Understanding Taxes

Enjoy The Perquisites But Watch Out For Taxes!

Yogi — Fri, 24 May 2013 07:55:00 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

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Step-By-Step Guide To File Your Tax Returns Online

Yogi — Thu, 23 May 2013 05:39:00 GMT

Filing tax returns online has become a smooth process in the last few years. It saves time and helps to compute tax easily. Last date to pay taxes is 31^st July, 2013 but we recommend not waiting till the end to pay your taxes. Go online and follow the simple steps discussed here to file your tax returns online within 30 minutes.

Step 1:

Visit the website www.incometaxindiaefiling.gov.in of Income Tax department to file your tax returns online.

In case, you are registered user with login id and password then click on “Login Here” or else “Register Yourself” by selecting appropriate user type, PAN number and other personal details.

Registration form for individual user type is shown below:

After registration process, your “permanent account number” will act as login id. You will receive activation link on your email id and notification message on mobile.

Step 2:

Select Download ITR from quick link on left hand side of the page. Choose appropriate assessment year for which you are filing your tax returns.

· Download ITR 1 if you are an individual with salaried income, pensioner and/or interest income.

· Download ITR 4S for individuals/HUF having income from business.

In the next stage, below given checklist of documents will be required. So, keep them in hand while entering details in excel:

Document of your last year’s tax return
Bank Statement
TDS Certificate
Savings certificates/Deductions
Interest statement showing interest income throughout the year
Form 16 received from employer
Individuals with business income require additional documents such as balance sheet, profit and loss account statement and other audit reports.

Step 3:

Complete the form in excel using documents mentioned above and by following the instructions (this sheet may be hidden while you download excel utility so you need to unhide this sheet) given in excel. Also, refer to comments in the excel cells.

Step 4:

Click on “Calculate Tax” button after completing the form. Pay taxes and enter the challan details in the tax return. In case, your tax liability is shown as “nil” then you don’t need to pay taxes.

Step 5:

Click on validate tab to confirm the details entered by you and save excel as XML file on your computer.

Step 6:

Login to your account of filing online tax returns after saving excel utility as XML and select upload return on left hand side. Complete the form, attach XML file and click on submit. If you have obtained digital signature then say ‘Yes’ otherwise select ‘No’.

Step 7:

You will receive a message on computer screen of completing e-filing process successfully and ITR verification (ITR – V) will be mailed on registered email id. You need to download ITR V from mail, take the print out, sign it in blue ink and send it on address given below:

Income Tax Department – CPC, Post Bag No-1,

Electronic City Post Office, Bangalore – 560100,

Karnataka

This form has to be delivered only via ordinary post or speed post within 120 days after completing your e-filing process. Please note that documents sent in courier will be rejected.

Step 8:

You will receive an acknowledgement receipt in email from income tax department. This will be last step in the process to complete the e-filing. In case, you don’t receive acknowledgement receipt from IT department then it’s suggested to resend ITR V on above mentioned address.

About the Author:

Hiral Thanawala is a PGDM (Finance) graduate and Certified Financial Planner with an experience of over 5 years in equity market and personal finance domain. The views explained by him are personal. He can be reached at expert@investmentyogi.com

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What is Gratuity

Yogi — Tue, 07 May 2013 12:10:00 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

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What to do When You Get an Income Tax Notice?

Yogi — Tue, 30 Apr 2013 06:55:00 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.

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Income Tax Slabs for Financial Year 2013-2014

Yogi — Thu, 25 Apr 2013 05:38:00 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.

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For any queries, write to expert@investmentyogi.com

Tax Terms Simplified!

Yogi — Tue, 23 Apr 2013 11:39:00 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 — Mon, 22 Apr 2013 05:25:00 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 — Mon, 15 Apr 2013 08:55:00 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 — Fri, 05 Apr 2013 07:57:00 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:

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 amvilube@gmail.com

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

Yogi — Thu, 28 Mar 2013 12:00:00 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 — Thu, 21 Mar 2013 09:16:00 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 — Wed, 20 Mar 2013 05:46:00 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 — Wed, 20 Mar 2013 05:00:00 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 — Mon, 18 Mar 2013 07:03:00 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 20:59:00 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.