Paying tax is moral responsibility of every citizen, but to save tax by using different allowed deductions,allowances and incentives is every one's right.
ADDITIONAL BENEFITS PROVIDED IN UNION BUDGET 2012 :
1. Rajiv Gandhi Equity Savings scheme: It will provide income tax deduction of 50% for those who first time invest upto Rs.50,000 directly into equities and whose annual income is less than Rs.10 lakh, subject to a three -year lock in. Exchange-traded funds (ETFs) and mutual funds listed on stock exchange and invested only in BSE 100, CNX 100 and blue chip public sector stocks would also be allowed tax rebate under the scheme.
2. Exemption limit raised to Rs 2 lakhs from Rs 1.8 lakh. 30% slab now starts from 10 lakh rather than 8 lakh earlier. Men and women now have same tax slab. No gender bias!
3. Within the existing limit for deduction allowed for health insurance, Rs.5000 deduction for preventive health checkup is allowed.
4. Deduction of upto 10,000 for interest from savings bank accounts under a new section 80TTA.
5. Senior citizens not having income from business proposed to be exempted from payment of advance tax.
6. Securities Transaction tax (STT) reduced to 0.1% from 0.125%
7. Exemption from Capital Gains tax on sale of residential property, if sale consideration is used for subscription in equity of a manufacturing SME for purchase of new plant and machinery.
8. Service tax rate increased to 12% from current 10%. This would mean more taxes in your mobile, telephone, internet, restaurant bills and life insurance premium etc.
9. Import duty free amount limit raised to Rs 35000 from 25000. So guys coming from abroad can bring more stuff.
10. Gold to be more expensive. Customs duty on standard gold raised from 2 per cent to 4 per cent.
11. Duty on large cars raised to 27%, so cars would be more expensive now.
12. Tax saving mutual funds (ELSS) deduction to continue.
13. 80C deduction on insurance policies purchased after 1st April, 2012 only if premium is less than 10% of sum assured. Benefit for existing purchased policies to continue.
14. 1% tax at source on cash purchases of jewellery over Rs 2 lakh.
15. 80CCF deduction for infrastructure bonds not valid anymore.
16. Income tax return filing would be now mandatory for every resident having any asset located outside India irrespective of the fact whether the resident taxpayer has taxable income or not.
17. 80G deduction not applicable in case donation is done in form of cash for amount over Rs 10,000.
2. Exemption limit raised to Rs 2 lakhs from Rs 1.8 lakh. 30% slab now starts from 10 lakh rather than 8 lakh earlier. Men and women now have same tax slab. No gender bias!
3. Within the existing limit for deduction allowed for health insurance, Rs.5000 deduction for preventive health checkup is allowed.
4. Deduction of upto 10,000 for interest from savings bank accounts under a new section 80TTA.
5. Senior citizens not having income from business proposed to be exempted from payment of advance tax.
6. Securities Transaction tax (STT) reduced to 0.1% from 0.125%
7. Exemption from Capital Gains tax on sale of residential property, if sale consideration is used for subscription in equity of a manufacturing SME for purchase of new plant and machinery.
8. Service tax rate increased to 12% from current 10%. This would mean more taxes in your mobile, telephone, internet, restaurant bills and life insurance premium etc.
9. Import duty free amount limit raised to Rs 35000 from 25000. So guys coming from abroad can bring more stuff.
10. Gold to be more expensive. Customs duty on standard gold raised from 2 per cent to 4 per cent.
11. Duty on large cars raised to 27%, so cars would be more expensive now.
12. Tax saving mutual funds (ELSS) deduction to continue.
13. 80C deduction on insurance policies purchased after 1st April, 2012 only if premium is less than 10% of sum assured. Benefit for existing purchased policies to continue.
14. 1% tax at source on cash purchases of jewellery over Rs 2 lakh.
15. 80CCF deduction for infrastructure bonds not valid anymore.
16. Income tax return filing would be now mandatory for every resident having any asset located outside India irrespective of the fact whether the resident taxpayer has taxable income or not.
17. 80G deduction not applicable in case donation is done in form of cash for amount over Rs 10,000.
Other Benefits :
Income tax exemption for HRA will be least of following:
1. The actual amount of HRA received as a part of salary.
2. 40% (if living in non-metro area) or 50% (if living in metro area) of (basic salary+ Dearness
allowance (DA)).
3. Rent paid minus 10% of (basic salary+ DA).
In some cases, deduction for both HRA and home loan interest (u/s 24) can be taken together in case owned house is not in same city or not at a commutable distance to office.
Transport/Conveyance allowance: Rs 800 per month is non taxable if salary has this component. This would not be exempted in case employee also avail car reimbursement. No proofs/bills required to submit for this exemption.
Children education allowance: Per school going child 1200 per annum is non-taxable. Maximum for 2 children, so max 2400 per annum becomes non-taxable.
Arrears: Generally arrears are fully taxable, but employee may claim exemption u/s 89(1). One would need to compute income tax on the arrears if it would have been received in actual year. Now difference of income tax between payment year and actual year would be allowed for deduction.
Gratuity: If amount is received before completion of five years of service with employer, it should be taxable. Else it would be non-taxable up to Rs 10 lakh in case of non-government servants. In case of Government service employees, it would be fully non taxable.
Leave travel allowance (LTA): Two trips on a block of four years can be claimed for exemption for travel done inside India. Following amount would be non-taxable:
1. Where journey is performed by rail; railway-fare in first AC class by shortest route to destination.
2. Where places of origin and destination are connected by rail but the journey is performed by any other mode then first AC class fare by shortest route to the place of destination.
3. Where place of origin of journey and destination, or part thereof, are not connected by rail and journey is performed by any other transport; then (i) If a recognised public transport system exists between such places the first class or deluxe class fare of such transport by shortest route, or, (ii) If in other case, first AC class fare for the distance of the journey by the shortest route, as if the journey has been performed by rail.
Leave encashment: Payment by way of leave encashment received by Central & State Govt. employees at the time of retirement in respect of the period of earned leave at credit is fully exempt. In case of other employees, the exemption is to be limited to minimum of all below:
1. The actual amount received
2. The cash equivalent of leave balance (max 30 days per year of service)
3. Maximum of 10 months of leave encashment, based on last 10 months average salary
4. Rs. 3 Lakh
Performance Incentive/Bonus: This component would be fully taxable.
Medical allowance/Reimbursement: This component is on-taxable up to 15000 per year (or Rs 1250 per month) on producing medical bills.
Food Coupons – Non-taxable upto 50 Rs per day.
Periodical Journals: Some employers may provide component for buying magazines, journals and books as a part of knowledge enhancement for business growth. This part would become non taxable on providing original bills.
Professional Development Allowance : If original bills are submitted to employer, this allowance may become non-taxable. Generally payment done towards any technical course fee, certification etc done to enhance professional knowledge can be reimbursed.
Uniform/Dress Allowance: Some sections of employees mat get allowance for purchase of office dress/uniform. In such case, the component would become non-taxable.
Telephone reimbursements – In some of the cases, companies may provide a component for telephone bills. Employees may provide actual phone usage bills to reimburse this component and make it non-taxable.
Internet Expenses - Employer may also provide reimbursement of internet expenses and thus this would become non taxable.
Car expense reimbursements – In case company provides component for this and employee use self owned car for official and personal purposes, Rs 1800 per month would be non-taxable on showing bills for fuel or can maintenance. This amount would be Rs 2400 in case car is more capacity than 1600cc.
Driver salary – If employee pays driver salary for self owned or company owned car, Rs 900 per month may become non-taxable if employer provides component for it.
Gift from relatives vs non relatives: Gifts from relatives would be non-taxable with no limits attached. Following relations are covered under non-taxable rule:
1. Spouse of the individual
2. Brother or sister of the individual
3. Brother or sister of the spouse of the individual
4. Brother or sister of either of the parents of the individual
5. Any lineal ascendant or descendant of the individual
6. Any lineal ascendant or descendant of the spouse of the individual, Spouse of the person referred to in clauses (2) to (6).
If gift is received from a non-relative person worth more than Rs.50000, one is liable to pay the tax on whole vale. Gift can be in form of a sum of money (in cash/cheque/bank draft) or any articles.
Agricultural Income: If one has only only agricultural income, then it is fully exempt from income tax. If other income also there, rebate on agricultural income would be provided at 10-30% rate depending on actual amount of agricultural income.
House rent Income: 30% of the rental income can be reduced as a standard deduction for repairs, maintenance etc. irrespective of the actual amount spent.
Fixed deposit/Post Office/NSC/SCSS interest: Interest earned on fixed deposits, post office, debt mutual funds/fixed maturity plans(kept less than one year) would be added to taxable income and taxed as per slab rates.
Short Term Gains from Share Trading/Equity Mutual funds: if stocks/equity mutual funds are sold before one year, 15% tax would be payable on such gains. STT should have been on transaction.
Long term gains from Share Trading/Equity Mutual funds: If stocks/equity mutual funds are kept for more than a year before sale, it would be long term gains and such gains would be fully exempt from income tax.
Securities transaction tax (STT) must have been paid on transactions for availing this exemption.
Section 80C, 80CCD and 80CCC deductions- One can claim his investments/payments under section 80C, 80CCC and 80CCD, up to 1 lakh combined limit. Amount can be invested in:
1. Tax saving mutual funds (ELSS) with three years lock-in
2. Five year tax-saver bank Fixed deposits
3. Public provident fund (PPF)
4. National Savings Certificate (NSC) or National Service Scheme (NSS)
5. Employer contribution into New Pension Scheme (NPS) (Section 80CCD)
6. Life insurance/Unit Linked Insurance Plan (ULIP) premium
7. Employee’s contribution towards Employee provident fund (EPF)
8. Home loan principal amount payment (only if you have got possession of house)
9. Senior citizen savings scheme (SCSS), if your age is more than 60 years
10. Post office tax saving deposit or tax saving bonds
11. Pension scheme/Retirement plans (Secion 80CCC)
12. Tuition fees paid for children education
Section 80D : Maximum deduction of up to 15,000 under mediclaim or health insurance offered by life insurers taken for self and family. An additional deduction of up to 15,000 for buying cover for dependent parents. If parents/assessee are senior citizens, they can claim deduction up to Rs 20,000.
Section 80DD : Deduction of 50,000 for maintenance of a disabled dependent. If the disability is severe, the deduction amount will be 100,000.
Section 80E : Tax relief on interest payments on education loan taken for higher studies for self, spouse or child. There is no maximum limit on this deduction.
Section 80G : The eligibility is 50% or 100% of the donation amount subject to overall ceiling of 10% of your gross total income to certain funds and charitable institutions.
Section 24/Home loan interest payment : The maximum limit is of 1.5 lakh on interest payments of a home loan for a self-occupied house. There is no ceiling on the amount of deduction if the house is let out or deemed to be let out. House rent would needs to shown in income in case house is not self-occupied.
Section 80DDB deduction (Medical treatment expenses): Expenses done for medical treatment for self, spouse, dependent children, parents, brothers and sisters. Maximum deduction can be Rs 40,000 (goes up to 60,000 in case patient is senior citizen). Deduction is only allowed in case of certain diseases:
Professional tax: Professional tax deducted from salary by employer should be removed from taxable salary before computation of income tax.
Tax deducted at Source (TDS) deduction: As per income tax rules, all payment which are taxable in nature should be done after deduction of taxes at the source itself. Hence employer compute income tax on salary payment and deduct it every month. This TDS is based on employee’s saving/investment declaration at the start of year. If investments for tax saving is not done, large amount may be deducted in last few months.
Advance tax schedule: As per income tax rules, 30% of income tax should be paid by 15th Sept, 60% by 15th Dec and rest by 31st March. If its not followed one may be charged interest penalty u/s 234C.
Gratuity: If amount is received before completion of five years of service with employer, it should be taxable. Else it would be non-taxable up to Rs 10 lakh in case of non-government servants. In case of Government service employees, it would be fully non taxable.
Leave travel allowance (LTA): Two trips on a block of four years can be claimed for exemption for travel done inside India. Following amount would be non-taxable:
1. Where journey is performed by rail; railway-fare in first AC class by shortest route to destination.
2. Where places of origin and destination are connected by rail but the journey is performed by any other mode then first AC class fare by shortest route to the place of destination.
3. Where place of origin of journey and destination, or part thereof, are not connected by rail and journey is performed by any other transport; then (i) If a recognised public transport system exists between such places the first class or deluxe class fare of such transport by shortest route, or, (ii) If in other case, first AC class fare for the distance of the journey by the shortest route, as if the journey has been performed by rail.
Leave encashment: Payment by way of leave encashment received by Central & State Govt. employees at the time of retirement in respect of the period of earned leave at credit is fully exempt. In case of other employees, the exemption is to be limited to minimum of all below:
1. The actual amount received
2. The cash equivalent of leave balance (max 30 days per year of service)
3. Maximum of 10 months of leave encashment, based on last 10 months average salary
4. Rs. 3 Lakh
Performance Incentive/Bonus: This component would be fully taxable.
Medical allowance/Reimbursement: This component is on-taxable up to 15000 per year (or Rs 1250 per month) on producing medical bills.
Food Coupons – Non-taxable upto 50 Rs per day.
Periodical Journals: Some employers may provide component for buying magazines, journals and books as a part of knowledge enhancement for business growth. This part would become non taxable on providing original bills.
Professional Development Allowance : If original bills are submitted to employer, this allowance may become non-taxable. Generally payment done towards any technical course fee, certification etc done to enhance professional knowledge can be reimbursed.
Uniform/Dress Allowance: Some sections of employees mat get allowance for purchase of office dress/uniform. In such case, the component would become non-taxable.
Telephone reimbursements – In some of the cases, companies may provide a component for telephone bills. Employees may provide actual phone usage bills to reimburse this component and make it non-taxable.
Internet Expenses - Employer may also provide reimbursement of internet expenses and thus this would become non taxable.
Car expense reimbursements – In case company provides component for this and employee use self owned car for official and personal purposes, Rs 1800 per month would be non-taxable on showing bills for fuel or can maintenance. This amount would be Rs 2400 in case car is more capacity than 1600cc.
Driver salary – If employee pays driver salary for self owned or company owned car, Rs 900 per month may become non-taxable if employer provides component for it.
Gift from relatives vs non relatives: Gifts from relatives would be non-taxable with no limits attached. Following relations are covered under non-taxable rule:
1. Spouse of the individual
2. Brother or sister of the individual
3. Brother or sister of the spouse of the individual
4. Brother or sister of either of the parents of the individual
5. Any lineal ascendant or descendant of the individual
6. Any lineal ascendant or descendant of the spouse of the individual, Spouse of the person referred to in clauses (2) to (6).
If gift is received from a non-relative person worth more than Rs.50000, one is liable to pay the tax on whole vale. Gift can be in form of a sum of money (in cash/cheque/bank draft) or any articles.
Agricultural Income: If one has only only agricultural income, then it is fully exempt from income tax. If other income also there, rebate on agricultural income would be provided at 10-30% rate depending on actual amount of agricultural income.
House rent Income: 30% of the rental income can be reduced as a standard deduction for repairs, maintenance etc. irrespective of the actual amount spent.
Fixed deposit/Post Office/NSC/SCSS interest: Interest earned on fixed deposits, post office, debt mutual funds/fixed maturity plans(kept less than one year) would be added to taxable income and taxed as per slab rates.
Short Term Gains from Share Trading/Equity Mutual funds: if stocks/equity mutual funds are sold before one year, 15% tax would be payable on such gains. STT should have been on transaction.
Long term gains from Share Trading/Equity Mutual funds: If stocks/equity mutual funds are kept for more than a year before sale, it would be long term gains and such gains would be fully exempt from income tax.
Securities transaction tax (STT) must have been paid on transactions for availing this exemption.
Section 80C, 80CCD and 80CCC deductions- One can claim his investments/payments under section 80C, 80CCC and 80CCD, up to 1 lakh combined limit. Amount can be invested in:
1. Tax saving mutual funds (ELSS) with three years lock-in
2. Five year tax-saver bank Fixed deposits
3. Public provident fund (PPF)
4. National Savings Certificate (NSC) or National Service Scheme (NSS)
5. Employer contribution into New Pension Scheme (NPS) (Section 80CCD)
6. Life insurance/Unit Linked Insurance Plan (ULIP) premium
7. Employee’s contribution towards Employee provident fund (EPF)
8. Home loan principal amount payment (only if you have got possession of house)
9. Senior citizen savings scheme (SCSS), if your age is more than 60 years
10. Post office tax saving deposit or tax saving bonds
11. Pension scheme/Retirement plans (Secion 80CCC)
12. Tuition fees paid for children education
Section 80D : Maximum deduction of up to 15,000 under mediclaim or health insurance offered by life insurers taken for self and family. An additional deduction of up to 15,000 for buying cover for dependent parents. If parents/assessee are senior citizens, they can claim deduction up to Rs 20,000.
Section 80DD : Deduction of 50,000 for maintenance of a disabled dependent. If the disability is severe, the deduction amount will be 100,000.
Section 80E : Tax relief on interest payments on education loan taken for higher studies for self, spouse or child. There is no maximum limit on this deduction.
Section 80G : The eligibility is 50% or 100% of the donation amount subject to overall ceiling of 10% of your gross total income to certain funds and charitable institutions.
Section 24/Home loan interest payment : The maximum limit is of 1.5 lakh on interest payments of a home loan for a self-occupied house. There is no ceiling on the amount of deduction if the house is let out or deemed to be let out. House rent would needs to shown in income in case house is not self-occupied.
Section 80DDB deduction (Medical treatment expenses): Expenses done for medical treatment for self, spouse, dependent children, parents, brothers and sisters. Maximum deduction can be Rs 40,000 (goes up to 60,000 in case patient is senior citizen). Deduction is only allowed in case of certain diseases:
Professional tax: Professional tax deducted from salary by employer should be removed from taxable salary before computation of income tax.
Tax deducted at Source (TDS) deduction: As per income tax rules, all payment which are taxable in nature should be done after deduction of taxes at the source itself. Hence employer compute income tax on salary payment and deduct it every month. This TDS is based on employee’s saving/investment declaration at the start of year. If investments for tax saving is not done, large amount may be deducted in last few months.
Advance tax schedule: As per income tax rules, 30% of income tax should be paid by 15th Sept, 60% by 15th Dec and rest by 31st March. If its not followed one may be charged interest penalty u/s 234C.
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