Tax Planning

Tax Planning (21)

Tax Deduction at Source (TDS) on interest on Fixed Deposits and Recurring Deposits of banks have caught many savers with surprises. While buying Life Insurance, we are advised that premium payment upto Rs1.50 lakhs are tax deductible under section 80C and maturity proceeds are tax free under 10(10D). But it is not so always! Many insurance products do not qualify for full tax deduction and maturity not fully tax-free. The current low return on Insurance is further impacted by incidence of tax.

 TDS on Life Insurance Proceeds

Insurance products tend to give you a deduction of up to Rs1.5 lakhs from your taxable income under Section 80C. Effective April 2012, the sum assured should be at least 10 times the annualized premiums for life insurance policies to enjoy this tax benefits under Section 80C and on maturity proceeds under Section 10 (10D). Numerous life insurance products are available in the market that do not qualify for full tax savings on entry and will have no tax exemption on maturity. The new section 194DA of the Income Tax Act, 1961, that took effect on 1 October 2014, envisages TDS on life insurance policy payouts which are not exempt under Section 10(10D) and total amount paid to a policyholder towards non-exempt policies that exceeds Rs1 lakh in a financial year, would attract a 2% TDS (tax deduction at source) on the maturity, surrender or partial withdrawal amount of life insurance policy. If you are buying a life insurance product, which does not qualify tax-free returns, this may be an absolute disaster for your investment.

If you get an Income Tax notice don’t panic. Read the notice carefully. If you don’t know what to do, go through the following;

Notice Under section 143(1)

Mostly a good news! The most common form of intimation is under section 143(1). But at this stage it may be just an intimation, and you don’t need to take any action. Sometimes it states that your return has been successfully processed. The income tax department validates each tax return with its own record and this notice usually only points out apparent mistakes found out by the system. This intimation has two columns ‘As provided by taxpayer in the Return of Income’ and ‘As computed under section 143(1)’. You can run through each of these amounts and find out where the discrepancy is. It could be that a certain TDS has been disallowed or there is a mismatch in self-assessment tax payments, a rounding off error. A final tax due or refundable is computed.

The Govt of India has announced demonetisation scheme for Rs 500 and Rs 1000 rupee notes from the mid night of 8th Nov 2016.There are long queues before the bank branches and ATMs. We try to address apprehensions about the taxation issues.

Some people are posting the unverified computation chart of tax and penalty on cash deposit. It is a perception by some that the penalty of 200% is on the amount deposited. It is not correct.The facts are as follows:

1. You have time   till 30th December 2016 to deposit the same in banks (extended till 31 March 2017 with additional documentation)

2. As soon as one deposits, one needs to have an explanation ready for the source of this cash. Note here the explanation needs to be ready, neither the banks nor the Income Tax will ask for it as of now.The explanation will be on case to case basis;

The Govt of India has announced demonetisation scheme for Rs 500 and Rs 1000 rupee notes from the mid night of 8th Nov 2016.There are long queues before the bank branches and ATMs. We have addressed apprehensions about the taxation issues in an earlier blog. Recently the Parliament has amended Income Tax Rules pertaining to deposit of cash in the accounts. The tax treatment will be as follows:

Deposited with disclosures in Tax return

1. Tax @30% plus surcharge @33% and penalty of @10% of the deposit amount which makes it almost 50% of the deposit(In the earlier voluntary disclosure which ended on 30th September 2016,the      total amount was 45%)

2. 25% of the deposit will be kept with the bank for a period of 4 years at nil rate of interest.

3. The balance 25% can be withdrawn by the depositor

NPS has emerged as a popular tax saving tool at par with EPF. but the issue on taxation of 60% of the proceeds on maturity or buying annuity is a moot point and hoped to be resolved soon. Opening of NPS account was a herculean task till now but have been made easier through online NPS account.

Types of NPS accounts: There are Two types of account i.e TIER I and TIER II

  • Tier I is the mandatory account for long-term savings. Additional Tax benefit upto Rs.50,000 is available u/s 80CCD (1B) over and above the 80C limit of Rs1,50,000/-
  • Tier II is an add-on account which provides you the flexibility to invest and withdraw from various schemes available in NPS without any exit load.
  • To open Tier II account you need to have Tier I account first.

Savings for Income Tax

All tax-saving investments and expenses have to be made before March 31 2017.

  • 80(C) : Ensure  savings  of  Rs 1,50,000/- atleast  (EPF, PPF, NPS, Life Insurance premium, Home loan principal repayments etc)
  • 80(D): Health Insurance premium of Rs 25,000/- for self and family and Rs 30,000 for parents who are senior citizens. You can claim of Rs 5,000/- for health check up under section 80 (D).
  • Get reimbursements  from your employer  by submitting medical bills maximum of Rs 15,000/-
  • LTA: Keep the journey tickets as evidence for tax exemption. 
  • Calculate your tax liability by taking(a) Interest on housing loan(b) Exemption from HRA  factoring the house rent paid and (c) Conveyance allowance(Rs1,600pm)
  • Advise the salary section to stop Income Tax deduction for February and March 2017, if the tax deducted has exceeded your tax liability. Alternatively you have to apply for refund of excess tax paid by you.

(1)  From financial year 2017-18, if Return is not filed within due date, late fee of Rs 5,000/- for delay up to 31st December, and Rs 10,000/- thereafter.

(2) Every person who has been allotted PAN as on 1st July 2017 must intimate the AADHAR number to the Tax Authority, failing which, PAN allotted to such person shall be deemed to be invalid.  Kindly note that linking of AADHAR with PAN is not possible, unless name as per AADHAR and PAN match perfectly.  Hence, please take steps to rectify your name as per AADHAR to match as per PAN. 

3) Tax Exemption limit is Rs 2,50,000/- (same as earlier) -

- After that, upto Rs 5 lakh, Tax Rate is 5% (earlier it was 10%).  Tax rebate of maximum Rs.2500 will be allowed, for total income upto Rs 3.50 lakhs.

-Individuals having total income exceeding Rs 50 lakhs but below Rs 1 crore, are to pay surcharge @ 10% of the tax.  Those having total income exceeding Rs 1 crore shall continue to pay surcharge @ 15%.

(4) Payment of Rent – Rs 50,000 per month by any Individual or HUF (not subject to Tax Audit requirements) - deducts TDS @ 5%. 

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