There are lock-in periods that need to be observed in case you have claimed deduction against repayment of home loan
Ashwini Kumar Sharma | Last Published: Mon, Jan 08 2018. 08 20 AM IST | LiveMint.com
There are various income tax sections under which you can claim deductions for expenses and investment incurred by you during the relevant financial years. Such deductions help you to bring down the taxable income for the respective fiscal and consequently reduce your tax liability.
However, in many cases, a lock-in period is specified—under the section of the Act as well as the instrument against which you may have claimed a deduction. If you fail to observe the lock-in period, the deductions that you availed can be revoked.
Let’s read more about the lock-in periods that need to be observed in case you have claimed deduction against repayment of home loan principal amount.
The deduction on home loan
If you take home loan for purchase or construction of a house, the capital repayment and interest paid on the home loan qualify for deduction under separate income tax sections. While principal repayment qualifies for deduction under section 80C of the Income-tax Act, 1961 and has an overall limit of Rs1.5 lakh a year, the interest payment on home loan qualifies for deduction under section 24(b) of the Act, with an overall limit of Rs2 lakh a year. There is an additional deduction of Rs50,000 for interest payment on home loans under section 80EE for the first-time homebuyers.
While there is no lock-in period for deduction claimed against interest payment on home loan under section 24(b) or 80EE, the section 80C(5) (relating to repayment of principal) of the Act stipulates that if you sell your house within 5 years from purchase or date of possession, the deduction claimed on principal repayment during previous years gets revoked. In this case, all the deductions claimed for home loan principal repayment under section 80C during the previous years too have to be clubbed together and added to income of the year of sale, and be taxed accordingly.
Let us assume you had bought a house in May 2014 with a home loan, and had claimed about Rs4 lakh under section 80C over the last 3 financial years—FY2014-15 to FY2016-17. If you sell the house now, the entire Rs4 lakh claimed earlier as deduction under section 80C will get added to your income for FY2017-18 and you will have to pay tax on the total income as per the income tax slab applicable to you.
Apart from home loan principal amount, the stamp duty and registration fee paid for registration of property also qualify for deduction under section 80C in the year of purchase. If you had claimed stamp duty and registration fee as deduction, you need to observe the 5-year lock-in in these cases too.
If the property is sold before 5 years, the deductions claimed against stamp duty and registration fee will get revoked and get added to the income of the year of sale and tax accordingly.
So, before you decide to sell your house, keep the lock-in criteria in mind. Else, your tax liability may increase considerably in the year of sale.
Taxpayers who missed the earlier ITR (income tax return) deadline of July 31 can now file their tax returns by August 5.
Business | NDTV Profit Team | Updated: August 02, 2017 09:57 IST
The government has extended the deadline for filing of income tax return (ITR). Taxpayers who missed the earlier deadline of July 31 can now file their tax returns by August 5. Can you claim HRA (house rent allowance) if the landlord is not providing you his or her PAN? If the annual rent paid by the employee exceeds Rs. 1 lakh per annum, it is mandatory for the employee to report the landlord’s PAN to the employer. The tax law also says that in case the landlord does not have a PAN, a declaration to this effect from the landlord along with the name and address should be filed by the employee.
Tax experts say that an employee can still claim tax benefits under HRA in his or her tax return. “The requirement for furnishing PAN of landlord is only to one’s employer only. However, once a person is to file his/her income tax return, there is no requirement to furnish the PAN of landlord,” says Sandeep Sehgal, director of tax and regulatory at Ashok Maheshwary & Associates LLP.
Even if the company may not allow HRA exemption to the employee, due to non-availability of PAN or declaration by the landlord about not having PAN, still the employee has the option to claim so while filing his or her income tax return, he says.
Mr Sehgal however says that it could attract scrutiny from tax authorities. “The tax authorities can examine the cases to verify the genuineness of the claim made by the employee,” he says. “It is expected that HRA claims will be closely scrutinised henceforth considering the consistent introduction of measures during past few years. In fact, the chances are greater if the claim doesn’t appear in Form 16 but claimed in the return.”
To substantiate the claim, the employee needs to keep a record of the rent agreement/lease deed, rent receipts, intimation to the society for the occupancy etc., says Mr Sehgal. Also, it is advisable to ensure that the payments are made through bank as cash transactions may not be considered genuine, he adds.
Tax experts say that some high net worth individuals, who used to buy properties on loan and were able to set off the full interest liability against the lettable value of property and thus bring down their tax liability substantially, would be particularly hit from this new tax rule.
Written by Surajit Dasgupta | Last Updated: March 28, 2017 09:01 (IST) | NDTV Profit
Interest paid above Rs. 2 lakh on rented properties can be carried forward for 8 years from April 1.
To address the anomaly of interest deduction in respect of let-out property vs self-occupied property, the government has changed income tax rules, which will come into effect from next financial year April 1, 2017 (assessment year 2018-19). In this regard, the government has cut down tax benefits borrowers enjoyed on properties let out on rent. According to current tax laws, for properties rented out, a borrower could deduct the entire interest paid on home loan after adjusting for the rental income. On the other hand, borrowers of self-occupied properties get Rs. 2 lakh deduction on interest repayment on home loan.
However, on rented properties, effective from April 1, interest paid above Rs. 2 lakh can be carried forward for eight assessment years. Since the interest component of home loan repaid in initial years is higher, experts say that the borrower may not be able to fully adjust the interest paid as deduction even in subsequent years.
For example, your interest outgo on a second property is Rs. 5 lakh in a particular year. Assume that you are earning a rent of Rs. 1.5 lakh annually from the property. Such buyers, according to the current rule, are allowed to adjust the difference of Rs. 3.5 lakh (Rs. 5 lakh interest minus Rs. 1.5 lakh). But from the next financial year, they will be allowed deduction of just Rs. 2 lakh. The remaining amount of Rs. 1.5 lakh (Rs. 3.5 lakh minus Rs. 2 lakh) can be carried forward up to eight financial years and be adjusted later.
Tax experts say that some high net worth individuals, who used to buy properties on loan and were able to set off the full interest liability against the lettable value of property and thus bring down their tax liability substantially, would be particularly hit from this new tax rule.
From April another tax rule related to the properties will also change. The new tax rule will help bring down tax liability from property sale. The holding period of a property for qualifying under long-term gains will get reduced to two years, from three years currently. As per current tax norms, if a property is sold within three years of buying, the profit from the transaction is treated as short-term capital gain and is taxed according to the slab rate applicable to him/her. So reducing this time period to two years will bring down tax liability.
Thus, after two years, the transaction will be able to qualify for long-term capital gains, thus lower taxes. Under long-term capital gains on immovable properties, the profit is taxed at 20 per after indexation. Under indexation, inflation during the holding period is taken into account and thus the purchase price is adjusted, reducing the tax burden on the property seller. There are also other benefits for the seller under the long-term capital gains tax. If the gains are invested in some select government investment schemes, the tax liability goes down significantly.
TNN | Updated: Oct 31, 2016, 04.50 AM IST | Times of India
MUMBAI: In a recent order, the income tax appellate tribunal’s Mumbai bench has held that to claim an interest deduction against a home loan, a taxpayer is not required to submit a completion certificate from any government authority as proof of having obtained possession within the stipulated time period; in this case, three years from the end of the financial year during which the loan was taken. A certificate from the housing society is sufficient evidence, ruled the ITAT, a body that resolves income tax disputes.
The order will come as a major relief to home buyers facing litigation over deductibility of interest on home loans.
Under the Income-Tax (I-T) Act’s Section 24, interest paid on home loans is allowed as a deduction, subject to a yearly cap. Over the years, this cap been enhanced to Rs 2 lakh from Rs 1.5 lakh.
However, to claim deduction, possession of the residential property must be obtained or its construction completed in five years from end of the financial year during which the loan was taken.
The Finance Act, 2016, has increased this period to five years from the earlier three. When interest on a home loan is allowed as a deduction, it reduces the total taxable income, resulting in a lower I-T outgo.
In this case before the ITAT, relating to the financial year 2006-07, Sudhakar Mody bought a flat from Marathon Realty by availing of an IDBI Bank home loan. He claimed a deduction of interest of Rs 1.5 lakh, which was then the maximum amount allowed as a deduction each year. However, the I-T officer asked Mody to furnish a completion certificate from a government authority. As this was not furnished, the interest deduction claim was denied. This act of the I-T officer was upheld by the commissioner of I-T (appeals).
The tax tribunal observed that the flat was ready by October, 2006, and that a soft possession had been given to the flat owner. Further, Mody had obtained the flat’s final possession on March 24, 2007-before the end of the financial year on March 31. As evidence of the possession, Mody had furnished to the commissioner of I-T (appeals) a certificate from the housing society.
It is illegal to occupy a flat without an Occupancy Certificate by the local authority and moreover also be prosecuted
The ITAT held the taxpayer had obtained possession of the flat within the stipulated time period. The ITAT further stated: “The proviso to Section 24 of the I-T Act nowhere states that the taxpayer should furnish a completion certificate from the appropriate government authorities.”
The certificate from the housing society was held by ITAT as sufficient proof of the flat’s possession. In its order dated October 19, the ITAT concluded that the taxpayer was entitled to his claim for deduction of interest against a home loan of Rs 1.5 lakh.
Income tax laws allow tax payers to claim various benefits, with respect to the house occupied by the assessee – whether it is owned by you or taken on rent. Conditions for claiming are…
By: Housing.com/news | Retrieved on 27th July 2016 from Moneycontrol.com
Income tax laws allow tax payers to claim various benefits, with respect to the house occupied by the assessee whether it is owned by you or taken on rent.
Conditions for claiming tax benefits on house rent allowance The tax benefit on house rent allowance (HRA) is only available to a person, who receives HRA from his employer and is not available to a self-employed person. To avail of this benefit, the employee should have incurred the expenditure on rent, with respect to a residential house property occupied by him/her. The benefit of HRA is not available on rent paid for a residential house that is occupied by any other person, irrespective of whether he is dependent on the assessee or not. It is also not available, in cases where the accommodation is either partly or fully owned by the assessee himself.
So, if an employee lets out the property to his employer and the employer in turn, allots the same to the employee and recovers some rent on this account, the HRA benefit cannot be claimed. Likewise, if the employee is a joint owner of a property and pays some rent to the other joint owner/s of the property, the HRA benefits on such payment cannot be claimed.
According to rule 2A of the income tax rules, the benefits of HRA shall be restricted to the lowest of the following three amounts:
(a) HRA actually received.
(b) Excess of rent paid over 10% of basic salary.
(c) 50% of basic salary in case the employees is in any of the four metro cities, or 40% in case he resides in any other place.
The law does not stipulate that HRA benefit cannot be claimed, if the tax payer owns a house and is already claiming tax benefits with respect to a housing loan.
Conditions for claiming tax benefits on home loans The main condition, for the allowance of the deduction on the principal and interest components of a home loan, under Section 80 C and Section 24(b), is that the person should be the owner of the house property. Tax benefits under Section 80 C, are only available for home loans taken from specified persons, for a residential house. Interest benefits are available on residential and commercial properties and on money borrowed from banks or from anyone else. Moreover, the interest on money borrowed for a let-out property is fully deductible. For a self-occupied house property, the benefit on interest is restricted to Rs two lakhs per year.
Claiming HRA as well as home loan benefits The laws allows a tax payer to have more than one house property. However, he has to opt for only one such property as self-occupied and offer notional rent, on the other properties for tax. By the same legal provision, it can be inferred that in addition to the rented house occupied by the tax payer, he can have one more house property as self-occupied. If the house property owned by the tax payer is in a city other than his place of work, there would not be any problem. However, if the property is in the city where the rented property is situated, it may be logically difficult to establish that the tax payer is occupying both the houses.
(The author is a taxation and home finance expert, with 30 years’ experience)
Source : http://goo.gl/shtKCC
By Chandralekha Mukerji, ET Bureau | 16 May, 2016, 10.39AM IST | Economic Times
They may not figure in the Panama Papers , nor have wads of cash stuffed under their beds and investments in benami properties. But there are other reasons why small taxpayers can get into trouble with the tax authorities. “My mother is a senior citizen and has paid all her taxes. But she still got a notice for not filing her return for 2014-15,” says Mumbai-based marketing manager Arun Kapoor. Delhi-based finance professional Varun Sahay has received a notice for not deducting TDS when he bought a flat last year. “I had no idea that I was supposed to deduct 1% of the value of the house and deposit the amount with the government on behalf of the seller,” he says.
Once rare, such cases are now quite common. In recent months, the tax department has stepped up efforts to ensure tax compliance. New rules have been introduced to plug tax leaks and officials are cracking down on evasion. Tax records are being put under the scanner and notices are being sent to individuals if the computer-aided selection system notices a discrepancy. Thousands of taxpayers have already received tax notice ..
This week’s cover story looks at 10 common mistakes that can fetch you a notice from the tax department. Some of these mistakes are merely calculation errors that will result in a tax demand. But some others are serious transgressions that can invite penalties of up to 300% of the unpaid tax. We tell you where taxpayers are going wrong and the correct position on the matter. We also offer smart tips to help you avoid falling foul of the tax rules. We hope you will find this information useful. Individuals who manage their taxes on their own will find it particularly helpful.
1. Not reporting interest income
This is a common mistake. Interest income from fixed deposits , recurring deposits and even tax saving bank deposits and infrastructure bonds is fully taxable. Yet, 59% of the respondents to an online survey conducted by ET Wealth believed that interest income of up to Rs 10,000 a year is tax free. Actually, the tax exemption of Rs 10,000 a year under Sec 80TTA applies only to the interest earned on the balance in a savings bank account.
Another 6% of the respondents believed that no tax is payable if their bank has deducted TDS. These taxpayers don’t realise that TDS is only 10% of the income. If they fall in a higher tax slab, their liability would be higher. In our survey, almost 50% of the respondents who got this wrong have an annual income of over Rs 10 lakh. They pay 10% TDS even though they are supposed to shell out 30%.
Interest income often goes unreported in tax returns. In recent years, new rules have been introduced to plug this leak. Till two years ago, TDS kicked in when the interest from deposits made in one bank branch exceeded Rs 10,000 in a financial year. Investors used to split their deposits across bank branches to avoid TDS. Now TDS applies if the combined income from deposits in all branches of a bank exceeds the threshold. What’s more, TDS also applies to recurring deposits now.
In future, as banks start sharing data, TDS could be applied to deposits made across other banks as well. “The mechanism to track deposits across other banks already exists. If banks share the names and PANs of fixed deposit investors, lakhs of individuals could come in the tax net,” says M.K. Agrawal, Senior Partner, Mahesh K Agarwal & Co.
Smart tip: Calculate how much interest you will get on your FDs, RDs and other fixed income investments and add that to your income.
2. Ignoring income of old job
Every time an individual switches jobs , he is in danger of falling foul of the tax laws. This is because the new employer doesn’t take into account the income earned from the previous job and offers tax exemption and deduction to the employee all over again. Instead of Rs 2.5 lakh basic exemption and Rs 1.5 lakh deduction for tax saving investments under Section 80C, he gets Rs 5 lakh basic exemption and Rs 3 lakh deduction. Obviously, he will be paying much less tax than he ought to.
But this discrepancy won’t remain hidden for long and would eventually be discovered when the taxpayer files his return. The incomes in the two Form 16s would be added but he would get basic exemption and deduction only once. This also means a large tax payment at the time of filing returns because the duplicate benefits would be rolled back. The last date for paying the tax is 15 March. After this, if the unpaid tax exceeds Rs 10,000, there is a penal interest of 1% per month of delay. “The employee will have to pay the balance tax along with interest at the rate of 1% per month for delay,” says Vaibhav Sankla, Director, H&R Block.
This is a common problem faced by people who switch jobs without keeping an eye on their taxes. They are saddled with a huge tax liability when they sit down to file their tax returns in June-July.
Don’t think you can get away by not mentioning the income from the previous employer in your return. If some tax has been deducted on the income from the first employer, it will be reflected in your Form 26AS. So if you don’t report that income, the discrepancy will immediately get picked up by the computerised scrutiny system and you will get a tax notice.
Smart tip: Inform your new employer about income from previous job so that the TDS is cut accordingly.
3. Not filing tax returns
A lot of taxpayers, especially senior citizens such as Kapoor’s mother, have received notices for not filing their tax returns. Anybody with an income above the basic exemption is liable to file his tax return. The basic exemption is Rs 2.5 lakh per year for people below 60, Rs 3 lakh for senior citizens above 60 and Rs 5 lakh for very senior citizens above 80. The rest of us , including NRIs, have to comply.
Keep in mind that this is the gross income before any deductions and tax breaks. If your annual income is Rs 4.2 lakh and you invest Rs 1.5 lakh under Sec 80C, your tax will come down to zero. But you are still liable to file your tax return. Similarly, even if all your taxes are paid, you still need to file the return.
For a lot of people, confusion stems from a rule introduced four years ago, where salaried individuals with an income of up to Rs 5 lakh a year were exempted from filing returns. However, that rule has long been withdrawn. “Although the regulation was applicable only to that particular financial year, many people tend to still follow it,” says Archit Gupta, Founder and CEO of Cleartax.in.
Not filing returns is not a very serious offence if all your taxes are paid. You will only get a notice asking you to do the needful. The tax laws allow a taxpayer to file delayed returns even after the due date has passed. But if you have unpaid taxes, be ready to pay interest as well as a penalty of up to Rs 5,000.
Smart tip: Don’t miss filing your return even if your tax is zero or all your taxes are paid. File online to avoid mistakes.
4. Tax sops on house sold before 5 years
The government offers generous tax benefits to those who buy houses on loans. But if the buyer turns into a seller too early, some of these benefits are rolled back. If you sell the house within five years, the tax benefits availed of under Sec 80C for the principal repayment will get reversed.
This could mean a heavy tax liability if you have claimed deduction for the principal repayment of the home loan under Sec 80C. You won’t be able to keep this under wraps because the buyer may seek tax benefits on the same property. However, the deduction for the interest on the home loan under Sec 24 will not be rolled back.
Similarly, if you have ended a life insurance policy within three years of purchase, any tax deduction availed on the policy will be reversed. Not many taxpayers are aware of this rule about insurance policies. “No taxpayer is so honest as to report this in his ITR and pay additional tax for the previous years,” says a chartered accountant.
Smart tip: Wait for at least five years before selling a house or three years before ending a life insurance policy.
5. Misusing forms 15G, 15H to avoid TDS
As mentioned earlier, many investors try to avoid TDS by splitting their investments across different banks. Many others submit Form 15G or 15H so that their bank does not deduct TDS. These forms are declarations that the individual’s income for the year is below the taxable limit and therefore no TDS should be deducted from the interest.
However, misuse of these forms is a serious offence. “A false declaration not only attracts penalty but also prosecution. The taxpayer can be sentenced to jail for terms ranging from three months to two years,” says Sudhir Kaushik, Co-founder and CFO, Taxspanner.com. This doesn’t stop people from blindly filling the forms to escape TDS.
You need to meet two basic conditions to file form 15G. One, your taxable income for the year should not exceed the basic exemption of Rs 2.5 lakh. Two, the total interest received during the financial year should not exceed the basic exemption slab of Rs 2.5 lakh. “The total interest income includes interest from other sources as well, including PPF, NSCs and not just interest income from deposits,” says Sankla of H&R Block. Form 15H, which is for senior taxpayers above 60, imposes only the first condition. The final tax on the total annual income should be nil. So, senior citizens whose taxable income is below the Rs 3 lakh limit are eligible to file Form 15H. For very senior citizens above 80, this limit is Rs 5 lakh.
Though this is a standard practice, and investors take it lightly, don’t assume that the Form 15G and 15H will not get noticed by the taxman. “If TDS is not deducted because the person has filed Form 15G or 15H, it is separately shown in part A1 of the Form 26AS,” cautions Gupta of Cleartax.in.
Smart tip: File Forms 15G only if you fulfill both the conditions. TDS is an interim tax and you can claim a refund if you have paid more than due.
6. Not deducting TDS when buying property
Given that real estate investments involve a lot of unaccounted money, the government has extended the scope of TDS to property transactions as well. If you buy a house worth more than Rs 50 lakh, you have to deduct 1% TDS from the payment to the seller. In case the seller is an NRI , the TDS will be higher at 30%. This amount should be deposited with the government on behalf of the seller using Form 26QB. Delhibased Sahay had no idea of this rule when he bought a property in Noida last year. He now has to respond to a tax notice, and could even be slapped with a penalty of up to Rs 1 lakh.
The rule is applicable even if you pay in instalments. In such cases, the TDS needs to be deducted from each payment and the money deposited with the government within seven days.
While TDS deduction happens automatically when you buy a new property from a builder, in case of transactions between individuals, it is often ignored. Like Sahay, most buyers are unaware of the rule. Even if they are aware, they are not sure how to calculate the tax. “The TDS has to be calculated on the total sale price and not just the amount exceeding Rs 50 lakh. Many make this calculation error,” says Gupta. The total sale price is the amount payable and as registered in the sale agreement. It does not include stamp duty and brokerage.
Also, only the sale price has to be taken into consideration, not the circle rate of the property. If a property is valued at Rs 60 lakh based on the circle rate, but gets sold for less than Rs 50 lakh, the buyer need not deduct TDS.
Smart tip: Make it clear to the seller that you will be deducting 1% TDS from the payment. Make sure you have his correct PAN details.
7. Not reporting foreign assets
We usually don’t want to be alarmist but this is one area where taxpayers need to tread with caution. They can no longer afford to be unsure about their foreign income and assets. “There is a lot of exchange of information between countries and we will see an exponential rise in the number of notices being sent to taxpayers on this account,” says Tapati Ghose, Partner, Deloitte Haskins & Sells LLP.
Mis-reporting overseas assets will not be taken lightly by the government. You could be prosecuted under the Black Money Act and the penalty can be as high as Rs 10 lakh for even small errors. Experts say taxpayers who have worked abroad often go wrong when reporting their foreign assets. “The employee stock options is often acquired at no cost or be sold out during the year and therefore get missed when you take an account of your assets. Capital assets like jewellery often skips the mind as they do not generate any income. In fact, they may have been bought only as ornaments,” says Ghose.
Not just salary and perks, freelancers who receive money from foreign clients need to report this income under the foreign assets schedule. “This should also include gifts, which are deemed to be income,” says Ghose. Also, all foreign bank accounts—whether operational or not and even with a tiny balance—need to be reported. You even have to report bank accounts where you are merely a signing authority.
Smart tip: Start collecting details of your foreign assets much before the last date for filing returns.
8. Disregarding clubbing provisions
It’s quite common for taxpayers to invest in the name of non-working spouses or minor children. But though gifts made to a spouse or a minor child do not attract tax, if that money is invested the income it generates is clubbed with the income of the giver and taxed accordingly. So, if you bought a house in your wife’s name, any income from that house, whether as capital gains when you sell it or as rent, will be treated as your income.
Similarly, if a husband has invested in fixed deposits in the name of his wife, the interest will be taxed as his income. “It doesn’t matter whether your spouse’s income is below the basic exemption. the income from the investment will get clubbed to your income,” says ghose of deloitte.
The rules are slightly different in case of investments in the name of minor children (below 18 years). The earnings are treated as the income of the parent who earns more. However, the taxman has softened the tax blow by extending an exemption of Rs 1,500 a year per child up to a maximum of two children.
Parents who want to invest in the name of their children can go for tax-free options such as the Sukanya Samriddhi Yojana, PPF or tax-free bonds. Though the income will get clubbed, there will be no tax implication. Mutual funds also help bypass the clubbing provision because the tax liability is deferred indefinitely. If the child withdraws after 18, that income is his, not the parent’s.
Smart tip: Invest in tax-free options in spouse’s name. Invest the income in FDs or RDs. Income is clubbed but the income from income is not.
9. Not reporting tax-free income
This may not be a serious offence but a taxpayer is required to mention tax-free income in his return. Tax-free income includes interest earned on PPF, tax-free bonds, life insurance policies, capital gains from stocks and equity-oriented funds and gifts from specified relatives. “Even if you are not liable to pay any tax on these incomes, all your interest income, including savings bank interest, has to be reported in the ITR,” says Gupta of Cleartax.in. The taxpayer can then claim exemption for the same. While you may not receive a notice for not mentioning tax-free income, it will certainly create an inconsistency in your return.
Similarly, dividend income has to be reported in the ITR even though it is tax-free. This year’s Budget has proposed a tax on dividend income if it exceeds Rs 10 lakh. The new rule will impact HNIs who use dividend stripping strategies to earn tax-free income.
Smart tip: Mention all tax-free income in your ITR but claim exemption for it under various sections.
10. Spending, investing beyond means
We all know that reckless spending is not good for our financial health . But few people realise that spending too much can also lead to a tax notice. If your expenses or cash withdrawals exceed certain limits, your credit card company and your bank are supposed to report that to the tax department.
If these expenses are much beyond your reported income, the income tax department may send you a notice or pick up your case for scrutiny. “If cash transactions, including ATM withdrawals, exceed Rs 50 lakh in a year, a bank is supposed to report it,” says Minal Agarwal, Chartered Accountant and Partner, Mahesh K Agarwal & Company.
Similarly, if investments by an individual cross certain thresholds, mutual funds, banks and brokerages are supposed to inform the tax department. If you invest more than Rs 1 lakh in stocks, your broker will squeal on you. Invest over Rs 2 lakh in a mutual fund and your name gets into a list of high-value investors.
Buy bonds worth over Rs 5 lakh and you get noticed. Even the purchase of gold, which was till now a safe haven for unaccounted money, will require your PAN card details. If these purchases and investments don’t match your reported income, be ready for a tax notice. “The government is gradually getting to know all aspects of the individual’s financial life,” says Agarwal.
Smart tip: Avoid cash transactions as far as possible. If depositing cash in bank account, keep record of source of cash.
Got a notice? Take help from a tax expert
The first thing to do when you get a notice from the tax department is not to panic. Many notices are simply tax demands or for non-filing that can be dealt without a fuss. Only a scrutiny or reassessment notice is reason for worry. In such matters it is best to take the help of a qualified professional who knows how to respond to the notice. “Engaging a specialist would push up the compliance cost but it would ensure that the matter is skillfully handled. A chartered accountant would be better equipped to handle the situation and provide apt responses,” says a tax expert.
A new online tool launched by tax filing portal Cleartax.in will be useful here. If you have got a tax notice, the portal will help you resolve the case free of cost. All you have to do is quote your PAN number and upload the PDF file of the tax notice. The tax experts of Cleartax will examine the case and send you an e-mail within 1-2 hours explaining the steps you need to take.
If the notice relates to common issues such as TDS claims, non-filing of tax returns or verification of documents, the issue will be resolved within a day’s time. “More complex issues will have to be examined in detail and handled personally,” says Archit Gupta, Founder and CEO, ClearTax.in. If you need the further support from the site, you may have to shell out an advisory fee ranging from Rs 800 to Rs 1,600 depending on the complexity of the case.
Of late, the I-T department have been tightening their scrutiny and sending notices to taxpayers for a plethora of reasons. Apart from due taxes and penalties, the fines for not responding to these tax notices can be as as high as Rs 10,000.
Source : http://goo.gl/gkIq4Q
You can carry forward losses and revise the returns umpteen times in case of mistakes
Tinesh Bhasin | Mumbai | April 14, 2016 | Last Updated at 00:25 IST | Business Standard
With the income tax department allowing ample time for filing returns, many taxpayers take it easy. For the income earned in the past financial year (FY16), a taxpayer can file returns up to March 2018. However, sticking to the first deadline of July 31 has its benefits.
Say, you make a mistake while filing returns — it can be a wrong computation or incorrect bank account details. If you file returns on time, the income tax (I-T) department will allow you to revise it as many times as you wish until the end of the assessment year. In case of belated filing, the taxpayer loses this advantage. “Not being able to revise returns can lead to problems. For example, in case of wrong computation, the department can send a notice. Incorrect bank account details can delay refunds,” says Vikram Ramchand, founder, Makemyreturns.com.
Missing the first deadline also means that the taxpayer cannot carry forward certain losses. The Income Tax Act allows individuals to carry forward losses under the ‘capital gains’ head and also business losses for professionals and businesspersons. These can be adjusted against the future gains for up to eight years. Due to the correction in stock market in the last financial year, many investors would have suffered a loss in their equity trade. Filing returns on time can help them utilise these losses in the coming years.
“The only loss that’s allowed to be carry forward for latecomers is the loss from house property,” says Ramchand. This is the deduction that a person gets on the interest portion of a home loan under Section 24. Though the deduction can be claimed in the subsequent year, the total limit for deduction will remain Rs 2 lakh for first-time home buyers. In case of a house property that’s not self-occupied, the entire interest can be claimed as deduction.
For those filing belated returns, they will also need to shell out a penalty. There will be a one per cent penalty every month under Section 234A on the liability if the return is not filed on time, according to Kuldip Kumar, partner and leader (personal tax) at PwC India. Professionals and businesspersons will also need to pay one per cent penal interest per month under Section 234B, if 90 per cent of the tax is not paid by March 31. If you don’t file returns at all, there are provisions in the I-T Act that say if the tax due is more than Rs 3,000, the taxpayer can be prosecuted and jailed.
Ramchand says that in his experience, he has also seen that those who file returns on time get faster refunds and their filing is processed quickly, too. Last year, many taxpayers who filed before the deadline got refunds within a fortnight, according to Ramchand. However, in case of belated filing, the processing and returns are both delayed – it can easily take six to eight months.
Also, those filing belated returns usually see that their refund amount is adjusted against some pending tax demand of the past, according to tax experts. Although this is not a rule, tax experts say such cases of adjustments are higher for those filing belated returns.
PwC’s Kumar points out that in the recent Union Budget, the period of filing returns has been reduced from two years to one year. Taxpayers will need to file returns before the end of the relevant assessment year. This will apply from the next assessment year. Tax experts, therefore, say one should start filing returns on time to avoid hassles later.
By Chandralekha Mukerji | ET Bureau | 1 Apr, 2016, 06.47AM IST | Economic Times
BENGALURU: If you earn more than Rs 50 lakh a year, the I-T Department wants you to declare the break-up of your net worth. In the new set of ITR forms launched on 31st evening, the CBDT has added a new schedule — schedule AL to all ITR forms (including ITR 1).
Under this new section, individuals will have to declare all their assets and liabilities, as on end of financial year 2015-16. The section applies to all individuals and HUFs earning more than Rs 50 lakh a year.
Under the section assets have been classified under two categories — moveable and immovable. One will have to declare any land or building (includes house property) under immovable assets. Movable assets list includes cash in hand (money in your savings account), vehicles (including yacht, boats and aircraft), jewellery, bullion and other valuable metals. Liabilities will include any outstanding loans you have.
“While further instructions on how to value assets are awaited, taxpayers will find it challenging to value their assets themselves, especially jewellery and vehicles. Salaried individuals do not usually maintain fair market value of jewellery owned or written down allowance (depreciation) of vehicles owned by them,” says Archit Gupta, CEO and founder, ClearTax.in.
The taxman also wants to know the details of the businesses you earn from, in case you have more than one. A new section has been added to the ITR- 4S seeking code, nature and description of the three main businesses–activities or products that you earn from. This section earlier existed in only ITR-4 only, a much lengthier form compared to ITR-4S. Moreover, the new ITR-4S can now be filed by partnership firms too. All they have to declare is the salary and interest paid to the partners.
ITR-4S was earlier a succinct form, now with three additions -specifying nature of business, salary and interest paid to partners (applicable only to firms) and schedule AL,it will need a lot more effort from those who preferred to file it,” says Gupta.
In this year’s Budget, the FM had increased the scope of ITR 4S in this year’s budget by bringing professionals earning up to Rs 50 lakh a year under presumptive tax, wherein, they have to pay taxes at a pre-determined rate of 50 per cent of gross receipts. Earlier, under this process of tax-filing, apart from profit declaration no other details were required. The new forms will change this in case you have multiple businesses.
NDTV Profit Team | Last Updated: February 08, 2016 11:45 (IST)
It is that time of the year, when the salaried class starts praying for incremental tax concessions in the annual budget. Analysts, however, say that the government should focus on increasing the tax net instead of announcing new income tax concessions.
That’s because only 3 per cent of over 1 billion people in the country are estimated to pay income tax. Those who earn Rs. 21,000 and more (per month) have to pay taxes, but many small businesses, professionals (such as doctors and lawyers) and rich farmers do not pay taxes.
Tax evasion is not limited to smaller tax payers, analysts say. The number of people who declare annual income of over Rs. 1 crore is abysmally low at just around 50,000 in the country, they added.
“The number of income tax payers in India is woefully small, and the prosperity the country has achieved post reforms, do not reflect in number of taxpayers… We have to devise systems so that we can be able to bring tax avoiding population within the tax net,” said Yashwant Sinha, former finance minister.
According to Mr Sinha, the government has taken “baby steps” by announcing several measures on cash transactions, which could add 30-40 lakhs more tax payers per year.
The Goods and Services Tax (GST), however, could be a big step in bringing more people in the tax net, he added.
“If you had GST for instance, that will help… You will not have a separate sales tax, separate services tax, and a separate excise duty, etc. and you will have income tax. So, people in this country will be paying only two kinds of taxes… If a person is paying a certain amount of excise or service tax and he is not paying income tax, we can easily net him in income tax by finding this out,” Mr Sinha said.
Source : http://goo.gl/eS9Ay9
Changes in threshold not to have a significant revenue impact, say officials
Dilasha Seth & Indivjal Dhasmana | New Delhi | January 29, 2016 Last Updated at 00:59 IST | Business Standard
The government is considering rationalising tax deducted at source, according to recommendations made by the R V Easwar Committee.
Officials said the changes in tax deducted at source (TDS) rates and thresholds would not have a significant revenue impact. Revision of the tiny annual limits, which were long overdue, would, however, benefit small depositors and pensioners, they added. “For the Budget, we will be looking at recommendations that do not have large revenue implications. For the rest, we will have to do the math on the tax revenue foregone,” said a government official.
The panel has suggested reducing the short-term capital gains tax on annual earning of less than Rs 5 lakh from trading of shares and not treating it as business income. This will have a significant revenue implication when the government is trying to lower the fiscal deficit to 3.5 per cent of the gross domestic product (GDP) in 2016-17 from the projected 3.9 per cent in 2015-16.
Budget may offer TDS relief to taxpayers The committee has recommended reduction of the TDS rate for individuals and Hindu Undivided Families (HUFs) to five per cent from 10 per cent. For interest on securities, it has proposed raising the threshold for TDS to Rs 15,000 from Rs 2,500 annually and halving the tax rate to five per cent. For other interest earnings, the limit recommended is Rs 15,000, up from Rs 10,000 for bank deposits and Rs 5,000 for others.
“The thresholds are unfair to pensioners and widows, who have all their savings in fixed deposits. The average rate of tax has fallen, but these thresholds have not gone up. Why should they suffer tax at 10 per cent when the average rate of tax is somewhere at five per cent,” Easwar told Business Standard.
The 10-member panel has recommended a hike in the TDS threshold for payments in respect of NSS (National Service Scheme) deposits to Rs 15,000 from Rs 2,500, and reducing rates from 20 per cent to five per cent. The panel has also suggested raising the TDS limit for payments to contractors from the current Rs 30,000 for a single transaction and Rs 75,000 annually to Rs 1 lakh annually. The TDS limit on rent income is proposed to be raised from Rs 1.8 lakh annually to Rs 2.4 lakh.
The committee has submitted only a draft report to Finance Minister Arun Jaitley and is likely to present the final one in a few days. Sources said the final report would not be drastically different from the draft. Jaitley said on Monday at an Income Tax Appellate Tribunal event the government was looking at the recommendations to come up with a neater tax regime to reduce litigation. The committee has said nearly 65 per cent of personal income tax collection in India was through TDS and the government should consider making its provisions less tedious.
The panel was set up by Jaitley in October to identify provisions and phrases in the Income Tax Act that led to litigation over interpretation. It was asked to suggest alternatives to ensure predictability in tax laws without substantially impacting the tax base or revenue collections.
Easwar panel on tax simplification
- Treat stock trading gains of up to Rs 5 lakh as capital gains and not business income
- Reduce TDS rates for individuals to 5% from current 10%
- I-T dept should not delay tax refund due beyond six months. A higher interest rate should be applicable in case of delay in refunds beyond six months
- Exempt NRIs not having a Permanent Account Number, but seeking to provide their Tax Identification Number for applicability of TDS at a higher rate
- Defer contentious Income Computation and Disclosure Standards provisions
Source : http://goo.gl/gt9KMd
PTI | Jan 25, 2016 16:55 IST | FirstPost
New Delhi: The Labour Ministry has directed retirement fund body EPFO and health insurance provider ESIC to exempt startups from inspection and filing returns for 3 years.
In line with Prime Minister Narendra Modi’s vision to nurture startups, the ministry said in a set of directions last week that the new age ventures should be allowed to self-certify their compliance with 9 labour laws.
Labour Secretary Shankar Aggarwal in a letter said startups should not be inspected or asked to file returns for 3 years under 9 laws including Employees’ Provident Fund and Miscellaneous Provisions Act and the Employees State Insurance Act.
“Promoting startups would need special hand holding and nurturing. Thus, such ventures may be allowed to self-certify compliance with the Labour Laws,” he added.
They will be exempted from inspection under the Building and other Construction Workers (Regulation of Employment and Conditions of Service) Act, Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, Payment of Gratuity Act and Contract Labour Act.
Startups will also be exempted from filing returns under the Industrial Disputes Act, Building and other Construction Workers Act, Inter-State Migrant Workmen Act, Contract Labour Act, EPF Act and ESI Act.
There will be a blanket exemption from inspection and filing returns for the first year and would be asked to file an online self declaration form.
They will also not be asked to file return or inspected for the next two years, but will be inspected in case a “very credible and verifiable” complaint of violation is filed in writing and the approval has been obtained from the Central Analysis and Intelligence Unit (CAIU), Aggarwal said.
Except the EPF and Miscellaneous Provisions Act and the ESI Act, the implementation of other seven laws lies in both central and state government’s sphere.
Labour Ministry had directed its officials as well as the EPFO and ESIC to regulate inspection of startups, under laws which lie in the centre’s sphere.
Source : http://goo.gl/9H9uch
Babar Zaidi | TNN | Jan 11, 2016, 08.57 AM IST | Times of India
Do-it-yourself tax planning can be rewarding and challenging. Rewarding, because you can choose the tax-saving instrument that best suits your needs. Challenging, because if you make the wrong choice, you are stuck with an unsuitable investment for at least 3-5 years. This is where our annual ranking of best tax-saving options can prove helpful. It assesses all the investment options on seven key parameters—returns, safety, flexibility, liquidity, costs, transparency and taxability of income. Each parameter is given equal weightage and a composite score is worked out for the various tax-saving options.
While the ranking is based on a robust methodology, your choice should also take into account your requirements and financial goals. We consider the pros and cons of each option and tell you which instrument is best suited for taxpayers in different situations and lifestages. We hope it will help you make an informed choice. Happy investing!
ELSS funds top our ranking because of their tremendous potential, high liquidity and transparency. The ELSS category has given average returns of 17.8% in the past 3 years. The 3-year lock-in period is the shortest for any Section 80C option.
If you have already fulfilled KYC requirements, you can invest online. Even if you are a new investor, fund houses facilitate the investment by picking up documents from your house and guiding you through the KYC screening. ELSS funds are equity schemes and carry the same market risk as any other diversified fund. Last year was not good for equities, and even top-rated ELSS funds lost money. However, the funds are miles ahead of PPF in 3- and 5-year returns.
The SIP route is the best way to contain the risk of investing in equity funds. However, with just three months left for the financial year to end, at best, a taxpayer will manage 2-3 SIPs before 31 March. Since valuations are not stretched right now, one can put in a bigger amount.
Opt for the direct plan. Returns are higher because charges are lower.
The new online Ulips are ultra cheap, with some of them costing even less than direct mutual funds. They also offer greater flexibility. Unlike ELSS funds, where the investment cannot be touched for three years, Ulip investors can switch their corpus from equity to debt, and vice versa. What’s more, there is no tax implication of gains made from switching because insurance plans enjoy exemption under Section 10 (10d). Even so, only savvy investors who know how to use the switching facility should get in.
Opt for liquid or debt funds of the Ulip and gradually shift the money to the equity fund.
The last Budget made the NPS attractive as a tax-saving tool by offering an additional tax deduction of Rs 50,000. Also, pension fund managers have been allowed to invest in a larger basket of stocks.
Concerns remain about the cap on equity exposure. Besides, the taxability of the NPS on maturity is a sore point. At least 40% of the corpus must be put in an annuity. Right now, the income from annuities is taxed at the normal rate.
Opt for the auto choice where the equity exposure is linked to age and comes down as you grow older.
PPF AND VPF
It’s been almost four years since the PPF rate was linked to the benchmark bond yield. But bond yields have stayed buoyant and the PPF rate has not fallen. However, the government has indicated that it will review the interest rates on small savings schemes, including PPF and NSCs. If this is a worry, opt for the Voluntary Provident Fund. It offers that same interest rate and tax benefits as the EPF. There is no limit to how much you can invest in the VPF. The contribution gets deducted from the salary itself so the investor does not even feel it go.
Allocate 25% of your pay hike to VPF. You won’t notice the deduction.
SUKANYA SAMRIDDHI SCHEME
This scheme for the girl child is a great way to save tax. It is open only to girls below 10. If you have a daughter that old, the Sukanya Samriddhi Scheme is a better option than bank deposits, child plans and even the PPF account. Accounts can be opened in any post office or designated branches of PSU banks with a minimum Rs 1,000. The maximum investment in a financial year is Rs 1.5 lakh and deposits can be made for 14 years. The account matures when the girl turns 21, though up to 50% of the corpus can be withdrawn after she turns 18.
Instead of PPF, put money in the Sukanya scheme and earn 50 bps more.
SENIOR CITIZENS’ SCHEME This is the best tax-saving instrument for retirees. At 9.3%, it offers the highest interest rate among all Post Office schemes. The tenure is 5 years, extendable by 3 years. Interest is paid quarterly on fixed dates. However, there is a Rs 15 lakh overall investment limit.
If you want ot invest more than Rs 15 lakh, gift the amount to your spouse and invest in her name.
BANK FDS AND NSCs
Though bank FDs and NSCs offer assured returns, the interest earned on the deposits is fully taxable. They are best suited to taxpayers in the 10% bracket or senior citizens who have exhausted the Rs 15 lakh limit in the Senior Citizens’ Saving Scheme.
Invest in FDs and NSCs if you don’t have time to assess the other options and the deadline is near.
Pension plans from insurance companies still have high charges which makes them poor investments. They also force the investor to put a larger portion (66%) of the corpus in an annuity. The prevailing annuity rates are not very attractive. Pension plans launched by mutual funds have lower charges, but are MFs disguised as pension plans. Moreover, they are debtoriented plans so they are not eligible for tax benefits that equity plans enjoy.
Invest in plans from mutual funds. They offer greater flexibility than those from life insurers.
Traditional life insurance policies remain the worst way to save tax. Still, millions of taxpayers buy these policies every year, lured by the “triple benefits” of life insurance cover, longterm savings and tax benefits. Actually, these policies give very little cover. A premium of Rs 20,000 a year will get you a cover of roughly Rs 2 lakh. The returns are very poor, barely 6% if you opt for a 20-year plan. And the tax-free income is a sham. Going by the indexation rule, if the returns are below the inflation rate, the income should anyway be tax free. The problem is that once you sign up for these policies, they become millstones around your neck.
If you can’t afford to pay the premium, turn your insurance plan into a paid-up policy.
Written by Renu Yadav | Last Updated: December 22, 2015 09:06 (IST) | NDTV Profit
Receiving an income tax notice can be scary for most people. From not filing returns to hiding interest income, the reasons can vary for attracting a notice. Avoid these most common mistakes if you don’t want to get an income tax notice.
1) Not filing income tax returns
According to income tax law, if your gross income (without any deductions) is above the exempted limit of Rs 2.5 lakh in case of individuals, Rs 3 lakh for senior citizens (60-80 years of age) and Rs 5 lakh for super seniors (above 80 years), you are liable to file a tax return. Also, irrespective of the fact that your employer has deducted the tax at source (TDS) or not, you have to file an income tax return. Many people also believe that since they don’t have a tax refund to claim, they don’t need to file return. But that’s a misconception.
According to Preeti Khurana, chief editor of Cleartax.in, “If you are a resident Indian and you own a foreign asset or are a signing authority in a foreign bank account, you have to file an income tax return irrespective of your income.” If you fail to do so, you may get a notice from the income tax department, she added.
2) TDS errors
If there is mismatch between the TDS deposited by your employer and the income tax return filed by you, you may get an income tax notice. You should always check your tax credit statement (Form 26AS) online before filing the return. If a wrong TDS has been credited to your account or it has been credited to a wrong PAN, despite it being deducted from your salary, you can come under scrutiny.
3) Hiding interest income
Many people knowingly or unknowingly don’t include the interest income from their saving account, fixed deposits and recurring deposits in their income tax returns. The interest from saving account up to Rs 10,000 is tax deductible under Section 80 TTA while interest on fixed deposits and recurring deposits is fully taxable. In case of fixed deposits and recurring deposit, a TDS will be deducted in case the interest income exceeds Rs 10,000 in a financial year. But whether the interest is taxable or not, you have to disclose all your interest income in your tax return. So reveal the interest income in your return and then avail the deduction if any. Not doing so can result in a tax notice.
4) Mismatch or concealment of income
If your actual income, expenditure or investments differ from the one declared in your income tax return, you can get an income tax notice under Section 143(3)/143(7). You would be asked to provide clarifications and documents for re-calculation of your income.
“Notice is issued when tax authorities are of the opinion that you have concealed a part of your income while filing your return of income. Penalty for concealment of income can be up to a maximum of 300 per cent of tax payable.” says Neha Malhotra, executive director of taxation at Nangia & Co.
“The tax authorities can send notices pertaining to years gone by as well. So it is advisable to preserve the tax records for eight years, but where the assessee has any asset situated outside India, he should preserve the documents for past 18 years,” she said.
5) Defective income tax return
You should be careful while filing your income tax return. If the income tax authorities find any error they can issue a notice to you under Section 139(9) and direct you to file a revised return on income after correcting the error.
Source : http://goo.gl/9F1yT1
In what could be a good news for lakhs of taxpayers, the Income Tax Department will now process and send income tax refunds in a short time of 7-10 days as its latest technology upgrade of electronic and Aadhaar-based ITR verification has begun on a successful note.
By: PTI | New Delhi | First Published on September 13, 2015 2:57 pm | Financial Express
In what could be a good news for lakhs of taxpayers, the Income Tax Department will now process and send income tax refunds in a short time of 7-10 days as its latest technology upgrade of electronic and Aadhaar-based ITR verification has begun on a successful note.
The department’s latest initiative to verify an Income Tax Return (ITR) by Aadhaar or other bank database has received positive response from ITR filers because of which the taxman, for Assessment Year 2015-16, was able to process and send refunds to bank accounts of eligible taxpayers in less than 15 days time.
“The days are gone when getting an Income-Tax refund used to take months or in some cases even a few years. The new electronic verification e-filing system has proved to be very customer-friendly and as a token of thanks to the taxpayers, the department is working to ensure their refunds are sent in a week’s time or a maximum of ten days.
“This is surely the way forward in the administration of tax affairs in the country,” a top officer of the Income-Tax Department involved in these operations said.
According to latest statistics, the department received 2.06 crore returns on its e-filing portal as on September 7, 2015 (last date for ITR filing), which is an increase of 26.12 per cent over the last year when 1.63 crore returns were filed online.
The department’s Central Processing Centre (CPC) as on September 7 processed 45.18 lakh returns and issued refunds to 22.14 lakh tax payers relating to assessment year 2015-16, it added.
During this period, the department electronically verified over 32.95 lakh e-returns.
The data added that peak filing rate touched 3,475 returns per minute this time as compared to 2,901 returns per minute last year.
As per some testimonials received by the department from taxpayers, also accessed by PTI, many have reported that they received their refunds in only 11 or 13 days time from the day of filing their ITR.
By: PTI | New Delhi | June 23, 2015 10:48 am | Indian Express
In order to incentivise shopkeepers, government has proposed tax rebate to them provided they accept a significant value of sales through debit or credit cards. (Reuters)
Government on Monday proposed income tax benefits for people making payments through credit or debit cards and doing away with transaction charges on purchase of petrol, gas and rail tickets with plastic money.
In a draft paper for moving towards cashless economy and reduce tax avoidance, the government also proposed to make it mandatory to settle high value transactions of more than Rs 1 lakh through electronic mode.
In order to incentivise shopkeepers, it has proposed tax rebate to them provided they accept a significant value of sales through debit or credit cards.
The proposals are aimed at building a transactions history of an individual to enable improved credit access and financial inclusion, reduce tax avoidance and check counterfeiting of currency.
“Tax benefits in terms of income tax rebates to be considered to consumers for paying a certain proportion of their expenditure through electronic means,” said that draft proposals for facilitating electronic transactions on which the government has invited comments till June 29.
It further said that all “high value transactions of, say, more than Rs 1 lakh, (be settled) only by electronic means”.
The paper said the tax benefits could be provided to merchants for accepting electronic payments.
“An appropriate tax rebate can be extended to a merchant if at least say 50 per cent value of the transactions is through electronic means. Alternatively, 1-2 per cent reduction in value added tax could be considered on all electronic transactions by the merchants,” it added.
Finance Minister Arun Jaitley in his budget speech had said that the government would “introduce soon several measure that will incentivise credit or debit card transactions and disincentivise cash transaction”.
The draft made a case for removing different types of fees and charges on e-transactions by various entities and providing incentives for such payments.
Observing that PSUs and other organisations levy a convenience fee and other charges for making e-transactions to utility service providers, petrol pumps, gas agencies and railway tickets, it said, “the feasibility of removing the charges will be examined”.
On the other hand, the paper said, “utility service providers could be advised to give a discount to users for small ticket payments through e-payments, on the lines of BSNL, which provides an incentive of 1 per cent of the billed amount if the payment is done through electronic mode”.
In order to promote wider adoption of e-transactions, it suggested rationalisation of the Merchant Discount Rate (MDR), which at present is 0.75 per cent on Debit Card transactions of up to Rs 2,000 and 1 per cent on all transactions above it.
“The existing inter-change fee on Debit/Credit Card transactions are not uniform and need to be standardised/ rationalised to encourage both issuing and acquiring banks to establish and utilise acceptance infrastructure,” it said.
A nominal cash handling charge on transactions greater than a specified level may be levied, it added.
The draft also proposes to relax the norms for reporting credit card transactions of individuals by banks.
“At present, banks have to report the aggregate of all the payments made by a credit cardholder as one transaction, if such an amount is Rs 2 lakhs in a year. To facilitate high value transactions, the ceiling of Rs 2 lakhs could be increased to say Rs 5 lakhs or more.”
Government departments, it said, should also consider introduction of appropriate acceptance infrastructure or adopt national E-payment gateway ‘PayGov India’ for collection of revenue, fee and penalties etc.
At present there are about 56.4 crore debit cards and 11.25 point of sale (PoS) terminals in the country.
Seeking to promote mobile banking, the draft suggested that the charges levied by telecom companies need to be rationalised.
“Currently, the telecom companies are levying an Unstructured Supplementary Service Data (USSD) charge of Rs 1.50 per transaction for mobile banking/payments. To enhance adoption of mobile banking/payment, the USSD charges could be examined and rationalised.
“Appropriate changes in the regulatory structure, if required, to promote mobile based payment systems.”
The proposals seek to improve ease of transactions for individuals, reduce the risks and costs of carrying cash and curtail cost of managing cash in the economy.
Besides, it will also encourage encourage government, corporates, institutions and merchant establishments to facilitate non-cash payments.
The e-transactions, according to the draft, will include transactions made through debit/credit cards, mobile wallets, mobile apps, net banking, Electronic Clearing Service (ECS), National Electronic Fund Transfer(NEFT), Immediate Payment Service (IMPS), or other similar means.
The draft proposals were prepared by the government after consultations with various stakeholders which includes RBI, NPCI, NIBM, public and private sector banks, card service providers, mobile service providers, research institutions and government departments.
The paper highlights that acceptance infrastructure, particularly Point of Sale (PoS)/Mobile PoS terminals as a percentage of the total number of Debit/Credit Cards is very low.
“Therefore, mandating banks issuing cards to deploy POS terminals in a prescribed ratio could be considered. Like in ATMs, non-banks could be authorised to install white label POS terminals,” it said, while stressing on improving broad band connectivity to enable mobile based payments on a wider scale.
On awareness and grievance redressal, it said in case of a fraudulent transaction, the money will be credited back to customer’s account and blocked and subsequently released after the investigation is complete/limited to say a maximum of 3 months.
It further said changes in the regulatory mechanisms could be examined to ensure that innovations in the payments ecosystem continue to happen.
The linkages with Aadhaar based identification for authentication could also be strengthened, it added.
Source : http://goo.gl/oSVh3i
Preeti Khurana of Cleartax.in | Updated On: May 23, 2015 17:54 (IST) | NDTV Profit
Several new home buyers purchase their property jointly with spouse or with parents. Pooling of funds and getting a higher loan sanction limit are some of the advantages of joint purchase. Joint ownership of a house property also has some tax benefits, let’s understand them in detail.
Any deduction for interest on home loan can be availed by a person when they meet these conditions.
1. Firstly, one must be ‘owner’ of the property. For example, Vinay helped his retired father buy a property by contributing to his father’s pool of funds and then taking up a home loan to repay from his salary. Can Vinay claim interest deduction on the home loan? No, not unless he is an owner of property.
2. Secondly, one must be a ‘co-borrower’ in the home loan. Besides being a co-owner, one must also be a co-borrower to avail tax deductions. Take the case of Ritu and Arun who pooled in their savings to buy their first home. The property was bought in both their names, since adding Ritu’s name helped save on stamp duty. Arun who had a larger salary took up a loan for the money they were short of. Will Ritu be able to claim interest deduction? Ritu can claim deduction on interest only when she is a co-borrower in the home loan.
The joint owners, who are also co-borrowers of a self occupied house property can claim – deduction on interest on home loan up to Rs 2,00,000 each. And deduction on principal repayments, including deduction for stamp duty and registration charges under section 80C within the overall limit of Rs 1,50,000 each. These deductions are allowed to be claimed in the same ratio as that of the ownership share in the property.
As a family when you take up a joint home loan, your tax benefits will be larger where your interest outgo is more than Rs 2,00,000 or where availing a deduction moves one of the joint owners in a lower slab.
It’s pertinent to note that tax benefits on a house property are available when the construction of the property is complete. These tax benefits are not available for an under construction property.
If you have a joint owner, who is also a co-borrower but does not contribute to EMI payment; you may claim the entire interest as a deduction in your income tax return.
(Preeti Khurana is a chartered accountant and chief editor at http://www.cleartax.in)
Disclaimer: All information in this article has been provided by Cleartax.in and NDTV Profit is not responsible for the accuracy and completeness of the same.
Source : http://goo.gl/Ys6ziY
Press Trust of India | Updated On: April 21, 2015 22:40 (IST) | NDTV Profit
New Delhi: The government will soon launch a facility under which a PAN (Permanent Account Number) card will be issued within 48 hours of applying, according to a senior official.
“An online facility for issuance of PAN is on the anvil under which an applicant can get a PAN card within 48 hours,” the official said.
Besides, special camps will be organised throughout the country, including rural areas, to help people get PAN cards.
Permanent Account Number or PAN is a 10-digit alphanumeric number issued in the form of a laminated card by the Income Tax Department.
Recently, the Central Board of Direct Taxes (CBDT), the apex policy-making body of the I-T department, had issued a notification making the Elector’s Photo Identity Card (EPIC) and Aadhaar valid proofs of “date of birth” for obtaining a PAN card. (Read more)
PAN is required for filing income tax returns, sale or purchase of any immovable property beyond a certain amount and sale or purchase of a motor vehicle, among others.
The Finance Act 2015 proposes quoting PAN mandatory for buying jewellery valued at Rs 1 lakh or more.
The official further said that a total 4.73 crore tax returns were filed in 2014-15, of which only 6 lakh were scrutinized by the Income Tax Department.
Bindisha Sarang, TNN | Mar 16, 2015, 07.20AM IST | Times of India
There is some bad news for investors who thought their recurring deposits (RDs) will not be subjected to tax deduc tion at source (TDS). The Budget has made RDs liable to TDS if the income in a financial year exceeds `10,000. Till now, only income from fixed deposits was subjected to TDS.
There is also a significant change in the rules relating to interest income from FDs. Till now, the TDS kicked in only if the income from FDs made in a particular bank branch exceeded the threshold of `10,000 in a financial year.It was common for investors to open FDs at multiple branches of their bank to avoid TDS. The Budget has proposed that TDS be levied if the combined interest income from FDs in all branches of a bank exceeds `10,000 a year.
The new rules come into effect from 1 June but banks are already witnessing a rush of investors prematurely closing their RDs and FDs. “The new rules on TDS will help nail tax evasion and improve tax collections,” declares Sudhir Kaushik, Co-founder and CFO, Taxspanner.
However, taxation experts say the new rules should not be a concern for honest taxpayers. They already pay tax on their RDs and FDs. Instead of paying the tax themselves, it will get deducted as TDS. If they fall in the higher tax bracket, they will pay the balance tax.
The third major change in TDS rules is that co-operative bank deposits are no longer exempt. The Budget has proposed that TDS will also be applicable to deposits with co-operative banks.This was more or less expected. Last year, the Karnataka Income Tax Tribunal had ruled that if the interest exceeded `10,000 in a year, it must be subjected to TDS.
Following this, several cooperative banks had received notices from the Income Tax Department asking them to deduct tax for the year 2013-14. Now the Budget has put a stamp of certainty on the rule. “This will bring a lot of revenue to the government through TDS and increase the tax base because depositors would need to adjust or claim refund at the time of filing their income tax returns,” says Kaushik.
Only an interim tax
Investors should note that TDS is only an interim tax. It is 10% of the income.If the investor has not provided his PAN, it is higher at 20%. But the interest earned on RDs and FDs is fully taxable. If the income is below `10,000 and TDS has not been deducted, you have to add the interest to your total taxable income and accordingly pay tax.
The actual tax will depend on the income of the individual. Even if TDS has been deducted, it does not mean that your tax liability is taken care of.If you are in the 20-30% tax bracket, you are required to pay more tax on the income. If the investor has an income of over `10 lakh in a year, the interest from the RD or FD will be taxed at 30%.The balance 20% will have to be paid as self-assessment tax. If he earns less than `2.5 lakh a year, the TDS will be refunded after he files his tax return.
Can you avoid TDS
If you are not liable to pay tax because your total income is below the basic exemption limit, you can avoid TDS by submitting a declaration to the bank.”Those who do not fall under the tax bracket and are below the age of 60 can submit Form 15G to the bank to claim TDS exemption. Those not under the tax bracket and above the age of 60 can submit Form 15H,” says Suresh Sadagopan, a Mumbaibased certified financial planner.Forms 15G and 15H have to be submitted at every branch of the bank where you have a deposit.
Before you rush to submit the Form 15G or 15H, make sure you are eligible. An individual must satisfy two conditions to avoid the TDS. First, the estimated taxable income for the financial year should be less than the basic exemption limit. This is `2.5 lakh for individuals below 60 years, `3 lakh for senior citizens, and `5 lakh for very senior citizens-above 80 years.
The second condition, which is applicable only to Form 15G, is that the total interest income from all sources should not exceed the basic exemption limit.Senior citizens have been exempted from this condition because most retirees get the biggest chunk of their income from interest.
These forms also require the individual to mention details of other incomes, including dividends from shares and mutual funds. Dividend income is taxfree but the Income Tax Department still wants to know how much you earned from them.
You must carefully assess your income before submitting Form 15G to escape TDS. If you are not eligible to receive the exemption, but you submit the form, it can have serious repercussions. “Giving incorrect information to avoid TDS amounts to tax evasion. A penalty of up to `1 lakh can be slapped in such cases,” warns Kaushik.
Investors are rushing to close their RDs before the taxman gets a whiff of their wealth. “Premature closure of my RD will fetch me a lower interest rate. But at least there won’t be a tax deduction,” said an investor at a public sector bank in Delhi.
Banks may see more premature closures of deposits. It is not difficult to see why investors are panicky. Since the TDS is credited to the permanent account number of the investor, not mentioning the income in the tax return can lead to problems. The computer-aided scrutiny system of the tax department could pick up the mismatch in the tax credit and income declared by the assessee, which can lead to a detailed scrutiny by the tax authorities. If tax has been deducted at source but returns have not been filed, the tax department may want to know why.
Source : http://goo.gl/hTTmjB
By Reena Zachariah, ET Bureau | 13 Feb, 2015, 10.12AM IST | Economic Times
MUMBAI: Investors may soon get tax benefits in retirement plans run by mutual funds. The government is considering a proposal by the capital market regulator to introduce retirement savings plan under section 80CCD of the Income Tax Act, which allows investors to claim tax deductions.
The government may announce this in the Budget. The Securities and Exchange Board of India (Sebi) has proposed that a long-term product, such as mutual fund linked retirement plan (MFLRP), with tax incentive can play a significant role in mobilising household savings to the capital markets. Currently, individuals investing in National Pension Scheme (NPS) are eligible to claim income tax deductions under section 80CCD.
Sebi has proposed that the investment under this plan may be categorised under E-E-E status, which stands for exempt, exempt, exempt. The first exempt means that investments are allowed for tax deduction, the second means individuals do not have to pay any tax on the returns earned during the tenure. The third implies the investment is tax-free at the time of withdrawal.
“Mutual fund pension products have a tax treatment different from that of the NPS. One key differentiator is that NPS contributions by employers are exempt up to 10% of salary,” said Gautam Mehra, partner, PricewaterhouseCoopers. “A uniform tax treatment across all pension products similar to that available to the NPS will greatly enhance the reach and penetration of these products and help in garnering long-term capital from a wide section of the working population.”
At present, tax incentives for savings are provided under section 80C of the I-T Act. The section covers products such as employee provident fund (EPF), public provident fund (PPF), NPS, equity unit linked insurance plans ( ULIPs), life insurance premium, and mutual funds’ equity-linked saving schemes (ELSS) among others.
In this crowd, mutual fund products such as ELSS and pension schemes are ranked lowest in the priority of an investor.
Mutual funds are hoping this tax incentive would help them attract funds better. Under the EPF Scheme 1952, there is a mandatory requirement for membership by workers earning up to 6,500 per month. Those earning above this threshold have the option to choose EPF where both employee and employer contribute equally. Most of the contributors to the EPF corpus are voluntary contributors.
Globally, whenever governments have provided tax incentives, it has led to significant increase in the share of long-term retail money in mutual funds, said analysts. The Mutual Fund Linked Retirement Plan is designed to be similar to the 401(k) plan of the US.
“Across most of the world, market-linked retirement planning has been a turning point for high quality retirement savings, which are actually tuned to savers’ needs. Savers get choice, they get flexibility, and they get returns,” said Dhirendra Kumar, CEO, Value Research.
Sebi has proposed that all mutual funds should be allowed to launch pension scheme, which would be eligible for tax benefits under section 80CCD. Currently, three mutual fund pension schemes are eligible for the purpose of claiming deduction under section 80C of the I-T Act,
“Most first-time investors in equity mutual funds tend to come in through the ELSS route. Tax savings have always been a big draw for investors across all categories. In 1999-2000, there was a huge increase in the flow of long-term equity into MF schemes due to Sections 54ea and 54eb, which enabled an investor to save on capital gains,” said Vikaas M Sachdeva, CEO, Edelweiss Asset Management.
The regulator has also proposed that in case of merger of mutual fund schemes, such transaction should be exempted from levy of capital gains tax. At present, when a shareholder gets shares in a merged company, it is not treated as a transfer and not subjected to capital gains tax.
by Moiz Mannan | December 14, 2014 – 1:33:12 am | The Peninsula, Qatar
The continuing growth in financial investments of non-resident Indians (NRIs) in their home country shows not just the kind of faith they have in the Indian economy, but also that they are wise enough to keep all options open.
While it is prudent to save and invest a part of the foreign earnings in India, the NRIs also need to understand taxes so that they can make the most of their money. Those who have recently moved out of India need to be aware of the tax implications.
The income earned by NRIs abroad is not subject to tax in India, but they are liable to pay tax for any income that is earned or accrued in India. If any income from business transactions and also income generated from assets and investments in India crosses the basic exemption limit of Rs.200,000 they are required to file their returns. Unfortunately, the higher exemption limit for women and senior citizens who are resident do not apply to non-residents in these two categories.
Now, how and where can they possibly earn Rs.200,000 or more in India? Recent data show that the end of March 2014, NRI deposits in India were estimated at $104bn. Between June 2013 and June 2014, the NRI deposits in commercial banks in Kerala alone shot up by 24 percent.
Other than interest on deposits, the NRIs have also been buying commercial and housing property for the sake of investment. The rental income from property in India adds to their taxable income here. In this area too there is an apparent discrimination against NRIs. The rental income earned in India by non resident Indians are subject to tax withholding at the rate of 30 percent as opposed to 10 percent for resident Indians.
In case an NRI has only one property in India and it is vacant, a rental value cannot be attributed to the same. However, if he owns two properties and both are vacant, he has to pay income tax on one of the properties as if the same was rented. In case of more than one property, the NRI would also have to pay wealth tax at the rate of one per cent on the value if it is in excess of Rs.1.5 m.
Similarly, there is the issue of taxation on capital gains for those NRIs who have been booking profits from equity investments.
Thus, even middle income NRIs who have invested wisely and are enjoying recurring income rather than notional long term gains, face the prospect of being taxed. In such cases, income tax returns have to be filed if the income exceeds the taxable limit, or to claim refund if the tax deducted at source is more than the tax payable, or to claim the amount set off against capital losses.
The Indian authorities have been trying to make taxation simpler for NRIs. Already, interest earned by an NRI on the balance in an NRE account is exempt from income tax. The Income Tax Department last year lowered the limit to mandatorily e-file tax returns from Rs.1m to Rs.500,000.
In certain cases where investments are made in specified assets such as savings certificates, capital gains on transfer of foreign exchange assets is not charged. Incomes of NRIs are exempt from income tax interest on various specified securities or bonds.
NRIs who pay health insurance premium in India for dependents can claim a deduction under section 80D. Deductions under section 80G are also available to NRIs donating to an approved charitable institution.
Some short and long term capital gains from sale of investments or assets are taxed in the case of NRIs even if the total income is below the basic exemption limit. These include short term capital gains on equity shares and equity mutual funds where tax rate is 15 percent and long term capital gains on securities and assets where tax rate is either 20 percent or 10 percent without indexation.
Source : http://goo.gl/kaY6vv
Rajiv Raj | Dec 9, 2014, 04.49 PM | Business Insider
Earning your first salary is undiluted pleasure. It is all too easy to get soaked in its headiness and go a bit haywire in your expenses. However, this is a curial period of your life to build it financially. Decisions made in these initial years will affect your financial status throughout the life.
So if you are young and have just started earning, here is some important money advice that will serve you well for life.
1. Start with a small fixed saving every month
When we first start earning, money always seems short. We are perpetually overdrawing from a credit card or waiting for the next salary to come in. Even so, it is essential to start saving early. Even a small amount grows fast if invested early, much faster than a larger amount invested a few years later. The power of compounding helps money grow in multiples over a longer period of time. To ensure that there is a compulsory saving, invest in an instrument like Systematic Investment Plan (SIP) or a recurring deposit, and instruct your bank to directly debit your account at the beginning of the month.
2. Start building your Cibil credit score
Your borrowing and repayments is what builds up your credit score. Borrowing could be spending on a credit card or taking an EMI loan for a car or even a home loan. Importantly, the loans need to be repaid on time to build a positive credit score. Also avoid spending more than 30% of your credit limits. Maxing out on the credit cards will bring down your credit score. At this stage of life, building a good Cibil credit score is of paramount importance as you will soon be in the market for the all important home loan, and a good Cibil credit score can make all the difference.
3. Buy insurance
For most Indians, insurance is a source of investment. Insurance,however should be used only to cover risk. Buy a term policy that is easy on the pocket and serves the purpose of giving you risk cover. The remaining amount must be invested in other areas.
4. Take advantage of the benefits offered by your company
Many company offer reimbursements for health-related expenses. They also help you to structure your salary in the most tax-effective manner. Some companies may also offer group life insurance and medical insurance, where the rates work out to be much cheaper. Become friends with the people in human resources and take advantage of what the company has to offer its employees.
5. Pay attention to taxes
The government of India gives its citizen excellent opportunities to save tax along with encouraging investments. You can get exception under sector 80 C upto Rs 1.5 lakh in taxes every year by simply investing in your Provident Fund account or paying your life insurance premium etc. Also do file your tax returns on time to avoid the heavy penalties.
6. Make a career plan
It is essential to make a career continuity plan. You may have joined a firm as a graduate, but to move ahead an advanced degree is needed. A rough plan must be chalked out. For instance, you might want to study for an MBA degree in 2 years time. So you need to plan out the source of finance to pursue the course along with living expenses for that period. An education loan can be taken, but to avail that loan you must have a good Cibil credit score. It is a full circle which comes back to prudent spending and investments.
About the author: Rajiv Raj is the director and co-founder ofwww.creditvidya.com.
Source : http://goo.gl/zQYyVU
Anil Chopra | Published on: Dec 1 2014 12:22PM | The Tribune, India
Many of us think that taking a loan to buy a residential property is not a good idea and so, we start saving some amount from our monthly income into recurring investment or a Systematic Investment Plan (SIP) offered by mutual funds.
However, financial planners recommend that for acquiring a house for self use, one should go for a loan and pay EMIs in place of going for recurring investment or a SIP in other investment product. Let’s discuss the benefits of taking a home loan under income tax provisions. One can get tax benefits through a home loan under two Sections of the Income Tax Act, 1961.
Under Section 24 – Deduction on interest on a home loan for a self-occupied property up to Rs 2 lakh.
Under Section 80C – Deduction on repayment of principal amount on a home loan up to Rs 1.5 lakh.
Let’s take an example. Mr X takes a home loan on which he pays Rs 1 lakh as an EMI per month, i.e. Rs 12 lakh in one year. Out of Rs 12 lakh which he pays annually, Rs 4 lakh goes towards the repayment of principal amount and the remaining Rs 8 lakh towards the interest of the loan.
Tax benefits on home loan
Mr X is eligible to claim tax benefits under Section 80C for the repayment of principal amount of the home loan and under Section 24 for interest components. He can claim deduction up to Rs 1.5 lakh along with all other permissible instruments such, life insurance premium, PPF, ELSS, NSC etc under Section 80 C and up to Rs 2 lakh under Section 24.
The total deduction will be Rs 3.5 lakh and if Mr X is in the highest tax slab, he will get a tax benefit of Rs 1,05,000.
Tax benefits on joint home loan
One can avail tax benefit on a home loan up to Rs 1.5 lakh under Section 80C and Rs 2 lakh under Section 24. But if you go for a joint home loan along with your spouse in the ratio of 50: 50, both of you can claim these benefits separately. So the combined limit will be Rs 3 lakh under Section 80C and Rs 4 lakh under Section 24. This can reduce your overall cost of loan for the family.
The total deduction will be Rs 7 lakh and if both spouses are in the highest tax slab, they will get a tax benefit of Rs 2,10,000 which is just double compared to an individual home loan, although this provision may vary from person to person.
Before going for a joint home loan, you should mutually work out your ownership share if you wish to optimise the tax benefit. That is, if you and your spouse own the house jointly in the ratio of 50:50, both can claim deductions in an equal proportion. Therefore, if your tax slabs are different, you need to work out your ownership share in a manner that the spouse in the higher tax bracket owns a bigger share.
Note that it is essential to be co-owners to be eligible for tax benefits. The co-ownership share also plays a role in determining your deductions.
The author is Group CEO & Director, Bajaj Capital Ltd. The views expressed in this article are his own.
Source : http://goo.gl/dK6aH2
There is no specific requirement to disclose the fact in the ITR form
Parizad Sirwalla | Wed, Oct 01 2014. 06 39 PM IST | LiveMint.com
I have come to know that one can take exemption for interest paid on second home loan only after the construction is over and the benefit is available in five instalments starting the year when the construction is complete. During the period when the house is under construction, do we have to mention the amount of interest anywhere (Schedule CFL) in the income tax return (ITR) form? I am filing ITR 2. —Amit
Yes, your understanding is correct. The deduction towards interest paid on housing loan taken against an under-construction property can be availed only from the year in which the construction of the property is completed.
There is no specific requirement to disclose the fact in the ITR form that you are paying the interest on housing loan availed against the under-construction property.
I purchased an apartment in Gurgaon four years back and now plan to sell it. Will the sale proceeds attract short-term capital gains or long-term capital gains (LTCG)? Are there re-investment options to save tax? —Aravind Narayanam
The capital gains, if any, arising from sale of a residential property held for more than 36 months from the date of acquisition shall be termed as LTCG.
The aforesaid LTCG can be claimed as exempt from tax by re-investing in one new residential property in India within the specified time frames (i.e. within one year prior to sale date or two years from the sale date or within three years for an under-construction property) as per section 54.
Alternatively, the LTCG can be invested in specified bonds issued by the National Highways Authority of India or Rural Electric Corp. Ltd under section 54EC within a period of six months from the date of sale of property subject to the cap of Rs.50 lakh subject to specified conditions.
The investment in a new property or specified bonds has a lock-in period of three years. Accordingly, if the new property is sold or the bonds are converted into cash within a period of three years, the exemption shall be revoked. If you take any loan or advance against the security of the said bonds, the same shall be deemed to be converted into cash.
The amount invested in a residential property or specified bonds shall be claimed as exempt from tax and the balance amount, if any, shall be taxable at a flat rate of 20.6% (including education cess). Further, if your taxable income during the financial year 2014-15 exceeds Rs.1 crore, you will be liable to pay surcharge at 10% on the basic tax rate.
While calculating LTCG, the cost of acquisition and improvement has to be adjusted by applying the cost inflation index notified by the tax authorities in the year of purchase and sale, respectively.
Source : http://goo.gl/bZnrWs
Raj Talati | Sep 23, 2014, 06.34AM IST
It is said that the biggest risk to an investor’s returns is the investor himself. This is because, as investors, we take a lot of impulsive decisions and do not follow fundamental rules of investing. Here are some basic rules to get optimal returns on your investments and live a comfortable life:
Have a financial road map: Before you make a financial decision, sit down and take an honest look at your entire financial situation, especially if you have not made a financial plan before. The first step to successful investing is figuring out your goals and risk tolerance, either on your own or with the help of a financial planner.
Evaluate your comfort zone in taking risks: All investments involve some degree of risk. The reward of taking risk is the potential for higher investment returns. If you have a long-term financial goal, you are likely to get better returns by investing in equity funds rather than restricting your investments to less riskier assets like FDs.
Consider risk of inflation & taxes: The biggest concern with less riskier assets is their inherent habit of generating negative real returns. That is, returns after adjusting for inflation and taxes. For example, Rs 100 deducted from your salary towards PF in 2005 is worth just Rs 97 now, even though it is tax-free. The worth of your FDs, which are taxable, is even worse.h Consider appropriate mix of investments: A mix of asset classes like bonds & equity funds, along with cash can help you to optimize your returns and also insulate you from losses during different market conditions. Historically , the market that was poor for one asset class was good for another.h Diversification: Don’t put all your eggs in one basket. Remember to diversify your funds even within an asset class. That should help reduce your overall risk considerably.
Emergency fund: Always have an emergency fund that you can access in case of medical or job loss-related exigencies.h Pay off credit card debt: There is no asset class or investment strategy that can pay you a return that matches what is charged for credit card debt, which could be as high as 36% annually . So get rid of it..
Consider rupee cost averaging: Regular or periodic investments by way of SIP or STP will help you to invest in different market cycles and generate better returns.This strategy can be used especially if you are investing for the long term and in equity funds.
Rebalancing: This helps bring your portfolio back to your original asset allocation plan in case it deviates. This will help you book profit on the assets that have performed well and also buy assets cheap during slowdowns.h Avoid tips, assured and high returns: Every extra amount of return that is above the market return comes with some extra risk. So junk schemes which offer to double your money within a short span of time.Invest only in products from institutions regulated by the government.
Also remember while a financial planner might charge you a fee, heshe will help you avoid the common mistakes to creating wealth, and reach your goals comfortably .
The writer is with ABM Investment
NDTV Profit | Updated On: September 13, 2014 12:35 (IST)
The Public Provident Fund (PPF) is one of the most popular tax-saving schemes. In a further boost to its attractiveness, Finance Minister Arun Jaitley in the Budget increased the ceiling on PPF investment to Rs. 1.5 lakh from Rs. 1 lakh. The government has issued a notification raising the annual PPF deposit limit to Rs. 1.5 lakh.
Mr Jaitley also increased the maximum amount eligible for deduction through permissible investments under 80C of the Income-Tax Act to Rs. 1.5 lakh, from Rs. 1 lakh. PPF is one of the financial savings that qualifies for Section 80C tax benefits. Not only the money you invest in PPF is exempt from tax under Section 80C, the interest you earn on the PPF investment is also exempt from tax.
How PPF interest is calculated: The interest on PPF account is no longer fixed and is now pegged to the yield on government bonds. The government declares the interest rate payable on PPF every year. For 2014-15, the government has announced interest rate of 8.70 per cent (compounded yearly).
The interest on balance in your PPF account is compounded annually and is credited at the end of the year. But the point to remember is that the interest calculation is done every month: the interest is calculated on lowest balances in account between 5th and the last day of the month.
So if you deposit after 5th of a month, you don’t earn interest for that month.
The ideal way to maximise the interest on your PPF account would be to invest Rs. 1.5 lakh (the maximum investible amount in a year) at one go at the beginning of the financial year. PPF accounts follow an April-to-March year so to earn the maximum interest, you should deposit the amount on/before 5th of April every year. A one-time deposit will earn interest for the whole year.
Deposits in PPF account can be made in lump-sum or in maximum 12 installments.
On the other hand, if you want to deposit some amount every month, remember to deposit on/before 5th of that month. This will help you to earn interest for that month.
Suppose, you deposit Rs. 15,000 every month in 10 instalments. A back-of-the-envelope calculation suggests that if you deposit before 5th of every month, you can earn extra monthly interest of close to Rs. 105 and for 10 months it would help you to earn Rs. 1,050 more, at the current interest rate of 8.7 per cent. For a long-term investment product like PPF, if you follow the habit of depositing before 5th of every month, it could mean bigger retirement kitty for you.
Disclaimer: “Investors are advised to make their own assessment before acting on the information.”
Integra’s Take: PPF is ideal for the Self-Employed, Businessmen, Professionals and all those who do not have access to EPF and VPF. The suggestion made in the above article suits this community as they are capable of making lump-sum investment. Save >> Regularly!
By Preeti Kulkarni, ET Bureau | 17 Jul, 2014, 10.30AM IST | Economic Times
Get ready to revise the proposed investment declaration you had submitted to the human resource (HR) department in April. The two proposed changes in personal taxation in the Budget — enhanced limit for tax-saving investments under Section 80C to Rs 1.5 lakh and interest on housing loan to Rs 2 lakh — will have an impact on salaried tax-payers and they will have to revise their declaration to get the extra tax benefit immediately. However, you may have to wait till the Parliament passes the Finance Bill.
“Budget proposals do not become a law immediately. That happens only after both the Houses of Parliament pass the Bill and the President of India gives his assent,” explains Vaibhav Sankla, director, H&R Block.
Typically, the Union Budget is presented in February, and the changes in taxation come into effect from the next financial year. This year, it was delayed due to the elections and the changes will be effective in the current fiscal. Employers are likely to send e-mails seeking revised declaration sometime next month.
Save More for Tax Benefits
Yes, saving that extra Rs 50,000 on taxes under Section 80C is a heady feeling. But, before filling the proposed investment declaration, evaluate whether you can actually make that investment. You will have to save more to earn the deduction. Unfortunately, your income and expenses remain the same. Work with actual numbers to figure out whether it will be possible to save extra Rs 50,000.
“Take into account your likely expenses in the next few months to ascertain whether you will be able to direct an additional Rs 50,000 towards tax-saving investments,” says Suresh Sadagopan, certified financial planner and founder, Ladder7 Financial Advisories. You can also consider adopting a staggered approach.
If you feel that setting aside an additional amount for claiming tax benefits may affect your shortterm cash flows, consider other options too. “For example, though repayment of housing loan principal is eligible for deduction, many taxpayers do not claim the benefit as their contribution to EPF corners a large part of the limit. Now, with an enhancement in this limit, they can avail of tax relief on the principal repayment,” he adds. Similarly, you can factor in the tuition fees paid to your children’s school too. Instead of setting aside additional funds, evaluate such options or consider forgoing a part of the savings on tax outgo, to ensure comfortable liquidity.
Your decision may impact your future financial plans. For example, choosing PPF to save tax means you are locking-in your money for a period for 15 years, though partial withdrawals are allowed after the sixth year. Sure, you can keep the PPF account active by paying as little as Rs 500 in a year, but you wouldn’t achieve your financial goal of planning for retirement.
Avoid Financial Troubles in March
If you try to be adventurous and commit to save more, beware of its consequences. You could face temporary liquidity issues and if you fail to meet the necessary investment requirement, the company may deduct taxes for the entire fiscal. Now, your actual investment proofs, which employees submit during the December-February period, need not strictly adhere to figures and taxsaver avenues mentioned in your proposed declaration.
Source : http://goo.gl/Zbd3uw
RAJIV RAJ | JUL 15, 2014, 01.14 PM | BUSINESS INSIDER
We worship the self-employed and entrepreneurs. But the self-employed and entrepreneurs know all too well the difficulty in getting a home loan. Lenders only grow suspicious while dealing with a loan applicant who is self-employed.
Let us take the case of Sushala Vishwanath, a Bangalore-based interior designer in her late 30s and how she got her home loan. The story is not vastly different from the rest. She had approached about 10 different banks before the State Bank of India (SBI) granted her a loan Rs 28 lakh, against her requirement of Rs 34 lakh. But she had a tough time getting a home loan. “It’s not just about getting a home loan. It’s about the amount of paper work involved and the lenders are suspicious about everything we do,” she said. But things are changing for the better for the self-employed.
Over the past couple of years, banks have started getting very serious about self-employed people. Almost every housing finance company has designed a home loan product for the self-employed. The interest rate may be a tad higher than the others but at the end of it, you still have a scope to get a home loan. It is also important to note that banks shy away from offering fixed rate of interest to this segment of customers.
Following are four key points that lenders consider while processing loans for the self-employed:
1. IT returns: This document is an important one when it comes to income verification. Lenders check past two years of tax returns statements to verify your income. In fact, they take an average income of 24 months to validate your loan. However, lenders do not look into whether it has been a good year or a bad year for your business. So we suggest that you should apply at a time when your business is doing well.
2. Current fiscal profit and loss statement: Being self-employed comes with the additional responsibility of managing your own accounts. So it has to be done meticulously. While applying for a home loan, you have to give a detailed statement of your current year’s profit and loss.
3. Loan eligibility: So how do lenders assess loan eligibility? They take your net profit, consider the business use of your home, add depletion and depreciation, and calculate your income, which will decide your loan eligibility.
4. Safe candidates: Self-employed candidates with higher down payment on home buying, good amount of savings and a good CIBIL score are clear winners from a lender’s perspective. Lenders also take applicants seriously if you have a steady income and some records to show that you have the willingness to repay.
Axis Bank, one of India’s leading private sector banks, launched a home loan product for the self-employed in early 2013. Commenting on the launch, Jairam Sridharan, head of consumer lending and payments, said in a Press release, “Self-employed people are the backbone of the India growth story. However, credit availability to this group tends to be limited. With ‘Empower home loans,’ Axis Bank would like to partner in the progress of this group of customers and reward them for good credit behaviour.”
Most banks offer home loans for purchasing an under-construction, ready or resale house, plot plus construction and home extension, and improvement loans just like any other loan.
Source : http://goo.gl/At8aaH
InvestmentYogi.com | Updated On: June 07, 2014 13:43 (IST) | NDTV Profit
Tax filing has always been a daunting task for many. With the e-filing system taking on, this has eased to some extent. However, even now, there are a lot of queries that users face while filing their taxes online or offline. Out of those many queries, one important one would be to know which incomes need to declared at the time of tax filing. We have put together 5 such incomes which most of the tax filers miss.
1) Rental Income
We Indians are fond of owning homes. It is a matter of pride and emotion to us. With loans spreading their reach, owing a house has become just that much easy. Most of us now own at least one house. There are a lot of us who have two houses. One of them would be declared as self occupied during tax filing. However, the other would most probably be rented.
Not many of us who receive rental income declare it to the tax department. I-T act states that rental income must be declared under Income from House Property category. Any house loan would also get exemption u/s 24. For loans on rented houses, there is no upper limit on the deduction allowed.
2) EPF withdrawal
EPF (Employees’ Provident Fund) was and still is a part of lives of most employees. EPF also allows partial withdrawals subject to certain conditions. You could withdraw from EPF in case you are out of job for 2 months or more. Withdrawals done before five years of continuous service will be taxed as per the tax slab. If done after five years, tax will be nil. In either case, you need to declare the EPF withdrawal amount under the exempt income category.
3) Bank deposits
Apart from a savings bank account, we invest our hard earned money in fixed deposit and recurring deposit schemes offered by banks. Income earned as interest from these is not tax free. There is a tax exemption of Rs.10,000 on saving bank account interest though. Hence, you need to declare the interest received from all the deposits held with banks.
4) Part time income
Many a time, people opt for freelancing or part time income by working for professionals or companies. There are also people who work part time as insurance agents and earn commissions on the policies sold. Such income has to be declared at the time of filing your taxes. It is part of the income from business/profession category.
5) Income from share trading
Be it for thrill or to make money out of it, most people love to trade. This is the right approach if you want to participate in a country’s growth story. However, income from stocks or equity mutual funds is not fully tax free. If you hold equities for less than one year, you would have to pay flat tax @ 15 per cent. Equities held for 1 year or more are tax free. Whether you sell before a year or after a year, you need to declare the profit earned in the tax filing form.
InvestmentYogi.com is a leading personal finance portal.
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Source : http://goo.gl/u63QrY
Narendra Nathan, ET Bureau Jun 9, 2014, 08.00AM IST
Nimesh Desai has hired two employees to run his sweet shop. However, without his wife assisting him in his business, he would have found it tough. His two children had also been chipping in whenever they can. But, last year, when Desai was asked by his tax consultant whether he pays salary to his wife and children, he was at a loss for words. “It had never crossed my mind. In fact, it was good to know that I was within my rights to pay my family members a salary that they actually deserved,” he says. He was equally surprised when he was told that he would save a great deal on his tax outgo. “The tax benefit was an added advantage,” adds Desai. And, this year, he is in a position to reap the rewards of ‘hiring’ his wife and children when he files his income tax return.
But, does it really translate into considerable savings? Yes, it does, especially so, if the family members are not in the income tax bracket or at the lower tax brackets, because the combined tax liability of the family comes down significantly.
However, you cannot breach certain fundamental norms in your efforts to minimise your tax outgo. First, the expenses should be legitimate. Says Nikhil Bhatia, executive director, PwC India: “You can claim only legitimate expenses incurred for business as deductions. And, since this is a related party transaction, it should be done using the arm’s length rule.” Note: The income tax department is wary of “related party transactions” and, typically, runs a check to ensure there’s no tax fraud. The terms, “related party transactions” and “arms length”, are not defined in the IT Act, but there are several provisions that mention them.
Definition of relative
The provisions about “relative” vary according to the status of the entity, i.e., whether it is a proprietary concern, partnership or limited company. In a proprietary concern, “relative” would include husband, wife, brother, sister and any lineal ascendant or descendent of the proprietor. Similarly, relatives of a partner with more than 20 per cent profit share will be defined as “relative” in case of partnership firms or limited liability partnerships. For limited companies, the cut off is 20 per cent of the voting power of the company.
Qualification of the person
The “arms length” rule looks into two factors: qualification and reasonable. A proprietor can pay remuneration to a family member, but on the basis of his or her qualification: education, experience and contribution to the business. The IT Act does not lay down any monetary ceiling or restriction on payment of remuneration, but Section 64 (1) (ii) says if the payment is made to a spouse who does not have technical or professional qualification, the remuneration paid would be clubbed with the income of the individual proprietor.
However, the Act does not define what the qualification should be for each job. “Courts in India have interpreted that professional qualification does not necessarily be in the form of a certificate, degree or diploma. A person having skill, experience and competence in a particular line of work can be regarded as professionally qualified,” says Manish Shah, partner, SK Parekh & Co. Therefore, Desai’s wife and children are eligible as long as they have a significant contribution to the business, such as having the skill to make sweets or managing the counter or maintaining the accounts.
Keep it reasonable
Section 40 A (2) of the Act gives the right to the income tax officer to disallow any expense if he or she feels that the payment made is excessive or unreasonable compared to the fair market value of the services in connection with the legitimate needs of the business. The proposition on which the argument is based is whether the same remuneration would be paid to a person if he or she was not a relative of the proprietor. If the answer is yes, then the payment amount would be considered as reasonable for the purpose of business and, therefore, will be allowed. In the above mentioned example, if the family members were not helping him, the proprietor would have been forced to hire a few more employees and, therefore, the salary given to the family member is reasonable.
You can make an expenditure claim as long as you can prove before the income tax authorities that it is a genuine and reasonable claim. With that in mind, you should take several precautions. First, make sure that the payment made to your family members is through cheque and not cash. It is also important for the family member, who gets the salary, to file tax return even if he or she is not required by the law to do it, i.e., it is not compulsory to file tax return if the income is below the taxable limit.
Source : http://goo.gl/IP47je
Press Trust of India | Updated On: January 07, 2014 16:44 (IST) | NDTV Profit
Salaried taxpayers, who want to claim I-T exemption on house rent allowance exceeding Rs. 1 lakh per annum, will have to obtain the PAN card number and other details of their landlord on a plain A-4 size paper before submitting it to their employer.
A number of tax department officials PTI spoke to said the circular does not state that such a document has to be a ‘sworn affidavit’ or a ‘notarised document’. Hence, an individual should obtain the information from his or her landlord on a simple plain A-4 size paper.
The tax returns and exemptions filing season will gather momentum in the coming days as the financial year closes on March 31 (2013-14).
“The department has a number of technical platforms to check the authenticity of this information that is provided to it by a salaried taxpayer. The circular has not stated explicitly about the kind of document so it is considered that a plain piece of paper would do,” a senior department officer said.
The Income Tax department will require this document to enable exemption for a taxpayer under House Rent Allowance (HRA) after the Central Board of Direct Taxes (CBDT) issued a circular in this regard in October last year.
The circular (08/2013) states that “…an employee claiming exemption from tax with respect to House Rent Allowance received is now required to report the PAN of the landlord to the employer, if the rent paid by the employee to the landlord exceeds Rs. 1 lakh per annum, along with the rent receipt.”
It further adds that “in case the landlord does not have a PAN, a declaration to this effect from the landlord along with the name and address of the landlord should be filed by the employees.”
Source : http://goo.gl/7g2D88