All Government employees and most of the private sector employees know of these terms – Medical Reimbursement and Medical Allowance. Almost all of them believe that these are just two different names of the same individual. Only a few of them understand the exact difference between these two in terms of taxation, applicability and so on. Let us look at the difference between them in terms of few factors.
- Allowance – It is a form of perquisite or expense paid regularly to an employee to meet his/her needs and expenses.
- Reimbursement – It is a form of perquisite paid regularly to an employee only when the employee incurs a specific expense.
- Medical Allowance – Any allowance paid by an employer to an employee is taxable in the hands of the employee. Medical allowance is no exception to this rule.
- Medical Reimbursement – It is tax exempt up to Rs. 15,000 p.a.
Maximum amount that can be paid by Employer
- Medical Allowance – As per Employer’s policy.
- Medical Reimbursement – As per Employer’s policy.
- Medical Allowance – The amount will be credited to the employee’s account and medical bills are not required for this purpose.
- Medical Reimbursement – Amount that is reimbursed to the employee upon submission of supporting medical bills is not taxable. If an employee fails to submit bills, this amount can still be paid, but will be taxable as per the tax slab.
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Budget 2014-15 is over. Finance Minister has proposed many changes in taxation, investments and various other areas. But, let us concentrate only on the tax changes in this article. Let’s take a look into what has changed and what remains same in income tax.
(Also see: Eight important tax changes)
Changes in Income Tax for FY 2014-15
- Basic Exemption Limit – The basic exemption limits have been hiked for individuals as well as senior citizens by Rs. 50,000 each. The latest limits stand at Rs. 2.5 lakh and Rs. 3 lakh respectively. Hence, income earners from these categories stand to gain by about Rs. 5,000 in the current financial year i.e. FY 2014-15 or AY 2015-16.
- Section 80C Deduction – This is another change eagerly awaited by the common man. Earlier, the deduction limit under this section was Rs. 1 lakh which was fixed a decade ago. The new deduction limit now stands at Rs. 1.5 lakh. The additional deduction saves another Rs. 5,000 for the burdened tax payer.
- Housing Loan Deduction Limit – In order to encourage all the prospective home buyers, especially the young population, the housing loan deduction limit u/s 24 has been hiked by Rs. 50,000. This has been done taking into account the huge interest amounts being paid annually by a lot of home loan takers. The latest limit is Rs. 2 lakh.
- Income Tax Commission – The scope of income tax commission has been increased for the benefit of millions of tax payers in the country. Tax payers may now approach this commission for settlement of various tax related disputes. It would continue to be a once in a lifetime opportunity for a tax payer.
- Capital Gains Tax on Debt Funds – This could be a dent to all debt mutual fund lovers. Debt funds, which did amazingly well in the past 2 years, will now attract a long term capital gains tax of 20%. Also, the holding period for consideration will be 36 months instead of 12 months. This would lower the tax advantage of debt funds in comparison with fixed deposits or recurring deposits.
- DTC – The long pending Direct Tax Code or DTC will be reviewed in its present shape and appropriate decision will be taken upon the implementation soon.
- Additional Tax Incentive on Home Loans – This was introduced as a onetime incentive for prospective home loan buyers in the previous year’s budget. An additional deduction of Rs. 1 lakh was allowed on the interest paid on home loans. This does not form part of section 24 limit. This incentive has been extended to FY 2014-15 as well. Hence, the total deduction limit on home loan interest for a first time home buyer will be Rs. 3 lakh for this year.
- Rebate of Rs. 2000 – Tax rebate of Rs. 2000 for all tax payers who have total income up to Rs. 5 lakhs was announced in the budget 2013. This has now been extended to this financial year as well.
(Also see: Changes in ITR forms for AY 2014-15)
What did not change?
- Tax Rate – The tax rates have not been tinkered with. There was speculation that the basic exemption limit will be raised to Rs. 5 lakh and the tax rates will be changed. However, the tax rates have remained the same with the exception of minor hike in the exemption limit.
- Education Cess – Education Cess of 3% on income tax remains the same. It is deposited towards corpus fund for secondary and higher education in the country.
Knowing the income tax slabs is the first and foremost thing to do when it comes to calculation of tax liability. Finance Minister has announced changes in the tax slabs for individuals up to 60 years of age as well as for senior citizens. No changes were announced in the tax rates, though. Let’s look at the new tax slabs for FY 2014-15/AY 2015-16 and how these changes will affect you.
Individuals up to 60 years
Income Level Tax Rate Up to Rs. 2.5 lakh Nil Rs. 2,50,000 – Rs. 5,00,000 10% Rs. 5,00,000 – Rs. 10,00,000 20% > Rs. 10,00,000 30%
Senior Citizens (60-80 years)
Income Level Tax Rate Up to Rs. 3 lakh Nil Rs. 3,00,000 – Rs. 5,00,000 10% Rs. 5,00,000 – Rs. 10,00,000 20% > Rs. 10,00,000 30%
Super Senior Citizens (>80 years)
Income Level Tax Rate Up to Rs. 5 lakh Nil Rs. 5,00,000 – Rs. 10,00,000 20% > Rs. 10,00,000 30%
Total benefit that can be derived out of the new tax slabs is reduced tax of Rs. 5,000 for all tax payers. Since the tax rates remain same, additional reduction in tax will not be possible. The tax slabs have remained the same for super senior citizens. Education Cess and surcharge also remain the same.
Finally, union budget 2014 has been presented by the honorable Finance Minister Mr. Arun Jaitley. He has announced a slew of measures to accelerate growth, contain CAD, Fiscal deficit & Inflation. Reforms have been announced in financial sector, banking, education, power and many more areas. Like Rail budget, it’s difficult to present to you the entire budget speech. Hence, we have gathered the most important points of this budget that impact your lives.
- Income tax exemption limit has been raised from Rs. 2 lakh to Rs. 2.5 lakh. Similarly, Rs. 50,000 hike has been proposed for section 80C and section 24 (housing loan) deduction limits.
- Income tax commission will be setup to look after settlement of various tax related disputes.
- Capital gains on sale of mutual fund units (other than equity funds) to be increased to 20% from the existing 10%. Also, the period of holding has been increased from 12 months to 36 months.
- DTC (Direct tax code) will be reviewed in the present shape. Comments will be taken from various stake holders and decision will be taken on it.
- Additional tax incentive on housing loans will be extended to encourage young people to own houses.
- Investment limit in PPF increased from Rs. 1 lakh to Rs. 1.5 lakh p.a.
- Single demat account would be enough for all financial transactions from here on.
- Small savings schemes will be revitalized. KVP (Kivan Vikas Patra) will be re-introduced.
- Uniform KYC norms will be introduced across the entire financial sector
- EPFO will be launching a unified account scheme to assist PF account portability.
- During the budget 2014 speech, FM re-iterated commitment to provide 24*7 power to all households. Two states AP and Rajasthan have already been selected for pilot project.
- Total sanitation for every household under ‘Swatchh Bharat Abhiyan’.
- Aim to provide Safe drinking water to all households in the next 3 years.
- Sewerage management, use of recycled water for growing organic fruits and vegetables, solid waste management and digital connectivity to be encouraged.
Modernization and Safety:
- Rs. 150 crore has been allotted towards safety of women on roads.
- Focus on developing 100 smart cities in the country.
- National highway construction of 8500 km is targeted for better road connectivity.
What is Expensive and What is Cheaper?
- Cigarettes, Pan Masala, Cold Drinks, and Imported Cosmetics will be expensive.
- Branded Clothes, Soaps, Footwear, Packaged Food, Diamonds, Smart Cards, Sports Equipment to be cheaper.
- Govt. will ease and simplify norms to facilitate education loans for higher studies.
What do you think of this Union Budget 2014? Please leave your comments/suggestions.
Railway budget 2014 has been announced. Everyone seems to be excited about it. But, what’s in store for a common man? It’s difficult to read the entire budget speech of the honorable Railway Minister. This is exactly why we have compiled the top 15 highlights that a common man would like to know from this speech. Here are these:
- Cleanliness and safety have been given the priority over everything else. There will be CCTVs, help lines to ensure safety and cleanliness at major stations.
- Ready to eat meals from major brands will be available for the passengers.
- Food courts and RO drinking water to be set up at all major stations.
- Quality of food will be given utmost importance and strict action will be taken on vendors who compromise on the quality.
- Automatic closing doors will be implemented for different coaches.
- Bullet train to be introduced between Mumbai and Ahmedabad.
- Bio toilets will be developed in trains.
- Ticket booking will be aided through mobiles and post offices. Online reservation system will be revamped.
- Lady Coaches will be escorted by RPF women constables. Additional care will be taken towards safety of women travelling alone.
- Diamond quadrilateral to be implemented for high speed trains.
- Speeds of trains in 9 sectors will be increased to 160-200 kph.
- Skill development will be encouraged through introduction of Railway University for technical and non-technical subjects.
- PPP (Public Private Partnership) route will be opted for future projects.
- Wifi facility for A1 and A category stations.
- For better maintenance of stations, corporate companies will be encouraged to adopt stations.
What do you think of this Railway Budget 2014? Please leave your comments/suggestions.
Once again, it’s budget time. Last year’s budget wasn’t a great one to rejoice for common man, especially with taxation. However, this time expectations are high with new government promising a budget focused to benefit common man. Though there are a lot of expectations on budget 2014, let’s have a look at the top 5:
1) Change in tax slabs
It is the talk of the town. The tax slabs weren’t tinkered in the last year’s budget. Now, everyone believes the finance minister will make substantial changes in the tax slabs. Increasing the basic exemption limit seems to be the priority. The current exemption limit is Rs. 2 lakh. This could be increased to anywhere between Rs. 3 – 5 lakh. The slabs could also see a change. The 10% slab could be extended to Rs. 10 lakh from the existing Rs. 5 lakh. Similar changes are expected in the 20% and 30% slabs as well. If this proves to be a reality, millions of tax payers will rejoice.
2) Increase in Section 80C limit
This has been a long standing demand from all the tax payers. The section 80C deduction limit has got stranded at Rs. 1 lakh for a long time. Experts believe that household investments have not been up to the mark. Moreover, inflation has hit us badly. Increase in the tax deduction limit u/s 80C will ensure that there will be higher investments and higher tax saving too. Most of the people believe the limit on this section will be doubled to Rs. 2 lakh. If this happens, it will be a great relief to all of us.
3) Extend housing loan deduction limit for first time home buyers
Budget 2013 gave a booster to all the first time home buyers. It is in the form of additional deduction of Rs. 1 lakh for the home loan taken for this purpose. This is apart from the existing loan deductions available under sections 24 and 80C for interest and principal parts respectively. There is a huge demand that this new section called 80EE should be extended to the next financial year as well.
(Also see: Home loan transfer)
4) Increase medical reimbursement limit
Currently, every employer offers a facility for re-imbursement worth Rs. 15,000 on the medical expenses incurred by the employee. This limit was fixed long back. However, things have changed and medical expenses have multiplied like a strong virus. This limit needs to be increased to at least Rs. 50,000 – Rs. 1 lakh.
(Also see: Tax benefits under section 80D)
5) Increase home loan deduction limit u/s 24
Home loans provide tax deduction benefits in two forms – interest and principal. Tax deduction on interest is a part of section 24 of income tax act. The current limit under this section is Rs. 1.5 lakh. Real estate prices have sky rocketed in the past decade or so. Because of this, people are applying for greater loan amounts, which results in higher interest payments. Hence, there is a demand from various sections to increase this deduction limit to at least Rs. 2.5-3 lakh p.a.
Let’s hope all our expectations are met in the 2014 budget which is expected soon.
Let us know your expectations from this budget. Also, leave your valuable comments/suggestions on this piece of content.
World is getting faster. And, it’s a no brainer. We have invested racing cars, bullet trains and zooming rockets. All these are speed guns. Let’s come back to finance. Do we have a speedy trading machine that can think faster than the human mind? Yes, we do. This is exactly what we will be discussing now. It is called Algorithmic Trading.
As the name suggests, it is an algorithm or program written so as to identify and execute orders which a human brain may not be able to do. After all, we humans have limited powers. This type of programming is also called High Frequency Trading or HFT.
How does it work?
It primarily identifies arbitrage opportunities in the stock market to take advantage of the price difference within the exchanges. It is difficult for a normal human being to identify these opportunities on a consistent basis. However, this algorithm can identify such opportunities within milliseconds and also execute them.
So, if there are multiple algorithms competing with each other, what happens? Pretty simple, the fastest of the lot wins the order and executes it. For this purpose, many stock brokers have been trying to shift their base nearer to the market exchanges. The nearer they are, faster will be their execution time.
What else can be done?
Such algorithms are not just restricted to arbitrage opportunities. They are being designed to participate even in Derivatives, Forex, etc.
Which countries use it?
Currently, many countries use algorithmic trading. NYSE has the highest volume of such trades among exchanges all over the world.
What brokerages offer this service?
Brokerages in India that currently offer this service include ShareKhan, Destimoney, Zerodha, etc. Algorithm trading from all the traders combined is only one third of the trading volume in India. In US, it constitutes almost 70%.
Budget 2014 could see a hike in the income tax exemption limit of one of the most popular tax saving sections – 80C. The current exemption limit under this section is Rs. 1 lakh for a financial year.
Finance Ministry is considering doubling this limit to Rs. 2 lakh, which could be great news for all tax savers. The current limit seems to be too low and there have been demands from various sections to hike the limit.
Tax filing is here. Tax filing is still not as simple as we think it should have been. IT department has tried its best to make it convenient and hassle free for lakhs of tax filers every year. However, there are tons to questions in the minds of tax filers whether it is e-filing or manual filing. Though we cannot answer all of them, we have tried to pick top ten from them.
1) I want to file tax returns. Which ITR form should I use?
This is the probably the most common of them all. You need to choose ITR form as per the income you earn. If you have multiple incomes, you might have to use a different form. Every form includes basic deductions, exemptions, personal details, etc. However, if you do not know which itr form to use for your income, your returns might get rejected. We have explained this in detail in our article on ITR forms – Which ITR form to use?
2) What documents are needed to file income tax returns?
Usually, documents such as form 16, loan repayment proof, tds certificates, medical bills, insurance premium proofs and interest from deposits are needed at the time of filing tax returns. However, you do not have to attach or scan these documents at the time of filing. This is only for you to enter the accurate details. Keep the documents handy so that you can produce them in case IT department asks for the same.
3) Am I done if I fill the details in tax filing forms online?
No. Tax filing process does not end by filling of forms online. After this, you will be receiving an acknowledgement from IT department, called ITR-V. You need to take a print out of this and send it to the IT dept. office in Bengaluru. It has to be sent within 120 days of your original tax filing date.
4) What if I miss the due date of filing?
The tax filing due date is 31st July. You need to complete your filing before this date. However, even if you miss this deadline, you can still file your taxes. There could be some penalties for the delay depending on your tax status. It is always advisable to file before due date in any case as it will give you some benefits. Read our article on tax filing before due date.
5) I have not filed my returns for the past few years. Can I do it now?
Yes, you can still file your returns for the income received in the past. It can be delayed by a maximum of 2 financial years. For example, if you have received income for FY 2013-14, you can file your returns by March, 2016.
6) I have paid excess tax this year. Will I get a refund?
Yes, if you have paid excess tax for the year, you will be eligible for a refund. The refund amount will be calculated automatically when you fill the ITR form. Such amount will be directly credited to your bank account. The faster you file, faster you will get it.
(Also see: Incomes not to miss during tax filing)
7) I have made a mistake while filing returns. Can I update it?
Any mistakes made during tax filing can be corrected by filing a revised return. However, to be eligible for filing a revised return, you should have filed your original returns within the due date i.e. 31st July. If not, you will not be allowed to make changes to your returns.
8) I don’t have my form 16. Can I still file returns?
Tax filing can be done either with form 16 or without form 16. You just need to know the details such as salary received in the year, TDS deducted and so on. If you have received salary from multiple employers, you need to state all of them.
9) I do not have any income except interest from FDs. Do I still need to file my returns?
Interest from fixed deposits is also taxable. Hence, if this interest exceeds the basic exemption limit, you must file your taxes for the year. Such income needs to be reported under the head ‘income from other sources’.
10) I am a retired person. I only have pension income. Am I exempt from tax filing?
No. Pension received after retirement is treated in the same way as salary received before retirement. If the pension received is more than the basic exemption limit, you need to file your tax returns. However, the limit is slightly more for senior citizens. Please check the exemption limits before filing.
Tax filing is not just the time when we declare our tax status. It is also the time when we apply for refunds. One such automatic refund or tax rebate offered by the income tax department this time would be the newly introduced section 87a. Let us see what this section means for us.
What is Section 87A?
It is the tax rebate declared by the finance ministry in the previous year’s budget speech. It is a specific amount that will be discounted from the tax payable for the year for all individuals whose income is up to Rs. 5 lakh p.a.
(Also see: Have you disclosed these incomes in tax filing?)
How much is the rebate?
The tax rebate offered is Rs. 2,000 or the tax payable, whichever is the least. Hence, it means if your tax payable is less than Rs. 2,000 for the year, then the tax payable will become nil. It also means that there will not be any additional refund to the tax payer if original tax payable is less than Rs. 2,000.
To what period is it applicable?
It will be applicable for income generated between April 1st, 2013 and March 31st, 2014 i.e. AY 2014-15 or FY 2013-14. Whether it is continued for the next financial year as well is yet to be seen in the upcoming budget.
(Also see: Income tax penalty for late filing)
How to claim this rebate?
The tax rebate can be claimed while filing your taxes for the previous financial year. The amount will be deducted from the tax payable. After this, surcharge/cess would be applicable as usual.
How many will benefit from this rebate?
This section is set to benefit at least 1.8 crore tax payers in the country. Most of the tax payers fall in tax exempt and 10% slab categories.
Let me now if you have unique requirement which is not covered in this article. Also leave your valuable comments/suggestions on this piece of content.