status online). Make sure the account number and the name in the bank account match and IFSC code and MICR code, account number etc are accurate.

Mistakes in filling Financial Data

While e-filing, one should ensure that the salary details do not contradict tax deducted at source as this discrepancy is one of the major reasons for rejection of returns. Interest income from fixed deposits and income from other sources should be correctly mentioned. Income from house property should also be clearly stated together with short-term capital gains. Income tax from long term capital gains should be mentioned separately even though they are tax exempt. There is a lot of other financial data which needs to be mentioned properly and it’s recommended to consult a tax advisor in case of doubt. One also needs to be careful about the income tax form he is picking for filing the return, as there are many for different cases.

Avoiding the mistakes

Although Government has tried to make e-filing through Income Tax Website easy, you might feel uncomfortable as there are a number of data columns which need to be filled. If you are confused, you can seek help from professional tax consulting websites with auto check e-filing software installed. This software makes the e-filing journey easy, error free and less time consuming at a very low cost.

With all these gyan, I am sure you are curious to know what is the outstanding amount that is payable by you towards your taxes.

We at Investment Yogi have created this Income tax calculator solely for your benefit so that you can have an idea about the tax payable by you at your convenience. Try the Income Tax Calculator given in the Calculators section below.

Note: After filing the IT return from IT Website, you will receive the following message - "This is a system generated e-mail and please do not reply. Add donotreply@incometaxindia.gov.in to your white list / safe sender list. Else, your mailbox filter or ISP (Internet Service Provider) may stop you from receiving e-mails". To add the above mail id to the white list, follow the below steps:

Step 1: In Gmail, click the “Create a Filter” link which is placed just next to the search box.

Step 2: In the From: field, enter the email addresses, domain names or even actual names of people who you would like to whitelist. You can separate multiple entries using OR (in Caps) or with the bar (|) sign.

Step 3: Once your filter is ready, click Next and select “Never Send it to Spam.”

About the Author:

The author Bimlesh Singh is a financial advisor. He holds a Bachelor’s degree from IIT and is a CFA Level 2 candidate. He can be reached at expert@investmentyogi.com

Calculators

Income Tax Calculator

SIP Maturity Calculator

Parents – Asset in Income Tax Planning

Yogi — Wed, 05 Jun 2013 03:42:00 GMT

Most of us end up paying more taxes even after exhausting all the sections of tax exemption, while few of us are aware that dependent parents could be a boon in tax planning. Here is how wise tax planning could save you from the tax demon–

Invest surplus in Parent’s Name

You can take an indirect approach to investing surplus funds by gifting it to your parents. Assuming both of your parents are Senior citizens without income, it means they enjoy Rs. 2.5 Lakh tax exemption each. You can invest up to 25 Lakhs through each of your parent for an investment return of up to 10%, which will be tax free in hands of your parents, which otherwise could have been taxed in your hand.

	Senior Citizen Parents (60 Plus)	Salaried Individuals (30% Tax Bracket)
Amount Invested	5000000	5000000
Yearly Income (Per Parent)	250000	500000
Tax Liability	NIL	150000
Tax Saving	150000

It is evident from the above table that any individual within the tax bracket of 30% could save up to Rs. 1.5 lakh if he invests through parents. This saving could be bigger if your parents fall under “Super Senior Citizens” category, which enjoys an even higher tax free income of up to Rs. 5 Lakhs.

Keep your Parents insured

In many instances, people ignore buying insurance for their parent’s, as mostly they are already covered by their employer and otherwise they are reluctant to buy extra cover due to higher premiums for the elderly. However, this ignorance could make things critical if any of your parents become critically ill and is not sufficiently covered. You might have to bear the expenses out of your pocket then.

A better way to work out this situation is to buy a separate health insurance cover for your parents, which could sufficiently provide for medical emergencies and at the same time allow you to claim tax deduction of up to Rs. 15,000 or 20,000 (in case of Senior Citizens), under Section 80D. This exemption is over and above exemption for your own health premium.

Pay rent if living in parents’ house

You can claim house rent allowance even if you are residing in your parents’ home, which is registered in your parents’ name. It is recommended that you enter into a proper rental agreement with your parents and actually pay them rent each month. If your parents are retired and do not have any taxable income, then this rental income could be tax free in their hands depending upon the rent you agree to pay. It would be a cherry on top, if the house is jointly owned by your parent’s as income could be divided among them separately.

Sell shares to parents to offset loss

If you have kept loss making shares in your portfolio for over a year, then you can consider to sell them to your parents in an off market transaction. A long term capital loss on shares could be set off against long term gains if you sell the shares in an off market sale, which is a transaction without going through the exchange. Finding buyers off-market is difficult hence you could sell these shares to your parents in order to set off losses. The main criteria for this arrangement are, shares should be sold at the market price and mode of payment should be cheque.

The above methods are legitimate ways of tax reduction and come handy for tax saving. These smart strategies could cut down your tax outgo in a big way.

About the Author:

Reenika is a Certified Financial Planner and has more than 6 years of experience in the financial service industry. She can be reached at expert@investmentyogi.com

Calculators

Income Tax Calculator

Save to Become Crorepati Calculator

Types of Taxes in Indian Financial System

Yogi — Wed, 29 May 2013 01:16:00 GMT

Taxes, along with taxation rules are one of the most complex and confusing topics of any financial system. This complexity arises because of different types of taxes with different tax rates and continuous amendments in the taxation rules which are retrospective and prospective at times. Through this article, we will try to figure out different types of taxes levied in Indian financial system and their effects.

Types of Taxes

Taxes represent the amount of money we pay to the Government at predefined rates and periodicity. Taxes are the basic source of revenue to the Government using which it provides various kinds of services to the tax payers. There are mainly two types of Taxes, direct tax and indirect tax which are governed by two different boards, Central Board of Direct Taxes (CBDT) and Central Board of Excise and Customs (CBEC).

Let’s discuss the two types of taxes in detail.

Direct Taxes

Direct taxes are the personal liability of tax payer. These are collected directly from the tax payers and they have to be paid by the persons on whom it is imposed. Important direct taxes are listed below:

Income Tax – This is most important type of direct tax and almost everyone is familiar with it. TDS is its famous synonym and whosoever is earning above a minimum amount (tax exemption limit) has to pay income tax.

Wealth Tax – This is in addition to the income tax and is levied if your net wealth exceeds Rs 30 Lakh at the rate of 1% on the amount exceeding Rs 30 Lakh.

*Note - In Budget 2013-2014 Finance Minister Mr P. Chidambaram introduced a surcharge of 10 percent on taxpayers with an annual taxable income of more than 1 crore (10 million) rupees.

Property Tax/Capital Gains Tax

This is levied on the capital gains arrived by selling property and stocks. Tax rates are different for long term and short term capital gains.

Gift Tax/ Inheritance or Estate Tax

Amount exceeding Rs. 50000 received without consideration by an individual/HUF from any person is subjected to gift tax as income under “other sources”. There are exemptions like money received from relatives is not taxable. Marriage gifts and money received through inheritance are also exempt from gift tax. Inheritance tax was earlier in practice but has been repealed by the government.

Corporate Tax

Companies operating in India are taxed as per the corporate tax rate on their income. This tax is one of the major sources of revenue for government.

Indirect Tax

Impact and incidence of indirect Taxes fall on different persons as opposed to direct taxes where impact and incidence is on the same person. These taxes are recovered from different groups of people but the liability remains with the person who collects it. Tax payer recovers the indirect taxes paid from their consumers and clients and finally pays it to government. For example, when we purchase any product we pay VAT, when we eat in restaurants we pay service tax which are ultimately deposited in government’s kitty by the service providers. Brief about various types of indirect taxes is given below:

Service Tax

Service providers in India are subject to service tax, which is charged on the aggregate amount received by the service provider. Services like leasing, internet/voice, transport, etc are subject to service tax.

Custom Duty

Custom duties are indirect taxes which are levied on goods imported to/exported from India. There are different rules for different types of goods and sectors. Government keeps on changing these rates so as to promote import/export of specific goods.

Excise Duty

Excise duties are indirect taxes which are levied on goods manufactured in India for domestic consumption. Like custom duty, there are a number of rules which keep on changing as per government discretion.

Sales Tax and VAT

Sales tax is levied by the government on sale and purchase of products in Indian market. As customers, whatever you buy from the market, you pay sales tax on it. Now, sales tax is supplemented with new Value Added Tax so as to make it uniform across country.

Security Transaction Tax (STT)

STT is levied on transactions (sale/purchase) done through the stock exchanges. STT is applicable on purchase or sale of various financial products like stocks, derivatives, mutual funds etc.

Finding Information

I have intentionally not presented details of various tax rates and tax slabs as they keep on changing at regular frequency. For details regarding correct rates and slabs it’s recommended to visit government’s income tax website.

About the Author:

The author Bimlesh Singh is a financial advisor. He holds a Bachelor’s degree from IIT and is a CFA Level 2 candidate. He can be reached at expert@investmentyogi.com

Calculators:

Income Tax Calculator

Interest Payable Calculator

Enjoy The Perquisites But Watch Out For Taxes!

Yogi — Thu, 23 May 2013 22:25:00 GMT

On reaching a certain position or joining a company, you may come under the umbrella of ushering benefits from the employer. It is not necessary that you will be getting the benefit in each and every case but that solely depends on the policy of the company and ease of employing. Such casual emoluments have been termed as Perquisites under the Income Tax Act. These can be direct or in an indirect manner and are chargeable under the salary head. Therefore, be sure which perquisite will cost you what amount as an employee. Though employer is bearing the cost of providing such expenses, its taxable portion will weigh on you. The benefit can be in the form of reduced prices or can be cost free. It is added to the salary as it is considered the form of income in the hands of the employee. Here are few general reimbursements that are provided by the employer but taxed in the hands of the employee:

Residential accommodation:

Employees, as you are aware, are divided into two categories. One is the Central or State Government employee while the other is Private employee. In the case of former, the value of benefits is the amount of license fees that is decided by the government. This is deducted from the rent actually paid by the employees. In case of the latter, the value of perquisite is 15% in cities where the population is more than 25 lakhs. The perquisite value is 10% in case the value is more than 10 lakhs but less than 25 lakhs and in other cases it is 7.5% of the employee’s salary. In case of lease or rent by the employer, the value will be determined by actual rent or 15% of an employee's salary, whichever is less. So in simple words, these percentages will add further in your salary under the income head to calculate the tax.

Gift vouchers, token:

You might have heard of some gift vouchers or passes or household item vouchers and tokens provided by the employer and redeemed by the employee. In all such cases, the amount of benefit is the sum of any such voucher. There is also a catch in this, if you ask your employer to give total gift vouchers of less than Rs 5000 in a year, then the value of perquisite is treated as Nil. It thereby means that only the employer will incur the cost of issuing such voucher, in the employee’s hands it will be NIL. The employer is anyway encountering the cost but you can save yourself from taxes if you are proactive.

Food Coupons:

Sometimes, vouchers can be in the form of food and beverages. In this case, if the employee had to pay a certain amount from his own pocket, that will be deducted from the total cost incurred by the employer. However, if these food coupons are for use in working hours in office premises and cannot be utilized in other eating joints up to a value of Rs 50 per meal, or a free tea, snacks and non alcoholic beverages during working hours, then these are exempt from the purview of income tax.

Educational benefits:

Certain employers these days are also running their own schools or provide concessional or free facilities for children of employees in other schools. In this case, benefits will be the fees charged by similar institution and as applicable in other activities, if something is charged from the employee as an amount of fees, that will get deducted from the benefits. In case the employer provides free education and similar facilities are provided in other schools as well, the cost of education is free up to Rs 1000 per month or 12000 per year per child.

Exemptions In Benefits:

Not all the benefits are taxable, as explained earlier, there are exemptions available and some can be easily sorted by the employee. There are certain more exclusions up to a limit from Income Tax. In case of medical treatment of the employee in a hospital either maintained or approved by employers and in case of government employee it is government or prescribed hospitals, sum up to Rs 15000 from the employer is exempt from taxes.

Similarly, in case of interest free or concessional loan for treatment of employee or member of his household in certain specified diseases for a sum of not more than Rs 20000 paid by employer, no perquisite is taxable in the hands of the employee. Mobile charges and telephone charges incurred by employees on behalf of the employer are also exempt from the income tax.

Planning the break up of salary at the time of joining any organization is very important. Benefits are always welcome but be prepared for taxes and keep your saving cycle moving so that you are not troubled at the time of tax payments.

About the Author:

Amit Sethi is an MBA (Fin) graduate and a Financial Consultant. He has spent over 10 years in Equity research, Stock broking and Financial Consultancy Sector. He can be reached at expert@investmentyogi.com

Calculators

Income Tax Calculator

Interest Payable Calculator

What is Gratuity

Yogi — Tue, 07 May 2013 02:40:00 GMT

Gratuity is one of the least understood components of salary. InvestmentYogi explains everything about Gratuity and the tax implications for you.

Gratuity is a part of salary that is received by an employee from his/her employer in gratitude for the services offered by the employee in the company. Gratuity is a defined benefit plan and is one of the many retirement benefits offered by the employer to the employee upon leaving his job. An employee may leave his job for various reasons, such as - retirement/superannuation, for a better job elsewhere, on being retrenched or by way of voluntary retirement.

Eligibility

As per Sec 10 (10) of Income Tax Act, gratuity is paid when an employee completes 5 or more years of full time service with the employer(minimum 240 days a year).

How does it work?

An employer may offer gratuity out of his own funds or may approach a life insurer in order to purchase a group gratuity plan. In case the employer chooses a life insurer, he has to pay annual contributions as decided by the insurer. The employee is also free to make contributions to his gratuity fund. The gratuity will be paid by the insurer based upon the terms of the group gratuity scheme.

Tax treatment of gratuity

The gratuity so received by the employee is taxable under the head ‘Income from salary’. In case gratuity is received by the nominee/legal heirs of the employee, the same is taxable in their hands under the head ‘Income from other sources’. This tax treatment varies for different categories of individual assessees. We shall discuss the tax treatment of gratuity for each assessee in detail.

For the purpose of calculation of exempt gratuity, employees may be divided into 3 categories –

(a) Government employees and

(b) Non-government employees covered under the Payment of Gratuity Act, 1972

In case of government employees – they are fully exempt from receipt of gratuity.

In case of non-government employees covered under the Payment of Gratuity Act, 1972 – Maximum exemption from tax is least of the 3 below:

(i) Actual gratuity received;

(ii) Rs 10,00,000;

(iii) 15 days’ salary for each completed year of service or part thereof

Note:

Here, salary = basic + DA + commission (if it’s a fixed % of sales turnover).
‘Completed year of service or part thereof’ means: full time service of > 6 months is considered as 1 completed year of service; < 6 months is ignored.
Here, number of days in a month is considered as 26. Therefore, 15 days’ salary is arrived as = salary * 15/26

In case of non-government employees not covered under the Payment of Gratuity Act, 1972 – Maximum exemption from tax is least of the 3 below:

(i) Actual gratuity received;

(ii) Rs 10,00,000;

(iii) Half-month’s average salary for each completed year of service (no part thereof)

Note:

Here, salary = basic + DA + commission (if it’s a fixed % of sales turnover).
Completed year of service (no part thereof) means: full time service of > 1 year is considered as 1 completed year of service. < 1 year is ignored.
Average salary =10 months’ salary (immediately preceding the month of leaving the job)/10

Illustration

Let’s understand the above math clearly with an example:

Varun had been working with an IT company since past 10 years, 7 months. He is retiring on 15^thApril, 2010. His current Basic = Rs 40,000 pm, DA = Rs 5,000 pm. He is going to receive a gratuity amount of Rs 3 lakhs on retirement. Note: Varun’s basic and DA have been the same since past 1 year.

Lets consider 2 situations here – (a) Varun’s employer is covered under Payment of Gratuity Act, 1972; and (b) Varun’s employer is not covered under Payment of Gratuity Act, 1972.

Salary = Basic + DA = Rs 40,000 pm + Rs 5,000 pm = Rs 45,000 pm
Average salary = 10 months’ salary (immediately preceding the month of leaving the job)/10 = (Rs 45,000 pm * 10)/10 = Rs 45,000 pm. Therefore, half-month’s average salary is = Rs 45,000/2

Important points to remember

Generally, only government employers give DA to their employees. Above example is only for illustrative purpose.
The salary of the employee may differ over a period of time on account of change in basic, DA and/or other factors.
In case gratuity is received from more than one employer during the previous year, maximum exemption allowed is up to Rs 10,00,000.
Where employee has already claimed gratuity exemption in any previous year (s), the maximum exemption amount allowed for the current previous year i.e. Rs 10,00,000 will be reduced by the amount of deduction already claimed in the previous years.
In case of an employee who is employed in a seasonal establishment ( not employed throughout the year), the gratuity exemption shall be for seven days wages for each season.

About the Author:

Priya Rao is our in-house Financial Planner and a personal finance enthusiast. She is a Certified Financial Planner(CFP) and can be reached at expert@investmentyogi.com

Create your FREE Financial plan before making investment decisions. Click on Start for FREE.

Relates articles

Best Tax Saver Mutual Funds

Tax Planning

Section 80C

Financial Planning

Useful financial calculators

Retirement Corpus Calculator

Home Loan Affordability Calculator

Doubling of Money Calculator

What to do When You Get an Income Tax Notice?

Yogi — Mon, 29 Apr 2013 21:25:00 GMT

Do you know that your tax return may be picked for random scrutiny? Yes! It is quite possible that you receive a notice from the Income-Tax department for old dues or ambiguous income. Sending scrutiny notice under section 143 (3) has become a style for the department to develop seriousness in people regarding tax compliances.

Notices are also served on demand of the individual after applying for a rectification petition during filing of return under section 154, most probably due to mismatch in TDS or income amount. As well as when the details required are not specified under section 143 (2) of the Income-Tax Act, 1961. The AO (Assessing Officer) can make a regular assessment after a detailed enquiry u/s 143 (2).

Notice u/s 143 (1) is served to the assessee regarding intimation about the calculation mistake or error in filing return or claiming excessive deduction or wrong exemption found in processing of Income Tax return. The purpose is to inform the person about the difference between the return filed by him and the computation as per the IT Department which result in creating the situation of amount payable or amount refundable.

Do not panic and never try to ignore the notice. Because this ignorance may cause fine, that can be extended up to Rs. 10,000 apart from the penalty of tax and interest. So, as per the notice, you must meet the AO with all the relevant documents. Following points should be taken care of, before meeting the assessing officer:-

Understand the motive of serving the notice.
Check the given details of notice i.e. your name, address, PAN number etc. It may happen that your name or address is printed incorrectly but the PAN number is enough for the IT department to identify you.
The notice also contains details of officer in-charge like name, designation, signature and office address with income tax ward/circle number. Keep these in view to escape from being cheated.
Now, the trend of electronic notices has started. Therefore, check ‘document identification number’ available on each communication with tax authorities.
Check the validity of the notice as well as the duration within which you have to respond to the AO. Usually, a scrutiny notice has to be served to the assessee within a period of 6 months from the end of the financial year. It may be possible that u/s148, a notice related to very old cases are sent because of being reopened by the AO due to genuine reasons.
Retain some copies of the notice. It will help, in case you lose it.
Preserve the envelop of the notice. It contains the Speed Post number and Date of posting and serving of notice to you. It will be helpful when you receive the notice late and fail to respond within the valid period.
Collect all the required documents and make a cover letter containing a list of all the annexed documents with necessary details. Retain a Xerox of that file for future reference.
In the case of notice u/s143 (2), collect the basic documents related to major expenses, income and loan details, bank statements, etc.

Submit the file and ask for the acknowledgement on a copy of the cover letter attached to the file and preserve it. It acts as an evidence of submission of the concerned articles along with details of each document.

If some of your old dues come out after the process, they can be adjusted against your pending refunds, if claimed.

If the case is complicated, it is better to take the help of a professional like CA, CS, advocate etc. He will make you understand about the demand in the notice and about the supporting documents needed. A professional will also help in preparing an appropriate response at the time of appearing before the AO and things might get resolved with ease.

About the Author:

Calculators:

Income Tax Calculator

Interest Payable Calculator

Income Tax Slabs for Financial Year 2013-2014

Yogi — Wed, 24 Apr 2013 20:08:00 GMT

Tax slabs for FY 2008-09

Tax slabs for FY 2009-10

Tax slabs for FY 2010-11

Tax slabs for FY 2011-12

Tax slabs for FY 2012-13

When calculating the income tax liability each year, the first and foremost aspect which comes across one’s mind is the tax slabs. In this year’s annual budget, the government has not brought about great relief for the common man by keeping these tax slabs same as the previous years. Here is a look into the slabs for the current financial year to help you prepare your investments and income, and to be able to file your tax returns accurately in the following assessment year.

Basic Tax Jargons

Financial Year, Assessment Year and Previous Year, do these commonly used income tax jargons often confuse you? This is what they mean.

Financial Year (FY) – Duration of one year between 1st April to 31st March of the following year, in which all financial information are reported. The current financial year is 1st April 2013 to 31st March 2014.
Assessment Year (AY) – The income of a particular financial year is assessed in the following financial year, which is known as the assessment year. For the current financial year, income will be assessed in the assessment year 2014-2015.
Previous Year (PY) – The financial year preceding the assessment year, the income of which is assessed in the following assessment year. Assessment year 2014-2015 will assess income for previous year 2013-2014.

Income Tax Slabs

With no change in the tax slabs, there would not be any greater savings for the consumers. Basic tax exemption limits have been retained; however, the brackets have been broadened. Below are the income tax slabs and rates applicable for the current financial year 2013-14 and assessment year 2014-15.

Tax Slabs for Male/Female Assessee (less than 65 years)

Income : up to 2 lakhs	No Tax
Income : 2 lakhs to 5 lakhs	10 %
Income : 5 lakhs to 10 lakhs	20 %
Income : above 10 lakhs	30 %

Tax Slabs for Senior Citizen (60 to 80 years)

Income : up to 2.5 lakhs	No Tax
Income : 2.5 lakhs to 5 lakhs	10 %
Income : 5 lakhs to 10 lakhs	20 %
Income : above 10 lakhs	30 %

Tax slabs for Super Senior Citizen (> 80 years)

Income : up to 5 lakhs	No Tax
Income : 5 lakhs to 10 lakhs	20 %
Income : above 10 lakhs	30 %

However, the government has introduced a tax credit of Rs 2,000 for people with an income up to Rs 5,00,000.

If you are looking for Income tax slabs for FY 2012-13 which was announced in budget 2012, click here.

5 Easy Steps to Calculate your Tax

Calculating income tax is not any rocket science. The following 5 steps give you an idea of the process.

Calculate your gross total income. This includes gross income from Form 16; and the taxable income from other sources.
Calculate your net deductions, which may include, donations, investments and savings such as provident fund subscriptions, Life Insurance Premiums etc.
Your net taxable income is gross total income minus net deductions.
Apply the appropriate income tax slab to calculate your tax payable on aggregate income.
Education Cess of 3% is applied on the tax payable to arrive at the total tax payable. Relief under various sections would be applied on this total tax.

For example: Let us consider a net taxable income of Ravi as Rs. 8, 00,000.

As an assessee, here’s how his tax is calculated.

Calculation

Tax up to Rs. 2,00,000	Nil
Tax on Rs.2,00,000 to Rs.5,00,000 @ 10%	30,000
Tax on Rs. 5,00,000 to Rs. 8,00,000 @ 20%	60,000
Total	90,000
Educational Cess - 3% of Total Tax	2,700
Net Tax Payable	92,700

Find out your tax liability in less than 30 seconds using this tax calculator.

Want to know if you are saving and investing wisely? Use this Calculator and find out.

Click here to use other such calculators.

Useful Tax Saving Articles

Section 80C

7 Tax Saving Strategies for Salaried Individuals

6 Tax Saving Tips for Working Couples

Tax Planning

Best Tax Saving Mutual Funds

National Savings Certificates (NSC)

Post Office Monthly Income Scheme

For any queries, write to expert@investmentyogi.com

Tax Terms Simplified!

Yogi — Tue, 23 Apr 2013 02:09:00 GMT

‘In this world nothing can be said to be certain, except death and taxes,’

Benjamin Franklin

Taxes are part of every individual’s life. Whether we accept it or not, it is a part of most of our activities in our day-to-day lives. Despite being so deeply engraved in our lives, tax is still one of the most complex subjects to understand for a common man. Very frequently used tax terms are alien to many.

Today let us try to make this a bit simpler by understanding some complex terms in layman language.

What does ‘Tax’ mean?

Before jumping to tax terminology, first let’s understand what the word ‘Tax’ itself means. It is nothing but a fee charged by the government on a product, income or activity.

You must be wondering now, why should we pay taxes on our hard earned money. Let me clarify.

Taxes are charged by the government to finance its expenditure, which are on creating facilities for public i.e. us. Hope from now on, you will not mind paying tax as much as you generally do.

Direct taxes are paid directly to the government by the person on whom it is imposed, such as income tax. On the other hand, an indirect tax (service tax, sales tax etc.) is a tax collected by an intermediary from the person who bears the ultimate burden of the tax.

Just imagine yourself sitting with Mr. Mukesh Ambani in your garden and having tea with biscuits. The amount of tax paid by both of you on the biscuits bought would be the same, irrespective of difference in your incomes!

ASSESSEE – Any person who is liable to pay tax on his / her income, or any other sum payable under the Income Tax Act, 1961, is termed as assessee.

PERSON – Under IT Act, meaning of person is different from our regular life. Following are included under the term ‘Person’:

Individuals
Hindu Undivided Families (HUF) – Consists of all persons lineally descended from a common ancestor including their wives & unmarried daughters. A HUF is a creation of law. It is a separate entity that can own or sell property, enter contracts or earn income.
Association of Persons (AOP) – is an arrangement where two or more persons have voluntarily joined for a common purpose with the objective of producing income.
Body of Individuals (BOI) – Corporation of persons, who have come together for some activity to earn income.
Partnership Firm – is an arrangement, where people have agreed to share profits of a business, carried on by all or any of them acting for all.
Co-operative Society – is a group of individuals who have come together for their mutual benefit.
Company – can be Indian/Domestic (public – in which public have a substantial interest or private – where public do not have a substantial interest) or a foreign company.
Local Authority – includes Panchayats, Local Municipalities
Artificial Judicial persons
Societies & Trusts

ASSESSMENT YEAR (AY) – AY is the year in which income of a person is assessed and taxed. Income earned by you in the financial year 2012 – 13 is taxed in the year 2013 – 14. Here 2012 – 13 is referred as financial year and 2013 – 14 is termed as AY.

INCOME – refers to earning by using any asset or rendering a service. Revenue receipts are included under income, which keep accruing from time to time. Income is classified under five heads:

Income from Salary
Income from House Property
Profits & Gains from Business & Profession
Income from Capital Gains
Income from other sources

GROSS TOTAL INCOME – is the sum of all the earnings from the various heads of income, after setting off any losses, if there are any.

DEDUCTIONS – After calculating the total income from the various heads of income, certain amount can be deducted by the assesse e.g. life insurance premium paid, investment in tax saving schemes & mutual funds. These deductions help in saving a certain amount of tax. They are also called the 80 series deductions as they are contained in sections 80C to 80U.

TAXABLE INCOME - is the gross total income less the deductions. It is on this sum that the tax liability is calculated.

CESS – is the tax charged by the government towards a specific area. Under IT Act, education cess (secondary, higher education) is charged and used for improvement in education.

These were some of the commonly and frequently used terms in the context of Tax. Hope, now you will be able to understand this integral part of our lives in a much more simple and effective manner!

About the Author:

Sapna Tiwari is a Certified Financial Planner and masters in Financial Management with over half a decade’s experience in the field of personal finance. The views expressed are personal. She can be reached at expert@investmentyogi.com.

Why Should You File Your Tax Return

Yogi — Sun, 21 Apr 2013 19:55:00 GMT

We have heard many a times that every individual whose total income exceeds the maximum exemption limit is obligated to furnish his/her Income Tax Return or ITR.

But what is the benefit of filing ITR – especially for those below 30 years of age or those not in the higher tax bracket? Why should any person voluntarily go and submit his income details to the tax authority? Isn’t it more logical not to disclose income details and avoid paying tax altogether?

TaxYogi believes that there are some solid reasons (listed below) for acquiring a PAN card (if you don’t have one) and filing your ITR within the due date, i.e. 31^st July every year:

Standard Income Proof – ITR is considered a customary income proof not only in India but also globally. If you are looking for higher education or employment abroad, ITR is the largely accepted income proof.
Speeds your loan application process - Apart from a good credit history (or past repayment track), the fact that you are filing your ITR regularly gives you speedier access to credit and at better terms – although not necessarily a larger line of credit, but surely a better rate. It also provides the impression to the financier that you are a law abiding citizen and will repay the loan within time.
Power of PAN – Permanent Account Number or PAN issued by the IT authority is not only a prerequisite for filing ITR but is also now mandatory for all financial transactions – from opening a bank account, or purchasing mutual funds to real estate for investment. So it makes sense to get yourself one even if you don’t have much income to boast of.
Claim your Tax refund – Filing ITR is not always about paying tax. It can be used as a means to reduce your tax liability! Yes, you heard us right. Take for instance, salaried employees for whom TDS has been cut during the financial year can claim refund if the tax outgo has been more than the actual tax payable.

Note:

1. Every person with taxable income (over and above the tax exemption limit) should file an income return, even if his tax liabilities have been taken care of by the employer through tax deducted at source (TDS); persons whose salaries have been subject to TDS are also required to file return because they may have earned from sources other than salary (house property income, capital gains, etc.).

2. The entire tax payable on your income has to be paid before filing the return of income either by way of tax-deducted at source (TDS), advance tax or self-assessment tax. Ensure that it is done before the ITR is filed.

3. Not only for refund, you also need to file your income return if you are claiming carry forward of loss (say, from long term capital asset or from any other source of income). In such cases, filing returns within the due date is a must.

4. Avoid willful tax evasion - In certain cases, you may even be liable for prosecution for intentional avoidance of tax payments. "Better late than never" is the best policy when it comes to income tax payment.

Popular FAQs of Income Tax Return filing –

Q. What is financial year, previous year and assessment year?

Answer: For the purpose of calculating income tax, financial year (FY) is the period during which the income has been earned. The income earned in a FY is assessed to tax in the following year, that is, the assessment year (AY). For example, income earned in FY 2011-12 (1 April 2011 to 31 March 2012) will be assessed for tax in the year 2012-13. FY and previous year are the same; they are used interchangeably.

Q. Tax gets deducted from my salary every month (by way of TDS). Do I still need to file ITR?

Answer: Yes. Filing of tax is compulsory for every person whose gross total income, i.e., the income under the five heads (salary, house property, capital gains, business income, and other sources) before allowing for any deductions (under chapter VI A of Income Tax Act, 1961), exceeds the basic income tax exemption limit (IT Rate slab given at the end of the article).

Q. What if I miss the deadline of July 31^st?

Answer: If there are no balance taxes to be paid, no interest or penalty will be levied if you file your return < 1 year from the end of the relevant assessment year (AY). However, there is a penalty of Rs 5,000 if you fail to file by that date. In case there are tax arrears, a penalty of 1 % per month will be charged as interest on such taxes due.

Q. TDS is NIL on my income. Do I have to file return?

Answer: It is not mandatory to file your IT return if your taxable income is below the maximum exempted limit. However, if your gross total income exceeds the basic exemption limit, then you have to file a tax return even if no tax was deducted at source.

However, in case of salaried employees with income less than INR 5 Lakhs per annum and the same subject to TDS, then they are not mandated to file an income tax return.

Q. I don't have a PAN card. Can I file my Income return?

Answer: Permanent Account Number (PAN) is compulsory for filing your ITR. If you have not obtained a PAN card till now, you should immediately apply for one.

Q. What is advance tax? How is it different from ITR filing? Is there a penalty if I don't pay this tax?

Answer: Advance tax means ‘payment of tax in advance’. Payment of advance tax is compulsory on the income earned during the financial year for every person liable to pay tax in India. Non-payment or short payment of advance tax will attract penal interest.

However, there is no need to pay advance tax if:

i) The total tax liability for the financial year is < Rs 5,000; or

ii) If the employer has deducted TDS from the salary.

Q. Where do I file my return?

Answer: Filing of ITR can be done in 2 ways –

i) Offline/Traditional paper filing – Traditional filing involves hiring a CA or a tax consultant to file tax returns, or personal submission of forms by visiting the nearest Income Tax Office (ITO).

ii) Online filing – Online or E-filing was enabled by the Income Tax Department a couple of years back. It is an improved and hassle-free method of tax filing; here, filing is done through the Internet. E-filing of IT Returns can be done with or without a digital signature. Logon to www.taxyogi.com for filing your tax returns online.

Income Tax slabs/Basic Exemption limits for Individuals for FY 2013-14 (AY 2014-15):

Men/Women up to 60 Years in age

Income	Tax Rate
Upto Rs 2,00,000	Nil
Rs 2,00,000 to 5,00,000	10%
5,00,000 to Rs 10,00,000	20%
Rs 10,00,000 and above	30%

Senior Citizen above 60 years in age

Income	Tax Rate
Upto Rs 2,50,000	Nil
Rs 2,50,000 to 5,00,000	10%
5,00,000 to Rs 10,00,000	20%
Rs 10,00,000 and above	30%

Senior Citizen Above 80 Years in age

Income	Tax Rate
Upto Rs 5,00,000	Nil
Rs 5,00,000 to 10,00,000	20%
Rs 10,00,000 and above	30%

About the Author:

The author, Priya Rao is a CFP certified financial planner.

Income Tax Department Ready With More Clout!

Yogi — Sun, 14 Apr 2013 23:25:00 GMT

The Income Tax Department is ready to take a jibe on your cash transactions. These dealings were in the IT radar in the past as well but after the drive to make the system more transparent a cash limit has been set. The IT department will now check the details of any cash transaction of more than Rs 50000 if you are a non salaried individual. The method adopted by the Income Tax officials is through the introduction of new forms at the time of filing of returns. These forms will contain points that will need to be answered by a non salaried person if his/her dealing in cash is more than Rs 50000. Some other critical points will also need to be answered by the employee.

In respect to this, the mood of the department is to check the details of any personal assets maintained by the individual, dealings in assets. These assets may include vehicles owned by the individual or property in bullions like Gold ornaments, Real Estate investments etc. The purchase of these products will now on invite identity proofs of the holder. The new guidelines have been framed in order to crack down money laundering, which has been in the news for some time now. The framework of IT department also includes paintings, work of art that you possess. These details furnished by the persons are for the purpose of tracking chain of illegal transactions and dealings.

What all things are in Income Tax radar?

As stated, a work of art, bullions, vehicles, houseboats, yachts and private aircrafts etc. will form part of the documentation required by Income Tax. The department is also planning to include land deals, money deposited in shares, bank deposits, insurances in the name of the individual. The Income Tax Department is also asking for documents in relation to your loans and advance payments. That’s not the end of the list; the department will ask for your debt and liabilities as well. So a person will have to submit a statement carrying his possessions, purchases and liabilities when asked for or, in some cases at the time of purchase only.

Hiding Reality:

The step has been taken so that proper facts are reported which were generally hidden from the department at the time of filing the returns. The cross check will be more stringent and the statement by the individual will be checked with third party sources of tax officials. So concealing of facts can land you in a soup.

High Net Worth Individuals:

Non salaried individuals particularly High Net Worth Individuals (HNI) will have to submit the forms along with the returns. The idea is to check the wealth of the individual and commonly for HNIs. Possession of illegal wealth will therefore come under the scanner of Income Tax and it will be liable to tax. For the fiscal year 2012-13, the estimated collections can be near Rs 950 crores against collections of Rs 866 crores from such wealth collections. For any property or asset outside India, the wealth needs to be disclosed as well.

Separate Forms like Income Tax Returns II, III and IV have been designed for the persons who possess wealth outside the country or for persons who are non salaried and have income other than salaries. The disclosure is easy and the individual can save himself from unnecessary trouble if he possesses genuine wealth. For those who possess illegal wealth, Beware!!!!

About the Author:

How to Avoid TDS on FD’S through Form 15 G/H ?

Yogi — Thu, 04 Apr 2013 22:27:00 GMT

Every person having deposits with banks, financial institutions, companies etc. must be aware of the importance of Form 15G/H of the Income Tax act 1961. As per section 194A (3) (I) (a) of the Income Tax Act, 1961, where the amount of interest or aggregate of the amount of interest credited or paid or likely to be credited or paid during the financial year exceeds Rs.10, 000/-, tax has to be deducted at source from the first interest flow itself. Until few months back, old format of Form 15G/H was used to file but recently IT Dept. has issued new format of Form15G/H which has to be filed for the Assessment year 2012-13. As per note 4 of revised format of Form 15H, Banks and other institutions cannot accept declaration in Form 15H where aggregate amount of interest paid or credited or likely to be paid or credited during the financial year surpasses the ceiling which is exempt from tax and deduction(s) as per Chapter VIA, if any, for which the Assessee is eligible. There is a similar restriction in note 6 of the revised Form 15G.The maximum amount which is not chargeable to income tax, relevant for declaration in Form 15G/15H, is as mentioned below:

- Individuals up to age of 60 - Rs.2, 00,000/-

- HUFs, Trusts & Associations - Rs2, 00,000/-

- Individual customers with age 60 years and above but less than 80 years. (DOB shall be either on or before 31/03/1954 but after 31/03/1934) - Rs.2, 50,000/-

- Individual customers with age 80 years and above. (DOB shall be either on or before 31/03/1934) - Rs.5, 00,000/-

These forms are used for non deduction of Tax at source by the party giving interest on such deposits. But few people know the implications of filing Form 15G/H and other important facts related to this Forms.

What is Form 15G/H

Form 15G/H is a type of declaration to be filed by an individual or a person (not being a company or the firm) in order to receive certain payments (dividends, interest on securities, interest other than interest on securities, national saving schemes, interest on units) without deduction of tax at source (TDS).

Difference between Form 15G and 15H

Both the Forms are same. The difference is only that Form 15G has to be filed by persons below 60 years of age and Form 15H has to be filed by persons above 60 years of age. Here, the word person refers to individual or person (not being a company or firm). So, HUF and Association of Persons can also use this form.

Certain points require strict attention regarding Form 15G/H:-

1) PAN is mandatory for making declaration using Form 15G/H from 01/04/2010.

2) Irrespective of the fact that Form15G/H has been filed or not, such income has to be mentioned under proper head while filing the return.

3) These Forms are deposited in two copies, one of which is forwarded to the IT department. So, the Income Tax Authorities can make further inquiries regarding the same income.

4) It should be deposited at the beginning of each Financial year.

5) These Forms should be deposited at each and every branch where the deposit has been made. For example, if you have made deposits at three different branches of Axis Bank, then you have to submit the Forms at each branch separately.

6) These Forms can only be used for payments like dividends, interest on securities, interest other than interest on securities, national saving schemes, interest on units. For other types of payments, these forms cannot be used.

7) These Forms are not applicable for NRIs.

8) If anyone has opted for monthly interest, he should deposit the Form at the start of financial year compulsorily as the TDS could be done from the starting month itself if he fails to submit the same.

So, understanding the use of Form 15G and H, one can make sure that the tax for which he is not liable, does not get deducted at source.

About the Author:

E-filing to Benefit Tax Payers Having Income Above 5 Lakhs

Yogi — Thu, 28 Mar 2013 02:30:00 GMT

The move by Finance Ministry to reduce the threshold limit of filing e-returns from Rs 10 lakh to Rs 5 lakh has to be welcomed. E-filing of return should not be seen as a burden but it is in one way a step ahead for the tech savviness of the country. The primitive approach of filing manual returns had many flaws and the Government’s recent move was to eradicate the flaws of filing income tax. Finance Minister on 5^th March 2013, made it mandatory for tax payers with annual income of more than Rs.5 lakhs to file e-returns.

Earlier this limit was Rs 10 lakhs but after due consultation between policy makers the same has been revised. Only from last year the government had commenced the system of e-filing for tax payers. There are approximately 19 lakh tax payers in the tax slab of Rs 5 lakhs to 10 lakhs in India. Last year, about 17 lakh tax payers filed their tax returns through electronic mode. This means that a large portion of tax payers are already using this system.

The rise in electronic filing by the assesse is a welcome change India is experiencing. The E-filing of returns is covered by Section 139C and 139D of the Income Tax Act, 1961. There are considerable benefits for filing a return in e-format. Even if the person doesn’t come in this tax bracket, which means his income is below Rs 5 lakhs it is advised that he should file his returns electronically. Some of the advantages of filing an e-return are as follows:

Acknowledgment and Processing

The acknowledgement of Income Tax returns is faster than in traditional mode of filing the ITR. Processing is faster as the manual interventions are pretty lower and this makes refunds gets processed in a much efficient manner.

Confidentiality

The most important advantage of the income tax assesse is its confidentiality of documents. While paper trading did not provide the same as the important information could not be kept away from records, this is possible in the case of Electronic filing as the filtering of such information can only be through one channel that is Assesse.

Accessibility of data

Past records of the taxes can be easily accessed with the help of E-filing. The same can be used at the time of filing taxes and for your subsequent returns. The software now a days is capable of recording ‘n’ number of records in its domain.

Accuracy

Accuracy is the key in filing a return. You may be liable for certain amount of tax but due to manual processes you can end up paying either higher or lower amount. Through e-filing you can take the help of the software whenever required, although there are chances of punching error but the accuracy percentage is much higher compared to paper filing.

Limitless boundaries

The 24*7 availability and comfort of filing return and lack of boundation from where to file it is another merit of the e-filing. Earlier there used to be huge queues for filing of returns and a person had to waste his time and energy in submitting the document in the income tax department. E filing intercepts wastage and time consumption. The person can file his electronic return from anywhere in the country as well as outside.

Advantages to Government

Government is in serious mood to plug the loopholes in Indian Income Tax system. One way is the introduction of technology. The Income Tax payers usually complained about the problems faced by them of the lead time relating to refunds. Most of them don’t even get the refunds even if they are rightful candidates for the same. Apart from this, huge piles of paper work by Income Tax department has made it a slow moving entity. The transparency is lacking and there are problems to grease the palm at every step. E-filing removes these demerits and improves the functioning of the system.

Plenty of softwares are available in the markets for e-filing of return. In case of difficulties,people can approach professionals like CA, tax advocates who charge a fee but take care of filing the returns on behalf of Assesse. One can do it himself by the income tax filing guide available on the web. The purpose of e-filing is to get faster refunds. The measure of government asking to file e-return for persons having an income above Rs 5 lakhs is a brave step towards speedier returns and less paper work that was getting irritating for many Assesses over the years.

About the Author:

Plan Your Salary Structure with a View of Better Tax Planning

Yogi — Wed, 20 Mar 2013 23:46:00 GMT

Plan Your Salary Structure with a View of Better Tax Planning

In Indian tax laws, various deductions, exemptions, relief, rebates etc. are available which makes tax planning to be very important. Tax planning means arrangement of one’s financial activities in such a way that full benefit of maximum aforesaid advantages shall be taken legitimately, so that minimum tax liability arises.

For tax planning, a tax payer should design his investments in such way that maximum deduction should be permissible from his income. Similarly, if a tax payer is an employee who has got an opportunity to decide the structure of his salary package then he should plan it very smartly so that maximum exemptions, rebates, reliefs should be attained.

The employees should keep the following aspects in mind while planning their salary package:-

- The employee should opt for division of salary into basic pay and allowance rather than opting consolidated salary. This will minimize his tax incidence, as some allowances are exempt from tax up to a certain limit.

Allowances with exemption limit:-

House Rent Allowance (HRA)

It is exempted up to the least of following:-

(a) Rent paid in access of 10% of salary

(b) Actual HRA received

Salary for this purpose is Basic salary + DA +Commission (if any) on fixed turnover.

Children Education Allowance

Up to the actual expenditure made on maximum of two children’s education or Rs. 100 per month, whichever is lower would be taken.

Hostel Expenditure Allowance

Actual expenditure incurred or Rs.300 per month per child maximum up to two children.

Conveyance Allowance

It is granted to an employee for meeting his expenses between the place of his residence and the place of his duty. It is exempt up to Rs.800 per month.

Special Allowance

Ex: Travelling allowance, Daily allowance, Helper Allowance, Research allowance, Uniform allowance etc. These allowances are exempt up to the extent of the expenditure incurred in respect of that or actual allowance received, whichever is lower.

- Commission earned as per the terms of employment should be based on turnover so that it forms part of the salary. This will reduce tax incidence in respect of HRA, interest credited to RPF (Recognized Provident Fund), commuted pension, etc.

- The employer’s contribution to RPF should be 12% of salary as this amount is exempt from salary up to this limit. Interest credited under the fund up to notified rate (9.5%) is not treated as income and employee’s contribution in it is eligible for deduction from under section 80C.

- Perquisites should be preferred instead of taxable allowance. Because in most of the cases the taxable valuation of the perquisite is lower than the taxable allowance.

In case of Rent Free House, the valuation is 7.5% or 10% or 15% of salary according to the population where the house is situated.
Salary for this purpose is basic salary + D.A. + bonus + commission + all taxable allowance.
It should be noted that if Furniture is provided without rent free accommodation, it will not be taxable in hands of employees.
If the employee is allowed to use of more than one car for his private purposes, the horse power of any such car should not exceed 1.6 litre cubic capacity as otherwise he shall be deemed to have been provided with one car of 1.6 cubic liter capacity which would lead to higher valuation of such perquisite.
Re-imbursement of expenses on medical treatment (on free medical facility) should be preferred in place of medical allowance because such allowance is taxable whereas the re-imbursement is not taxable up to the extent of Rs. 15,000.

- Dearness allowance should form part of the retirement benefits under the terms of employment. This will reduce the tax incidence in respect of HRA, employer’s contribution to RPF, commuted pension, gratuity, etc.

- The employee should opt for commuted pension on retirement, to the maximum permissible limit as it is exempt from tax within certain limits depending on various other components under Sec 10(10A) I & II of IT Act 1961

- Leave encashment should preferably be done on termination of employment by superannuation or otherwise as it will then be exempt from tax within certain limits.

Conclusion

To conclude we can say that there are many elements of salary which can help in diversifying a consolidated salary, and the proper planned diversification can result in lesser tax liability. An employee should go for those allowances which get maximum exemption according to the terms of employment and should accept those perquisites which have lesser valuation in the eyes of income tax than the taxable allowances.

Therefore, the employees should select the appropriate combination of basic salary and allowances as well as the other suitable perquisites, so that they get maximum tax benefit with better planning result.

About the Author:

Maintain Proper Proof While Filing IT Return

Yogi — Tue, 19 Mar 2013 20:16:00 GMT

Introduction

In India, tax laws are admittedly complicated because of various deductions, exemptions, relief and rebates. Being liable to pay tax creates a responsibility for an individual to do tax planning so that he should arrange his financial activities in such a way that maximum tax benefits are enjoyed.

Tax planning is an honest and rightful approach to reduce tax liability. It implies compliance with the taxation provisions in such a manner that full advantage is taken of all tax deductions and exemptions. Since, every tax payer wishes to retain the maximum part of his earnings, rather than parting with it and facing resource crunch, it would be his benefit to invest in such a way that he avails the maximum deduction from his income.

An individual is eligible to take deduction from his income maximum up to Rs. 1 Lac, if he invests under Sec 80 C of IT act. Moreover the benefits u/s 80C+80CCC+80CCD exceed tax saving benefits over and above Rs 1 Lac.

There are many other provisions for deduction in respect of medical insurance premium, medical treatment, repayment of loan taken for higher studies, donations, rent paid, royalty income, investment in long-term infrastructure bonds, etc.

Apart from deduction, there are many sources of income which are exempt from tax wholly or to some extent; like HRA (house rent allowance), gratuity, commuted pension, etc.

So, if an employee has an opportunity to plan his salary package then he should keep the following aspects in view:-

The employee should opt for division of salary into basic pay and allowance and should not opt for the consolidated salary because some of the allowances are exempt from tax up to a certain extent.
Dearness allowance (DA) should form part of the retirement benefits. This will not only increase the employee’s retirement benefits but also reduce his tax incidence in respect of HRA, gratuity, commuted pension, etc.
Any commission payable should be based on turnover so as to form part of salary. This will also reduce the tax incidence.
The employee’s contribution to RPF (recognized provident fund) should be 12% of salary as it is exempt up to this limit.

Why Investment/Expenses Proof is Important?

Tax payers are required to submit their investment and required expenses details with proper proof to their employer so that the employer should know about the relevant details which will further pass on to CBDT (Central Board of Direct Taxes). If the proof is not submitted during the reasonable time then the employee could not be able to avail deductions or exemptions.

If a company is not satisfied about the correctness of the proof, it will not accept it. In this case, the employee will not able to claim the genuine deduction and exemption, because it is adhered by mandate given by CBDT to all companies to satisfy themselves about the correctness of investments/payments proofs provided by employees.

A company may not accept the document from an employee due to lack of adequate proof. In that case, the employee can claim such benefits from the Income–Tax Department directly while filing the return again with proper proof; however at that time it would be not be an easy task to get the things done. After filing return the assessee has to file the rectification petition to income tax authorities. Then within 6 months from the end of the month in which application has been made, the order for rectification will pass. The rectification will be made either by an Income- tax authority or by the commissioner of Income-tax (appeals).

Therefore, it is very important to provide proper proof during the reasonable time to take advantages of deduction and exemptions, which is the right of every tax payer.

Important Proofs While Filing IT Return

Following are some important list of the “proof” used for taking advantages of deductions under sec 80 C of IT act :-

Life Insurance Premium :-

Proof – Premium payment receipt having name of the insured, sum assured and payment date.

Provident Fund (PF) :-

Proof – Receipts of contribution in PF with details of total contribution in previous year.

National Saving Certificate (NSC) :-

Proof – The certificate itself is the proof. Make sure that investor’s details are correct.

Fixed Deposit (FD) :-

Proof – 5 year FD certificate that mentions the deposits is eligible for tax sever scheme.

Repayment of Housing Loan :-

Proof – The receipt of Principal amount paid for housing loan.

Pension Fund :-

Proof – The receipt of sum contributed under the pension plan of Life Insurance Corporation or the pension scheme notified by Central Govt.

Conclusion

Apart from above mentioned proofs, the taxpayers should also keep proper records of expenses claimed under income tax and bills of various assets and products purchased. As per various stipulations, it is important for a taxpayer to keep tax records and supporting documents for at least 8 years. So, it is important to keep the documents safe and secure to easily handle the IT scrutiny anytime in the career.

About the Author:

Tax Deducted at Source (TDS)

Yogi — Tue, 19 Mar 2013 19:30:00 GMT

The concept of Tax Deducted at Source (TDS) envisages the principle of "pay as you earn". It facilitates sharing of responsibility of tax collection between the deductor and the tax administration. It also brings in regular cash flow to the Government. It acts as a powerful instrument to prevent tax evasion as well as expands the tax net.

Types of TDS certificates

Salaries — Form 16: In case of Salaries, the certificate should be issued in FORM 16 containing the Tax computation details and the Tax deducted & Paid details.

Non-salaries — Form 16A: In case of Non-Salaries, the certificate should be issued in FORM 16A containing the Tax deducted & Paid details. Separate certificates should be prepared for each Section.

TDS Rates

Salary:

The income from salary would be estimated for the year and then tax payable by an employee would be calculated for that year and tax would be deducted at an average rate. For instance, if the tax payable is 24,000 for the year, a TDS of 2,000 would be deducted every month. Follow this link to calculate the tax liability:

http://investmentyogi.com/FinancialCalculators.aspx

Interest on Securities/Dividends/Interest :

In the case of interest paid by a banking company, Co-operative society engaged in the business of banking and a public company engaged in the financing or construction of residential houses in India, the exemption limit is Rs. 10,000/-. TDS would be @ 10%.

Winnings from lotteries, puzzles, horse races :

TDS of 30% would be levied on winnings from lotteries, puzzles and horse races. However, basic exemption limit for deducting TDS is INR 5000 for lotteries and puzzles but only INR 2500 for horse races.

Deduction of TDS does not mean that excess of tax paid would not be refunded. Refund can be claimed in cases where TDS is higher than the actual tax to be paid. In case, the detection of such excess amount is made beyond the financial year concerned, such claim can be made to the Assessing Officer (TDS) concerned.

About the Author:

A.V.Suresh is our in-house Financial Planner and a personal finance enthusiast. He is a Certified Financial Planner(CFP) and also has an MBA in Finance

Taxation of Mutual Fund Schemes

Yogi — Sun, 17 Mar 2013 21:33:00 GMT

Mutual funds are structured like trusts and they themselves are exempt from taxes. However, individual investors and the trustee company are liable to pay taxes on the profit made on the investment. Taxability of capital gains and treatment of capital losses is different for equity and debt oriented schemes. Securities Transaction Tax (STT) is levied on investments in equity oriented mutual fund schemes. Similarly Dividend distribution tax is applicable on dividends paid by debt oriented mutual fund schemes. Setting of capital losses against capital gains and other income is subject to limitations to prevent fraudulent tax avoidance. Tax treatment also varies for short term and long term capital gains. If investment period is up to 1 year investment is considered short term. There is no Tax Deducted at Source (TDS) on dividend payments or re-purchase payments for resident investors. There is no Wealth Tax for investment in mutual fund units including Gold ETF. Tax treatment of various mutual fund schemes is described below:

Equity Oriented Mutual Fund Schemes

These are the schemes in which at least 65% of the asset is invested in the shares of domestic companies. Investment in these schemes is subjected to STT and the rates applicable are described in the table below for individual investors. Additional to this the mutual fund house also pays STT when it buys/sells stocks in the stock market for its portfolio.

Product	Transaction	STT rate
Equity Oriented Mutual Fund Unit	Purchase	0.125%
Equity Oriented Mutual Fund Unit	Sell	0.125%
Equity Oriented Mutual Fund Unit	Repurchase	0.25%

Debt Oriented Mutual Fund Schemes

Taxes are levied on the dividend distributed by debt oriented mutual fund schemes. Rates for dividend distribution tax (DDT) for individuals and corporate are shown in the table below.

Dividend Distribution Tax	Individuals / HUF	Corporate/Others
Equity Schemes	NIL	NIL
Debt Schemes	12.5%+Surcharge+ Education Cess	30%+Surcharge+ Education Cess
Liquid Schemes	25%+Surcharge+ Education Cess	30%+Surcharge+ Education Cess

STT is not applicable in the case of debt oriented schemes.

Capital Gain Tax

Additional to the above taxes mutual fund profits are also subject to capital gain tax. Capital gain is the difference between the sale price and the acquisition price of the asset. Tax treatment is different for different holding period (long term or short term). Tax details are given in the table below.

Capital Gains Tax	Equity Schemes	Non-Equity Schemes
Long Term Capital Gain Tax	NIL	Lesser of 10% without indexation or 20% with indexation + surcharge and education cess
Short Term Capital Gain Tax	15%	Added to total income and taxed as per the slab

In case of capital loss

In case of capital losses incurred on once investment these losses can be set off against other capital gains leading to lesser tax outgo. However there are some limitations to this rule so as to restrict fraudulent tax avoidance. Various capital losses and the head against which you can set it off are described in the table below.

Capital Loss	Set Off Against
Short Term	Long Term / Short Term Gain
Long Term (Debt Oriented)	Long Term Gain (Debt)
Long Term (Equity Oriented)	Cannot be Set Off

Word of Caution

Tax rate keeps on changing (STT has been reduced from next financial year) hence you are advised to consult Income Tax website for updated rates to avoid faulty calculation.

About the author:

The author Bimlesh Singh is a financial advisor. He holds a Bachelor’s degree from IIT and is a CFA Level 2 candidate. He can be reached at bimleshs@gmail.com

Ready Reckoner – For the last minute Tax Planner

Yogi — Mon, 11 Feb 2013 10:29:00 GMT

With zeal I filled in my Investment Plans for the year in the month of April 2012, gleaming at the extra bucks that would come “In hand” every month. The “Plans” readily accepted by the HR Department and duly complied with in my monthly take home! In my zeal to meticulously spend those extra bucks, I conveniently forget that those plans need to be put in action. In January, the HR department suddenly comes back with the ominous “Now! Show me Proof!” messages and, “Being Proactive with my tax planning” makes a come back to the top of my Resolution lists for the year. The risk of non-complying means a reduced Cash Flow, in Jan to March, the price (read tax liability) to be paid for not executing the Plan.

Investments for me mean “Plan thorough”, but with the sword of deadlines hanging down your neck, and each day approaching, Quick and Dirty is all I am hoping to manage. When you are in this dilemma, the Finance Guys (read Insurance companies, Agents, Brokers) are omnipresent. I wonder how they know I need 80 C investment proofs and I need them now!

Here is a ready reckoner on how I evaluate my options:

For most of us Tax planning, means 80 C investments. The ceiling for this is Rs. 1 Lakh. For Salaried Persons, the company does some retirement planning on our behalf, which is called Employees Provident Fund (EPF), remember the component which is mandatorily cut from our monthly salaries.

This component is a part of the 80 C investing limit of Rs 1 Lakh. The first step would be to determine how much this is, and deduct that from the Rs. 1 Lakh limit. For e.g., if my EPF contribution for the year is Rs. 50,000 then I need to show investment proofs for only Rs. 50,000/- Now there are a multitude of options where I can invest this, I have picked up a select few which I am going to delve on:

Option 1: Tax Saving FDs

Fixed deposits come with one word “Assured Returns”. Both my principal and interest are protected. Now that statement is only partially true. I definitely know the exact figure that I will be getting on maturity, however, there is no guarantee that this will be enough to fight the post – inflation returns 5 years hence. Also, the lock in period is 5 years and this is a mandatory lock in period. The rate of interest approximately is 8% per year, and importantly compounded quarterly.

Option 2: ELSS: Tax saving Mutual Funds

These are a select section of Mutual Fund with a lock in period of 3 years and invest in Equity. The maximum benefits of these funds come through a Systematic Investment month on month, where you don’t worry about which is the right time to enter the market, rather you will spread the cost of your investment over a period of 12 months. With markets already hovering at 19500 points, and having no option for a SIP, thanks to my planning skills, the cost of opting for an ELSS, will be justified, if only I expect the markets to be higher than 25000 by the end of three years! Now if I were that smart would I have not planned it better?

Option 3: Insurance: Pension plans/ULIPS/TERM?

Pension plans, Ulips, any plans which come out of the Insurance company factory and have “market linked” associated with them and I prefer to steer clear from it. They are not bad products, but the time that I have at hand and the market being upbeat does not merit investments in these products. Also, my belief is that any investment in ULIPs holds good if I systematically invest in the same for the next 10 years or more. It is a long term commitment and a short term view of pay one premium and forget about the policy is not a judicious view.

What I am looking at in the Insurance company kitty is the pure risk “Term Plan”. Considering that I have a kid who is economically dependent on me, I need to provide for their financial protection in case of any untoward incident on my life. The policies are available at less than Rs. 8000/- for upto Rs. 1 Crore of pure term cover for a 30 year old female.

The other benefit is, I will have to pay this every year and hence this portion will be automatically counted in for my tax saving investment next year (provided I act on the numerous reminders by the insurance company for premium payments and actually pay them on time)

Option 4: Public Provident Fund

I have a PPF account with a public sector bank and to keep that account active, I need to ensure I fund it by Rs. 500 at least every year (before March 31^st). Alongside, with the interest rates at 8.8%, does seem more attractive compared to a tax saving FD. Also, this will help me plan for those grey years well ahead in time since it is only after 15 years that I can close the account and/or withdraw all of the funds. However on completion of 5 years, I am allowed access to 50% of the funds.

Keeping the time I have at hand, and the factors of returns, risk, liquidity and market conditions, also the decision time that I have at hand to evaluate the various proposals and risks (I actually have no time!), here is my 80 C investment plan for the year of the Rs. 50,000/-.

A pure term plan for Rs. 8000/- which will give me a cover of about Rs. 1 Crore, this keeping in mind my Human Live Value. Given the rate of return on PPF for the year and investing the entire sum in the market at one go today, not being a prudent decision for me, I decide to go with investing Rs. 42,000 in PPF for the year. I also keep this in mind, that this is not an optimum tax planning decision, but one made with minimal risk appetite given the time. The approach being, better safe than sorry. If I had started early, would I have planned differently? Definitely Yes. In April, market linked products and investing in them systematically would have been my choice.

After all this, Don’t forget 80 D!!!!

In the 80 C fever, I completely forgot about the section 80 D which offers me a tax rebate of upto Rs. 15000 in a year for mediclaim insurance for myself, spouse and children and an additional Rs. 15000/- for parents (Rs. 20,000 if they are senior citizens)

With rising health costs, we need an individual cover of at least Rs. 5 Lakhs to battle any exigency. Another good option would be to opt for a critical illness policy along with this, not only are the premium payments applicable for a rebate under Section 80 D, but with the rising incidences of cancer, heart ailments etc., hard earned investments can be wiped off with one diagnosis. A critical illness cover will aid in planning for that risk well in advance.

This may involve some prudent time spent in researching the pros and cons in the policies. My pick would be one, where I can opt for a cashless benefit in a wider range of hospitals/nursing homes and a company with a proven claim settlement ratio.

Another important point in a mediclaim policy is that any pre-existing condition is covered by most insurers only after 4 years, hence here too investing early is a prudent choice.

About the author:Daisy Fernandes is a personal finance enthusiast who is also pursuing her Certification in Financial Planning.

India Stepping Close To Paperless Taxation

Yogi — Fri, 01 Feb 2013 09:40:00 GMT

Introduction

Gradually the taxation system in India is closing towards the complete paperless filing. Various states have already adopted the electronic VAT filing system. The Income tax department has also adopted the electronic filing system but use of paper still exists in actual execution. Let us see the various paperless taxation system in India.

Section 139 D of Income Tax Act

Section 139 D of Income Tax Act 1961 provides an option for certain classes of assesses to file their returns in an electronic mode. However before filing returns with the help of this section one should be aware of the guidelines by Central Board of Direct Taxes (CBDT). The board has mentioned that if the assesse chooses to file the return in an electronic form under Section 139 D he will have to fulfill the requirement of submitting verification of return in Form ITR-V. The filing in electronic form needs to be backed by ITR-V.

If the assesse submits the data in electronic form and after that files an ITR-V the date on which he filed the form electronically will be considered as the date of furnishing the return. The specified period of filing ITR-V is 120 days. If the assesse files to file ITR-V after furnishing his return electronically but after a period of 120 days, his date of filing the ITR –V will be considered as the date of filing the return. But in any that case one should understand that ITR-V is mandatory to be submitted, if assesse fails to do so the return is deemed not to be furnished. The requirement needs to be done away with similar to other electronic forms like the MVAT, which is more assesse friendly.

Return For VAT

Recently various state’s value added tax departments have introduced the electronic tax filing. Earlier MVAT or Maharashtra Value Added Tax department started with the facility of filing electronic return in March 2008. This was introduced for the registered dealers having a tax liability of Rs 1 crores or more in the previous year. But this is more simplified than filing under Section 139 D as it does not require ITR-V after the filing of electronic return. In the case of MVAT, he can submit the return with the help of digital signature. If he fails to do so then only he is liable to file the paper return. MVAT doesn’t ask for proof of payment to the bank. However, if the department asks for the payment proof than only it is required to be submitted. No acknowledgement or return copy is required in case MVAT after it is uploaded in the electronic form.

Professional And Service Tax

Similar is the case with a professional tax return. According to Chapter V and VA of the Finance Act 1994 and Service Tax Rules 1994, electronic facilities are allowed to enrolled persons, employers on behalf of their employees. Electronic filing of service tax return and service tax payment helps big time as the returns are uploaded electronically. Even the acknowledgement is for the assesse records after department signature.

Conclusion

The purposes of these electronic forms are to make it more user friendly and create an environment where the assesse is free from hassles of filing the returns. The filing under section 139 D still has flaws due to the FORM ITR-V which needs to be looked at by the tax department and lawmakers in order to make it attractive like MVAT and Professional Tax Returns. ITR-V kills the sole purpose of filing return in an electronic form and it is high time when the Income Tax department implements ways and means to remove this flaw.

About the author:

Amit Sethi is an MBA (Fin) graduate and a Financial Consultant. He has spent 10 years in Equity research, Stock broking and Financial Consultancy Sector. He can be reached at amvilube@gmail.com

Saving Capital Gain Tax on Sell of Property

Yogi — Wed, 30 Jan 2013 20:36:00 GMT

In today’s world buying and selling properties is part of an investment portfolio. While selling the property, saving capital gain tax is is one of the important aspect for the seller of property.

Capital gain means the profit earned from sale of capital assets (Shares, Property and other capital assets). The taxes imposed by income tax department on capital gain are called as capital gain tax.

If the capital gain is on sale of property asset which is in the possession of seller for less than three years duration then it is short term capital gain (STCG) else it falls in the purview of long term capital gain (LTCG).

Effective tax rates for LTCG are 20% and for STCG as per prevailing income tax slabs.

How to calculate Capital gain?

For example we have considered property sold for Rs. 10 lakh which was purchased in the year 2000 and sold in 2012 for Rs. 25 lakh.

Cost of property 10, 00, 000

Year of property purchase 2000

Selling price 25, 00, 000

Year of sale 2012

Cost inflation index (CII) in year 2000 389

Cost inflation index (CII) in year 2012 785

Indexed purchase price 20,17,995

Capital gain 04,82,005

Tax (20% of Capital gain) 96,401

Indexed purchase price = (Purchase price* CII for year of sale)/ CII for year of purchase= (10, 00, 000*785)/389

Cost inflation index is published by income tax considering 1982 as base year.

Capital Gain = Selling price- indexed purchase price.

Point to Note: The seller has sold property of Rs 10 lakh into Rs 25 lakhs after holding for twelve years. So as per CII its price was around Rs 20 Lakh, at the time of selling, hence the tax will be applicable on the difference amount (i.e. Rs 25 Lakh – Rs 20.1799 Lakh).

If the seller invests the money for repair of property (Cost of improvement) after the year of purchase (year 2000 in above case) then that cost is also required to be indexed (as per CII calculation shown above) and added to Indexed purchase price.

If the property is purchased before 1982, the same has to be valued from registered valuer and then indexed accordingly.

Now let’s have a look at some of the options which can help us to save long term capital gains tax:

Under section 54 the seller of the property can claim for tax exemption; to avail the benefits seller must use entire profit (capital gain) to buy another house. The seller has two options, either he can buy another house within two year from sale of property else he can build a house in three years. Buyer can also buy a house 1 year prior to selling the house and still can avail the benefit under section 54. If after selling property, seller has not identified the property yet. The seller has to open a special account i.e. capital gain accounting scheme. All the withdrawal from this account should be made only for purchase of property. However if seller failed to buy a property within three years after selling property the whole amount will exposed to LTCG.

Under section 54 EC, seller can invest in bonds issued by National Highway Authority of India (NHAI) and Rural Electrification Corporation (REC). Limit for exemption under section 54 EC is Rs. 50 Lakh.

However STCG is being added to the person’s income and exposed to normal income tax slabs.

Conclusion

To save long term capital gain the seller has to buy a house property within two years of sale of capital asset or construct a house within three years. If seller is not able to identify a property he/she can open a capital gain accounting scheme’s special account and park the money until he finds the property (with limit of 3 years). Seller also can invest money in specific bond up to limit of Rs 50 Lakhs to save LTCG tax.

About the author:

Amit Sethi is an MBA (Fin) graduate and a Financial Consultant. He has spent 10 years in Equity research, Stock broking and Financial Consultancy Sector. He can be reached at amvilube@gmail.com

Tax Saving as Per Income Tax Slabs

Yogi — Tue, 29 Jan 2013 21:53:00 GMT

Making the most of available deductions, Tax Planning, and overall Financial Planning will help you to save tax as well as create wealth.

Once again we are at that time of year when salaried individuals need to prepare their relevant documents pertaining to the tax declaration that must be made at the end of the Financial Year. Soon your Human Resources and Accounting departments will be asking you to submit various receipts and certificates as per your investment declarations.

Now is a good time to have a serious look at your tax saving investments, both that you have already made and options that are available to you. It should be understood that annual tax planning should not be an activity in isolation. It should be consistent with your risk profile, needs etc. Smart Tax Planning helps in saving more money as well as becoming part of short and long term planning. Let’s look at various investment avenues available to you as a salaried employee. Below are three examples that fall in different Tax Slabs.

Example-1: Anil, a 28 year old single, works as a Business Analyst for Wipro, in Bangalore. His salaried taxable income for the FY (financial year) 2012-13 is Rs 4.5 lakhs. He has no dependants.

Analysis – Anil is lucky. He has time on his side and negligible responsibilities! His current tax liability comes to INR 30,900. By making use of the many tax saving deductions, Anil should be able to bring down his tax liability to INR 12,670 (an annual saving of INR 18,230!).

Given his age and the fact that currently he has no dependants, Anil should consider investing a majority of his tax-deductible amount (INR 70,000) in Equity-linked mutual fund schemes (ELSS), as it will maximize returns that add to his wealth, and will provide to his portfolio the required hedge against the inflation monster. Investing the balance (INR 30,000) in a mix of Fixed Income products like bank 5-year tax-saving fixed deposits, PPF, and NPS (New Pension Scheme) will provide safety, stable returns, and savings for retirement. Anil should also make use of the new Section 80CCG deduction w.r.t. investment in Indian shares under RGESS Scheme for capital growth as well as additional tax benefits.

Anil should also consider purchasing a health or medical insurance policy in his name. This acts as a financial shield in case any unexpected incident happens to him. Anil can also divert funds towards investments in bank 5-year tax-saving fixed deposits, National Savings Certificates (NSC) to accumulate funds for short/medium term needs (such as marriage, buying a car or house, giving to charity, etc).

Example-2: Sneha, 35, has been working for a MNC call center for the past 7 years. She is married, has 2 kids, Abhay and Anoop. Her taxable income for the FY 2012-13 is coming to INR 7 lakhs, which brings her current tax liability to INR 72,100. Looking at her children’s future requirements, and her retirement needs, there are many ways in which Sneha can smartly bring down her tax liability (to as much as INR 43,670). Here’s how:

Analysis – First, given her age, income and number of dependants, Sneha must have a life insurance cover of at least INR 70 lakhs. The premium for the same works out to be INR 18,000 p.a. Sneha should also consider a health/medical insurance policy for her family (a family floater would be ideal); the premium for the same works out to be INR 13,000 p.a.

An investment of 60% of the tax deductible amount (INR 60,000) in Equity-linked mutual fund schemes (ELSS) will provide superior returns necessary for growth of Sneha’s investment. This is required for her children’s higher education needs and her retirement, and will provide to her portfolio the required hedge against the inflation monster. Sneha should also make use of the new Section 80CCG deduction w.r.t. investment in Indian shares under RGESS Scheme for capital growth as well as additional tax benefits.

Investing the balance amount (INR 22,000) ) in a mix of Fixed Income products like bank 5-year tax-saving fixed deposits and NSC will provide safety, and stable returns to meet her dependants’ increasing expenses (such as tuition, education, clothing, medicines etc.). If she has not already, Sneha can also consider investment in Real Estate, as owning a house offers multiple benefits of security, regular income (in the form of rents), capital appreciation in the long term, and tax benefits in the form of deduction of principal and interest amount repaid for each financial year.

Example-3: Mr Sridhar, aged 45, was recently promoted to senior manager at Voltas, India. His net taxable income from salary comes to INR 12 lakhs this FY 2012-13. He is married, has a 14-year old daughter (who dreams of pursuing Robotics at IIT, Chennai, in 5 years’ time) and his mother is dependent on him for her living. Due to Mr Sridhar’s promotion, his salary has increased by INR 230,000 p.a., which he intends to put to good use. Mr Sridhar is a philanthropist.

Analysis – Mr Sridhar’s taxable income for the FY 2012-13 comes to INR 12 lakhs + INR 2.3 Lakhs=INR 14.3 Lakhs per annum, which brings his current tax liability to INR 266,770. Considering his daughter’s higher studies and future dreams, his retirement needs, and the fact that he believes in social causes, Mr Sridhar can plan and save maximum tax (INR 44,800) in the following manner.

If he has adequate life and health cover, Mr Sridhar should consider an investment of 65-70% of the tax-deductible amount (INR 70,000) in Equity-linked mutual fund schemes (ELSS) for the purpose of his retirement, which is 15 years away. He can also make use of the new Section 80CCG deduction w.r.t. investment in Indian shares under RGESS Scheme for capital growth as well as additional tax benefits.

Investing the balance (INR 30,000) in Fixed Income products like bank 5-year tax-saving fixed deposits, 6-year NSC will offer maximum safety for his hard earned money and stable returns to meet your dependants’ increasing expenses (such as education, tuition, clothing, medicines etc.). He can consider purchasing a senior citizen medical insurance policy for his dependent mother. This will take care of her burgeoning medical bills, and in the process, claim the premium paid through tax deduction (under section 80D) up to INR 20,000 p.a.

Mr Sridhar can further bring down his tax liability and also contribute towards social causes by making donations to approved projects/institutions through section 80G. The best part is that there is no upper limit on the amount of donations he can make, which means, if he wishes, Mr Sridhar can make donation of the full increment he received (by way of his promotion) and at the same time bring down his tax liability.

Tax Planning

By using a Tax Plan, you can choose the right deductions and tax saving products in order to reduce your overall tax outgo and fulfil your future needs too. Below is an easy 2-step procedure:

Know your requirements -

1) To figure out your requirements, identify your life cycle stage;

2) Choose the deductions and products that best fits your needs.

Use InvestmentYogi’s quick tax calculator to get an estimate of your tax payable.

The author Priya Rao is a financial planner at InvestmentYogi