As the end of financial year approaches investors are suddenly woken up to the existence of Income Tax department. If you haven’t done the tax planning in advance then this is the time to carefully select the investment products under section 80C. A wise investment will not only lessen the tax burden but also give some good returns.

What is Section 80C?

Under section 80C of the Income Tax Act, certain investments are deductible (up to a maximum of Rs 1 lakh) from gross total income. This tax exemption is available across individual tax slabs. If you earn Rs 4 lakhs per annum and make investments of Rs 1 lakh in 80c instruments then the taxable amount will be Rs 3 lakhs. It is not at all complicated and the following chart simplifies even more.

Fixed Income instruments, which offer fixed returns, are suitable for risk averse investors who want to protect their investment from the uncertainties of the market. All these instruments are backed by the Government and hence they are risk free. But the returns may just  beat the inflation and you should not expect any meaningful appreciation in investments. Per annum returns will vary from 6% to 10% depending upon the instrument you choose.

Market Linked: Market linked products are ELSS (Equity Linked Saving Scheme) and ULIPs (Unit Linked Insurance Plan). These instruments invest the money in equities (Except some debt based ULIPs) and hence there is an inherent market risk. However it has been seen that over a long period return from equities beat inflation by a comfortable margin and create wealth for the investor.

ELSS is similar to mutual fund except that it has a lock in period of 3 years. The money is invested into diversified stocks by a fund manager/AMC. On the other hand ULIPs are a form of life insurance where a part of the premia is invested into equity or debt market (or combination of two). ULIPs usually have longer lock-in periods.

ELSS: ELSS has some advantages over other investments and people with moderate to high risk appetite should consider them seriously. Some key features of ELSS are:

· Lock-in period of 3 years.

· SIP (Systematic Investment Planning) available

· Diversified equity investments

· Different funds for different risk profiles in terms of exposure to large cap, mid cap and small cap

· Dividend paid out is tax exempt

· At maturity the proceeds are exempt from long term capital gains tax

Here is the list of best ELSS (Tax Saving Mutual Funds)  to invest this financial year.

To sum up

Section 80C benefit has been provided to encourage long term savings and investments. You should choose a combination of fixed income and market linked investments depending on your age and risk profile. For example if you are in your 20s, give a higher allocation to ELSS whereas if you are nearing retirement, concentrate more on fixed income investments.

But remember that Investment is to be done keeping your overall financial situation and future goals. Tax advantage is just an add-on benefit. Never make investments just for saving tax.

It’s the tax season again - that time of the year when we feel confused, frustrated and helpless. There are so many scurries as the due date to filing returns comes closer. Most of us don’t even think twice whether the asset we purchased fulfills our needs or not. We blindly sing along with the agent’s advice. Adding to this confusion is the vast collection of different products with similar names and similar products with dissimilar names. Oh! And then there’s one more cumbersome task—that of actually filing tax returns. All this makes one feel overworked and over worried by the busy month of March.

If you are one of the many people feeling the same way,then you have come to the right place. We at InvestmentYogi get so many queries asking to suggest best tax savings instruments, that we thought we would bring out this article to help you choose the right ones for you. And what better time than now! After all you must invest by March 31, 2010 to avail the benefits.

Check your Tax Liability First thing:

First, do a review of your tax liability, to ascertain what and how much. You actually need to save as much tax as legally possible. It may be quite possible that the life insurance premiums that you are paying along with the PF deductions may be enough to take care of tax saving!

Overview of tax saving options:

Very simply there are 3 basic sections under which you can save on tax:

1) Section 80C, inclusive of Section 80 CCC

2) Section 80D

3) Section 24(b)

Section 80C - Investments in the following up to a limit of Rs.100,000 are deductible from Taxable Income:

1. Life insurance premium payments

2. Contributions to Employees Provident Fund

3. Public Provident Fund (maximum Rs 70,000 in a year)

4. National Saving Certificates. [NSC]

5. Unit Linked Insurance Plan (ULIP)

6. Repayment of Housing Loan (Principal)

7. Equity Linked Mutual Fund Scheme (ELSS)

8. Tuition Fees including admission fees or college fees paid for Full-time education of any two children of the assessee (Any Development fees or donation or payment of similar nature shall not be eligible for deduction).

9. Infrastructure Bonds issued by Institutions/ Banks such as IDBI, ICICI, REC, PFC etc.

10. Tax-saving fixed deposits (FDs) of scheduled banks with tenure of 5 years are also entitled for section 80C deduction (investments in a 5-Yr post office time deposit (POTD) scheme are included)

11. Senior Citizen Savings Scheme 2004 (SCSS)

Section 80D - You can claim a deduction of Rs.15,000 (Rs.20,000 in case of senior citizens).

-for medical or health insurance--popularly known as mediclaim policy--premia paid on the health of yourself, spouse and dependent children.

-Additionally, (from 1st April, 2008) you’re also allowed a further deduction of Rs 15,000 for buying health insurance policy for your parents (Rs 20,000 if either of your parents is a senior citizen.

Section 24(b) - The interest component of your home loan is allowed as a deduction under the head 'income from house property' under Section 24(b) up to a limit of Rs 1.5 lakhs a year in case of a self-occupied house. The claim can be made even on loans taken for repair, renewal or reconstruction of an existing property.

Choosing the right tax savings product for you is concluded in 2 simple steps:

• Know your requirements
• Choose the products that best fits your needs

We agree it is easier said than done. However, every decision we make in life metaphorically revolves around what you really want. It’s not different for tax savings. Today’s population has choices in savings and investment like never before. There are as many financial products (some repetitive) in the market today as there are stars in the galaxy. Knowing what you really want makes it easier to choose from the plethora of products and save on taxes too.

To figure out your requirements, identify your life cycle stage – Breaking it down to simpler steps, the difference between where you are today (financially) and where you want to go tomorrow determines your requirements/needs.

Young and Unmarried:

You may want to provide funds for dependents (such as parents) in case of an unfortunate event, such as the passing of one of them or yourself if you are the earner and taking care of them. You will require life insurance for such. You will need to have adequate funds for yourself in the case of accident, disease, disability or illness. For this you need an emergency fund which could be in a liquid short term fund.

You will want to accumulate funds for short/medium term needs (such as buying a house, car, marriage, giving to charity etc). This could be in short term liquid funds, savings accounts, laddered FDs, or mutual funds (if the event when the money is needed at least 3-5 years from now). Accumulating funds for long term needs (such as retirement) is important whenever you start to earn. For this you will want a combination of Pension Plans, Provident Fund, and Mutual funds of equity and debt. ELSS are a good idea as they provide tax benefits and make good long term investments.

Young and Married:

 In addition to what we already discussed, and which remains important (see list below), you will have new priorities. In this stage you will want to provide protection for numerous dependents who could include your parents and now your children and spouse as well, in case something happened to you, the earner, on which these people depend. This stage of life is your highest need for life insurance.Your short/medium term goals will be changing over time from cars, your marriage and holiday to children’s education, children’s marriage and house purchase, if not already done. You still may need:

-Protection for Parents

-Emergency fund

-Short/Medium term goals saving

-Long term/retirement savings

Married (not so young anymore) with Older Children:

At this stage, all of the above still apply, but retirement planning begins to take priority. As hard as it may be for parents to understand, at this stage, if you have not properly prepared for your retirement, you should prioritize this over children’s education and marriage, encouraging children to help out more in this area by saving themselves and taking loans.

You still may need:

-Protection for Parents

-Emergency fund

-Short/Medium term goals saving

-Long term/retirement savings

Pre-Retirement:

Children should have started working by now. Life insurance becomes less of a priority except for one’s spouse who may require protection if he/she does not work. Retirement funds are a top priority, as mentioned above. Now you need to get your ducks in a row and prepare for a new stage of life. Financial planning is critical to make sure you are ready. You still may need:

-Emergency fund

-Short/Medium term goals saving (this would become retirement)

-Long term/retirement savings (still need to plan on retirement being long)

-Focus on income-producing investment products (see next stage)

Retirement:

In retirement, income products become ultra-important, such as dividend paying shares or mutual funds, pension plans and Post Office Schemes. Pensions and Provident funds may be providing payout at this point. Some long term growth investments must be retained as people are living long lives these days and inflation must be outpaced.Protection of capital is key.For those widowed or divorced, the same needs will likely apply. You still may need:

-Emergency fund

-Short/Medium term goals saving (this would become retirement)

-Long term/retirement savings(still need to plan on retirement being long)

-Focus on income-producing investment products

When to review?

The asset allocation should be reviewed whenever there is a change in the life cycle stage. There may be overlapping of life cycle stage. For example, a person who is young and unmarried may opt to purchase a home loan and therefore can avail of the benefits under sec 80C. The individual has to carefully choose the investment that best suits his financial as well as liquidity needs and savings is inflation protected.

The tax season need not be arduous and tiresome. Use it as a time to review your goals and make sure your financial plan is on the right track.

What is ELSS (Equity Linked Saving Scheme)?

ELSS, popularly known as Tax Saving Mutual Fund, is a category of Mutual Fund where a major portion is invested in Equity & Equity related instruments. Investment up to 1 lakh is exempted from income under section 80C but there is a lock in of 3 years before which you can not withdraw. However there is no upper limit on investments and long term capital appreciations are tax free. Dividends received are also tax free in the hands of the investor.

ELSS is a great instrument for tax planning which also ensures good returns. But investment should be carefully planned and you should devote sufficient time in selecting the right fund.

Types of ELSS

1. Growth: Investor does not get any income during the tenure of the investment. He will get a lump sum amount at the time of redemption or on maturity.

2. Dividend: Investor gets a dividend from the fund house. He has two options:

• He can cash on the dividends.
• He can opt for dividend re-investment option.

In most funds you have Growth as well as Dividend options which you can choose depending upon your priorities.

Best Funds

We present the top 7 funds based on last 5 years’ performance:

Figure 1. Source: Value Research

How to choose a fund for investing?

A good track record is no guarantee for future performance. You should also look at some quantitative measures to evaluate which fund is good for you.

Expense Ratio: Denotes the annual expenses of the funds, including the management fee, and administrative cost. Lower expense ratio is better

Sharpe Ratio: An indicator of whether an investment's return is due to smart investing decisions or a result of excess risk. Higher Sharpe Ratio is better

Alpha Ratio: Measures risk relative to the market or benchmark index. For investors, the more positive an alpha is, the better it is.

R-squared: Measures the percentage of an investment's movement that are attributable to movements in its benchmark index. A mutual fund should have a balance in R-square and ideally it should not be more than 90 and less than 80.

Figure 2. Source: Value Research

Which fund is best for you?

Choice depends upon your risk profile and priorities. You should take an investment decision based on overall financial planning.

Large Cap Funds: These funds mostly invest in the large cap companies. While this may mean muted returns when the markets are rising, it also may mean a limited downside when the going gets tough. Franklin India Tax shield and SBI Magnum Tax gain are a few examples of this type.

Growth Funds: These Funds have about 30% exposure to mid-caps, 10% to small-caps & the rest in large caps in its portfolio. Hence it may give a higher return in rising markets. Sundaram BNP Paribas Tax saver is a good option in this category.

Mid-cap Funds: No pain, no gain. These funds have a sizeable exposure to mid-caps and small-caps. This aggressive investment style can pay rich rewards. Sahara Tax Gain and HDFC Taxsaver are good examples of fund in this class.

Small Cap Funds: Small-cap stocks can act like performance enhancing drugs. In the above discussed types, the maximum allocation to small-caps is 12%. However, Taurus Tax shield has invested almost 30% in this high-risk zone. This can be very rewarding when the going is good, but a dream run can easily become a nightmare. Taurus Tax shield has given 98.01% returns in last 1 year.

Conclusion

You should do sufficient analysis before taking investment decisions. It should be guided by your overall financial situation, goals and risk profile. A Financial Plan is recommended before making investment decisions. SIP (Systematic Investment Plan) for a long time horizon is the most recommended way to invest in equity funds. You should avoid lump sum investment especially when the market is on a high.

Learn about the best tax saving investments and options for the current assessment year (AY 2010-11).

During the last few months of a financial year you see people making last moment impulse decisions to invest in tax saving instruments and in the process they may end up buying products which  are not right for them. Tax planning should be done a few months in advance as it gives you ample time to understand and evaluate different options that are specific to your financial situation. Start your tax planning now for Assessment Year 2010-11.

Here are some simple tips for planning your taxes this financial year:

I. Utilize Income Tax exemptions

Section 80C

This is the most popular exemption as you can claim up to Rs. 1 lakh in deductions. The options include Employee Provident Fund (EPF), Public Provident Fund (PPF)- up to Rs.70,000 per annum, National Savings Certificate (NSC), 5-year bank fixed deposits, Life insurance policies, Equity-Linked Savings Schemes (ELSS), Unit Linked Insurance Plans (ULIPs), school fees, and home loan principal repayment. For making investments in this section you will have to decide on the ideal debt vs. equity mix that is right for you based on your age, risk-return profile and goals.

Section 80D

If you have taken a medical insurance plan for yourself, your spouse, dependant parents or children, you can claim deductions up to Rs 15,000 (and additional Rs.15,000 for your parents’ medical insurance) under Section 80D for the premiums paid. The limit now has been enhanced to Rs 20,000 for senior citizens on the condition that the premium is paid via cheque.

Section 80DD

Expenses on the medical treatment of a dependent with a disability qualifies for tax benefits under Section 80DD. In this case, deductions up to Rs. 50,000 or 75.000 can be claimed based on the severity.

II. Interest on your home loan

The interest component of your home loan is allowed as a deduction under the head ‘income from house property’ under Section 24(b) up to a limit of Rs 1.5 lakhs a year in case of a self-occupied house. The claim can be made even on loans taken for repair, renewal or reconstruction of an existing property.

III. Shuffle and switch strategy

Shuffling is a popular strategy used by ELSS investors which have a mandatory lock-in of 3 years. If you have been investing Rs 50,000 for the past few years and don’t have cash to invest this year, you can easily redeem investments made 3 years ago and re-invest that amount this year to claim the benefits. You will not have to pay any long term capital gains since you will be redeeming after more than a year. Thus you can enjoy tax benefits without making any fresh investments. Only risk is that the NAV can go up or down in the shuffle process and you may end up making a small profit or loss.

Some fund houses allow switch option for tax benefits. Let’s say an investor with previous ELSS investments doesn’t have money to make further investment in the current financial year 2008. He could consider switching it to a liquid fund and back into the ELSS fund within a short span of time like 10-15 days to enjoy the tax benefits.

IV. Charitable donations are tax smart

While donations should not be made simply for tax purposes but for philanthropic reasons, you can always make a couple more at the end of the year to lower your tax. You get a tax relief if you donate to institutions approved under Section 80G of the Income Tax Act. The rate of deduction is either 50 or 100 per cent, depending on the choice of the charity fund. There is no restriction on the amount given to charity. However, donations must be made only to specified trusts and also only donations of up to 10 per cent of your total income qualify for such a deduction. Remember to get receipts whenever you make any charitable donation. Please remember that tax exemption is only an added advantage of charity and it should not be the primary reason for doing so.

V. Divide your income

Normally, if you invest in your wife’s or child’s name, the income generated from such investments will be clubbed with your income and taxed accordingly. However, if you transfer money through a deed to a child who is over 18 years of age and invest in his name, then the income generated from such investment will not be clubbed with your income. Instead, that will be clubbed with the income of your child/wife and taxed accordingly.

Cash gifts received from specified relatives are exempt from income tax and there is no upper limit. Similarly, cash gifts of any amount and from anyone received during your child birth, marriage or any other specified event are totally tax-free. However, any cash received from a non-relative where the value is in excess of Rs 50,000 in a particular year will be considered as income in the hands of the recipient.

You should make sure that you have a record & valid receipts for all tax savings investments made in your name. You do not want to be running around at the last minute collecting all the documents required for tax filing.

In a nutshell remember the following:

• Combine your Tax Planning with your Financial Plan so that the products you invest in match your risk profile and your future goals
• A home loan is not necessarily a bad debt. Consider getting a loan while buying a home.
• Charity is good- not only for the receiver, but the giver as well; Check on the validity and receipts before you claim that deduction u/s 80G
• Take advantage of the tax breaks that the IT sections 80C, 80D and 80DD offer.
• Insuring oneself makes sense- as the premium is exempt u/s 80C (upto 1 lakh) and the maturity amount is tax free
• By taking medical insurance, you not only insure your family against medical expenses, you also get a tax deduction u/s 80D- so take that cover today!
• File your taxes on time!

It’s already December and most companies will require the 80C investment proofs by the end of January 2010. Do not leave this task for the last moment. Earlier you start the better it is. Investment decisions should never be made in a hurry.

InvestmentYogi tells you the investment avenues to maximize tax benefits available under Sec 80C & 80D.

• Invest in ELSS schemes: It is one of the best investments to make if you can afford to take the risk. It is also one of  the options where the lock in is least. There are a lot of ELSS (Equity Linked Savings Scheme) which offer a good avenue to invest to save tax as well as avail growth. SIP (Systematic Investment Plan) is a good way to invest in this asset class as it averages your cost over the year.  

Get your Insurance check up done: Do not take an insurance policy just to avail tax benefits. Get your insurance check done; calculate what your dependants need to stay financially fit even if you are not around. Life Insurance is for your loved ones’ goals and happiness. If you cannot afford a huge cover, take a term policy. It is one of those investments that will give you peace of mind and it is light on the pocket.

• Add to the PPF account: PPF is one of the best debt products. The investment is Exempt from taxes, the interest is Exempt and so is the maturity amount. You can only invest up to Rs.70,000 in a financial year.
• Home loan Principal: The principal component being paid in the EMI of your home loan is also eligible under this Section. Don’t forget to get a break up from your bank.
• Medical Insurance premium: You can now avail up to 15,000 of deduction if you pay your medical premium (your, spouse and dependants). In addition to this, if you are paying medical insurance premiums for your parents, that is eligible for another deduction (of up to 15000; up to 20000 if they are senior citizens).

But before you do this, do check what your contribution has been to the PF account, because that is also eligible under 80C. So, if your annual contribution to PF account is Rs.25,000 invest only the balance (Rs.75,000) for availing the 1 lakh deduction under Sec 80C.

In a nutshell: 

- Check your PF contribution

- Check the principal component of the home loan payment

- Invest according to your financial goals

- Evaluate your insurance requirement

- Invest 1 lakh over the year not just the last 15 days

The author Lovaii Navlakhi is a Certified Financial Planner, Managing Director of International Money Matters Pvt. Ltd.

People receiving gifts, in cash or kind, will have to pay tax, if the value exceeds Rs 50,000. Until now, income tax was levied only on cash gifts above this amount. However, a notification issued by the Central Board of Direct Taxes (CBDT) said the revised norms will come into effect from October 1, 2009. “Any such person who receives a gift of any such property on or after October 1, 2009, must pay income tax due on the value of the gift and disclose the taxable value of such property in the return of income for assessment year 2010-11 and subsequent years,” said the CBDT statement.

It is important to know the details of this tax liability to make sure that you are not caught on the wrong side of the law. Individuals receiving shares, gadgets, automobiles, jewelry, valuable artifacts or even property valued at over Rs 50,000 as gifts from non-relatives, will have to start paying tax from October 1, 2009.

It means that if you receive high value gifts then the value of these gifts will be added to your total income and the corresponding Income Tax will be deducted. These types of gifts will be considered as income from other sources from assessment year 2010-11 onwards. For example, if you received a car for a Rs. 6,00,000 from a friend, you will have to pay up to Rs. 1,80,000, if your income falls in the highest tax bracket of 30 per cent. In case a property has been sold at a nominal rate as a gift, the receiver will have to pay taxes on the difference between state government notified rate and the purchase price.

These changes were brought in to plug the loophole in section 56 according to which only cash gifts of more than Rs. 50,000 from non-relatives were taxed. You could have received gifts as shares or any other non-cash instrument and avoided paying tax. From October 1, 2009 this will not be possible.

However, gifts to relatives and gifts for a wedding are not taxed.

Here are some tax exempt categories to utilize gift tax provisions in your favor:

1. Any gift from relatives of any amount during the financial year is completely exempt from tax. For Income Tax department a relative means the following: (also depicted in the picture below)

a. Your spouse;

b. Your brothers and sisters and their spouses;

c. Your spouse’s brothers and sisters and their spouses;

d. Brother and sister of your parents and their spouses;

e. Any lineal ascendant (parents, grandparents, children, grandchildren) or descendants (children, grandchildren);

f. Any lineal ascendant (parents, grandparents, children, grandchildren) or descendant of your spouse (children, grandchildren)

2. The provision is applicable only to individuals and HUF (Hindu Undivided families) but if a gift is received by a trust or a society then it is tax exempt.

3. Gifts received from anybody for weddings are tax exempt.

4. Following other kinds of gifts are also exempt from the tax axe:

• Gift received under a Will or by way of inheritance;
• Gift received due to of death of the donor;
• Gift from any local authority;
• Gift from any fund or foundation or university or other educational institution or hospital or any trust or any institution referred to in Section 10(23C); and
• Gift from any trust or institution, which is registered as a public charitable trust or institution under Section 12AA.

Be careful while accepting expensive gifts this festive season. It may turn out to be expensive!

5 Things to do to avoid the Tax blues!

It’s a typical day in March when you see people running helter skelter to invest to save on taxes. And more often than not, they end up investing in products that are either not right for them or not investing at all.

Section 80C - There are various sections which offer you tax breaks, the most popular one being this one as you can claim up to Rs. 1 lakh under this section and it offers you a wide variety of investment options. The options include Employee Provident Fund (EPF), Public Provident Fund (PPF)- up to Rs.70,000 per annum, National Savings Certificate (NSC), 5-year bank fixed deposits, Life insurance policies, Equity-Linked Savings Schemes (ELSS), Unit Linked Insurance Plans (ULIPs), school fees, and home loan principal repayment.

Section 80D – If you have taken a medical insurance plan for yourself, your spouse, dependant parents and dependant children, you can claim deduction up to Rs 15,000 (Rs.15,000 additionally for your parents’ medical insurance is also available) under Section 80D for the premiums paid. The limit now has been enhanced to Rs 20,000 for senior citizens on the condition that the premium is paid via cheque.

Section 80DD - Expenses on the medical treatment of a dependent who is a person with a disability also qualifies for tax benefits under Section 80DD. In this case, deductions up to Rs. 50,000 can be claimed. A life insurance policy bought for the benefit of such a handicapped person is also eligible for this benefit up to Rs 50,000. In case the disability is severe, the claim can go up to Rs. 75,000. However, to claim any deduction under this section, certification by a medical authority is mandatory.

The interest component of your home loan is allowed as a deduction under the head ‘income from house property’ under Section 24(b) up to a limit of Rs 1.5 lakh a year in case of self-occupied house. One condition being that your house must have been financed by a housing loan taken after April 1, 1999. It is also essential that the acquisition or the construction of the property is completed within three years from the end of the financial year in which the loan is taken. The claim can be made even on loans taken for repair, renewal or reconstruction of an existing property.

If you’ve done well with your investments and are looking at significant short term capital gains, prior to year-end is the time to offset some of those short term gains by selling some of the losing investments. If the scrip is good, you could sell it on 31^st March and buy it back in the next financial year (1^st April); here of course there is the risk of price fluctuation. Remember that you can carry forward short term losses from previous years’ losses for the next 8 years.

While donations should not be made simply for tax purposes but for philanthropic reasons, you can always make a couple more at the end of the year to lower your tax. You get a tax relief if you donate to institutions approved under Section 80G of the Income Tax Act. The rate of deduction is either 50 or 100 per cent, depending on the choice of the charity fund. There is no restriction on the amount of charity. However, donations must be made only to specified trusts and also only donations of up to 10 per cent of your total income qualify for such a deduction. Remember to get receipts.

Normally, if you invest in your wife’s or child’s name, the income generated from such investments will be clubbed with your income and taxed accordingly. However, if you transfer money through a deed to a child who is over 18 years of age and invest in his name, then the income generated from such investment will not be clubbed with your income. Instead, that will be clubbed with the income of your child/wife and taxed accordingly.

Cash gifts received from specified relatives are exempt from income tax and there is no upper limit. Similarly, cash gifts of any amount and from anyone received during your child birth, marriage or any other specified event are totally tax-free. However, any cash received from a non-relative where the value is in excess of Rs 50,000 in a particular year will be considered as income in the hands of the recipient.

• Combine your Tax Planning with your Financial Plan so that the products you invest in match your risk profile and your future requirements
• Charity is good- not only for the receiver, but the giver as well; Check on the validity and receipts etc before you claim that deduction u/s 80G
• Take advantage of the tax breaks that the IT Department offers
• Insuring oneself makes sense- as the premium is exempt u/s 80C (upto 1 lakh) and the maturity amounts are tax free
• By taking medical insurance, you not only insure your family against medical expenses, you also get a tax deduction u/s 80D- so take that cover today!
• File your taxes in time

If you have any queries on Tax planning and Filing your Taxes, please email us at yogi@investmentyogi.com

Your Income tax return can still be filed after the due date (July 31^st 2009) without too much hassle, if you forgot to file or could not do it for some other reason.

Example: Suppose you have to pay a tax of Rs 10,000 on your income from rent you earned and haven’t paid by the due date; you will be charged a penalty of Rs 100 per month of delay after July.

• If you still don’t pay by 31^st March the following year, the penalty will be 1% per month of delay.
• If you are expecting a tax refund you can still get it by filing before 31^st March, 2010.

Some disadvantages to filing late (so be on time next year!):

• A late return cannot be revised
• You cannot carry forward a loss to next year if you have missed the due date.

The following losses can be carried forward when filed on time:

• Speculation loss
• Business loss excluding loss due to unabsorbed depreciation and capital expenditure on scientific research
• Short term capital loss
• Long term capital loss
• Loss due to owning and maintenance of race horses.

• Loss from house or property
• Business loss on account of unabsorbed depreciation and capital expenditure on scientific research.

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As the deadline for filing returns comes close, the Unique Transaction Number(UTN) has become one of the most discussed topics.

UTN is the Unique Transaction Number, which will be allotted by NSDL upon making a payment of taxes in form No 17. Further NSDL is in the process of allotting UTN for the TDS payments made in FY 08-09. The Income tax Department has postponed the implementation of UTN requirement for Refunds.

You can now file your Income Tax Return for the Financial Year 2008-09(AY 2009-10) without the need to quote your Unique Transaction Number (UTN).

Taxpayers filing their income tax returns for assessment year (AY) 2009-10, or any other earlier AY, may continue to file their returns without mentioning the Unique Transaction Number (UTN) as required under the said Notification. The filing of such returns shall be treated as valid and in compliance to the requirements under section 139 of the Income Tax Act, 1961.

1. Generate XML from TaxYogi
2. Go to the IT Department site's eFiling section
3. Register using your PAN number
4. If you are already registered, go straight to the UPLOAD page.
5. Login and click on the relevant form on the left panel and select "Submit Return"
6. Browse to select XML file and click on "Upload" button
7. On successful upload acknowledgement, click on "Print" to generate a printout of the acknowledgement/ITR-V Form
8. Incase the return is digitally signed, on generation of the "Acknowledgement" the Return Filing process gets completed
9. For those without a digital signature, print out the ITR-V Acknowledgement Form.
10. Fill in the verification part and mail it by ordinary post only to the following address within 30 days after the date of transmitting the data electronically: Income Tax Department – CPC, Post Box No - 1, Electronic City Post Office, Bangalore - 560100, Karnataka

Note: 

• ITR-V sent by Speedpost, Registered Post or Courier will NOT be accepted
• No other Income Tax office will accept a Form ITR-V

To check the status of your E-File:

On the e-Filing section of the IT website, go to check "My Account" -> "E-filing Process Status" for status of receipt of ITR-V at CPC, Bangalore.

There are 3 types of residents that we will explain here for your understanding.

Based on this, you will be able to determine your Residential Status.

Type-1 : RESIDENT (ANY OF 1 OR 2)

1. If your stay in India is 182 days or more during previous year

2. If your stay in India is 60 days or more in Previous year and 365 days or more during 4 years preceding to previous year.

BUT IN CASE

• where a person leaves for employment or
• where a resident who leaves India as a member of Crew of Indian ship or
• where an Indian Citizen who is abroad comes to India for a visit

the period of stay would be 182 days instead of 60 days in the previous year as per above point #(2)

Type-2: NON RESIDENT

If a person does not satisfy any of[ (1) and (2) with exceptions} condition will be Non-Resident.

Type-3: RESIDENT BUT NOT ORDINARILY RESIDENT

1. If your stay in India is 182 days or more during previous year

2. If your stay in India is 60 days or more in Previous year and 365 days or more during 4 years preceding to previous year.

BUT IN CASE

• where a person leaves for employment or
• where a resident who leaves India as a member of Crew of Indian ship or
• where an Indian Citizen who is abroad comes to India for a visit

     the period of stay would be 182 days instead of 60 days as per point#(2)

      AND

3. If your stay in India has been atleast 9 out of 10 years preceding to previous year

4. If your stay in India has been 730 days or more out of 9 years preceding to previous year.

If you satisfy any one from (1) & (2) but do not satisfy any/both from (3) & (4) your status will be Resident but Not Ordinarily Resident.

We hope this article was useful to you!

Unconfirmed Rumour - 5% TAX ON FOREIGN INCOME FOR NRI STARTING 2009 –10

Please note that InvestmentYogi believes this in an unconfirmed rumour. Most likely an April fool prank!

The content of the email that was widely circulated is as follows:

"Government of India today announced imposition of a flat 5% tax on all NRIs over their world-wide income.

Income that is already taxed in India has been kept out of the purview to avoid double taxation. No double taxation benefits would be available for this 5% tax, meaning even if you are paying tax on your income in a country with which India has double taxation agreement, the benefit would not be allowed against this 5% tax.

 All those Indians who are holding Indian Passports and have been out of the country for more than 180 days during the year are under this requirement. Income proof would have to be submitted in form of employer certificates, foreign tax filings etc. Indian government is also coordinating with Australia, Europe, America, UAE and other countries on collecting Income data for its citizens as part of data sharing initiative on terror prevention measures.

 This has been hailed as bringing in compulsory participation in development of India from Non resident Indians.. This means NRIs can no more just continue to retain their Indian citizenship without paying taxes in India. Though it may not be favorable in view of the NRIs who already bring substantial FOREX in form of remittances and investments.

This is bound to cause a lot of heart burn for the Indian community residing outside..

This move is expected to generate ~10 Billion INR tax collection for the government in the year 2009-10."

This email even refers to the Income Tax website  http://www.incometaxindia.gov.in/, which has no mention of this in the NRI section.

Please beware of these email scams.

• NRI taxation information on the Income Tax website can be found at http://law.incometaxindia.gov.in/TaxmannDit/IntTax/nrcont.aspx

TAXABLE INCOME SLAB (In Rupees) FOR ASSESSMENT YEAR 2009-2010

This year, there is a tax bonanza for almost all tax payers. The budget has not only presented new tax slabs for the taxpayer but has also raised the minimum threshold level of income tax for every person. This means that the basic exemption limit has been raised across the board to help the poor taxpayer.

InvestmentYogi presents you with a gist of the Income Tax Slab, which you might find timely and useful. The slabs are:

Few points that you would already be aware of, yet to note are:

• There are no changes in Surcharge.
• The above annual taxable income is subject to deductions (80C to 80U) and exemptions under the Income Tax Act 1961.

We have also come up with a Tax Calculator for your convenience. Do check out the Tax Calculator and find out your tax liability in no time.