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11/11/2016

IMPORTANT NOTICE

04/10/2015

Different ways of saving taxes.

Planning in advance and making full use of options of investments and availing relevant deductions are the key to save taxes even before you e-file your tax returns.

You could use some of the avenues of investments listed herein or avail of deductions under relevant sections if they are relevant to you.

The most preferred ways of tax planning which helps individual tax payers to save income tax are as follows:

1. Claim deductions for payment of home Loan EMI

If you have taken a home loan and you are paying EMIs for the same, you are entitled to deductions in taxable income for the EMIs that you are paying under two different sections:
a. Repayment of principal amount – up to a maximum limit of Rs. 1 lac- Sec 80C
b. Interest paid on home loan – up to a maximum of Rs. 1.5 lacs if it is self occupied and actual amount paid if it is let out- Sec 24B


2. Tax planning of Long term capital gains

If you have had a capital gain from selling a house property which you have held for a period of more than 3 years, then in the normal course you would be liable to pay tax on the capital gains. You would not be liable to pay tax, if you make an investment for the amount of capital gains into the specified securities and you invest into purchase of another house property within a period of two years.

3. Claim deduction section 80C, 80CCC, 80CCD by making investments under the following options-

Under this section the Income Tax Act allows you to claim deductions from your taxable income by investing in certain investments. Most significantly these 3 sections has been allowed a maximum combined deductions of Rs. 1,00,000.

Under Section 80C

In order to endorse the customs of savings and to direct the savings of an individual into fair resources, the government has come up with the most popular schemes as follows:



a) Public Provident Fund (PPF): Investments to PPF during a financial year are available for deductions upto the maximum Limit of Rs 1 lac.
b) 5 years Fixed deposit - A 5 year fixed deposit with scheduled banks in schemes which are approved for the section are deductible upto the maximum of Rs 1 lac.
c) Investments into Equity linked Saving Scheme (ELSS) Mutual funds – If you invest into ELSS linked mutual funds which qualify for deductions under section 80C, all such investments are eligible for deductions, subject to a maximum limit of Rs 1 lac.
d) Pension plans- Investments into pension plans which are approved under the said sections are also deductible upto a maximum amount of Rs 1 lac.
e) Life insurance policy - All payments of premium on life insurance policies for yourself, your family are eligible for deductions.
f) National Saving Certificate – All investments into this scheme are eligible for deductions.
g) National Pension System (NPS) - Deduction under this section can be claimed only if the contribution to your NPS account is made by your employer and the deduction is limited to a maximum of 10% of your basic salary. This deduction is available in addition to the limit of Rs 1 lac.

4. Claim deductions for repayment of interest taken for educational loan – 80E

Individual tax payers who have taken an educational loan and are paying the loan through EMIs, the amount of interest repaid by you during the current financial year can be claimed as a deduction. There is no limit to this deduction.

5. Claim deductions for expenses incurred on medical insurance policies and medical treatment.

Section 80 D -

Payments of health insurance premiums which has been taken for yourself and your dependents are eligible for deductions to a maximum amount of Rs. 15,000/-. In the event you are a senior citizen you would be entitled to a deduction to a maximum amount of Rs. 20,000/-.
In case you are paying premium for your parents, then you would be eligible for an additional deduction of Rs. 15,000/- In case your parents are senior citizens and you are paying medical insurance premium for them then the deduction amount for your senior citizen parents could go upto Rs. 20,000/-

Section 80DD-

You would be entitled to a deduction under this section if you have incurred any expenses for the medical treatment, training, and rehabilitation of a disabled dependent or you deposit any amount to Life insurance Corporation in any schemes for disabled dependents.
In case of normal disability maximum deduction that can be allowed is Rs. 50,000 and for severe disability Rs. 1 lakh.

Section 80DDB-

You would be entitled to a deduction under this section, if you have incurred expenses for medical treatment of specified diseases on yourself, spouse, children, dependent parents, dependent brothers and sisters incurred for either specified diseases. For this maximum deduction allowed is Rs. 40,000/- and in case of Senior Citizens, maximum deduction allowed is Rs. 60,000/-

6. Claim deductions for investments into Rajiv Gandhi Equity Saving scheme (RGESS) – Sec 80CCG

You are eligible for a deduction under this scheme only if your income is less than Rs 12 lacs per annum.

If you qualify per the above clause and are making investments for the first time in shares and mutual funds for the first time in your life under this scheme you would be allowed a deduction of 50% of the amount invested upto a maximum. You are allowed a maximum investment of Rs 50,000/- which would mean a maximum deduction of Rs 25,000/-.

7. Claim deductions for donations to charitable institutions - Section 80G

If you have made a donation to any charitable institution which is approved by the income tax department you would be eligible for a deduction of 100% of the donation made or in certain cases only 50%.

8. Claim deduction for income on interest from savings bank- Sec 80TTA

Your interest income from savings bank is not taxable upto to Rs. 10,000/- In other words if you have an interest income of Rs. 15,000 (say) then you could claim a deduction of Rs. 10,000 from your taxable income.

04/10/2015

Difference between Tax exemptions, Deductions and rebates.

It is quite common to get confused between the terms – Income tax exemption, deduction, and rebate. Though these terms generally describe different benefits available to the tax payer, it is important for us to understand the meaning of each one of these terms so that we can use them appropriately to reduce our taxes.



Tax Exemptions

A tax exemption is a reduction from the income pertaining to a specific source of income for expenses incurred/investments made under the said head. E.g. there are some exemptions specific to income from salary as follows:



Examples:

a) Exemption on House rent allowance from salary income

b) Exemptions of Leave travel allowance from salary income

c) Exemption of Leave encashment from salary income





Some exemptions which can be claimed for income from Capital gains are as follows:



a) Exemption on purchase of a new house within a period of 1 year before or 2 years after the sale of a house property.

b) Exemption on investment into long term specified bonds as notified by the government for a minimum period of 3
years,after the sale of a house property which results into Long term capital gain.

c) Tax Deductions

A Tax deduction is also reduction from the income but the reduction is allowed only from the total income of the tax payer for specific investments made or expenditure incurred by the tax payer.



Examples:

a) Deduction under section 80C – Payments to investments as mentioned in the section.
b) Deduction under section 80D – Payments for medical insurance premium.
c) Deduction under section 80E – Payments to repayment of interest on education loan.
d) Deductions under section 80G – Payments to charitable institutions as donations.

Tax Rebate

Tax rebate is an item which is allowed as a reduction to the total tax payable. Thus while deductions and exemptions are reductions from specific heads of income or Total taxable income, rebate is a reduction of total tax payable.



Example:
Income tax rebate of Rs 2000 is available to an individual is the Taxable income for the person is below Rs 5 Lacs.

04/10/2015

Terms you should know while e-filing your income tax returns.

1. Financial year- This is a 12 month period starting on 1st April and ending on 31st March of the next year. Your income is always considered for the financial year.
2. Assessment Year- A period of 12 months following the financial year. This is so named as your income would be assessed during this period. E.g. When we are referring to financial year 14-15 it would mean a period starting from 1st April 2014 and ending on 31st March 2015. The assessment year with respect to this period would be starting from 1st April 2015 and ending on 31st March 2016.
3. Tax deducted at Source (TDS)- This is the amount of tax which is deducted from your income by the payee of your income and deposited directly by the deductor to the government. This could be the tax deducted by your employer from your salary, tax deducted by the bank on your interest on FDs etc….



4. Self assessment Tax- This is an amount of tax which you directly pay to the government of India. This would include any amount which you pay voluntarily or after receipt of an assessment order from the tax authorities.
5. Advance Tax- If you have a tax liability of more than Rs 10,000 for a specific year then you should be paying your taxes by the following dates –
- 30% of the total tax liability by the 15th of September of the financial year
- 60% of the total tax liability (less advance tax already paid ) by the 15th of December of the financial year
- 90% of the total tax liability (less advance tax already paid ) by the 15th of March of the financial year
6. Form 26AS- Tax credit statement issued by the income tax department, indicating all taxes deducted from you as well as taxes deposited directly by you for a financial year period.
7. ITR V- When you e-file your return you get an acknowledgement from the income tax servers. This form is called the ITR V or Income Tax return Verification form. If you have not e-filed your income tax return with your own digital signature you would have to sign this acknowledgement and send it to Income tax , Bangalore within a period of 120 days from the date of efiling for your e-filed return to be considered as a legal document.