Person Al Tax Planni Ng

8/3/2019 Person Al Tax Planni Ng

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PERSON AL TAX PLANNI NG

We are happy t o br ing out t he revised edition of booklet on Per sonal Tax planning

updat ed wit h Finance Act 2003.

Tax Planning, as you are aware, is t he process of proper usage of beneficial

provisions of exem ptions, deductions, rebat es and reliefs, while fulfilling t he t ax

obligations. This process var ies f rom individual t o individual and depends, am ong

m any fact or s, t axable incom e, tim e schedule for investm ent s, r isk bear ing

inclination, existing investm ent patt ern, expect ed ret urns et c. Over t he years, t ax

planning scenar io has becom e m ore dynam ic and com plicat ed, due t o const ant

changes in t he t ax laws and falling int erest rat es. Fur t her t ax planning cannot be

done in isolation, it should be a par t of overall Financial Planning of an individual.

This brochure will afford a birds eye view of t he var ious provisions of I ncom e Tax

[ including Capit al Gains Tax] and Wealt h Tax and t axation aspect s of select ed

financial investm ent s. By knowing and utilizing t hese provisions, we t rust t hat one

should be able t o plan his t ax obligations bett er , wit hin the am bit of t he laws. This

publication is int ended pr im ar ily for resident non- corporat e t ax payer s. Tax

planning should com m ence r ight at t he beginning of t he financial year and last

m inut e rush is best avoided, so st ar t your t ax planning endeavour r ight away!

The brochure is organized in t he following m anner . Firstly, we have explained basic

concept s of I ncom e Tax such as how I ncom e Tax is ar r ived at, Cur rent I ncom e Tax

rat es et c. Then we have discussed on how incom e is ar r ived at under t he five

m aj or heads of I ncom e Tax such as Salary I ncom e, I ncom e f rom House Proper t y,

Profit s and gains from Business/ profession, Capit al Gains I ncom e and I ncom e f rom

ot her sources. This is followed by a descr iption of m aj or Deductions under Chapt er

VIA and rebat e under Section 88. Subsequently, we have elaborat ed on im por t ant

I T aspect s such as Advance Tax, PAN, TDS, I T ret urns. A few useful tips on I ncom e

Tax Planning are also given, followed by a br ief descr iption of Wealt h Tax and


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im por t ant feat ures of popular Tax Saving I nvestm ent s. Lastly, a sm all wr it e up is

given on how Canara Bank can help you in your t ax planning exercise.I N DEX Page No

I ncom e Tax Basics

Cur rent I ncom e Tax Rat es 1

Receipt s exem pt f rom I ncom e Tax 1

I ncom e heads as per I ncom e Tax Act 1

St eps in ar r iving at I ncom e Tax 1

Def init ion/ det ails of dif ferent incom e he ads

Salary I ncom e 2

I ncom e f rom House Proper t y 3

Profit s and Gains from Business 4

Capit al Gains I ncom e 5

I ncom e f rom ot her sour ces 8

I m por t ant Pe rm issible deduct ions f rom Gross Tot a l I ncom e for all

assesse s [ under Chapt er VI A]

9

Tax rebat es ava ilable under sect ion 8 8 10

Ot her I T relat ed m at t ers

Paym ent of Advance Tax 12

About PAN 12

Filing I ncom e Tax Ret urn 13

What is TDS? 13

Tips on I ncom e Tax Planning 14

W ea lt h Tax - Br ief I nt roduct ion 15

Tax Saving I nvestm ent s

Life I nsurance 16

Mut ual Funds 17


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Public Provident Fund 19

National Saving Cer tificat e 19

Bonds 20

National Savings Schem e 21

H ow w e can help you in your t ax planning 22page 1 INDEX

I N COME TAX - BASI CS

Cur rent I ncom e Tax Rat e s: ( Financia l yea r 2 0 0 3 - 2 0 0 4 )

I ncom e Range Tax Rat e

FI RST Rs. 50,000 / - NI L

Rs. 50,001/ - TO Rs.

60,000/ -

10 % of t he am ount ex ceeding Rs. 50,000/ - .

Rs. 60,001/ - TO Rs.

1,50,000/ -

Rs.1,000/ - + 20 % of t he am ount exceeding Rs.

60,000/ -

Rs. 1,50,001/ - and higher

Rs.19,000/ - + 30 % of t he am ount exceeding Rs.

1,50,000/ -

Surcharge @ 10 % has t o be added t o t he t ot al t ax if t he t ot al incom e is m ore t han

Rs. 8,50,000/ - . Sur charge is Nil, if t ot al incom e does not exceed Rs. 8,50,000/ - .

Receipt s Ex em pt from I ncom e Tax :

Any m at ur it y proceeds/ survival and deat h benefit s [ including bonus] from Life

I nsurance Policy. There are som e exceptions, such as Keym an I nsurance Policy, any

sum - received u/ s 80CCC( 2) or 80DDA( 3) or 80DD( 3) . The exem ption is also not

applicable where t he prem ium payable for any of t he year s dur ing t he t erm of t he

policy ex ceeds 20% of t he act ual capit al sum assured.


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Am ount s received f rom Provident Fund and PPF are t ot ally exem pt f rom I ncom e Tax

for all assesses. I nt erest received from PPF, Co-PF, EPF, RBI Savings bonds,

Dividends from Com panies, I ncom e from unit s of Mut ual Funds, Tax free bonds of

Govt/ PSUs and Post Office Savings Bank (POSB) Account are exem pt from incom e

t ax.

I ncom e H e ads as pe r I ncom e Tax Act :

According t o I ncom e Tax Act, t he t axable incom e can be cat egor ised, under t he

following heads: heads: -

A. Salary I ncom e

B. I ncom e f rom House Proper t y

C. Profit s and gains from Business/ profession

D. Capit al Gains I ncom e

E. I ncom e f rom ot her sour ces [ i.e. any ot her incom e, which does not fall under

any of t he preceding heads] .

St eps in ar r iving at I ncom e Tax :

St ep 1 : Under each of t he above heads of incom e, t he t axable incom e is ar r ived at

aft er deducting perm issible exem ptions and deductions from incom e under

t hat head ( descr ibed in pages 2 t o 8) .

St ep 2 : By aggregating t he t axable incom e under t he above heads, Gross Tot al

I ncom e is ar r ived at.

St ep 3 : From such Gross Tot a l I ncom e, deductions under Chapt er VI A of [ I ncom e

Tax Act] deductions are allowed t o ar r ive at t ot al I ncom e ( page 9) .

St ep 4 : I ncom e t ax is calculat ed on t he t ot al I ncom e at applicable rat e. From t he

t ot al incom e t ax so calculat ed, eligible Tax Rebat e u/ s 88, 88B and 88C is

deduct ed. On t he balance of t he t ax am ount, Surcharge is applied and

added t o get t ot al t ax liabilit y ( page 10) .

St ep 5 : From t he t ot al t ax liabilit y so ar r ived at, relief u/ s 89 ( 1) can be claim ed,


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where eligible. Then f rom t he balance t ax am ount, Tax Deduct ed atSource and advance t ax paid,

if any, are deduct ed. Balance t ax am ount

payable, if any, should be paid as Se lf - Assessm ent Tax before filing t he

I ncom e Tax Ret urn.

page 2 INDEX

DEFI N I TI ON / DETAI LS OF D I FFEREN T I N COME H EADS

A. SALARY I N COME

Am ount received by an em ployee f rom an em ployer , due t o t heir em ploye e and

em ploye r r elat ionship, is t axable as Salary . Salary includes Basic Pay, Bonus,

Pension, Taxable grat uit y, Leave encashm ent,advance salary, salary ar rears,

I ncentives, ex gratia, allowances such as Over tim e allowance, Dearness allowance,

Taxable House Rent allowance, Cit y Com pensat ory allowance, Children's Education

allowance,Perquisit es, et c. Traveling allowance, Uniform allowance, cer t ain special

allowances such as Border Area Allowance, Dist urbed area allowance, Transpor t ation

Allowance ( subj ect t o lim it s) et c are not t axable. From t he Gross Salar y incom e, by

reducing Ex em pt ions unde r Sect ion 1 0 and deduct ions unde r Se ct ion 1 6 ,N et

Salar y I ncom e [ i.e. Taxable incom e under Salary] is ar r ived at.

Ex em pt ions in r espect of sa lary incom e under Sect ion 1 0 :

1. Leave Travel reim bursem ent - act ual am ount spent ( subj ect t o specified

limit s) in respect of 2 j ourneys in a Block of 4 calendar years ( 2002- 2005)

[ Section 10( 5) ]

2. Grat uit y received under t he Paym ent of Grat uit y Act,1972 f rom all

em ployers [ Upt o Rs 3.5 lakhs] [ Section 10 ( 10) ii]

3. 33.33% of t he Com m ut ed Value of Pension where t he em ployee receives

any grat uit y ot herwise 50% of t he com m ut ed value of t he pension [ Section

10( 10A) ( ii) ]

4. Volunt ary Retirem ent Benefit s Max . limit Rs.5 Lakhs, f rom all em ployer s,

received/ receivable [ i.e.,even if received in inst alm ent s] [ Section 10 ( 10C) ]


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Deduct ions under Sect ion 1 6 a re a llow ed f rom sala ry :

a. St andard Deduction [ section 16( i) ]

I ncom e f rom salar y Deduct ion

Gross Salary incom e is Rs. 5 lakhs or less 40% of Gross salary or

Rs 30,000/ - whichever is

b. Act ual Professional Tax paid by t he em ployee is t ot ally deductible from

salary [ Section 16( iii) ] . Relief is also available under Section 89( 1) read wit h

Rule 21A, subj ect t o t he conditions m entioned t herein, where a per son is in

receipt of a sum in t he nat ure of Salary being paid in ar rears or in advance

or is in receipt of salary of m ore t han 12 m ont hsb. Act ual Professional Tax paid by t he em ployee

is t ot ally deductible from

salary [ Section 16( iii) ] . Relief is also available under Section 89( 1) read wit h

Rule 21A, subj ect t o t he conditions m entioned t herein, where a per son is in

receipt of a sum in t he nat ure of Salary being paid in ar rears or in advance

or is in receipt of salary of m ore t han 12 m ont hs

page 3 INDEX

B. I N COME FROM HOUSE PROPERTY

The Annual value of a house proper t y is t axable as incom e in t he hands of t he owner

of t he proper t y. For t ax purpose, proper ties m ay be classified as Self Occupied

Proper t y and Let out Proper t y .

Self occupied proper t y:

For one self occupied house proper t y , which has not been let out, t he Annual Value is

t aken as Nil. (Where t he owner holds m ore t han one house and bot h are in t he

occupation of t he owner for residential purposes, t hen only in respect of one

residence at ow ner s choice , annua l va lue w ill be t ak en a s N il. For t he ot her

house, t he t ax shall be com put ed by t r eat ing t he proper t y as let out )

Where t he house is self- occupied, t he int erest on capit al bor rowed aft er 01.04.1999

for acquisition/ const ruction is allowed as deduction subj ect t o a m axim um of Rs. 1.5


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lakhs, provided t he const ruction/ acquisition is com plet ed wit hin 3 year s from t he end

of t he financial year in which t he loan was bor rowed. On all loans t aken pr ior t o t he

above dat e and also on loans t aken for repair ing, renewing or reconst ructing the

proper t y , t he ceiling is Rs. 30,000. However , in t he case of self occupied proper t y,

t axes levied by t he local aut hor it y ( i.e. m unicipal t ax) cannot be claim ed as

deduction.

Let out prope r t y:

Taxable value of t he proper t y shall be t he higher of t he following: -

A. Am ount for which proper t y m ight reasonably expect ed t o let; or

B. Act ual annual rent received / Receivable.

However , where t he proper t y was let out but vacant dur ing t he whole or par t of t he

year , t hen t axable value will be t he am ount act ually received.

The m unicipal t axes act ually paid during t he financial year [ ir respective of t he per iod

t o which it per t ains] will be deduct ed from t he t axable value t o ar r ive at t he Annual

value of house proper t y . From t his, st andard deduction @30% of Annual value of t he

proper t y and I nt erest on bor rowed capit al for t he purpose of acquisition,

const ruction, reconst ruction, repairs, renovation et c are allowed as deductions, t o

ar r ive at t he t axable incom e.

Com m on t o bot h Se lf occupied and Let out :

If t here is a Loss f rom House Proper t y , t he sam e can be set off against incom e

from any ot her head in t he sam e assessm ent year . If t he loss cannot be set off

against incom e f rom any ot her head in t he sam e assessm ent year , t he loss is

allowed t o be car r ied forward and set off in 8 subsequent years against incom e from

house proper t y only. Fur t her , loss under t he head house proper t y can be notionally

set off against salary incom e, at t he t im e of deduct ion of t ax from sa la ry.Pre- const ruct ion int e

rest [ i.e. int er est paid/ pa yable , on fund bor rowed for

acquisition or const ruction,per t aining t o t he per iod, pr ior t o t he f inancia l yea r in

which t he proper t y was acquired or const ruction com plet ed] can be claim ed only as


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A. The following PROFESSI ONALS whose Gross Receipt s from t heir profession

exceeds Rs. 1,50,000/ - p.a. ( I n any of t he 3 im m ediat ely preceding previous

years) have t o m aint ain Books of Account s:

1. Legal

B. Ever y Busine ssm an whose incom e from business exceeds Rs.1,20,000/ -

p.a. Or Gross

Receipt/ t urnover ex ceeds Rs.10,00,000/ - p.a. in any of t he 3 im m ediat ely

preceding previous year s will have t o m aint ain Books of Account s as per t hep.a. Or Gross

Receipt/ t urnover ex ceeds Rs.10,00,000/ - p.a. in any of t he 3 im m ediat ely

preceding previous year s will have t o m aint ain Books of Account s as per t he

Act.

page 5 INDEX

D. CAPI TAL GAI N S I N COME

Capit a l ga ins t ax

Capit al gains t ax m eans incom e t ax payable under I ncom e Tax Act, in respect of

capit a l gains m ade dur ing a financial year . Capit al gains include any prof it or ga in

ar ising from t he t r ansfer of a capit al a sset .

Capit a l asset m eans proper t y of any kind held by a per son, whet her or not

connect ed wit h his business. However , it does not include:

a. St ock- in- t rade, raw m at er ials and st ores held for business purposes.

b. Per sonal effect s such as clot hes, furnit ure, m ot or car , air conditioner et c but

excluding j ewellery

c. Rural agr icultural land

d. Gold bonds/ Gold Deposit Bonds, Special Bearer Bonds et c.

For t he purpose of capital gains, t ransfe r ( wit h som e ex ceptions provided in t he act )

includes;

i. t he sale, ex change or relinquishm ent of t he asset; or


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ii. t he extinquishm ent of any r ight s t herein; or

iii. t he com pulsory acquisition t hereof under any law; or

iv. Conversion or t reating an asset as st ock in t rade; et c.

Shor t - and long- t e rm Capit a l asset s

The nat ure of asset and t he per iod of holding of an asset det erm ine whet her an asset

is a long t erm or a shor t t erm one.

N at ure of a sset

Long Term Capit a l

Asset

Shor t Term Capit a l

Asset

Shares of a Com pany/ Unit s of

UTI/ Mut ual Fund/ any ot her

secur it y list ed in a recognised

st ock exchange

When held for m ore

t han 12 m ont hs

When held for 12

m ont hs or less

All asset s ot her t han above When held m ore t han

36 m ont hs

When held for 36

m ont hs or less

H ow t o com put e t he capit a l gains:

Capit al Gains is calculated by subt racting Cost of acquisit ion, Cost of

im provem ent of t he asset and Expenses incur red in connect ion w it h t he

t ransfe r ( brokerage, legal expenses et c) from Transfe r / Sa le considerat ion of t he


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capit al asset. The balance is t he capit al gain/ loss. Cost of acquisition and cost of

im provem ent can be index ed, only in ca se of long t erm capit al a sset s.

I ndex at ion is t he process of conver ting t he cost of acquisition and cost of

im provem ent from hist or ical cost int o inflation adj ust ed cost, utilizing t he Cost

I nflation index, being advised by Cent ral Govt. every year f rom 1981- 82. I ndexation

benefit is not available t o shor t t erm capit al gains.

I ndex ed cost of acquisit ion is ar r ived at f rom cost of acquisit ion as follow s:

I f t he asset is acquir ed a f t er 0 1 / 0 4 / 1 9 8 1 ,Cost of acquisition

_______________

Cost inflation index ( CI I ) for t he

first year in which asset was first

held

X

CI I for t he financial year in which

asset is t ransfer red

page 6 - Capital Gains Income (Continued) INDEX

I f t he Asset is acquir ed on or before 0 1 .0 4 .1 9 8 1 ,

Cost of acquisition or fair m arket value as on

01.04.1981 ( if opt ed by t he assessee)

________________________________

Cost inflation index ( CI I ) for 1981- 82

X

CI I for t he financial year in

which asset is t ransfer red

Similarly, indexed cost of im provem ent will be ar r ived at on t he basis of Cost

inflation index for t he year in which im provem ent t ook place.

Capit al Gains I ncom e ( Continued)


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Follow ing ex am ple w ill explain t he concept of I ndex at ion.

Say Mr . A purchased one acre of urban land at Rs. 1,50,000/ - dur ing August 1981

and sold t he sam e at Rs. 6,80,000/ - dur ing Decem ber 2002.

I ndexed Cost of acquisition will be: 1,50,000 x 447 [ being Cost I nflation index for

2002- 03] / 100[ Cost I nflation index for 1981- 82] = Rs. 6,70,500/ -

Long t erm Capit al Gains = Rs. 6,80,000/ - Rs. 6,70,500/ - = Rs. 9,500/ -

Cost I nf lat ion index t able is given be low :

Financia l

Yea r

Cost I nf lat ion

I ndex

Financia l

Yea r

Cost I nf lat ion

I ndex

Financia l

Yea r

Cost I nf lat ion

I ndex

1981 - 82 100 1989 - 90 172 1997 - 98 331

1982 - 83 109 1990 - 91 182 1998 - 99 351

1983 - 84 116 1991 - 92 199 1999 - 00 389

1984 - 85 125 1992 - 93 223 2000 - 01 406

1985 - 86 133 1993 - 94 244 2001 - 02 426

1986 - 87 140 1994 - 95 250 2002 - 03 447

1987 - 88 150 1995 - 96 281 2003 -

04


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463

1988 - 89 161 1996 - 97 305

H ow Capit a l Gains t a x is det erm ined:

The rat e of Capit al Gains t ax t hat applies on t he sale of an asset depends on:

a. The t ype of asset being sold, whet her it is long term or shor t t erm ;

b. Tax bracket, you are in.

Shor t - t erm gains ar ise on t he sale of a shor t - t erm asset and a re t ax ed at t he

norm al I ncom e Tax r at es.

A long- t erm capit al gain enj oy s lower level of t ax of 20 per cent plus surcharge. Only

t hat am ount of long t erm capit al gains which is included in t he t ot al incom e would be

subj ect t o t ax at t he above flat rat e.

Conce ssion for secur it ies and unit s : Additional benefit is available in t he case of

long- t erm capit al gains ar ising from t he t ransfer of list ed secur ities or unit s of t he

Unit Trust of I ndia ( UTI ) [ ex cept t ransfer of US64 unit s aft er 01/ 04/ 2003] and ot her

m ut ual funds. I f t he t ax payable at t he rat e of 20 per cent aft er claiming t he benefit s

of indexation is m ore t han t he t ax payable at 10 per cent wit hout indexation, t he

t ax payable is t o be r est r ict ed t o 1 0 per cent w it hout index at ion.N ew ex em pt ion of long t e

rm capit al gains on t r ansfe r of list ed equit y sha re s

w it h ef fect from t he a sse ssm ent ye ar 2 0 0 4 - 2 0 0 5 :

Capit al gains is not chargeable t o I ncom e Tax, if t he following conditions are

satisfied:

1. The asset which is t ransfer red is a long- t erm capit al asset being an eligible equit y

share in a com pany.

2. Such shares are pur chased on or aft er March 1, 2003 but before Mar ch 1, 2004.

3. Such shares are held by t he t axpayer for a per iod of 12 m ont hs or m ore.

4. Eligible equit y share for t his purpose m eans,

. a) Any equit y share in a com pany being a constit uent of BSE- 500 index of t he

St ock Ex change, Mum bai as on 01/ 03/ 2003 and t he t ransactions of purchase and


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sale of equit y share are ent ered int o on a recognized st ock ex change in I ndia; or

. b) Any equit y share in a com pany allott ed t hrough a public issue on or aft er

01/ 03/ 2003 and list ed in a recognized st ock ex change in I ndia before

01/ 03/ 2004 and t he t ransaction of sale of such share is ent ered int o on a

recognized st ock ex change in I ndia. Conversely , long t erm capit al loss ar ising on

t ransfer cannot be adj ust ed against any incom e, if t he aforesaid conditions are

satisfied.

Long- t e rm capit a l ga ins ar e m ore benef icia l t hen a shor t - t e rm capit a l ga ins

because

1. I ndexation benefit is available, only on long t erm capit al t ransfer .

2. Tax on long- t erm capit al gain is chargeable at t he lower rat e @10% without

indexation or 20% wit h indexation, as t he case m ay be.

3. For long t erm capit al gains specific exem ptions have been provided under

sections 54, 54EC, 54ED &54F.

page 7- Capital Gains Income (Continued) INDEX

DEDUCTI ON S AN D EXEMPTI ON S AVAI LABLE I N RESPECT OF CAPI TAL GAI N S

Following are t he im por t ant deductions and exem ptions, if capit al gains/ Net

consideration are inve st ed :

Sect ion Type of

assessee

Kind of

asset sold

N at ure

of

capit a l

Asset

sold


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N ew asset

t o be

acquir ed

Am m ount

t o be

inve st ed in

new a sset

Tim e lim it for

acquisit ion

Sec. 54 I ndividual

and HUF

Residential

house

proper t y

held for

m ore t han

3 years

Long

t erm

Residential

house

proper t y

Capit al Gains 1 year before

t he dat e of

t ransfer or

wit hin 2 year s

aft er t he dat e


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of t ransfer

purchased t he

house proper t y

Sec.

54EC

Any

per son

Any asset

t ransfer red

aft er

01/ 04/ 2000

Long

t erm

Any bond

redeem able

aft er 3

years

issued by

NABARD,

NHB, SI DBI

NHAI or

Capit al Gains wit hin 6 m ont hs

from t he dat e

of t ransfer54EC per son t ransfer red

aft er

01/ 04/ 2000

t erm redeem able


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aft er 3

years

issued by

NABARD,

NHB, SI DBI

NHAI or

REC

from t he dat e

of t ransfer

Sec.

54ED

Any

per son

Sale of any

list ed

secur it y or

unit s aft er

01/ 04/ 2001

Long

t erm

Eligible

issue of

initial

public offer

Capit al Gains wit hin 6 m ont hs

from t he dat e

of t ransfer


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Sec.

54F

I ndividual

and HUF

having

not m ore

t han one

residential

house

anywhere

in I ndia

Any asset

ot her t han

Residential

house

Long

t erm

Residential

house

proper t y

Net

consideration

= full

consideration

reduced by

expendit ure

incur red


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wholly and

exclusively

in connection

wit h such

t ransfer

1 year before

t he dat e of

t ransfer or

wit hin 2 year s

aft er t he dat e

of t ransfer

purchased t he

house proper t y

or wit hin 3

years aft er t he

dat e

const ruct ed a

residential

house

page 8 - Capital Gains Income (Continued) INDEX

I n case t he new asset s purchased are sold wit hin a per iod of t hree year s of

purchase, ex cept in under section 54ED where t he lock in per iod is 1 year , t he

exem ption will be rever t ed. I n all t he above cases, if only par t of t he am ount is

invest ed, t hen t he propor tionat e am ount of capit al gains will be exem pt and balance

is t axable. Deductions under Chapt er VIA [ 80D, 80CCC et c] and rebat e u/ s 88 are

not available on long t erm capit al gains. But a resident senior citizen above 65 years

of age can claim rebat e u/ s 88B against long- t erm capit al gains. Wom an assessee


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less t han 65 year s can claim rebat e under Section 88C against long t erm capit al

gains.

Where t he liabilit y t o t ax ar ises in t he case of individuals or HUFs only because of t he

inclusion of long- t erm capit al gains in t he t ot al incom e, t ax will be levied at t he

cor responding flat rat es on t he ex cess over t he m inimum t axable limit.

Provisions for set t ing of f t he Capit a l loss

Where t he net result for any year in respect of any source falling under any head of

incom e is a loss, t he assessee can set it off against his incom e f rom any ot her source

under t he sam e head. Then, Sec. 71 allows t he balance loss t o be set off against

incom e from any ot her head, subj ect t o som e exceptions. Loss under capit al gains is

one such exception. Sec. 74 provides t hat a loss under t he head Capit al Gains can be

car r ied forward and set off against capit al gains in t he following 8 years.

A loss f rom long- t erm capit al asset can be set of f only against t he prof it fromt he long- t erm

capit al asset dur ing t he sam e year or in subsequent 8 assessm ent

years. Loss f rom t he long- t erm asset can not be set off against t he shor t - t erm

profit s.

I nve st ing in Capit a l Gains Account s Schem e 1 9 8 8 :

If t he assessee is not able t o invest t he am ount of capit al gain or net consideration

under Sections 54, 54B, 54D, 54F and 54G, he can deposit t he sam e in Capit al

Ga ins Account s Schem e 1 9 8 8 account w it h any specif ied bank or inst it ut ion.

However t his deposit has t o be m ade on or before t he due dat e for f iling I . T.

ret urn or act ual dat e of filing the ret urn, whichever is ear lier , of t he previous year in

which t ransfer of asset t ook place.

The am ount deposit ed has t o be utilised within the tim e specified for t he acquisition

of new asset under respective sections i.e. 54, 54B, 54D, 54F & 54G. If t he whole or

par t of t he am ount deposit ed is not utilized for t he purpose, t he propor tional am ount

of capit al gain relat ed with t he unutilized am ount deposit ed in t he account will be

brought t o t ax in t he year in which t he specified per iod expires.


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E. I N COME FROM OTH ER SOURCES

Residuary I ncom e of ever y kind, which is not chargeable under ot her heads such as

Salary, Capit al Gains et c, shall be charged under t his head. I nt erest incom e f rom

secur ities, I nt erest f rom Bank Deposit s, Fam ily pension received by legal heirs et c

are repor t ed under t his head.

page 9 INDEX

I MPORTAN T PERMI SSI BLE DED UCTI ON S FROM GROSS TOTAL I N COME

[ UN DER CH APTER VI A]

The following deductions are allowed on satisfaction of t he conditions stipulat ed

under t he relevant sections of I ncom e Tax Act.

I T

Sect ion

Det a ils Am ount of

Ex em pt ion

80CCC Prem ium paid t o approved PENSI ON FUNDS Upt o Rs. 10,000/ -

80D Paym ent of prem ium t o a MEDI CLAIM policy

or HEALTH RI DERS of any LI FE POLI CY t o

GI C/ ot her insurers approved by I RDA. Such

prem ium can be paid for healt h insurance of

spouse, dependent parent s and children.

Up t o a m axim um of

Rs. 10,000/ - for

individuals and

Rs. 15,000/ - for Senior

Citizens

80DD Any expendit ure for m edical t reatm ent for

HANDI CAPPED DEPENDANTS or deposit s


22/46

under LI C, UTI or I RDA approved I nsurer s

Rs 50000/ - ,higher

deduction of Rs.

75000/ - if dependent is80E Repaym ent of EDUCATI ONAL LOAN,

including int erest t hereon, t aken from

Financial/ Char it able institution for SELF FULL

TI ME HI GHER EDUCATI ON for a m axim um

per iod of 8 years

up t o Rs. 40,000/ - for

any graduat e/ PG

cour se in

Engineer ing/ Medicine/

Managem ent or for PG

cour se in Applied or

pure science

80G & 80

GGA

Donation t o Specified I nstit utions subj ect t o

t he limit prescr ibed, depending on t he donee

institution

100% or 50% of

donation, in som e

cases rest r ict ed t o 10%

of gross incom e

80 GG Deduction in respect of Rent paid when

t here is no HRA subj ect t o prescr ibed ceiling

25% of incom e or rent


23/46

paid in excess of 10%

of incom e or ceiling of

Rs. 24,000/ - p.a,

whichever is less

80L I nt erest on Bank deposit s, int erest accrued

on NSC, NSS, int erest on deposit s wit h HFI s

et c int erest on specified governm ent

secur ities, et c.

Rs. 12000/ - and

additional limit of Rs.

3,000/ - is and available

only for int erest on

governm ent secur ities.

80U Deduction for handicapped t ax payer

[ subj ect t o conditions]

Rs 50000/ - ,higher

deduction of Rs.

75000/ - if dependent is

a per son wit h severe

disabilit y.

page 10 INDEX

TAX REBATES AVAI LABLE UN DER SECTI ON 8 8

Tax Rebat e is a deduction directly from t he t ax payable.

It depends on t he Gross Tot al I ncom e [ GTI] .

Sl N o. Gross Tot a l I ncom e [ GTI ] Range

% of am m ount

inve st ed


24/46

Max im um

rebat e

account

1 GTI upt o Rs. 1 lakh * 30% Rs.

30,000/ -

2 Rs. 1.5 lakhs and less 20% Rs.

20,000/ -

3 Rs. 1,50,001/ - t o Rs. 5 lakhs 15% Rs.

15,000/ -

4 More t han Rs. 5 lakhs Nil Not

Applicable

* and also salary incom e before st andard deduction and professional t ax should not

be less t han 90% of GTI .

Gross t ot al incom e refer s t o incom e ar r ived at before allowing any deductions underChapt er VI

A.

Senior Citizens [ resident s in I ndia] aged 65 years and above, are entitled for 100%

t ax rebat e from t he t ax payable on t he t ot al incom e subj ect t o a m axim um of Rs.

20,000/ - , apar t from Section 88 benefit s.Under Section 88C, Wom en t ax payer s

[ resident s in I ndia] below t he age of 65 years are eligible for a additional rebat e of

Rs. 5,000/ - , apar t from Section 88 benefit s.

I n t he next page, we have given t he det ails of investm ent eligible for Tax Rebat e U/ S

88.Som e of t hese investm ent s have also been discussed in det ail between pages 16

and 21.

Tax rebat e allowed u/ s 88 in an assessm ent year , can be wit hdrawn in subsequent

assessm ent year under t he following circum st ances: -

1. If t he t axpayer fails t o pay any life I nsurance Prem ium or t erm inat es t he

cont ract of insurance before prem ia been paid for 2 year s.

2. If t he t axpayer fails t o pay prem ium for ULIP before cont r ibutions have been


25/46

paid for 5 years.

3. If t he t axpayer t ransfer s his house proper t y ( in respect of which t ax rebat e

has been availed) before t he expiry of 5 year s f rom t he end financial year in

which possession of such proper t y was obt ained or receives back t he

am ount.

Assessm ent Ye ar and Previous ye ar

I ncom e Tax is calculat ed on t he incom e

received/ accrued dur ing a financial year .The

Assessm ent Year is t he year next t o t he financial year

[ which is also refer red as previous year ] in which t he

incom e is charged t o t ax. For exam ple, for assessm ent

year 2004- 2005, t he financial year ( previous year ) is

2003- 2004 ( i.e. from 1.4.2003 t o 31.3.2004) .

page 11 INDEX

I N VESTMEN TS ELI GI BLE FOR TAX- REBATE U / S. 8 8 *

N am e of Schem es /

Funds

I nve stm ent can

be in t he nam e

of

Feat ure s

1)

Life I nsurance

Prem ium

Spouse, self &

Children

Tailor m ade schem es, Longer lock


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in per iod, Tax f ree ret urn, Life Risk

cover [ Paym ent of prem ium in

excess of 20% of sum assured,

cannot be included.]

2) St at ut ory &

Recognised

Provident Fund

Self t ax free ret urn, - Voluntary

cont r ibution also perm issible

3) Public provident Spouse, self &

m inor Children

t ax free ret urn of 8.0% - Term of

15 years. Loans and Par tialfund m inor Children 15 years. Loans and Par tial

wit hdrawals subj ect t o conditions,

Rs. 500/ - t o Rs. 70,000/ - per

annum can be invest ed in lum p

sum or inst alm ent s.

4) National Savings

Cer tificat es [ NSC]

Self 8.0% , Term of 6 years, int erest for

first 5 year s is also eligible for

rebat e. I nt erest is t axable and

deductible under Section 80L.

5) Unit Linked

I nsurance Plan

[ ULI P] of Unit Trust

if I ndia or


27/46

Dhanraksha Plan of

LI C

Spouse, self &

Children

Unit s wit h insurance cover ,Term of

10/ 15 years, Ret urn is t axable and


6) Hom e Loan

Account schem e of

NHB

self Ret urn is fully t axable and not


7) Subscr iption not

Exceeding Rs.

10,000/ - t o Equit y

Linked Savings

Schem e of any

m ut ual fund

Self Lock in per iod 3 years- ret urns

subj ect t o capit al m arket

per form ance, Ret urn is t axable and

deductible under Sec 80L.

8) Housing Loan

Pr incipal

repaym ent

Self (m axim um of

Rs. 20,000/ - )


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I nst alm ent or par t paym ent of

Housing loan t aken for purchase or

const ruction of new residential

proper t y .

9) Tuition Fees paid t o

a universit y,

college or school or

ot her educational

institution sit uat ed

in I ndia.

Up t o two children

of t he t axpayer

(m axim um of Rs

12,000/ - per

child)

Should be paid for full tim e

education. Can not be claim ed for

any developm ent fees or donation

or paym ent of sim ilar nat ure.

10)

I nf rast ruct ure

Bonds

Self Lock in per iod 3 years, Ret urn is

t axable and deductible under Sec

80L

* You can invest a m axim um of Rs. 70,000/ - in it em s 1 t o 9, whereas m axim um of

Rs. 1 lakh can be invest ed in it em s 1 t o 10 i.e. Additional Rebat e on Rs. 30,000/ - is


29/46

available for it em 10page 12 INDEX

OTH ER I N COME TAX RELATED MATTERS

( i) Provisions for paym ent of Advance Tax ot her t han com panies

Advance Tax is payable in the following inst alm ent s:

I nst allm ent Percent age t o advance t ax Due dat e

First upt o 30% 15t h Sept em ber

Second upt o 60% 15t h Decem ber

Final upt o 100% 15t h March

No Advance Tax be paid, if t ot al t ax payable for t he previous year is less

t han Rs. 5,000/ - . Non- paym ent or shor t paym ent of Advance Tax will

att ract int erest @1% per m ont h or par t of a m ont h.

( ii) Perm anent Account N um be r ( PAN )

Perm anent Account Num ber ( PAN) is an alphanum er ic com bination of 10

charact er s allott ed by t he I ncom e Tax Depar tm ent and issued in t he form of

a laminat ed card. It can be obt ained by m aking an application in prescr ibed

Form 49A t o t he assessing officer . PAN is required for

1. Filing of I.T. Ret urns and cor respondence wit h the depar tm ent,

2. Filling of challans for paym ent of t axes,

3. Opening of a Bank Account,

4. Making a fixed Deposit of m ore t han Rs. 50,000/ - wit h any Bank.

5. Making any cash deposit for m ore t han Rs. 50,000/ - in a day with

any bank,

6. Acquiring a t elephone or cell- phone connection,

7. Buying or selling a m ot or vehicle ot her t han a t wo wheeler ,

8. Making a deposit of m ore t han Rs. 50,000/ - in post office account s.

9. Buying or selling shares or debent ures valued m ore t han

Rs.1,00,000/ -


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10. Buying or selling im m ovable proper t y valued Rs. 5,00,000/ - or

m ore,

11. Making paym ent t o hot els and rest aurant s against bills exceeding

Rs. 25000/ - at a tim e

12. Making cash paym ent for foreign t ravel of m ore t han Rs. 25,000/ -

at one tim e

For t he t ransactions 3 t o 12, if any per son is not allott ed PAN/ GI R No, he

can car ry out t he t ransaction by filing a sim ple declaration in Form N o 6 0 ,

giving par ticulars of t he t ransaction. Those who quot e wrong PAN, will have

t o pay a pena lt y of Rs. 1 0 ,0 0 0 / - . I T Dept has m ade ar rangem ent with

UTI I nform ation Services Lt d for quick issue of t he PAN cards.page 13 - Other Income Tax Related

Matters

(Continued)

INDEX

( iii)

Filing of I ncom e Tax Ret urn

Ever y individual, whose t ot al incom e exceeds t he m axim um am ount,

which is not chargeable t o t ax, is required t o file a ret urn ( i.e. where

t axable incom e exceeds Rs. 50,000/ - , in case of individual or HUF) .

Fur t her , if t he person fulfils any of t he conditions m entioned below, he is

obligat ed t o f ile a ret urn under one

by six schem e.

1. Ownership/ lease of a m ot or vehicle

2. Occupation of cer t ain specified cat egor ies of im m ovable proper ties

( ownership, t enancy or ot herwise)

3. Foreign t ravel t o a count ry ( wit h exceptions)

4. Subscr iption of a cellular t elephone not being Wireless in local loop

t elephone.


31/46

5. Holder of a credit card ( not being as "add- on" card) issued by a

bank or an instit ution

6. Mem ber of a club where t he ent rance fee charged is Rs. 25,000/ -

or m ore

( However , if an individual is 65 years old or m ore, and not engaged in any

business or profession, he is not subj ect t o im m ovable proper t y and

t elephone conditions. )

Salaried em ployees should file t heir ret urn before 31st July and Persons

covered under one by six econom ic cr it er ia shall subm it before 31st

Oct ober . Penalt y for not filing t he ret urn before t he end of relevant

assessm ent year is - Rs. 5,000/ - [ sec 271F] . Rem em ber , I T ret urn is a

legal docum ent, it should be filled wit h care and caution. I T depar tm ent

has also m ade ar rangem ent s for filling ret urns t hrough

identified int erm ediar ies.

( iv) Tax Deduct ion at Source ( TDS)

Tax Deduction at source [ TDS] is a com pulsory and convenient m et hod of

t ax collection, dur ing t he generation of incom e it self. All sum s of t ax

deduct ed from t he incom e is t reat ed as, and added t o t he incom e of t he

payee. Payee can claim t he TDS am ount against t he t ax payable, by

enclosing t he or iginal TDS cer tificat e t o his I T ret urn. I f a per son is liable t o

pay less t ax am ount t han t he t ax deduct ed at source, he can claim refund

by filing his I T ret urns. If t he assessee has not received TDS cer tificat e, he

can subm it it within two years from t he end of t he year in which such

incom e was assessable. I n any case, he has t o disclose t he relat ed incom e

in his ret urn for t hat year .

Som e im por t ant TDS rat es in ca se of a re sident ot her t han com pany

1. I nt. on debent ures & Bonds 10% over Rs. 2,500/ -


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2. I nt.on fixed deposit s in Banking/ Hsg.

Finance Cos.

10% over Rs. 5,000/ -

3. I nt.ot her t han int.on secur ities ( w.e.f

1.6.2000)

10% over Rs. 5,000/ -

N ot e :- A Sur charge of 10% shall be calculat ed on all t he above, if t heN ot e :- A Sur charge of 10%

shall be calculat ed on all t he above, if t he

am ount paid / payable is m ore t han Rs 8,50,000/ - in a financial year .

Where eligible, you can declare in Form s 15 H or 15 G and request for nondeduction of t ax at source.

page 14 INDEX

TI PS ON I N COME TAX PLAN N I NG

1. First t ake care of your I nsurance, bot h life and healt h. Riders, options, m ix

and m at ches are quit e popular now. Term insurance has t he lowest cost wit h

highest cover . Minim um of t erm insurance is required for everyone.

2. Avail fully t he provisions of 80CCC [ Pension Plan] and 80 D [ Medi- claim] , as

t hey reduce your Gross Taxable incom e. 80CCC provide for retirem ent

planning also.

3. Avail Housing Loan. Loss on House Proper t y m ay br ing down your gross

t ot al incom e below t he cut off limit, say Rs 1.5 lakhs or 5 lakhs. Through

t his, you m ay enj oy higher rebat e u/ s 88.

4. Plan your t ax planning investm ent s f rom t he beginning of t he year . By June,

you should have planned your t ax planning investm ent s up t o next Mar ch.

5. Pay advance t ax in tim e and file I ncom e t ax ret urn prom ptly t o avoid

paym ent of int erest. Please not e t hat int erest paid t o I ncom e Tax

depar tm ent is not a deductible expendit ure.

6. Fund higher st udies for your adult children wit h educational loan, even if you


33/46

have funds t o m eet t he sam e. However , not e t hat it is t he child who has t o

t ake a loan and t he deduction is available on his incom e; not yours, even if

you t ake t he loan. I nvest t he m oney you have earm arked for t heir education

in ot her att ractive avenues. It will also m ake your child m ore responsible,

when he st ar t s earning.

7. Preserve TDS Cer tificat es in respect of I nt erest/ dividend received carefully.

You have t o att ach t he or iginal TDS cer tificat es t o your I T ret urn. Keep full

records for all your capit al purchases such as House, Shares et c.

8. Maint ain a separat e file for t axation and file your copies of your I T ret urns

and ot her relat ed cor respondence. This will help you in answer ing t he

quer ies, if any of I T dept.

9. Keep your self inform ed on Taxation m att ers. I ncom e Tax Depar tm ent has

got excellent websit es. Financial Newspapers also give t ax inform ation in

t heir websit es. Also, go t hrough booklet s, Tax Payers I nform ation Ser ies

being brought out by Direct orat e of I ncom e Tax .

10. To enj oy peace of m ind, pay your t ax fully and prom ptly. Never evade your

t ax obligation. Be a honest t ax payer and hold your head high as a

honorable

citizen.page 15 INDEX

W EALTH TAX

Wealt h t ax is an annual levy payable on t he net wealt h as on March 31 each year .

Net wealt h is ar r ived at by deducting t he liabilities incur red t o acquire t he asset s

from value of t he asset s [ t here are rules t o ar r ive at t he value of t he asset s] Where

t he net wealt h does not ex ceed Rs. 15 lakhs, t he wealt h t ax is Nil. Where t he net

wealt h exceeds Rs. 15 lakhs, Wealt h t ax is 1% of t he am ount by which t he net

wealt h exceeds Rs. 15 lakhs.

Asset s on w hich W ea lt h t ax is cha rge able


34/46

There are six t ypes of asset s which are t o be t aken int o account at t he tim e of

com puting wealt h t ax. Wealt h t ax is chargeable only on t he following asset s:

1. Any guest house, residential houses [ one house exem pt ed] , com m er cial

proper t y ,

urban farm house, wit h exceptions.

2. Mot or car for per sonal use.

3. Jewellery

4. Yacht s, boat s, and aircraft used for non- business purposes.

5. Urban land, subj ect t o t he conditions specified.

6. Cash in hand exceeding Rs. 50,000/ - .

All ot her asset s, including shares, secur ities, loans, deposit s, Gold Deposit bonds,

fixed deposit s, office prem ises and godowns are not subj ect t o wealt h t ax,

ir respective of t heir value. I f you have m ore t han one residential house, t he one wit h

t he higher valuation can be claim ed as exem pt, leaving t he one wit h t he lower

valuation subj ect t o wealt h t ax.

Cut of f dat e for det erm ining W e alt h Tax liabilit y

March 31st is t he cut off dat e t o det erm ine whet her an asset is chargeable t o wealt h

t ax. If an asset is pur chased on March 31st, it will be t axable. Likewise, if an asset

held t hrough t he year is sold j ust before Mar ch 31st, it will not be liable t o t ax .

GI FT TAX

Gift Tax Act has been repealed wit h effect f rom 01/ 10/ 1998.

Hence gift s received by donee aft er 01.10.1998 will not be

charged t o gift t ax. These wil not be t reat ed as incom e in t he

hands of t he donee.page 16 INDEX

TAX SAVI N G I N VESTMEN TS

Ever y t ax saving investm ent schem e has inherent advant ages and disadvant ages.

Each individual has t o decide his investm ent st rat egy based on :


35/46

- Lock in per iod and Safet y of t he investm ent

- Ret urn before t ax/ Ret urn aft er t ax/ Tax f ree ret urns

- Whet her int erest will be t reat ed as f resh investm ent under Section 88

- 80L exem ptions

- Age and r isk per ception

- Liquidit y

Again cer t ain aspect s such as Life I nsurance, Healt h I nsurance or a roof over our

head should be im m ediat e pr ior ities for any invest or . We have given hereunder a

birds eye view of t he som e im por t ant Tax saving investm ent s and t heir feat ures.

LI FE I N SURAN CE

Life I nsurance Product s provide s

* Prot ection against r isk for t he fam ily of t he insured

* Painless saving Prem ium is less, being long t erm saving

* Liquidit y - generally policies accept ed as collat eral for loans f rom banks and

financial instit utions, aft er stipulat ed per iod

* Tax Relief

- Under Section 88 - for prem ium paid under t he general cat egory up t o

Rs. 70,000/

- Under Section 10( 10D) all sum s received under life insurance policy is

exem pt ed from I ncom e t ax, wit h ( som e exceptions) . This benefit is

not available in respect of policies issued aft er 31/ 03/ 2003, where t he

prem ium paid in any of t he year s dur ing t he t erm of t he policy

exceeds 20% of t he act ual capit al sum assured

- U/ s 80CCC( I ) - Cont r ibution t o t he ext ent of upt o Rs. 10,000/ - is

deduct ed from Gross Taxable I ncom e

- All Life I nsurance Policies are exem pt f rom Wealt h Tax

Va r ious t ypes of policies a re a va ilable. Com m on one s ar e


36/46

- :Term I nsur ance : Pay s deat h insurance t o t he legal heirs of t he per son

insured, if he/ she dies dur ing t he t erm of t he policy. There m ay not be

survival benefit s t o t he insured. I nexpensive policy.

- W hole life I nsur ance : guarant ees deat h benefit t o legal heirs of t he

insured, t hroughout t he course of life. Prem ium s are payable for 35 years or

till the age of 80, whichever is m ore.

- Endow m ent Assur ance : Pay s out eit her on t he deat h of assured,

whenever it occurs or aft er a fixed num ber of years.

- Annuit ie s : a form of pension, in which an I nsurance Com pany m akes a

ser ies of per iodic paym ent s t o a person or his legal heirs over a num ber of

years

- Unit link ed policies : is a life assurance policy, in which t he benefit s depend

upon t he per form ance of a por tfolio of shares/ unit s.

- Money Back Policie s : provides paym ent of cer t ain percent age of sum

assured on sur vival for fixed per iod, dur ing t he t enure of t he policy.assured on sur vival for fixed

per iod, dur ing t he t enure of t he policy.

Com bination of t he benefit s of t he above policies is possible. Riders [ Double Accident

benefit, Healt h I nsurance et c] are also perm itt ed. There are also special product s for

Wom en and Children.

Va r isht ha Pension Bim a Yoj ana of LI C:

This schem e launched on 14/ 07/ 2003, guarant ees a life long pension at 9% int erest

for Senior Citizens above 55 years. This is a governm ent subsidized schem e and LI C

has been given t he sole pr ivilege t o operat e t he schem e. I n t he event of unfor t unat e

deat h of t he pensioner , purchase pr ice will be ret urned t o t he nom inee. Minim um

Pension Rs 250/ - per m ont h [ ie Rs 750/ - per quar t er , Rs 1500/ - per half year , Rs

3000/ - per year ] , Maxim um pension Rs 2000/ - per m ont h.

page 17 - Tax Saving Investments (Continued) INDEX

MUTUAL FUN DS


37/46

A Mut ual Fund is a t rust t hat pools t he savings of a num ber of invest or s and invest s

t he funds in secur ities in accordance wit h t he obj ectives as disclosed in t he offer

docum ent. The incom e earned t hrough t hese investm ent s and t he capit al

appreciation realized by t he schem e are shared by it s unit holders in propor tion t o

t he num ber of unit s owned by t hem . Each Mut ual Fund schem e has a defined

investm ent obj ective and st rat egy.

Types of Mut ual Fund Schem es

Mut ual fund schem es m ay be classified on t he basis of it s st ruct ure and it s

investm ent obj ective.

1 ] By St ruct ure

Open- end Funds

An open- end fund is one t hat is available for subscr iption all t hrough t he

year . These do not have a fixed m at ur it y. I nvest or s can conveniently buy

and sell unit s at Net Asset Value ( "NAV" ) relat ed pr ices

Closed- end Funds

A closed- end fund has a stipulat ed m at ur it y per iod, which generally ranges

from 3 t o 15 years. The fund is open for subscr iption only dur ing a specified

per iod.

I nt e rva l Funds

I nt erval funds com bine t he feat ures of open- ended and close- ended

schem es. They are open for sale or redem ption dur ing pre- det erm ined

int ervals at NAV- relat ed pr ices.

2 ] By I nvestm ent Obj ect iveThe aim of incom e funds is t o provide regular and st eady incom e t o

invest ors. Such schem es generally invest in fixed incom e secur ities such as

bonds, corporat e debent ures and Governm ent secur ities.

Ba lanced Funds

The aim of balanced funds is t o provide bot h growt h and regular incom e.


38/46

Such schem es per iodically dist r ibut e a par t of t heir earning and invest bot h

in equities and fixed incom e secur ities in t he propor tion indicat ed in t heir

offer docum ent s.

Money Ma rk et Funds

The aim of m oney m arket funds is t o provide easy liquidit y, preservation of

capit al and m oderat e incom e. These schem es generally invest in safer

shor t - t erm inst rum ent s such as t reasur y bills, cer tificat es of deposit,

com m er cial paper and int er - bank call m oney.

page 18 - Tax Saving Investments, Mutual Funds

(Continued)

INDEX

3 ] Special Schem e s

I ndust r y Specif ic Schem es

I ndust r y Specific Schem es invest only in t he indust r ies specified in t he offer

docum ent.

The investm ent of t hese funds is limit ed t o specific indust r ies like I nfot ech,

FMCG,

Pharm aceuticals, et c.

I ndex Schem e s

I ndex Funds att em pt t o replicat e t he per form ance of a par ticular index such

as t he BSE

Sensex or t he NSE50

Sect or al Schem e s

Sect oral Funds are t hose which invest ex clusively in a specified sect or . This

could be an indust ry or a group of indust r ies or var ious segm ent s such as A

Group shares or initial public offer ings.

Tax Benef it s in investm ent in Mut ua l Funds:


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- I ncom e received in respect of unit s of UTI/ m ut ual fund specified u/ s 10( 23D)

are exem pt from I ncom e Tax.

- Am ount invest ed is exem pt from Wealt h Tax wit hout limit

- Long t erm capit al gains are eligible for exem ption u/ s 54F, 54EC and 54ED.

- Any incom e ar ising from t ransfer of US 64 unit s will be exem pt f rom Capit al

gains t ax- Consequently, loss ar ising on t ransfer of unit s of US64 cannot be

set off against any incom e in t he sam e year in which it is incur red and t he

sam e can not be car r ied forward.

I nve stm ent in follow ing Mut ua l Fund Schem es a re ent it led t o r ebat e in t axunde r Sect ion 8 8

:

1 ] Unit Link ed I nsur ance Plan, 1 9 7 1 ( ULI P) of UTI

A] Can be invest ed singly/ j ointly

B] At m at ur it y, Bonus + cash equivalent of unit s will be paid.

C] Duration: 10 or 15 year s A m em ber can continue beyond t he 10/ 15

year per iod,

subj ect t o conditions

D] ULI P can be t aken in t he nam e of Spouse, children m aj or / m inor

E] Provides life insurance cover upt o t he t arget am ount and Personal

Accident cover upt o Rs. 50,000/ -

F] Reinvestm ent of dividend in unit s

G] Target am ount: Minim um Rs. 15,000/ -

Maxim um Rs. 2,00,000/ -

H] I nvestm ent upt o Rs. 70,000/ - is eligible for t ax rebat e u/ s 88.

I] Prem at ure t erm ination of m em ber ship is possible

J] No m edical exam ination is necessary t o j oin t he plan

LI C Mut ual fund offer s schem e, similar t o ULI P called LI C- D hanr ak sha 8 9 .

2 ] Equit y Link ed Savings Schem e [ ELSS]

From Decem ber 98, t he governm ent has perm itt ed MFs t o have open- ended


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ELSS subj ect t o t he condition t hat an MF will have only one such schem e.

I nvestm ent up t o m axim um of Rs. 10000/ - eligible for rebat e u/ s Section 88

3 ] Ret ir em ent Funds:

UTI s retirem ent benefit plan ( RBP) and Franklin Tem plet ons Pension plans

( FTPP) are

st ruct ured as retirem ent plans. I nvest or can choose between life long

pension or lum p sum paym ent, m inim um investm ent is Rs. 10,000/ - . Entire

Rs. 70,000/ - limit under Section 88 can be invest ed in t hese funds


PUBLI C PROVI DEN T FUN D ( PPF)

A] Any individual can open only one Account besides his GPF Account

B] Option t o pay each cont r ibution in one lum p sum p.a., or in 12 inst alment s,

not necessar ily m ont hly.

C] Per iod: 15 years (Minimum 16 Annual cont r ibutions) - Option t o continue aft er

m at ur it y in blocks of 5 year s for any num ber of blocks.

D] No wit hdrawal can be m ade till end of 6t h financial year . Only one wit hdrawal

per year is perm issible t hereaft er .

E] I nvestm ent: m in. 500, Max. 70,000 p.a.

F] Aft er 15 year s, entire balance can be wit hdrawn.

G] I nt. 8% com pounded annually.

H] Limit ed loan facilit y available up t o 6 year s

I] Account can be opened in Post Office, any branch of SBI or its subsidiar ies or

in specified Nationalised Banks

J] Tax rebat e: I nt erest earned is t ot ally exem pt u/ s 10 ( 11)

I nvestm ent up t o Rs. 70,000/ - is eligible for rebat e u/ s 88

No t ax liabilit y at t he tim e of wit hdrawal

Any change in int erest rat es im pact s t he entire out st anding balanceN ATI ON AL SAVI NGS CERTIFI CATES ( N SC VI I I I SSUE)


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1. Can be bought Singly/ Jointly/ HUF

2. Minim um Rs. 100/ - No m axim um limit

3. Duration 6 years

4. I nt erest rat e from 1.3.2003 is 8% p.a. ( com pounded half year ly) .

5. I nt erest accrued between 1st and 5t h year is deem ed t o have been reinvest ed

and t herefore, is available for rebat e.

6. Can be offered as secur it y t o loans.

7. Tax Benefit s: I nt erest accrued eligible for deduction u/ s 80L (m ax. Rs.

12,000/ - ) . I nvestm ent & deem ed reinvestm ent upt o Rs. 70,000/ - is eligible for

rebat e u/ s 88, I nvestm ent exem pt ed f rom Wealt h Tax, No TDS at t he tim e of

encashm ent.

I nt e rest on N SC of Rs.1 0 0 0 / - N SC accrue s int e rest a s show n below :

Yea r I I I I I I I V V VI

Tot al

I nt e rest

I NT.@12%

( Upt o

31.12.98)

124.0 139.0 156.0 175.0 197.0 224.0 1015.0

I [email protected]%

( from 1.1.99

t o 14.1.2000)

118.3 132.3 148.0 165.4 185.1 206.9 956

I nt. @ 11%

( from

15.1.2000 t o

28.2.2001)


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113.0 125.8 140.0 155.8 173.5 193.1 901.2

I nt. @ 9.5%

( from 1.3.2001

t o 28.2.2002)

97.2 106.7 117.1 128.5 141.0 154.7 745.2

I nt. @ 9% (

1.3.2002 t o

28.2.2002)

92.0 100.5 109.7 119.8 130.9 142.9 695.9

I nt. @ 8% ( on

or aft er

1.3.2003 )

81.6 88.3 95.5 103.2 111.6 120.8 601.0


BON DS

Bonds are secur ities issued by a com pany, financial instit ution or governm ent. They

offer regular paym ent of int erest in ret urn for bor rowed m oney for a cer t ain per iod.

There are var ious t ypes of Bonds. Fixed rat e Bonds car ry fixed rat e of int erest

t hroughout t he t enure of t he bond. Floating rat e Bonds car ry int erest rat e which is

linked t o independent reference rat es and m ay vary wit h of m ovem ent of such

independent rat es. Deep Discount Bonds are issued at a discount t o t he face value.The face value

is paid at t he m at ur it y. These bonds are also known as Zero coupon

bonds.

Coupon Rat e is t he rat e of int erest which t he issuer pays on t he pr incipal/ paid up

value of t he Bond. Mat ur it y Dat e is t he dat e on which t he Bond m at ures. Generally

Bonds m at ure in a bullet form wit h a single repaym ent of pr incipal am ount on

m at ur it y dat e. But som e bonds have split or par t redem ptions wit h varying

repaym ent dat es. I nt erest paym ent dat es are t he dat es on which t he issuer pays out


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int erest on t he paid up value of t he Bonds. I nt erest paym ent f requency is t he

frequency of paym ent of int erest on t he bonds, which could be

m ont hly, quar t er ly, sem i annually, annual or cum ulative at redem ption. Yield t o

m at ur it y is

average rat e of ret urn on bond if it is held t o it s m at ur it y dat e and if all cash flows

are reinvest ed at t he sam e rat e of int erest.

Gilt s are fixed int erest secur ities issued by t he Governm ent t o raise m oney.

Corporat e debent ures are issued by I ndian com panies, secured or unsecured, having

m at ur it y of 18 m ont hs and above. These are issued in cer tificat e form and are

t ransferable inst rum ent s. Public Sect or Bonds are m edium and long- t erm obligations

issued by public sect or com panies where t he Governm ent shareholding is 51% and

m ore. Tax saving bonds offer t ax incentive eit her under section 88 or against Capit al

Gains Tax.

I nve st ing in Bonds for saving Tax :

I nfr a st ruct ur e Bond

I nf rast ruct ure bonds are float ed t ypically by financial I nstit utions like I CI CI , I DBI.

They offer a 15% t o 20% t ax rebat e on investm ent s up t o Rs 1,00,000/ - as per

provisions of section 88 in a given financial year . These bonds are norm ally fixed rat e

bonds and t here is no int erest rat e r isk dur ing bond t enure.

Capit a l Gains Bonds

I n any par ticular year , capit al gains ar ising out of t he t ransfer of a long- t erm capit al

asset, if invest ed in Capit al Gains bonds issued under Section 54EC by REC, SI DBI,

NABARD, NHAI and NHB will not be subj ect t o t ax t o t he ext ent of capit al gains

invest ed in t hese bonds. These bonds norm ally have a m inim um lock in per iod of

t hree year s.

Tax Fr ee Bonds :

These bonds, w here int ere st e arned on t he bonds is t ax fre e, ar e bene f icia l


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for invest ors in high t ax brack et . Few of such bonds ava ilable a r e

1 ]

RBI 6 .5 % Tax Free Bonds:

Beneficial for invest ors in high t ax bracket

page 21 - Tax Saving Investments - Tax Free Bonds

(Continued)

INDEX

1 ] RBI 6 .5 % Tax Free Bonds ( cont inued ) :- The m inimum investm ent am ount is Rs. 1,000 and t

hereaft er in

m ultiples of Rs 1,000/ - No m axim um limit for investm ent s

- The dat e of realization of cheque is dat e of issue of bond

- I nt erest is payable eit her half- year ly or cum ulatively at m at ur it y.

- Bonds are not t radable in secondar y m arket - cannot be given as

collat eral for loans

- I nvestm ent in Relief Bonds is exem pt f rom Wealt h t ax also

- Prem at ure Encashm ent available aft er 3 years lock in per iod,

subj ect t o conditions

- The bonds shall be repayable on t he expiry of 5 years from t he dat e

of issue.

2 ] 8 % Savings [ Tax able ] Bonds

- Only resident individuals, HUFs, char it able instit utions and

universities are eligible.

- The int erest earned will be t axable under t he I ncom e Tax Act 1961.

- The bonds will be exem pt from Wealt h- t ax under t he Wealt h Tax Act

1957.

- The Bonds shall not be t radable in t he secondar y m ar ket

- The Bonds shall not be eligible as collat eral for loans.

- The Bonds shall be repayable on t he expiration of 6 ( six years) from


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t he dat e of issue.

- The bonds will be issued at par and t here is no m axim um limit.

- The bonds will be issued for a m inim um am ount of Rs.1,000/ - ( face

value)

and in m ultiples t hereof.

W hat is Se lf Assessm ent Tax

If t here is incom e- t ax payable ( aft er adj usting TDS and advance t ax) on t he basis of

I ncom e Tax Ret urn, t he sam e should be paid as Self Assessm ent Tax, before filing I T

ret urn. Any penal int erest payable eit her for shor t paym ent of Advance Tax or lat e

filing of I T ret urn, m ust also be paid as par t of Self Assessm ent Tax.

page 22 INDEX

SCH EMES AN D SERVI CES AVAI LABLE AT CAN ARA BAN K AN D

I TS SUBSI DI ARI ES FOR YOUR I N COME TAX PLAN N I N G

You can -

- Avail Housing Loan f rom branches of t he Bank and CanFin Hom es.

- Enj oy 80L benefit s in respect of int erest on deposit wit h Bank and CanFin

Hom es.

- Avail Educational Loan f rom any branch of t he bank.

- Buy Govt of I ndia secur ities from select ed branches and enj oy additional

exclusive Rs. 3000/ - benefit under Section 80L.- Buy Govt of I ndia secur ities from select ed

branches and enj oy additional

exclusive Rs. 3000/ - benefit under Section 80L.

- I nvest in GOI - Tax f ree Relief bonds, available at designat ed branches.

- I nvest in PPF account at designat ed branches.

- Buy insurance product s from identified branches

- I nvest in Capit al Gains account wit h our branches.

- I nvest in Equit y Linked Savings Schem e of CanBank Mut ual Fund.

- I ncom e Tax rem itt ance can be m ade at designat ed branches


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* * * * * * * * * * * * * * * * * * * * * * *

This brochure is not for sa le. The provisions given above are as on

29/ 02/ 2004,for t he financial year 2003- 04 and t hey are only indicative and not

exhaustive. For bett er underst anding, var ious provisions have been sim plified in t his

brochure and t he brochure does not claim t o be t he exact act. For full det ails, we

advise t he cust om er s t o refer t he relevant por tions as cont ained in t he act s, rules,

notifications or regulations issued by I ncom e Tax Depar tm ent or consult t heir Tax

advisors/ consult ant s W hile ever y e f for t has been m ade t o ensur e t he accuracy

of t he inform at ion, Canar a Bank assum es no liabilit y for any e r rors or

om ission of inform at ion in t his brochure .

* * * * * * * * * * * * * * * * * * * * * * *

For fur t her suggestions / clar ifications, please cont act us at

Canara Bank , Execut or , Taxation Section, HO, Bangalore.

Person Al Tax Planni Ng

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