HOW TO SAVE TAX
• Presented by
• PURNA CHANDRA RAO
INCOME TAX - BASICS
Income Tax-
Income Tax is tax levied on the Total income received / accrued during a previous year.
Concept of Previous year and Assessment year-
Previous year is the financial year beginning on 1st april and ending on 31st march in which income is earned.The Assessment Year is the year next to the financial year [which is also referred as previous year] in which the income is charged to tax. For example, for assessment year 2004-2005, the financial year (previous year) is 2003-2004 (i.e. from 1.4.2003 to
31.3.2004).
CURRENT INCOME TAX RATES
• Income Range Tax Rate
• Upto Rs. 50,000 /- NIL
• Rs. 50,001/- TO Rs. 60,000/- 10 % of the amount exceeding Rs.
50,000/-.
• Rs. 60,001/- TO Rs. 1,50,000/- Rs.1,000/- + 20 % of the amount exceeding Rs. 60,000/-
• Rs. 1,50,001/- and higher Rs.19,000/- + 30 % of the amount exceeding Rs. 1,50,000/-
TOTAL INCOME - CLASSIFICATION
The Income Tax Act,1961 provides that all income shall, for the purpose of charge of income-tax and computation of total income, be classified under five different heads of income, viz. –
1. Salaries
2. Income from House Property
3. Profit and Gains from Business or Profession 4. Capital Gains
5. Income from other Sources
COMPUTATION OF SALARY INCOME
• Employer Employee Relationship
• Chargeable under due or receipt basis whichever is earlier
MEANING OF ‘SALARY’
Salary includes :- i) Wages
ii) Any annuity or pension iii) Any gratuity
iv) Any fee, commission, perquisites or profits in lieu of or in addition to any salary or wages
v) Any advance of salary
vi) Any payment received by an employee in respect of any period of leave availed by him
Although the above incomes are included in salary, but there are certain incomes mentioned above, which are either fully exempt or exempt, upto a certain limit.
TAXABLITY OF ALLOWANCES
House Rent Allowance – Section 10(13A)
i)House Rent Allowance (HRA) is exempt under section 10(13A) to the extent of the minimum of following three amounts :-
1) Actual H.R.A received
2 )Excess of rent over 10% of salary (basic and dearness allowance forming part of salary)
3 )50% in case of person is staying at delhi, mumbai, kolkatta,chennai or 40% of salary in cae of any other cities.
ii) Academic Allowance : allowances are exempt to the extent of actual amount received or amount spent for the specified purpose for which these were received, whichever is less :-
iii) Uniform Allowance allowances are exempt to the extent of actual amount received or amount spent for purchase of office uniform , whichever is less iv) Transport Allowance : to the extent of Rs.800 per month
TAXABLITY OF PERQUISITES :
Accomodation may be
i) unfurnished or ii) furnished.
Further such accommodation may be provided i) rent free or
ii) at concessional rate.
Perquisite value of rent free unfurnished accommodation will be actual amount of lease rent paid or payable by the employer or 10% of salary whichever is less.
Perquisite value of unfurnished accommodation provided at concessional rate will be actual amount of lease rent paid or payable by the employer or 10% of salary whichever is less as reduced by the rent, if any actually paid by the employee.
If furnished accommodation is provided, the value will be determined as if it is an unfurnished accommodation. Such value shall be increased by 10% of cost of furniture or actual hire charges paid or payable for such furniture.
Salary means basic salary plus all taxable allowances.
Valuation of Motor Car/other Vehicle
S.N
o. Circumstances Where cubic capacity
of engine does not exceed 1.6 litres
Where cubic capacity of engine exceed 1.6 litres
1. Where motor car is owned or hired by employer and is used partly in the
performance of official duties and
partly for private or personal purposes of his own or any member of his
household and expenses on
maintenance and running are met or reimbursed by the employer.
1,200 (plus Rs.600 if driver is also
provided)
1,600 (plus Rs.600 if driver is also
provided)
2. Where motor car is owned or hired by employee and is used partly in the performance of official duties and
partly for private or personal purposes of his own or any member of his
household and expenses on
maintenance and running are met or reimbursed by the employer.
Actual amount of Expenditure
incurred/reimbursed by employer as
reduced by Rs. 1,200 (plus Rs.600 if driver is also provided)
Actual amount of Expenditure
incurred/reimbursed by employer as
reduced by Rs. 1,600 (plus Rs.600 if driver is also provided)
EXEMPTION
MEDICAL FACILITIES- Max Reimbursement exemption under income tax upto Rs 15000.
LEAVE TRAVEL CONCESSION- actual expenditure incurred for travel in india , In respect of two journey in block of 4 year(quantum of exemption will be air economy fare of national carrier or air conditioned first class rail fare if performed by train)
EARNED LEAVE- ENCASHMENT-exempt only when paid at time of retirement or resignation.
STANDARD DEDUCTION
I) For Salary upto and inclusive of Rs.5 Lakhs : a) 40% of salary or
b) Rs.30,000/- whichever is less
II) Salary exceeding Rs.5 Lakhs : Rs.20,000/-
The amount arrived at, after allowing the above deductions, is the
Income under the head ‘Salaries’.
INCOME FROM HOUSE PROPERTY
For the purpose of computing income/loss under the head “ Income from House Property” in respect of a self-occupied residential house, a normal deduction of Rs.30,000 is allowable in respect of interest on borrowed capital. However, a deduction on account of interest upto a maximum of Rs,150,000 is available , if such loan has been taken on or after April 1,1999 for constructing or acquiring residential house and residential house is completed within a period of 3 years from the end of financial year in which capital is borrowed. Such higher deduction is not available in respect of capital borrowed for the purposes of repairs or renovations.
GROSS TOTAL INCOME
The aggregate of income computed under each head, after giving the effect to the provisions for clubbing of incomes and set off of losses, is known as “Gross Total Income.
DEDUCTIONS FROM GROSS TOTAL INCOME
Out of “Gross Total Income” certain deductions are permissible under section 80CCC to 80 U.
The income arrived at, after claiming the said deductions from Gross Total Income is known as Total Income or Taxable Income.
IT Section Details Amount of Exemption
80CCC Premium paid to approved Pension Funds Upto Rs. 10,000/- 80D Payment of premium to a Mediclaim policy or Health
Policy with GIC/other insurers approved by IRDA.
Such premium can be paid for health insurance of spouse, dependent parent and children.
Up to a maximum of Rs.10,000/- for individuals and Rs. 15,000/- for Senior Citizens
80E Repayment of Educational Loan, including interest thereon, taken from Financial institution for self full time higher education for a maximum period of 8 years
up to Rs. 40,000/- for any graduate/PG course in engineering/Medicine/
Management or for PG course in Applied or pure science
80L Dividend income from Shares and Mutual Funds [except equity oriented funds], interest on Bank deposits, interest accrued on NSC, NSS, interest on deposits with HFIs etc interest on specified
government securities
Rs. 12,000/-
and Additional limit of
Rs.3,000/- is available only for interest on government
securities.
DEDUCTIONS FROM GROSS TOTAL INCOME
REBATE FROM TAX LIABILITY
While computing the amount of income –tax on Total Income of an individual,
deduction under section 88, 88 B and 88 C shall be allowed from the amount of income tax so computed. However aggregate amount of deductions u/s 88, 88 B and 88 C shall not exceed the amount of tax computed on Total Income before allowing such
deductions.
Tax rebate u/s 88 depends on the Gross Total Income [GTI].
Sl No. Gross Total Income [GTI]
Range % of amount
invested Maximum rebate account
1 GTI upto Rs. 1 lakh * 30% Rs. 30,000/-
2 Rs. 1.5 lakhs and less 20% Rs. 20,000/-
3 Rs. 1,50,001/- to Rs. 5 lakhs 15% Rs. 15,000/-
4 More than Rs. 5 lakhs Nil Not Applicable
* and also salary income should not be less than 90% of GTI.
Name of Schemes / Funds Features
1) Life Insurance Premium Investment can be in the name,
self ,Spouse & Children Tailor made schemes, Longer lock in period, Tax free return, Life cover 2) Recognised Provident Fund Self Tax free return of 9%
3) Public provident fund Spouse, self & minor children tax free return of 8.0%- 15 years term,Loans and Partial withdrawals possible subject to conditions..Min investment Rs. 500/- max investment Rs. 70,000/- per annum in lump sum or installments
4) National Savings Certificates
[NSC] Self ROI 8.0%, 6 years lock in , interest
treated as reinvestment under Section 88, Return is taxable and deductible under Section 80L
5) National Savings Scheme Self 4 years, 8%, Return is taxable and deductible under Sec 80L
6) Unit Linked Insurance Plan [ULIP] of Unit Trust if India or Dhanraksha Plan of LIC
Spouse, self &
Children
Units with insurance cover,10/15 years, Return is taxable and deductible under Section 80L
INVESTMENTS ELIGIBLE FOR TAX-REBATE U / S. 88*
Name of Schemes / Funds Features
7) Home Loan Account scheme
of NHB Self Return is taxable and deductible
under Section 80L 8) Subscription not Exceeding
Rs. 10,000/- to Equity Linked Savings Scheme of any mutual Fund
Self Lock in period 3 years- returns
subject to capital market
performance , Return is taxable and deductible under Sec 80L
9) Housing Loan Principal
Repayment Self (maximum of Rs.
20,000/-) Instalment or part payment of Housing loan taken for purchase or construction of new residential property
10) Infrastructure Bonds Self Lock in period 3 years, Return is taxable and deductible under Sec 80L
INVESTMENTS ELIGIBLE FOR TAX-REBATE U / S. 88*
*You can invest a maximum of Rs. 70,000/- in items 1 to 9, whereas maximum of Rs. 1 lakh can be invested in items 1 to 10 i.e. Additional Rebate on Rs.
30,000/- is available for item 10
REBATE FOR SENIOR CITIZIEN
Senior Citizens [residents in India] aged 65 years and above, are entitled for 100% tax
rebate from the tax payable on the total income subject to a maximum of Rs. 20,000/-, apart from Section 88 benefits.
REBATE FOR WOMENS
Under Section 88C, Women tax payers [residents in India] below the age of 65 years are eligible for a additional rebate of Rs. 5,000/- , apart from Section 88 benefits.
Tax rebate allowed u/s 88 in an assessment year, can be withdrawn in subsequent assessment year under the following circumstances:-
1. If the taxpayer fails to pay any life Insurance Premium or terminates the contract of insurance before premium been paid for 2 years.
2. If the taxpayer fails to pay premium for ULIP before contributions have been paid for 5 years.
3. If the taxpayer transfers his house property (in respect of which tax rebate has been availed) before the expiry of 5 years from the end financial year in
which possession of such property was obtained or receives back the amount
Nature of
Exemption/deduction/tax relief Nature of document to be Produced by Employee
Exemption in respect of House Rent
Allowance Rent Receipts
Exemption in respect of Leave Travel
Concession Details of travel undertaken Along with
copy of train tickets/ Air –tickets Exemption in respect of Uniform
Allowance Original bill in support of Purchase of
uniform/ Stitching bill Deduction in respect of Medical
insurance premium paid Copy of premium receipt issued by LIC Deduction in respect of Blind /physically
handicapped persons Certificate of competent Medical Authority Tax relief for life insurance premium paid Relevant insurance premium receipts
Tax relief for deposit in public Provident
fund Relevant deposit receipt or Pass–book
Tax relief for deposit in Post Office (TD)
accounts Relevant pass book
Tax relief for deposit in National Saving
Scheme Relevant pass book
Tax relief for contributions in unit- linked
insurance plans Relevant receipt issued by UTI or LIC
Tax Relief for investment In NSC VIII
issue Photocopy of certificate issued By Post
office Tax Relief for investment in Jeevan Dhara
and Jeevan Akshay of LIC Photocopy of Receipt issued Tax Relief for investment in Home Loan
Account scheme / repayment of Housing loan
relevant certificate issued by loaning organisation
Tax Relief for Tution Fees Tution Fees Receipts
TIPS TIPS ON INCOME TAX PLANNING
1. First take care of your Insurance, both life and health. Riders, options, mix and matches are quite popular now. Term insurance has the lowest cost with highest cover.
Minimum of term insurance is required for everyone.
2. Avail fully the provisions of 80CCC [Pension Plan] and 80 D [Mediclaim] , as they reduce your Gross Taxable income. 80CCC provide for retirement planning also.
3. Avail Housing Loan. Loss on House Property may bring down your gross total income
below the cut off limit , say Rs 1.5 lakhs or 5 lakhs. Through this, you may enjoy higher rebate u/s 88.
4. . Plan your tax planning investments from the beginning of the year. By June, you should have planned your tax planning investments up to next March
5. Pay advance tax in time and file Income tax return promptly to avoid payment of interest.
Please note that interest paid to Income Tax department is not a deductible expenditure.
6
Fund higher studies for your adult children with educational loan, even if you have funds to meet the same. Invest the money you have earmarked for their education in other attractive avenues. It will also make your child more
responsible, when he starts earning.
Preserve TDS Certificates in respect of Interest/dividend received carefully. You have to attach the original TDS certificates to your IT return. Keep full records for all your capital purchases such as House, Shares etc.
Maintain a separate file for taxation and file your copies of your IT returns and other related correspondence before 31st July. This will help you in answering the queries, if any of IT dept.
Keep yourself informed on Taxation matters. Income Tax Dept has got excellent websites. Financial Newspapers also give tax information in their websites. Also, go through booklets, Tax Payers Information Series being brought out by
Directorate of Income Tax.
To enjoy peace of mind, pay your tax fully and promptly. Never evade your tax obligation. Be a honest tax payer and hold your head high as a honorable citizen.
