Tax planning for Indian salaried employees for FY 013-14

8/13/2019 Tax planning for Indian salaried employees for FY 013-14

1/35

Tax Planning

By Samira Rao,Chartered AccountantCo-founder Paybooks

www.paybooks.in


2/35

Is a good job and fatpay packet enough tokeep you happy?


3/35

Ignorance is not bliss !


4/35

Before we start :

1. This webinar is scheduled for 1 hour 50 minutesfor the talk and a 10 minute session to takequestions

2. You will need to use your headphones orcomputer speaker

3. Type your questions in the right hand panel inyour screen

4. The recorded version of this webinar will be putup on our website www.paybooks.in after 5business days
http://www.paybooks.in/http://www.paybooks.in/


5/35

Key take away from this webinar

1. General rates and effective rates2. Tax planning Vs. Tax avoidance Vs. Tax evasion

3. Tax planning and financial planning4. Taxable Income heads5. Deductions allowed with tips


6/35

Tax rates for FY 2013-14

Income Slabs Tax Rates

Where the total income does not exceedRs. 2,00,000/-

Nil @@

Where the total income exceeds Rs.2,00,000/- but does not exceed Rs.5,00,000/-

10%Less: Tax Credit - 10% of taxable incomeupto a maximum of Rs. 2000/-.

Where the total income exceeds Rs.5,00,000/- but does not exceed Rs.10,00,000/-

Rs. 30,000/- + 20%

Where the total income exceeds Rs.10,00,000/-.

Rs. 130,000/- + 30%

Surcharge: 10% of the Income Tax, where total taxable income is more than Rs. 1 crore.

Education Cess: 3% of the total of Income Tax and Surcharge@@ For 60+ aged basic exemption is 2.5 lakhs and for 80+ aged it is 5 lakhs


7/35

Example of tax calculation:

Assume taxable income is 12 lakhs

0-2 lakhs ( basic exemption) No tax2-5 lakhs on 3 lakhs*10% = 30,0005.01-10 lakhs on 5 lakhs *20% = 100,00010.01- 12 lakhs on 2 lakhs*30% = 60,000Total basic tax = 190,000Add: Education cess @ 3% = 5,700Total tax = 195,700

Effective tax rate = 195,700/12,00,000= 16.31%


8/35

Tax planning, Tax avoidance, Tax evasion

Tax planning Tax avoidance Tax evasion

Reducing tax liability byusing the various taxprovisions in the law

Reducing tax liability bymaking use of differentloopholes in the law

Illegally reducing taxliability by breaking the law

Is 100% legal Thin line of difference betweenplanning and avoidance inmany cases

Done usually by deflatingincome and inflatingexpenses

Tax payers are advised to usethis to reduce tax burden bymaximum usage ofexemptions and deductions

Not generally advisable as taxpayer is making use of aprovision which the Govt didntanticipate. Retrospectivechanges can defeat taxavoidance schemes

Not advised at all. Haspenal and criminalramifications

Is done before tax liability

arises

Is done before tax liability

arises

Is done after tax liability

arises


9/35

Tax planning and financial planning

Tax planning is only a sub set of the more general Financial planning. Thepurpose of tax planning is to see how best to accomplish all the otherelements of the financial plan in the most tax efficient manner.

Financial planning covers chiefly cash flow management, educationplanning, portfolio management, retirement planning, real estate matters,insurance coverage, succession planning and last but not the least taxplanning.

Tax planning decisions should always be taken with the overall financial

plan in mind. It is important not to allow the tax tail to wag the financialdog.E.g. buying a insurance plan at fag end of the year just to save tax.


10/35

Taxable earning heads

1. Income from salaries2. Income from house property3. Income from business/profession4. Income from capital gains5. Income from Other sources


11/35

Main deductions/exemptions fromsalaries

These are allowed as a deduction from salary income only if itforms part of the salary components received.

Uniform allowance, Children Education allowance, ChildrenHostel allowance etc

HRA, LTA, Conveyance allowance, Medical reimbursement


12/35

Main deductions/exemptions fromsalaries

HRA

Least of the following is exempt - Rent paid over and above 10% of Basic+DA

40% or 50% of Basic+DA Actual HRA received in salary

You need to submit the rent receipts in original to your employer.If the rent paid is more than 1 lakh p.a, the PAN of your landlord

or a declaration that he has no PAN should be submitted. Else,HRA exemption will not be given by employer.

If the rent paid is less than Rs 3,000 pm, you need not submit therent receipts and the employer is bound to give exemption

without insisting on the rent receipts.


13/35

Tips on HRA claim

1. If your company has a FBP or basket of allowances policy, always

choose 40%/50% of Basic as your HRA component

2. You can pay rent to your parents provided they own the house and

claim HRA deduction. Ensure they disclose this in their personal

returns.3. You cannot pay rent to your spouse

4. Remember to keep the rent receipts safely if your rent is less than

3,000 pm. You need to submit these in original to the dept if you

get assessed.

5. Both you and your spouse can claim HRA deduction if you provideseparate rent receipts and rent is paid from a joint account. Based

on total incomes and applicable slabs, decide who will claim the

HRA both or only 1


14/35

Illustration on tax saving on HRA

You Parent aged 61years

Taxable incomewithout HRA claim 13,50,000 0

Rent paid/received 360,000 360,000

Standard exemption 0 108,00

Taxable income 990,000 252,000

Tax thereon 131,840 200

Original tax on 13.50lakhs

242,050 0

Saving 110,210 -200

In a case where rent is paid to parents


15/35

Illustration on tax saving on HRA

Planning on who will claim HRA when both husband and wifeare working and rent is assumed at Rs 20,000 p.m

You Spouse Total tax

Total income before HRA (I) 12,00,000 800,000A) HRA you in full 240,000 0

Tax on net income (I) A 125,660 92,700 218,360

B) Equal claim 120,000 120,000

Tax on net income (I) - B 158,620 67,980 226,600

C) Spouse in full 0 240,000

Tax on net income (I) - C 195,700 43,260 238,960

All things remaining same, the difference between the best and worstoptions equals 1 months rent!


16/35

Tips on HRA claim

On the new requirement of submitting PAN of landlord where rentclaim exceeds Rs 1 lakh per annum

1. In future, always remember to get the PAN of landlord while signingthe rent agreement or renewing the same

2. If your landlord is not having a PAN, ask him to sign a declaration no specified format for this. Can be in simple English3. If landlord has PAN but is not willing to share, consider getting a

rent receipt for just under 8,333 pm instead of losing out on theentire HRA deduction

4. If the rent is substantially more than 8,333 pm and landlord is notwilling to share the PAN, claim this outside your employersdeductions. Recompute your income after claiming the full HRAdeduction and claim the refund. Send a registered communicationto landlord asking him his PAN and preserve this for future use andsubmit when asked by the dept in the assessment/notice in lieu of

declaration of no PAN by landlord.


17/35

Tips on HRA claim

The Income Tax Act treats HRA and home loan deductions underseparate sections independently. The two are not interconnected toeach other and hence you can claim both the deductions as long asyou satisfy the conditions for each of them independently.

Situation Deduction

Live in own house on which you have ahome loan

Interest deduction of Rs 1.50 lakhs andPrincipal repayment of Rs 1 lakh. No HRA

Live in City A in a rented house and own ahouse in City B with a home loan

You can claim both HRA and interest/principaldeductions

Live in City A in a rented house and own aunder construction house in City A with ahome loan

You can claim both HRA and interest/principaldeductions. You can claim tax benefits only foryour principal before the completion of yourhouse. Once your house is completed, you canclaim tax benefits on the total interest paid upto the date of completion in five equalinstalments in five years beginning from theyear of completion

Live in City A in a rented house and own a

house in City A with a home loan which isrented out

You can claim both HRA and actual interest and

upto 1 lakh principal deductions. However, youneed to offer the rent you receive to tax


18/35

Tips on LTA claim

1. LTA claim covers only cost of travel and does not coveraccommodation and food

2. Travel can be in any mode rail, bus, air and taxi3. International travel is not covered under LTA4. LTA can be claimed on family spouse, parents, siblings and children

Tips

1. If you have a FBP/Basket of allowances option in your company, ensurethat you have chosen the maximum allocable in the years in which you

are planning for the travel.2. If you havent claimed LTA in the notified block, claim this in the firstyear of the next block. A total of 3 claims is possible in the block insuch cases

3. Both husband and wife can claim LTA for the same journey bysatisfying the requirement of submitting original tickets in a case where

tickets are booked online.


19/35

Medical Reimbursement

Expenditure for your medical treatment or the treatment of anymember of your family or any of your dependent relatives up to Rs.15,000 p.a. is tax exempt

There is no condition that the medical treatment should be at any ofthe approved hospitals and it could be at any place and from anytype of doctor belonging to Allopathic, Ayurvedic, Unani,Homeopathy or Naturopathy system of medicine. Even amount spentby you in the local medical shop on purchase of pills and supported

by a bill is eligible for exemption upto Rs 15,000

Maintain the discipline of collecting all the medical bills and be sureto submit all bills to your employer.


20/35

Medical Insurance

1. Deduction u/s 80D, 80DD is available over and above the 1 lakhexemption u/s 80C

2. Amount paid to CGHS ( Central Govt Health Scheme) or premiumpaid on a medical insurance policy for spouse and dependent

children upto 15,000 Rs p.a ( Rs 20,000 for 60+ age) AND3. Amount of premium paid for coverage of your parents upto Rs

15,000 ( Rs 20,000 if they are aged 60 +)4. Expenditure on preventive medical check up for self, spouse and

dependent children and parents upto Rs 5,000. This is part of theoverall 15,000 Rs limit as told in point 2 above.

Total claim allowed If none are 60+ 30,000 RsIf parents are 60+ 35,000 RsIf all are 60+ 40,000 Rs


21/35

House property deductions

1. Housing loan principal repayment upto Rs 1 lakh u/s 80C. This 80Cincludes other deductions like PF, life insurance premium, childrentuition fee, tax saving FDs etc

2. Even expenditure like stamp duty and registration fee is also eligibleu/s 80C

3. Interest payment deductions under 2 sections sec 24 and sec80EE

If the house for which loan is taken is not acquired or constructioncomplete within 3 years from the FY in which loan is taken, interestdeduction will be reduced to only 30,000 Rs instead of Rs 150,000

Property Deduction

Is self occupied you arestaying in the house for

which loan is taken

Upto Rs 1.50 lakhs

You have rented the house Actual interest paid


22/35


Additional benefit of Rs 1 lakh on Interest on home loans over andabove 1.50 lakhs. Conditions to be met

1. Loan is sanctioned between 01.04.2013 and 31.03.20142. Loan should not be more than 25 lakhs.3. Value of house on which loan is taken should not be more than

40 lakhs4. You do not own any other house in your name ( spouse name is

allowed)


23/35


Important !

The house on which you have claimed deduction of principal paymentu/s 80C cannot be sold within 5 years from when you obtainedpossession.

If you sell the property within 5 years, then the amount you haveclaimed as deduction u/s 80C in the previous years shall be added toyour normal income and taxed.


24/35


Treatment of interest payment when house is under construction

Important!

1. Deduction is available only if construction is completed within 3 yearsfrom the year in which loan was taken

2. Be aware that you will be paying Service tax when buying a underconstruction apartment which is not the case when you buy a fullyconstructed apartment

Principal on loan for under construction houses is allowed as deduction

Purpose of loan Treatment

Repairs/reconstruction No deduction until completion

Purchase/ new construction Add all interest paid during constructionand claim 1/5th of this amount for 5years after completion of construction


25/35


Particulars Deduction basis

Principal Available on payment basis irrespective of the year towhich it pertains to. If you are paying for the last yeartoo, you can claim deduction.

Interest Available on payable (accrual) basis . So you canclaim deduction even if you havent actually paidinterest but it is due as per loan terms.

It is advisable to buy a house in joint name so that the deductions

can be maximized. Both husband and wife can claim deduction ofinterest and principal payment if paid from a joint account for thesame property.


26/35

Various deductions

Chapter VI A

Investments

Loans

Medicalspend

Earnings

Donations

Expenditure


27/35

Donations

Political

parties uptoRs 60,000

Approvedtrusts and

funds uptoRs 40,000

ApprovedResearch and

rural

development upto Rs 1

lakh


28/35

Loans

Educational loans

no limit

Home loans already

discussed in HRAsection


29/35

Medical Spend

Insurance forfamily and

parents asdiscussed

Maintenanceof specially

abled

dependents upto Rs 1

lakhs

Treatment ofcertain

specified

diseases upto Rs60,000

Speciallyabled people

upto Rs 1lakh


30/35

Investments

RajivGandhiEquity

SavingsScheme

upto25,000

Equitylinked

savingsscheme

(ELSS) combinedlimit of Rs

1 lakh

NewPensionScheme(NPS) -

combinedlimit of Rs

1 lakh

LifeInsurance -combinedlimit of Rs

1 lakh

Pensionplans fromInsurancecompanies

/ C. Govt -combinedlimit of Rs

1 lakh


31/35

Investmentscontd.

ProvidentFund -

combinedlimit of Rs

1 lakh

PublicProvident

Fund -

combinedlimit of Rs

1 lakh

Tax saving5 year FDs

-

combinedlimit of Rs

1 lakh

SeniorCitizensSaving

Scheme -combinedlimit of Rs

1 lakh

NationalSavings

Certificate(NSC) -

combinedlimit of Rs

1 lakh


32/35

Expenditure

Tuition fee of children

- combined limit of Rs1 lakh

Paying rent when not

in receipt of HRA upto Rs 24,000


33/35

Income

Interest income fromsavings accounts in

banks upto Rs10,000

Interest on NSC

combined limit of Rs 1lakh


34/35

A small step aheadfrom confusion toconfidence

Be aware of the varioustax provisions concerningyour incomes anddeductions.

Make tax planning anintegral part of youroverall financial plan


35/35

Thank You

Tax planning for Indian salaried employees for FY 013-14

Documents

Transcript of Tax planning for Indian salaried employees for FY 013-14