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Know All About Form 16 – Be An Informed TaxPayer.

October 7, 2011 2 comments

   Most of us are aware of Form 16 given by our employers before April 30th each year that give details of the income earned, and tax deducted at source and paid to the government. This certificate proves useful in filing income tax returns. In addition banks also issuing Form 16 and Form16A to pension holders and those that earn interest income, with no Form 16 required when TDS is not deducted from salary. Knowing about Form 16 helps us to be a well-informed taxpayer and do better tax planning.

The 13 components of Form 16 are:
PAN that stands for Permanent Account Number, a 10 digit alpha-numeric code that is generated by the Income Tax Department of India. It is mandatory for everyone- NRI, PIO & companies that wishes to conduct business, file and pay taxes, invest, buy and sell property, open a demat or bank account to have this number in India. The need
 
TAN is best known as Tax Deduction and Collection Account Number is another mandatory 10 digit alpha-numeric number that is very necessary for all persons and companies that are responsible for collecting taxes. It proves useful to note that this number is unique in case of different companies.
Gross salary, the common term used in practice includes all regular incomes in an employee’s remuneration. It would include allowances, overtime pay, commissions, and bonuses, with all other amounts before the deductions are made.
It is best to know that perquisites are just additional benefits in addition to the fixed salaries. Known popularly as perks this term could include rent free accommodation, loans at subsidized rates and others.
Profits in lieu of salary are just payments given instead of salary that is given by at or in connection with retrenchment or termination of employment. This item forms a part of taxable income and includes gratuity, commuted value of pension, retrenchment compensation. However the contribution made by the employee or interest thereon is not taxed.
Next allowances in Form 16 are certain payments made or allotted to employees for bearing of certain expenses.  It could include allowances like medical allowances, and travel allowances that are generally taxable in the hands of the employees.
House rent allowance or HRA In Form 16 refers to a special allowance paid to employees to meet the cost of housing. There is tax exemption on HRA and it is limited to the least of either the HRA received from employer, or rent paid in excess of 10% of the salary, or 50% of salary in metropolitan cities and 40% in other cities. The term salary here includes basic, dearness allowance and other commissions put together, this exemption not available to those that do not pay rent.
It is best to understand conveyance allowance as an allowance paid to an employee to meet commuting expenses between his/her home and place of work.There is a maximum exemption of Rs.800, with a special provision for an orthopedically handicapped employee until Rs.1600.
The term medical allowance paid for medical treatments and medicines is fully taxable. Howeverreimbursement of medical expenses against submission of bills could get you a maximum exemption of Rs.15000 annually.
The allowance received to employees for entertainment services or entertainment allowance is allowed as a deduction for government employees.However in other cases one can avail of deduction as a least of actual allowance received, or 1/5th of salary excluding all other allowances and perquisites or Rs.5000.
Deductions as in Form 16 is given as an incentive given by the government to invest in certain long term savings schemes. This includes long term savings for retirement, insurance schemes and others that give tax breaks.
All taxes in India are subject to an education cess that is 3% of total tax payable. This contribution is made towards the Secondary and Higher Education development in the Indian economy.
It is lastly important to understand the relief granted to employees when salary is paid in arrears in a lump sum best known as Relief u/s 89.This includes salaries received in arrears/advance, family pension received in arrears, retirement benefits such as gratuity, commuted pension, VRS and retrenchment compensation.
Understanding your form 16 helps you in many ways like planning for taxes, filing your income tax and so on.
The author isRamalingam K, an MBA (Finance) and Certified Financial Planner. He isthe Founder and Director ofHolistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached atramalingam@holisticinvestment.in.

Eight Simple Ways to Plan your Taxes.

July 22, 2011 Leave a comment

 
You have got only a few more months to complete this financial year. Very soon you will get a call from your company to submit the proofs for tax saving investments. So why don’t you spend some time on organising your tax plan?
 
1)     Proper Allocation of Annual compensation
Restructuring your salary with some additional components can reduce your tax liability. This restructuring doesn’t require any additional cash outflow. The following components can be efficiently used to reduce your income tax liability.
 
v  Transport allowance to the extend of Rs.800 is exempt
v  Medical expenses which are reimbursed by the employer are exempt to the tune of Rs.15000
v  Food coupons like sodexo or ticket restaurant are exempt from tax up to Rs.60000
v  Individuals who are all living in a rented accommodation can include House Rent Allowance ( HRA ) as a part of their salary
v  Leave Travel Allowance (LTA) can be part of your salary as this can be claimed twice in a block of 4 years.
 
2)     Effective Utilization of Tax Exemption
As far as possible utilize the maximum exemptions available under section 80 C, 80 CCF and 80 D. The maximum exemption available under section 80 C is Rs. 100000.
 
Under this section Rs.100000 investment or contribution can be made in PPF, NSC, Life insurance premium, 5 year FD with banks and Post offices, Mutual Fund ELSS, Principal Repayment of housing loan, and the tuition fees paid for children’s education.
 
Under Section 80 CCF, you can invest up to Rs.20000 in infrastructure bonds.
 
Under Sec 80 D, the premium paid towards the mediclaim policies are exempt. The maximum limit of exemption is Rs.15000 and for senior citizens the limit is Rs.20000 and for covering senior citizen parents there is an additional exemption to the extend of Rs.15000.
 
 
3)     Properly Structure your Housing Loan
The Principal repayment of a housing loan is eligible for a deduction up to Rs.100000. The interest paid on a housing loan is eligible for a deduction up to Rs.150000. If the housing loan is for a sizeable amount, then it is possible that the principal repayment and interest may exceed the specified tax exemption limit. To utilise the maximum tax benefit, an individual can consider going for a joint home loan with his/her spouse or parent or sibling. This will make sure that both the co-owners can claim tax deductions in the proportion of their holding in the loan.
 
4)     Tax Plan in Sync with Overall Financial Plan
 
You should not do your tax plan in isolation. You need to do it in sync with your overall financial plan. So a tax plan is not only to just save taxes and also it should assist you in achieving your other financial goals like children’s higher education, buying a home or retirement.
 
 
5)     Avoid Last Minute Rush
 
In fact the right time to do the tax plan is the beginning of the financial year. If you postpone your tax planning even now and do it in the last minute, then you will not be able to choose the right investment. In the last minute rush, you will be forced to choose a scheme which gives the proof immediately. Is the investment sound and profitable? Is there any other better options? You will not be able to choose the best scheme and you may settle with a mediocre one.
 
6)     Invest Some Quality Time
Before investing your money, you need to invest your time. You need to take some quality time to understand the various tax saving options and compare their benefits and limitations.
 
 
7)     Check for Future Commitments
Some tax saving options like NSC or ELSS need only onetime investment. Some other tax saving options like PPF, Ulips need periodical investments year after year. You need to be careful in choosing a tax saving scheme where you need to commit for periodical future payments. You need to check on a few things like; do you need such a future commitment? Will you be able to meet the future commitments at ease? The law may change and you may not get any tax exemption for your future payments. Would you consider the scheme irrespective of tax benefit for the future payments?
 
8)     Changed Your Job; Redo your Tax Plan
Did you switch your job in the middle of the financial year? Then you need to redo your tax plan with consolidating the income from both the companies. It is advisable to inform the new company about the income during the particular financial year from the old company. So that your new company will deduct the right amount of TDS. Otherwise you may need to pay extra tax at the end of the financial year.
 
Whenever you change your job, you need to have a sitting with your financial planner or tax advisor. So that the required changes in your tax plan can be done proactively.
 
 
With proper tax planning you can reduce your tax liability; save more; invest better and become wealthier.
 
The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.
 

Only Income from Salary and Bank Interest ? Tax return not to be filed.

June 25, 2011 Leave a comment


   The Central Board of Direct Taxes (CBDT) yesterday notified that salaried individuals having a total income up to Rs 5 lakh after allowable deductions, including salary from one employer and interest income from deposits in a savings bank account of up to Rs 10,000, need not file income tax returns.

   However, they should get from their employer Form 16 — the certificate of tax deducted at source. The returns-exempt salaried will also have to give details of their interest income from bank deposits to their employer for deduction of income tax at source.


If the new rule had not come into force, salaried persons earning more than Rs 3.15 lakh a year would have had to file returns by July 31 this year.
   Filing returns is a hassle that involves seeking the services of a tax consultant for a fee ranging between Rs 250 and Rs 500, though it can be done by individuals on their own either manually or through an online process which requires the purchase of a digital signature.

   According to CBDT officials, the revised rule, which was announced in the budget, will benefit 85 lakh income tax assessees. The notification mentions only the assessment year 2011-12 but the government is expected to extend the relief.
View the CBDT Notification

Categories: BANK, INCOME TAX

Salaried Taxpayers with total Income up to Rs.5 lakh Exempted from filing Income Tax Return for Assessment Year 2011-12

June 24, 2011 Leave a comment
   


   The Central Board of Direct Taxes has notified the scheme exempting salaried taxpayers with total income up to Rs.5 lakh from filing income tax return for assessment year 2011-12, which will be due on July 31, 2011.

   Individuals having total income up to Rs.5,00,000 for FY 2010-11, after allowable deductions, consisting of salary from a single employer and interest income from deposits in a saving bank account up to Rs.10,000 are not required to file their income tax return. Such individuals must report their Permanent Account Number (PAN) and the entire income from bank interest to their employer, pay the entire tax by way of deduction of tax at source, and obtain a certificate of tax deduction in Form No.16.

   Persons receiving salary from more than one employer, having income from sources other than salary and interest income from a savings bank account, or having refund claims shall not be covered under the scheme.

   The scheme shall also not be applicable in cases wherein notices are issued for filing the income tax return under section 142(1) or section 148 or section 153A or section 153C of the Income Tax Act 1961.

(Source)

Categories: INCOME TAX

Tax exemption on 9.5% interest on PF for 2010-11

May 16, 2011 Leave a comment


   New Delhi, May 16 (PTI) Giving relief to 4.71 crore subscribers of EPFO, the government has allowed tax exemption on the 9.5 per cent interest income on PF deposits for 2010-11.

    The Finance Ministry notification last week raises the income tax exemption to 9.5 per cent interest income from 8.5 per cent.

   The decision clears the air for the EPFO subscribers who were given increased interest rate by one percentage point for 2010-11, but the Finance Ministry had not matched the interest hike with a commensurate tax exemption.

   In the absence of the commensurate income tax exemption, the subscribers were earning higher returns even as it was liable to income tax.

   EPFO had decided to provide 9.5 per cent interest rate on PF deposits for 2010-11 after which it was endorsed by the Finance Ministry in March this year.


(Source)

Categories: EPFO, INCOME TAX, PF

No filing of tax returns if salary is only income

February 28, 2011 Leave a comment
    In a big relief from cumbersome tax filing process for the salaried class, Finance Minister Pranab Mukherjee today proposed to exempt them from filing tax returns unless they have other sources of income.
 

   The government will be issuing a notification exempting ‘classes of persons’ from the requirement of furnishing income tax returns, said the Memorandum to the Finance Bill 2011.
The decision, which will come into effect from June 1, 2011, will reduce the compliance burden on small taxpayers, it added.


   Salaried taxpayers who do not have other sources of income and whose incomes are subject to Tax Deduction at Source (TDS) will be excluded from filing returns.
“Therefore, in cases where there is no other source of income, filing of a return is duplication of existing information,” the Memorandum said.
Categories: IE's, INCOME TAX

Date of Filing Income Tax Returns for ay 2010-11 Extended Till 15th October, 2010

September 28, 2010 Leave a comment
Categories: INCOME TAX