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Tips & Tricks In Income Tax
Q-11. What are the process of e-Filing of IT Return ?

All companies & partnership firms whose books of accounts are audited u/s 44AB of IT Act have to compulsorily file their IT Returns electronically. The process is like this:

1. I.T Dept. has come out with electronic versions of the income tax returns.

2. All the fields of the return need to be filled with the data of the entity.

3. Once filling of the data is complete, a process of electronic validation of the file needs to be done to check for any non technical errors & mandatory columns which are left blank.

4. After identification, mistakes are rectified & validation scrutiny is done again.

5. Only when validation is 100% successful, the electronic return is converted into a form in which it can be uploaded on the income tax website.

6. The file can be uploaded in 2 ways:

a. By Inserting Digital Signature or

b. Without Digital Signature.

7. When the e-return is signed by using digital signature & uploaded on the Income tax website, it completes the process of e-filing of 1.1. returns. Acknowledgment is generated by dept.’s website which has to be preserved as proof of filing.

8. When the e-return is not digitally signed, but uploaded on the IT. dept. website, ITR-V form is generated, the copy of which will have to be physically filed within 30 days after physically putting signatures on them. IT. Dept. puts the acknowledgement seal & date on the copy, which needs to be preserved as proof of filing the income tax returns.

 
Q-12. Totally Tax-Free Incomes - what are they ?

TOTALLY TAX-FREE

Apart from the exemptions mentioned earlier, the following income are also Tax FREE :

Section


Categories


10(1)

10(2)

10(2A)

10(10AA)

10(16)

10(18)

10(32)

10(34)

10(35)

Agricultural Income

Received from HUF

Partner’s share of profit from partnership firm

Leave Encashment on retirement subject to limits

Scholarship granted to meet the cost of education

Pension/family pension received by the Gratuity awardees

Income of Minor child up to Rs. 1,500 p.a.

Dividend income from a company

Dividend income from a Mutual Fund

 

Q-13. Easy Way to Calculate Your Income Tax .

A.        CALCULATE TOTAL INCOME

Your total income is the sum of all money inflows in your name. The Tax rules classify individual income under Five Heads such as …

  • Income form Salary

  • Income from House Property

  • Income from Business or Professions

  • Income from Capital Gains

  • Income from Others Sources

B.        DEDUCT EXEMPT INCOMES

There are some incomes that are exempt from Tax, like…

  • Agricultural Income

  • Capital Receipts ( lump sum payments like Life Insurance or Gratuity up to certain limit),

  • Interest on EPF and PPF,

  • Interest on Tax-Free Govt. of India Savings Bonds (now discontinued),

  • Dividend on Equity Funds, and

  • Commuted Pension

In addition, under each of the 5 above listed Income Heads, some Deductions and Exemption are allowed…

1. Salary Income :

House Rent Allowance : ( least of the following) Is deductible from your Total Income.:

      • Actual Allowance

      • 50% of Salary if house is in a Metro, otherwise 40% of salary or

      • Excess of Rent paid over 10% of salary.

2. House Property Income:

(a) Deduction :

30% of the net annual value of the house property ( annual rent minus municipal taxes paid in the previous year) is allowed as Deduction.

(b) Interest on Borrowed Capital :

For Self Occupied Property , Upto Rs. 1.5 lakh interest on money borrowed to buy a house is allowed as a Deduction if you live in that house. If you let it out, entire interest is allowed.

3. Income from Business:

  • Business-related ( like Rent, Travel & Repairs ) are allowed as a Deduction.

  • Depreciation.

4. Income from Capital Gains:

  • Long-Term Capital Gains (LTCG) from House Property is Exempt from Capital Gain Tax if Investment is made by way of Purchase of another Residential Property within 2 years or by way of construction of Residential Property within 3 years or by Purchase of 54EC Bonds within 6 months.

  • LTCG form Shares and Equity Mutual Funds held for minimum of 1 Year ( where Security Transaction Tax-STT has been paid ) are Tax Exempt.

5. Income from Other Sources :

Each head under this Income Source has its own exemptions. For example, dividend income is at present exempt in the hands of recipient.

After exemptions what is left is called Gross Income or your Assessable Income

C.        SUBSTRACT DEDUCTIONS

A deduction enables you to reduce your income on which tax will be levied. Before, computing your tax, you are allowed to reduce the amount of assessable income under certain conditions listed below :

  • Medical Reimbursement upto Rs. 15,000 a year  can be claimed back from the employer and are not part of the taxable income.

  • Conveyance Allowance of Rs. 800 per month if given by the employer can be deducted.

  • U/s 80D, Premium paid on a Medical Insurance Policy, upto Rs. 15,000 ( Rs.20,000 if one of the beneficiary is Senior Citizen).

  • A maximum of Rs. 1 lakh invested towards various savings schemes ( including pension plans) u/s 80C.

D.        CALCULATE TAX LIABILITY

The Income left after these Deductions is the Taxable Income, on which Tax will be levied...

  • The First Rs. 1.6 Lakh is Exempt from tax.

  • Income between Rs.1,60,001 and Rs.3,00,000 is taxed at 10%

  • Income between Rs.3,00,001 and Rs.5,00,000 is taxed at 20%

  • More than  Rs.5,00,000 is taxed at 30%

There is also a Education Cess  @ 3% on the liability at each slab.

For Income over  Rs. 10,00,000 , there is a Surcharges of 10% of the Income Tax Payable.

 
Q-14. Qualifying Amount (QA)for Deduction u/s 80C

Amount saved and deposited by the employee or assessee in following savings schemes shall qualify for deduction u/s 80.

1.         Deposits made in Provident Funds

(i)         Deposit made in Statutory Provident Funds (SPF) : Amount deposited by employee in this fund during the previous year fully qualify for deduction.

(ii)        Deposit in Recognized Provident Fund (RPF) :        Amount deposited during the previous year fully qualifies for deduction.

  1. Deposits made by the employee in Unrecognized Provident Fund (URPF) : Since this fund is not recognized by the Commissioner of Income Tax , so any amount saved and deposited by the employee in this fund will not qualify for any deduction.

  2. Deposit made in Public Provident Fund : This Provident Fund Account can be opened in the name of the employee ( assessee), spouse or children and amount deposited by the assessee during the previous year in any of these accounts shall qualify up to a maximum of Rs.70,000.

Repayment of any loan taken will not qualify for the deduction.

2.         Payment of Life Insurance Premium

Actual amount of premium deposited by the employee or on his behalf by his employer or 20% of sum assured  w.e. is less shall qualify for deduction. Life Insurance policies can be obtained in the name of the assesssee, spouse, and children and in case of HUF  in the name of any or all the coparceners of the HUF.

The children means all the sons and daughter of the assessee whether minor or major, whether dependent upon assessee or are dependent  or may be married or unmarried. It also includes step or adopted children.

Sum assured shall not include bonus or any premium  assured to be returned.

3.         Payment deducted out of Govt. employee’s salary towards deferred annuity

In case any amount has been deducted out of salary of Government employee for securing a deferred annuity for him or making a provision for his spouse or children, the amount so deducted but not exceeding 20% of his salary will qualify for deduction u/s 80C.

4.         Payment made towards Group Insurance

Any amount deducted and deposited by employer towards employee’s group insurance shall fully qualify for deduction..

5.         Deposits made in Approved Superannuation Fund

Amount deposited during the previous year shall fully qualify for deduction.

6.         Payment for Deferred Annuity

Any payment made by the assessee to effect or keep in force contract for a deferred annuity will qualify for deduction u/s 80C.

7.         Deposits made in Unit Linked Insurance Plan (ULIP)

Any amount deposited by the assessee in Unit Linked Insurance Plan of UTI or LIC mutual fund shall fully qualify for deduction . Amount can be deposited in the name of assessee, spouse and children.

8.         Amount invested in National Savings Certificates – VIII issues.

Amount invested in National Saving Certificates-VIII issue fully qualifies for deduction u/s 80C. Interest accrued on these certificates purchased earlier is deemed to be re-invested , hence such interest also fully qualifies for deduction every year.

9.         Amount invested in National Saving Scheme (NSS) -1992 : fully qualifies for deductions.

10.       Amount paid to LIC under Jeevan Dhara, Jeevan Akshay policies, etc. : Fully qualify for this deduction. Investment in these plans can be made in the name of assessee and in case of HUF, in the name of any of its members.

11.       Amount invested in notified Pension Fund set up by Mutual Funds or UTI : fully qualify for deductions u/s 80C.

12.       Amount deposited with National Housing Bank. : fully qualify for deductions.

13.       Amount deposited with an authority engaged in Housing Development or Town or Rural Development. : fully qualify for deductions

Following type of subscription will qualify for deductions :

      1. A public sector company engaged in providing long term finance for purchase or construction of residential houses in India.

      2. Any authority like Housing Board constituted in India for the planning, development or improvement of cities, towns and village

14.       Any subscription in deposit scheme of Central Government

Any subscription to any such security of the Central Government or any such deposit scheme as Central Government may notify in Official Gazettee, specifying in this behalf, will qualify for deduction u/s 80C.

15.       Term Deposits with Banks.

Term deposits with certain banks of not less than 5 years duration and as per scheme framed by Central Govt. shall also qualify for deductions u/s 80C.

16.       Amount deposited or invested in Equity Linked Saving Scheme (ELSS) : qualifies for deduction up to actual amount invested.

17.       Repayment of House Building loan

Any amount repaid under house building loan taken from Govt. , LIC, Bank, HDFC, HUDCO or other housing finance institutions or employer.

OR

Amount repaid as full price or installment of price of a house purchased from Govt. or an approved agency shall qualify up to actual amount repaid.

The amount repaid must not include interest on loan or ground rent but shall include stamp duty and registration sharges.

18.       Payment of Tution Fees of Children :          

Any amount paid as Tution Fees ( excluding any payment towards any development fees or donation or payment of similar nature) whether at the time of admission or thereafter to :

(a)        Any school , college or university or other educational institution  situated in India ,

(b)        for the purpose of full time education of any two children of the individual.

The amount, which shall qualify under this section, shall not exceed actual amount paid as tution fee for two children only.

19.       Amount invested in Equity Shares or Debentures in an eligible issue :    

Amount paid as subscription to equity shares or debenture of a public company or a public financial institution forming part of any eligible issue of capital. In case such issue is notified by CBDT, the amount invested shall qualify for deduction u/s 80C. The amount so invested in on which deduction is calmed shall not qualify for exemption of capital gain u/s 54EA or u/s 54EA or u/s 54EC.

20.       Amount invested in Units or Mutual Funds

Amount paid as subscription to any units  of  any mutual fund. In case such unit scheme of mutual funds is notified by CBDT, the amount so invested shall qualify for deduction u/s 80C. The amount so invested in on which deduction is claimed shall not qualify for exemption of capital gain u/s 54EA or u/s 54EB or u/s 54EC.

21.       Subscription to Bonds of NABARD

Any subscription to bonds issued by the National Bank of Agriculture and Rural Development as the Central Government may notify in Official Gazette, will qualify for deduction u/s 80C.

22.       Following investments also qualify for deduction u/s 80C.

(i)         Five year time deposit in an account under Post Office Time Deposit Rules 1981.

(ii)        Deposit in an account under the Senior Citizens saving Scheme rules 2004.

Amount deposited in this two schemes is not allowed to be withdrawn for 5 years and if withdrawn before the completion of  5 years it will be deemed income of the year in which  withdrawn. But it is not taxable if withdrawn by legal heirers.

Other Points

(i)         Deductions u/s 80C shall be allowed even if investment is made in these savings scheme out of assessee’s savings of past previous year or out of nay other income which is otherwise exempt under Income Tax Act.

(ii)        Deduction u/s 80C shall be allowed out of assessee’s Gross Total Income. This deduction is not allowed out of assessee’s income of Long Term Capital Gain and income from gambling etc.

(iii)       Deduction u/s 80C shall be allowed only if amount has been actually deposited or paid in these savings schemes up to 31st March . So any amount due but not paid up to 31st.March shall not qualify for this deduction.

 
Q-15. Which Assets are subjected to Wealth Tax u/s 2(ea).

The following Assets are subjected to Wealth Tax uls 2(ea):

a.         A Guest House, Residential House, Commercial Property and/or Farm House situated within 25 kms. from Municipal Limits sub. to exceptions.

b.         Motor Cars owned by the assessee, other than those used for hiring business or as stock-in-trade.

c.          Jewellery (includes ornaments made of Gold, Silver, Platinum or any other Precious Metal/Precious Stones/  Bullion & Furniture, Utensils or any  other Article made of Gold, Silver, Platinum or any other Precious Metal/ Alloy).

d.         Urban land situated within the jurisdiction of Municipality/Municipal Corpn./Notified Area/Town Area etc. measuring more than 5400 sq.ft.

e.         Cash in hand, over and above Rs. 50,000 in case of Individuals and HUF and any unrecorded amount for other persons.

The following Assets are liable to Wealth-Tax:

1.         Jewellery does not include Gold Deposit Bonds issued by the Central Government under Gold Deposit Scheme.

2.         One house or part of a house or plot of land not exceeding 500 sq. mts. belonging to an Individual/HUF irrespective of value of the house.

3.         Residential house let-out for a minimum of 300 days in the previous year.

4.         Residential house held as Stock-in- trade.

5.         Property in the nature of commercial complexes.

6.         Assets like Shares, Debentures, Deposits, Units, Loans advanced etc.

 
 
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