Income Tax Planning 2012-13

Franklin D. Roosevelt said; "Taxes, after all, are dues that we pay for the privileges of membership in an organised society." Tax is a compulsory payment made to the Government for services it provides us, though people may not be completely satisfied or convinced with these services.

Franklin D. Roosevelt said; “Taxes, after all, are dues that we pay for the privileges of membership in an organised society.” Tax is a compulsory payment made to the Government for services it provides us, though people may not be completely satisfied or convinced with these services.

Features
Eligibility
• Any individual or group of Individuals or artificial bodies who or which have earned income during the previous years is required to pay income tax on it
• The IT Act recognises the earners of income under different categories
• Each category is called a status, which includes: Individuals, Hindu Undivided Family (HUF), Association of Persons (AOP), Body of individuals (BOI), Firms and Companies, Local Authority
• When companies pay taxes under the Income tax Act it is called Corporate Tax
Entry Age
• No age is specified
• Income arising or accruing to minor is to be included in the total income of that parent whose total income (before such inclusion) is greater
• Income arising to the minor child as a result of some manual-work done by him or from such activity involving application of his skill, talent or specialised knowledge and experience is not to be included in the hands of the parents. For example, income of a child actor or singer derived from acting or singing is not covered by this clubbing provision
Other Aspects
• Need a PAN (permanent account number) to file returns
• Need to have adequate income to file returns
• Condition of residency
Tax Payee
• Individual
• Hindu Undivided Families (HUF)

Income tax is an instrument used by the government to achieve its social and economic objectives. Simply put, tax is duty or tariff that income earning individuals pay to the Government in exchange of certain benefits such as law and order, healthcare, education and a lot more. With proper planning, your tax liability can be reduced and optimised effectively, leaving you with a greater share of your income in your hands than being paid out as tax. Income earned in the twelve months contained in the period from 1st April to 31st March (Financial Year) is taken into account when calculating income tax. Under the Income Tax Act this period is called the previous year.

Assessment Year: It is the twelve-month period 1st April to 31st March immediately following the previous year. In the assessment year a person files his return for the income earned in the previous year. For example for FY: 2011-12 the AY is 2012-13. You are required to pay tax if your income in a particular year is above the minimum threshold in the category of taxpayer that you fall in. There is however, certain other criterion that decides that you need to pay income tax depending on your residential status in India.
The three different residential statuses' are:
What is Gross Total Income?
The gross total income is the sum of all sources of income that an individual has or the total income he earns in a financial year. It can fall into one of the five heads:
1. Income from Salary
2. Income from House Property
3. Income from Profits and Gains of Business or Profession
4. Income from Capital Gains
5. Income from other Sources

Tax Deductions
Deduction is the reduction that one can claim under different heads to reduce the tax liability, thereby reducing the income tax that pays.
Section 80C
Section 80C offers a window of investment opportunities on up to Rs 1 lakh investment in each financial year. This benefit is available to everyone, irrespective of their income levels. For instance, if you are in the highest tax bracket of 30 per cent, the investment of Rs 1 lakh under this section will save you Rs 30,000 each year. The various financial products that qualify for Section 80C benefits are as follows:
• Life Insurance premium payment
• Home loan principal, wherein the principal portion of the home loan EMI qualifies for deduction under Section 80C
• Employees Provident Fund (EPF) where 12 per cent of your salary is deducted every month and an equal amount is contributed by your employer and put into a fund maintained by the government or your company’s provident fund trust. Only your contribution towards the fund is eligible for deduction from taxable income of the basic salary towards EPF
• Tuition fees up to children can be claimed for. However, any payment towards any development fees or donation to institutions is excluded
• Contributions to the public provident fund
• Investments in the senior citizens savings scheme
• Savings in notified term deposits in scheduled banks with a minimum period of five years under the bank term deposit scheme, 2006. Savings in post office time deposits with 5-year lock-in
• National Savings Certificate, six-year government-backed security available at post offices
• Investments in tax planning mutual funds, popularly known as Equity-Linked Savings Scheme (ELSS)
• Investments in pension plans




Other Deductions
• Section 80D: Premium payments towards medical insurance for self, spouse, children and parents qualify for deduction. The qualifying amounts under Section 80D for self, spouse and dependent children is up to Rs 15,000. Additional deduction up to Rs 15,000 for the parents going up Rs 20,000 if the parent, for whom the policy is bought is aged 65 years or more at any time during the financial year in which the premium was paid.
• Section 24: Interest on home loan with a maximum deduction of Rs 1.5 lakh as interest payment on home loan for self-occupied property and unlimited for property that is let out.
• Section 80E: Interest on educational loan qualifies for deduction on full-time studies for any graduate or post graduate course. However, there is no benefit on principal repayments.
• Section 80G: Donations to funds and charities from 50 or 100 per cent of the donated amount, depending on the charity, is deductible from income. But this shouldn’t exceed 10 per cent of your gross total income.
• Section 80DD: Deduction up to Rs 50,000 or Rs 1 lakh on the medical treatment of a dependent with a disability, certified by a medical authority.
• Section 80DDB: Deduction up to Rs 40,000 for assessee under 65 years and Rs 60,000 for senior citizens on costs incurred for treatment of specified illnesses such as malignant cancer, chronic renal failure, Parkinson’s disease and other listed diseases.
• Section 80CCF: Investment in infrastructure bonds up to Rs 20,000 a year qualified for deductions under this section. The below table explains you the eligible deduction for different residential status.






When to pay Income tax
• An individual having salary income and no business income must file his return not later than 30th June of the assessment year.


• The due date of filing returns by an individual having business income and whose accounts are not required to be audited is 31st August.
• The return should be in the prescribed form.
• It is necessary to file a return to claim a refund of any excess tax paid.
Documents needed
• You need to attach documentary support for tax deducted at source, investments or payments made that allow you to claim deductions and tax rebates and employer’s certificate in Form 16A.
• The income tax year or assessment year is the year in which income of the previous year is to be assessed. The financial year following a previous year is called the assessment year in relation to that previous year. Thus the assessment year for the previous year 2009-10 is 2010-2011.
• An assessment, therefore, comprises of two stages Computation of total income, and Determination of the tax payable thereon.
• On completion of both these stages, an assessment is said to be made.
Where to pay Income Tax
• Through online deposit
• Through Nationalised banks
How to pay Income Tax
• Self filing
• Auditor or Chartered accountant or Tax Return Preparers
• Online filing
Transaction mode to pay tax
• Cash
• Cheque
• Money Transfer
Considerations when filing returns
• Right tax computation
• Right details such as PAN, bank account number, address and name
• Payment by the due date Visit the Income Tax Dept / NSDL website. https://onlineservices.tin.nsdl. com/etaxnew/tdsnontds.jsp
• Click on the “CHALLAN NO./ITNS 280
• On this page choose (0021)INCOME-TAX (OTHER THAN COMPANIES)
• Type your Permanent Account No (PAN)
• Choose Assessment Year: choose 2012 - 2013
• Fill up all other details requested
For Type Of Payment choose (300)SELF ASSESSMENT TAX
Choose your Bank Name where you have online banking, so that you can pay your taxes
Click on Proceed, (located at the bottom of the web page)
Once you have paid your taxes, Income tax department will issue you a receipt.
Using this receipt please fill up our Advance Tax or Self Assessment Tax page you can continue filing returns through the online interface for preparing and processing your returns.
Digital signature:
It is a private key which ensures the authenticity of an electronic document, which may be an e-mail or a spreadsheet. Digital signature is issued by the Ministry of Corporate Affairs. So, if you have a digital signature, go to https://incometaxindiaefiling.gov.in/portal/ individual_huf.do. Choose the respective form, read the instructions mentioned in the excel file. Fill the sheets and save it on your computer. To upload it, go to https://incometaxindiaefiling.gov.in/portal/ uploadXML.do?assyr=2010. Create a user ID and follow the instructions that come on the screen.
If you don’t hold a digital signature, don’t worry. It’s not mandatory that all tax filers possess a digital signature. In fact, for those who don’t have one, the process is more or less the same as above, except that it would not be completely paper-free. Once you are done with uploading the excel file from the income tax department’s site, you need to submit ITR-V (or income tax verification form).
• ITR V acts like a proof of filing.
• Fill in the form and mail it in an envelope to “Income Tax Department-CPC, Post Box No.1, Electronic City Post Office, Bangalore-560100, Karnataka” within 30 days of e-filing.
• You can expect to receive an e-mail from the income tax department, acknowledging the receipt of ITR-V.
• This is the final acknowledgement and concludes the e-filing process.





· Resident Indian
· Non-Resident Indian (NRI)
· Not Ordinarily Resident (NOR)

Don't opt for a lower EMI, shorten loan tenure instead

Home Loan

Finally, home loan rates have eased a bit -albeit by 0.25% on the back of a similar reduction in the policy rates by the Reserve Bank of India. However, home loan borrowers are rejoicing at the small reduction in rates, as it has come at a time when they are battling the twin-menace of the higher cost of living and higher EMIs.

Even a measly reduction is likely to ease the burden for many customers, especially for those who use a major part of their salary to take care of their EMIs. However, there is a catch. When a bank lowers its home loan rate, it typically lowers the tenure of the loan by keeping the EMI constant. Of course, one has the option to ask the bank to reduce the EMI and keep the tenure constant.

However, many borrowers get a bit confused about it because of the math and tax angles. If the bank or the home loan company contacts you about the change in tenure or EMI of the loan, you should ask for the fresh amortisation schedule to see the exact impact of the rate change on your housing loan.

"From a borrower's perspective, it is easier to understand the impact in rupee terms than in percentage terms. Also, the borrower should cross check the new amortisation schedule with the old one to ascertain the impact," says Vipul Patel, director, Home Loan Advisors, an independent mortgage consultancy firm.

Lower The Tenure

"By default, a bank offers the option of lowering the tenure of the loan. This is because any change in the EMI requires additional paperwork. In fact, even in the clients' interest lowering the tenure is a better option," says Vipul Patel of Home Loan Advisors. The choice of lowering the EMI and keeping more money in hand may sound tempting. But it is best to reduce the tenure of the loan, provided you can afford it.

"It is better to reduce tenure if you are comfortable paying the same or a marginally higher EMI. It will result in huge interest savings," says Pankaj Mathpal, certified financial planner and managing director, Optima Money Managers. For example, let us assume you have taken a 20-year loan of Rs 50 lakh at an interest rate of 11%. You would be paying an EMI of around Rs 51,609 for it. If the home loan rate is reduced by 0.25% to 10.75%, the EMI would come down by Rs 848 to Rs 50,671.

Now if you can afford to pay the same or a little over the old EMI, you can reduce the tenure of your loan. For example, if you can pay an EMI of Rs 52,429, you can lower the tenure of your loan by two years and save Rs 8.58 lakh as interest cost. "If an individual brings down the loan tenure from 20 years to 15 years, in effect he or she is bringing down the risk factor of the loan," says Suresh Sadagopan, certified financial planner and founder, Ladder 7 Financial Advisories.

Should I pay taxes for capital gains?

In this article I will be writing about the tax liability on capital gains. Here I mean capital gains is the profit which you are making from selling your fixed assets like land or houses. Most of the people think that the profit from selling the property doesn’t come under the tax liability. That is not the correct opinion, anything you sold and making profit you will be liable to pay the tax. In this article I will be writing about the capital gains from your houses. I would like to hear feedback from you after reading the article. Please post your comments in the comments section. Please subscribe to our future articles here.

Any profit from selling the capital assets considered as the capital gains.  So it can be shares, units of UTI, debentures and land. Also the following materials considered as the capital assets:

furniture

personal belongings

agricultural land (subject to certain criteria)

Special Bearer Bonds, 1991, Gold Deposit Bonds (1999 scheme), 6.5 per cent Gold Bonds, 7 per cent Gold Bonds, National Defence Gold Bonds issued by the Central Government and raw material held for the purpose of business is not termed as a capital asset.

From the year 1973-74, jewellery is treated as a capital asset.

There is two types of capital gains.



Loan Rates



Short Term Capital Gains

If you own the capital assets less than three years at the time of selling, then it is considered as the short term capital gains.

Long Term Capital Gains

If you own the capital assets more than three years at the time of selling, then it is considered as the short term capital gains.

Tax on Capital Gains

If you earn short term capital gains, then it will be added to your taxable income and will be calculated for the tax.

If you earn long term capital gains, then you will be liable for the 20% tax for your profit. But there is certain exemptions on the tax as follows:

If you are buying new property with in next two years after selling your old property, you need to pay the tax.

If you are started constructing new house within next three years after selling your old house, then you are not liable to pay the tax. Not that the value of the new house should be minimum of the capital gains.

A Second House Can reduce your Tax Burden



Tax Burden

 When one of my tol d me that he started his EMI of both the houses he bought , he came under the highest tax bracket and have to pay 30% tax on his income, which makes it difficult to save enough to pay both the EMIs. What my friend doesn't know is that he can reduce his tax liability if he avails of the deduction on home loans, especially in case of the second house.

Exemption on interest
In case of a home loan taken for a self-occupied property, the principal amount repaid up to Rs 1 lakh qualifies for deduction under Section 80C, while up to Rs 1.5 lakh of interest paid is tax-deductible under Section 24.
However, in case of a home loan for the second property, only interest payment is eligible for deduction. No tax benefit is available on the principal repayment on the second loan. However, the good part is that there is no limit on the deduction for interest payment on the second loan (see Benefit of buying a second house). This is because the second house has been given out on rent, explains Adhil Shetty, chief operating officer of Bankbazaar.com.
According to Homi Mistry, partner, Deloitte Haskins & Sells, a property owner can avail of tax benefits on the interest paid on multiple home loans. "Whether the second house is purchased purely as an investment option or as a weekend getaway, the interest paid on a loan taken to buy it is tax-deductible. Since the interest payment is a large expense, you can add significantly to your disposable income if you can save on it," says Mistry.
In case the house is yet to be constructed, 20% of the total interest paid during the preconstruction period is also allowed as tax deduction. This is available for five years from the time the construction is complete till you get possession.

Deductions allowed on income from second home
Even if the second house is lying vacant, the Income Tax Department will consider that it has a rental value. The notional or deemed income (see How income is computed) will be added to your taxable income.
Sonu Iyer, tax partner, Ernst & Young, says, "A buyer can deduct expenses, such as municipal or property taxes actually paid, from the deemed income. Other than this, 30% of the net annual value, which is the difference between the rental income and municipal taxes, is also allowed as deduction. In case the house is rented out, 30% of the actual rent can be deducted from the taxable income, apart from deductions for local and municipal taxes."
After deducting such expenses from the income that you earn from the property, if you incur a loss, you have the option to set it off as follows:

The current year's loss will first be set off against any other income from property. It can also be set off against other incomes, such as that from salary, business or profession and capital gains, earned in the current year.

. If your balance continues to be in the red, you can carry forward the loss for up to eight years. However, the amount that is carried forward is only allowed to be set off against the income that is earned from a house.

If you own several houses, you can choose one as your primary residence. The income from this property will be treated as nil and exempt from tax, even if you have actually rented it out. It is for this house that the limit of Rs 1.5 lakh applies for deduction on loan interest.

The entire interest on the loan taken for the other house, the income from which is taxable, can be deducted from your income. This applies to any number of nonexempt houses that you may own.
So, to maximise your savings, consider the house with the highest loan as the non-exempt one. However, make sure that the interest payment on this loan is higher than the principal-cum-interest payment on the other loan.

Additionally, if you give your second house on rent for more than 300 days in a year, it will not be subject to wealth tax, which is levied at the rate of 1% on wealth that is in excess of Rs 30 lakh.
If any of the houses is sold after three years, the profit will be taxable as long-term capital gains. However, there are beneficial provisions under which this gain is exempt from tax. So if you invest the money to construct a house within three years or buy another house within two years, your income will be tax-exempt.
However, the exemption is reversed and the amount taxed as capital gain if the new property is sold within three years of being constructed/purchased.
This will be considered a short-term gain and taxed according to your slab rates. You can also save tax if you invest the profit in a special bank account under the capital gain account scheme. A similar exemption is available for investments of up to Rs 50 lakh in bonds, which are redeemable after three years. This investment should be made within six months of the sale.