Monday, October 22, 2012

Fixed Deposit

Fixed deposit (FD) is a financial instrument provided by Indian banks which provides investors with a higher rate of interest than a regular savings account, until the given maturity date (based on tenure). 

Customer can open Fixed Deposit in bank and gets Fixed Deposit Certificate which is also treated as Fixed Deposit Receipt (FDR) that has to be surrendered to the bank at the time of renewal or encashment.

Period: Tenure of FD is varying from 7 days to 10 years; it depends on bank to bank. Because of this flexibility its powerful financial instruments for investor / individual.

Interest Rate: FD returns depends on Interest Rate; it’s also varying from time to time. Its highly depends on market condition like inflation, liquidity of money in market etc. 
Interest rate of FDs is directly related to RBI monetary policy (Repo Rate – Repo rate is interest rate at which RBI lends money to bank). Under certain conditions like high inflation RBI increase the Repo Rate so Bank will increase their both rates (lending and deposit rates) accordingly.
Co-opeartive banks provide little bit high interest on FD as compare to Nationalized banks.

Safety: FDs are safe up to 1 Lac per customer across all branches of the Bank*. It’s the safest financial instrument in the market. It’s insured by DICGC (Deposit Insurance and Credit Guarantee Corporation). If someone planning to invest more than 1 Lac in FD then invests in different banks (each bank up to 1 Lac), so their money will be secured.
 
Liquidity: Money invested in FD is liquidated easily by paying premature penalty to bank or some bank offers loan on FD which has 1 or 2% higher interest rate than FD interest rate. Its good to pay to premature penalty and withdraw all money from FD. Money will be credited to saving account within 7 working days or less, it’s based on bank policy.
 
Tax exemption: Money invested in Tax Saver FD is exempted from Income Tax under Income Tax Act Section 80C up to 1 Lac if tenure is 5 years. Every bank has Tax Saving / Saver FD scheme. Individual can take this tax exemption for only one year in which money invested not for all five years. 
But Interest of this FD is also taxable. Please see below section [Tax on Return (Interest)] for more detail.

Tax on Return (Interest): Interest earned by FD is taxable. If interest paid to particular customer is more than Rs. 10,000/- per financial year at any branch then bank will deduct Income Tax on interest @10.3%. This is called Tax deducted at source (because interest is treated as income on investment). Bank also issue Form 16A to such customers as a receipt of tax deducted at source.
If individual’s total income (per financial year) does not exceed basic tax exemption limit then they can submit declaration form (Form 15G - in case of individual’s age is below 65 years OR Form 15H - in case of individual’s age is above 65 years) to bank and save this income tax on interest.

Below are the few list of categorized banks: Click on the bank to find interest rate offered by bank for FD.
* - Credit Society or Co-operative society are not considered as Bank. Bank means Nationalized, Co-Operative Bank, Private Bank, Scheduled Bank etc.

Posted by at No comments:
Labels: , ,

Tuesday, October 9, 2012

Leave Travel Allowance - LTA

What is Leave Travel Allowance?

Leave Travel Allowance (LTA) is one of important component of Salary package, Its an allowance granted by employers to meet the employee's (and their dependents) travel expenses during the year. Employee can take tax exemption on LTA through section 10(5) of Income Tax Act. The main purpose of LTA is to promote Indian tourism industry.

 Its not simple as explained above. Following things which will affect tax exemption on LTA:


 Who can be covered in LTA: The amount spent on travel should be for self, spouse, children (maximum of two children - if children born after 01 October 1998), parent, brother, sister (any other person who is dependent upon employee).


Travel Area: The LTA exemption is permitted only for travel within India by any mode of transportation i.e. rail, air, road through shortest route. LTA can be claimed only for source to destination place (city) through shortest route. Any amount other than travel like lodging, boarding, food, cab fare, auto fare, driver tip/allowance is not considered for income tax exemption.


Leave Criteria: As per India's Leave Travel Allowance rules, there is no limit on the minimum or the maximum number of days of travel to claim LTA. However in order to make sure that LTA exemption claim is hassle free it is advisable that a minimum of three days of leave from work be taken (this does not include sick leave or holidays or weekends).
 

Tax Exemption Limit: Tax exemption should not be more than LTA provided by employer. For various mode transportation please see below:

 If travel by air, Economy air fare by shortest route or amount spent which ever is less can be considered for tax exemption.

If travel by rail, air conditioned first (AC I) Class rail fare by shortest route or amount spent which ever is less can be considered for tax exemption.

If travel by road (source and destination are connected or not through rail), air conditioned first (AC I) Class rail fare by shortest route or amount spent which ever is less can be considered for tax exemption.


Proof: Proof of travel needs to be presented to claim LTA exemption. The tickets (rail / bus) are considered valid proof if journey through rail or any public transportation.

 If journey performed through a hired or rental car, the receipt from the travel agency or car rental agency is considered as valid proof. Also toll receipts are considered in tax exemption.

If journey performed through air, boarding pass and ticket are considered as valid proof.

The supreme court said in hearing one of case (between L&T and Income Tax department of India): “The beneficiary of exemption under Section 10(5) (of the Income Tax Act) is an individual employee. There is no circular of Central Board of Direct Taxes (CBDT) requiring the employer under Section 192 to collect and examine the supporting evidence to the declaration to be submitted by an employee(s).”
Refer court appeal.


Claim Period: LTA tax exemption can be claimed twice in block of 4 years. You can not claim LTA twice in the same year. These block of 4 years are predefined by government as below:

 01-Jan-2002 – 31-Dec-2005
01-Jan-2006 – 31-Dec-2009
01-Jan-2010 – 31-Dec-2013
and so on

There is an option to carry forward only one LTA claim in next block of four years, but the condition is that claim should be in first year of next block otherwise it will be lapse.

Examples of Tax Exemption on LTA:

Let’s say Person X and his / her spouse are traveling to Bangalore from Mumbai. 
But instead of going from Mumbai to Bangalore, they go from Mumbai to Hyderabad, and then got to Bangalore. 
Person X travel by train in the AC 3 tier category. 
The cost of AC 3 tier train tickets are as follows: 
Mumbai – Hyderabad: Rs. 800 
Hyderabad – Bangalore: Rs. 700 
Bangalore – Hyderabad: Rs. 700 
Hyderabad – Mumbai: Rs. 800 
Thus, Person X spend a total of Rs. 6,000 for two people. 

Now, the shortest route to your destination in this case would be Mumbai to Bangalore. The AC First class ticket costs Rs. 2,350 for this. 
So, round trip fare would have been Rs. 9,400 for two people. 

The amount exempt from income tax is the lesser of these two. Thus, in this example, even when Person X haven’t traveled through the shortest route, he / she can claim income tax exemption for the full amount of Rs. 6,000. 

And what about the actual allowance that Person X get as part of salary? 

Let’s say Person X get a leave travel allowance of Rs. 10,000. 
Would it be fully exempt? 
No. As the amount exempt is the lesser of the amount actually spent and the fare by the defined class through the shortest distance. Thus, the amount exempt from income tax would be Rs. 6,000. The remaining Rs. 4,000 would be taxable, and would be included in income.
If Person X gets a leave travel allowance of Rs. 5,000 then only 5,000 can be exempted from Income Tax.

FAQ on LTA:

When Husband and Wife both receive LTA

In such a case, both of them could claim LTA individually as the rules of LTA apply individually to each of them. So in a block of four years, each spouse can claim LTA twice. The only restriction is that both spouses cannot claim an LTA exemption for the same journey. In other words, LTA cannot be claimed twice for the same journey.

Posted by at 5 comments:
Labels: , ,

Monday, August 20, 2012

House Rent Allowance - HRA

What is House Rent Allowance?

House Rent Allowance (HRA) is one of important component of Salary package given to employee by their employer. Its allowance given by employer to its  employee to meet employee's expense towards renting an accommodation. 

 Tax exemption under Income Tax Act for HRA is allowed to salaried persons who are occupying a rented accommodation. It is being regulated by 2A of Income Tax Rules, 1962 and Section 10(13A) of the Income Tax Act, 1961.

HRA can be exempted only in following conditions:

  • The employee must not own the property in which he / she is residing.
  • Employees must be paying rent for the accommodation.
  • Such rent must be more than 10 per cent of his/her salary.

Note: Employee can not exempt Rent paid by him / her if HRA component is not their in his / her salary package. In case Self employed professionals can claim the benefits on house rent expenses under section 80GG.

How to Calculate HRA Tax emxemption?

Least of following three will be exempt from Income Tax:
  • 50% of (Basic Salary + DA) in case of residing in Metro cities (Delhi, Mumbai, Chennai and Kolkata) or 40% of Basic Salary + DA in case of other cities.
  • Actual HRA received by employee from employer as part of salary.
  • Actual rent paid by employee less 10% of Basic Salary.

Examples of Tax Exemption on House Rent:

Example 1:Person X earns a basic salary of Rs. 40,000 per month and rents an apartment in Delhi for Rs. 20,000 per month.


In this case, no Income Tax exemption on rent paid by person X because there is no HRA component mentioned in his / her salary package.
Example 2:Person X earns a basic salary of Rs. 40,000 per month, Rs. 25,000 per month as HRA. He / She pays rent of Rs. 20,000 for an apartment in Delhi.
In this case, the least value of following three will be exempted from Income Tax:
50% of Basic Salary : 20,000/-
Actual HRA : 25,000/-
Actual Rent - 10% Basic Salary : 20,000/- - 4,000/- = 16,000/-
Example 3:Person X earns a basic salary of Rs. 40,000 per month, Rs. 25,000 per month as HRA. He / She pays rent of Rs. 22,000 for an apartment in Pune.

 In this case, the least value of following three will be exempted from Income Tax:
40% of Basic Salary : 16,000/-
Actual HRA : 25,000/-
Actual Rent - 10% Basic Salary : 22,000/- - 4,000/- = 18,000/-

FAQ on HRA:

Can I pay rent to my parents or spouse to avail HRA benefits?

You can pay rent to your parents, however, they need to account for the same under’Income from House property’ and will be entitled to pay tax for the same.

 On the other hand, you cannot pay rent to your spouse. In view of the relationship when you take up residence together, you are expected to do so and hence such a transaction does not bear merit under tax laws.

Can I simultaneously avail tax benefits on my home loan and HRA?

The tax benefits for home loan and HRA are two separate entities and have no direct bearing on each other.

 As long as you are paying rent for an accommodation, you can claim tax benefits on the HRA component of your salary, while also availing tax benefits on your home loan. This could be the case if your own home is rented out or you work from another city etc. However, you need to account for any rental income you receive from the property you own under income from other sources.

Do I need to submit any proof for my HRA claim?

You need to submit proof of rent paid through rent receipts. It should have a one rupee revenue stamp affixed with the signature of the person who has received the rent, along with other details such as the rented residence address, rent paid, name of the person who rents it etc.

If rent paid is more than 15,000/- then PAN of owner must be required.

Posted by at No comments:
Labels: , , , ,

Sunday, August 19, 2012

Capital Gain

What is Capital Gain?

Profits or gains arising from the transfer of a capital asset made in a previous year is taxable as capital gains under the head “Capital Gains” in current assessment year. 
The definition of Capital Asset and Transfer are important and explained below.

Capital Asset:

Capital Assets are the properties of any kind (except below) held by a person whether or not connected with his / her business or profession.
  • Stock-in-trade, consumable stores or raw-material held for business or profession.
  • Items for personal effects like furniture, motor vehicles etc. (Jewellery [ including gold, silver, stone], Archaeological Collections, Drawings, Paintings, Sculptures or any work of art are Capital Assets.)
  • Agriculture Land in India - it should not be situated in area within the jurisdiction of municipality, notified area committee, town area committee , cantonment board which has a population of not less than 10,000.
  • Few bonds issued by Government of India (6.5% Gold Bonds 1977, 7% Gold Bonds 1980, National Defence Gold Bonds, 1980 and Special Bearer Bonds, 1991 issued by the Central Government, Gold Deposit Bonds under Gold Deposit Scheme, 1999 notified by the Central Govt).

Capital Assets are classified under two categories (Short Term & Long Term) depends upon the length for which the capital asset was held before the transfer.

 Short Term Capital Asset: Capital Assets held for 36 months or less than are treated as Short Term Capital Asset. However shares of a Company, the units of Unit Trust of India or any specified Mutual Fund or any security listed in any recognized Stock Exchange are to be considered as Short Term Capital Assets if held for twelve months or less.

 Long Term Capital Asset: Capital Assets held for more than 36 months are treated as Long Term Capital Asset. However shares of a Company, the units of Unit Trust of India or any specified Mutual Fund or any security listed in any recognized Stock Exchange are to be considered as Long Term Capital Assets if held for more than twelve months.

Transfer:

The word transfer defined as below under Income Tax act section 24(7):
  • Sale of asset.
  • Exchange of asset.
  • Relinquishment of capital asset (surrender of asset).
  • Extinguishment of any right on asset.
  • Compulsory acquisition of capital asset under any law.

Note: Capital asset given as a gift or transferred through will not considered as transfer.

Types of Capital Gain:

Capital Gains are classified based on type of Capital Assets. Its important to under its classification to calculate the Capital Gain Tax. There are two types of Capital Gains:

Short Term Capital Gain:

Transfer of a Short Term Capital Asset gives rise to Short Term Capital Gains (STCG). Its calculated as below:

 STCG = Full Value of Consideration - (Cost of Acquisition + Cost of Improvement + Cost of Transfer) - (Exemption provided by sections 54B, 54D, 54G).

Long Term Capital Gain:

Transfer of a Long Term Capital Asset gives rise to Long Term Capital Gains (LTCG). Its calculated as below:

LTCG = Full Value of Consideration received or accruing - (Indexed Cost of Acquisition + Indexed Cost of Improvement + Cost of Transfer) - (Exemption provided by sections 54, 54B, 54D, 54EC, 54ED, 54F & 54G).

 Where, 
Indexed Cost of Acquisition = Cost of Acquisition X (CII of year of transfer / CII of year of Acquisition)

 Indexed Cost of  Improvement = Cost of Improvement X (CII of year of Transfer / CII of year of Improvement)

CII - Cost Inflation Index.

Full Value of Consideration:

Full value of consideration includes the whole or complete sale price or exchange value or compensation including enhanced compensation received in respect of capital asset in transfer. 
The following points are important to note in relation to full value of consideration:


  • The consideration may be in cash or kind.
  • The consideration received in kind is valued at its fair market value.
  • It may be received or receivable.
  • The consideration must be actual irrespective of its adequacy.

Cost of Acquisition:

It includes any expense at the time of acquiring capital asset under transfer, i.e., the purchase price, expenses incurred up to acquiring date in the form of registration, storage etc. It also includes expenses incurred on completing transfer.

Cost of Improvement:

It includes the capital expenditure incurred by assesse for making any addition / improvement (Protecting or Curing the title) in the Capital Asset. In other words all expenditure which are incurred to increase the value of Capital Asset.

Cost of Transfer / Expenditure on Transfer:

It includes the expenditure incurred wholly and exclusively for transfer of capital asset. Examples of expenditure on transfer are the commission or brokerage paid by seller, any fees like registration fees, cost of stamp papers, travelling expenses and litigation expenses etc. 

CII - Cost Inflation Index:

Its used while calculating Indexed Cost of Acquisition and Indexed Cost of Improvement. CII value for each financial year defined as below:
Financial Year
Cost Inflation Index
1981-82
100
1982-83
109
1983-84
116
1984-85
125
1985-86
133
1986-87
140
1987-88
150
1988-89
161
1989-90
172
1990-91
182
1991-92
199
1992-93
223
1993-94
244
1994-95
259
1995-96
281
1996-97
305
1997-98
331
1998-99
351
1999-2000
389
2000-01
406
2001-02
426
2002-03
447
2003-04
463
2004-05
480
2005-06
497
2006-07
519
2007-08
551
2008-09
582
2009-10
632
2010-11
711
2011-12
785

Capital Gain Tax:

Capital Gain Tax calculated on Capital Gain. There are two type of Capital Gain Tax:

Long Term Capital Gain Tax:

Long Term Capital Gain Tax will be calculated as 20% of Long Term Capital Gain.

Short Term Capital Gain Tax:

There will be no separate formula for calculating Short Term Capital Gain Tax. Short Term Capital Gain (STGC) will be included in Total Income and will be taxed as per Income Tax Slab / Rate of individual for assessment year.

Examples of calculating Capital Gain & Capital Gain Tax:

Example 1:
Person X purchased a house property for Rs. 1, 00,000 on 31st July 2000. Constructed the first floor in March 2003 for 1, 10,000. The house property was sold for Rs. 5, 00,000 on 1st April 2005. The expenses incurred on transfer of asset were Rs. 10,000.

 In this case property possessed by person more than 36 months, Long Term Capital Gain (LTCG) will be applied.

 LTCG = Full Value of Consideration received or accruing - (Indexed Cost of Acquisition + Indexed Cost of Improvement + Cost of Transfer)

 Full Value Consideration = 5,00,000/-
Indexed Cost of Acquisition =  Cost of Acquisition X (CII of year of transfer / CII of year of Acquisition) = 1,00,000 X (497/406) = 1,22,414/-
Indexed Cost of Improvement = Cost of Improvement X (CII of year of Transfer / CII of year of Improvement) = 1,10,000 X (497/447) = 1,22,304/-.
Cost of Transfer = 10,000/-

 LTCG = 5,00,000 - (1,22,414 + 1,22,304 + 10,000) 
        = 2,45,282/-

 Long Term Capital Gain Tax = 20 % LTCG = 49,056/-.

 Example 2:
In above example consider, Person X purchased property on 31 January 2003.

 In this case property held by person less than 36 months, so Short Term Capital Gain (STCG) will be calculated.

 STCG = Full Value of Consideration - (Cost of Acquisition + Cost of Improvement + Cost of Transfer)

 STCG = 5,00,000 - (1,00,000 + 1,10,000 + 10,000)
        = 2,80,000/-.

 This LTCG included in Total Income of person and Income Tax will be calculated based on Income Tax Slab / Rate for individual for particular assessment year.

Posted by at 3 comments:
Labels: , , , , , , ,

Saturday, July 28, 2012

FORM 26AS - Verify Income Tax Details

What is FORM 26AS?

FORM 26 AS is a consolidated statement issued by Income Tax Department (TIN - Tax Information Network) to PAN holders which contains following details:
  • Tax deducted at Source (TDS) (Deposited by tax deductor).
  • Self Assessment / Advance Tax (Deposited by individual).
  • Tax collected at Source (TCS).
  • Tax Refund from Income Tax Department during financial year.
  • High value transactions in respect of Mutual Fund and Shares.
Individual can check TDS details in FORM - 16 issued by Tax Dedcutor, but if individual wants to check all above details on same place, can check FORM 26AS.

How to Check FORM 26AS?

FORM 26AS can be viewed by PAN holders from any of the websites as below:

Most easiest & convenient way to check Tax Credit Statement - FORM 26AS is using Income Tax India E-Filing site.

How to view FORM 26AS using Income Tax India E-Filing site?

To use this service PAN holders needs to login to Income Tax India E-Filing Site, if you are not registered then refer: One Time Registration with IncomeTaxIndiaE-Filing Site.
  • Login using your PAN and password.
  • Goto MyAccount -> View Tax Credit Statement (Form 26AS) as displayed below:
  • It will prompt for verification information below:
  • Provide the details and click on Submit button, it will display another page which contains message "You will be redirected to the NSDL website to view Form 26AS (Tax Credit Statement)." along with two buttons (Confirm & Cancel). Click on Confirm button.
  • You will be redirected to Tax Information Network - NSDL site as below:

  • Click on View FORM 26AS highlighted as above screen shot, It will open FORM 26AS. On this page user has option to view previous / current Assessment year's FORM 26AS. Sample FORM 26AS displayed as below:



    If you scroll down in FORM 26AS, you will find other portions of FORM 26AS (PARTB, PARTC and REFUND details).

Understand FORM 26AS?

It has 4 sections: PART A, PART B, PART C, Tax Refund details & High value transaction of Mutual fund and shares.

PART A: Details of TDS
It contains following details:
   Name of Deductor
   TAN of the Deductor
   Section under which deduction made - for details check Legends in form
   Date of Payment Credit
   Amount Paid / Credited
   Tax Deducted (Tax + Edu. Cess + Surcharge)
   TDS Deposited
   Status of Booking (P/F/U)  - for details check Legends in form
   Date of Booking
   Remarks (in case of reversal)

PART B: Details of TCS
It contains following details:
   Name of Collector
   TAN of the Collector
   Section under which collection made - for details check Legends in form
   Date on which amount paid / debited
   Amount Paid / Debited
   Amount of Tax Collected (TCS + Edu. Cess + Surcharge)
   TCS Deposited
   Status of Booking (P/F/U)  - for details check Legends in form
   Date of Booking
   Remarks (in case of reversal)

PART C: Details of Tax Paid (Other than TDS & TCS)
This section contains Self Assessment, Advance tax paid by individual by themselves. It contains following details:
   Major Head Code # - for details check Legends in form
   Minor Head Code % - for details check Legends in form
   Tax
   Surcharge
   Education Cess
   Interest
   Total Tax
   BSR Code
   Date on which Tax Deposited
   Challan Serial No.
   Remarks (in case of reversal)

Details of Paid Refund
This section contains any refund received from Income Tax Department in current assessment year, refund may be of any financial year. It contains following details:
   Assessment year for which refund is paid
   Mode of Payment $ - for details check Legends in form
   Amount of Refund
   Date of Payment
   Remark

 On TIN NSDL site, Individual can save FORM 26 AS in PDF and text format. There are options available after all above sections.

FORM 26AS for Previous Year:

Individual can view FORM 26AS from Assessment Year 2006-07 on TIN - NSDL site. Change the assessment year in drop-down list located on upper left corner of the page and click on Submit button.

Clarification / doubt in FORM 26AS?

Possible reasons for mismatch/missing entry in Part A/B (Details of TDS or TCS) are as follow:-

  • Deductor/collector has not filed quarterly TDS/TCS return.
  • Deductor /collector has not quoted or has wrongly quoted your PAN in the TDS/TCS return.
  • You have not provided PAN or have provided wrong PAN to the deductor/collector
  • The TDS/TCS return filed by the deductor/collector is rejected in the system.

If you have any doubt / clarification required in Tax Credit statement for particular assessment year then please check with Tax deductor. 
If they are not able to help you then you can contact TIN Call Centre NSDL for any clarification which have not been  resolved by deductors. Below are contact details of TIN Call Centre NSDL:

Address: TIN Call Centre National Securities Depository Limited,
3rd Floor Sapphire Chambers,
Near Baner Telephone Exchange, 
Baner, Pune - 411045 (Maharashtra).
Telephone: 020 2721 8080
Fax: 020 2721 8081.
Note: For more details on FORM 26AS refer FAQ on FORM 26AS.
Posted by at 1 comment:
Labels: , , , , , , , , , ,
Subscribe to: Posts (Atom)