Top 6 Myths about Income Tax

Following are some of the common misconceptions regarding taxes; i will share detailed info on each point in further articles. 

  • I need a CA to file my returns as filing taxes is a complex process!

With technology becoming so advance gone are the days when you have to fill up the form manually and running from pillar to post to get the IT dept. “Stamp”. Now you can easily file your returns Online and that too free of cost through IT dept’s website (www.incometaxindiaefiling.gov.in),

tax

  •  Maximum deduction for the interest which I pay on my home loan is only up to Rs. 1,50,000 p.a.!

This is correct but only for the house which is “Self Occupied” but if  you take a home loan on a second house, the entire interest paid on the loan can be claimed as a deduction from your income on house property. It would be a good move for investment planning as you can take a home loan on a second house, rent out the house and claim interest paid on the loan as a deduction from the rental income and reduce your borrowing costs considerably.

  • I don’t have to file my Returns as my employer has already deducted “TDS”. 

Even if your employer has paid taxes on your behalf, it will not exempt you from filing your returns because if your total income is more than basic exemption limit then you have to file your returns.

  • Benefit for reimbursement of Medical bills submitted to employer & Mediclaim (Health Insurance Premium) is same!

Medical reimbursement by your employer for an amount up to Rs.15,000 p.a. is different from the amount of premium you or your employer pays towards mediclaim policies & deduction for the same is available under Section 80D. Both these exemptions are covered under different sections of the Income Tax Act and you can enjoy benefits for both.

  •   I can avail benefits of section 80C only by making certain investments!

Apart from investing in saving options as listed u/s 80C  you can also claim deductions for certain expenses; the school or university tuition fees you pay for your children, repayment of principal on home loan and stamp duty & registration charges on buying a house.

  •   I don’t have to pay taxes on interest received on my FDs till it is matured!

 Tax on interest income from on FDs is calculated on an accrual basis & it does not imply that you are not liable to pay tax annually on the interest which is credited to your fixed deposit account every year, even though you do not have access to that interest income.

Top 6 mistakes people make while filing Tax Returns!

1.Selecting the wrong ITR form:

This is the first thing you have to be careful about as if you make a mistake in choosing the right form, the entire exercise of filling will be of no use. There are five forms that you need to choose from, depending on your sources of income. For instance, if you are a salaried individual or a pensioner with income from one house property or interest earnings, opt for ITR-

2.Not filing online returns if you earn over 10 lakh:

The government has made it compulsory for the individuals with an income of more than Rs. 10 lakh to electronically file tax returns for the financial year 2011-12, so make sure that you file your returns online if your gross total income is more than 10 lakh.

3. Providing incorrect details:

Since all the necessary information is communicated by the IT dept. via email or post, it is extremely important to enter these details correctly. Job changes are so common these days that most land up staying in rental accommodations. Hence for your physical address, it is always safer to give a permanent address instead of your rented accommodation. In fact, email is a preferred route for communication for the income-tax dept. now a days so avoid giving your office email id; instead give a personal email account, which you can continue using even after changing your job and once your official mail id cease to exist.

4.Not reporting all the sources of income:

Many taxpayers fail to report all the sources of their income. The most common is interest earned on a bank savings account & on FDs. Though for the current year interest up to Rs. 10,000/- on savings a/c is exempt from tax (not on FDs) but the same benefit is not applicable for the last year & the income is taxable according to your respective tax slab. Usually banks deduct 10% TDS but if you fall under a higher tax slab of say, 30%, you are liable to pay tax accordingly.  

5.Declare both or multiple form 16:

 In case you have changed your job during the last year, make sure that you report the income earned through your previous employer as well. Since you’ve availed tax benefits from both employers, there could be a good possibility that you still owe some additional tax liability at the time of filing tax returns.

6.Not sending ITR-V before deadline:

 You need to send ITR-V copy by ordinary post or speed post only to CPC Bengaluru within 120 days from the date of electronic filing in case you have e-filed your return without digital signature.

How can you make online tax payment sitting at home/office?

E-Payment or Online Payment of tax through the internet facilitates payment of direct taxes for the taxpayers. To avail this facility all you need is a net-banking account with any of the Authorized Banks.  This system of e-payment of tax is beneficial as compared to manual payment (deposit in bank branch) as one does not have to personally visit the bank to make tax payments.
Step by Step Guide to Pay Online Tax as applicable to “Individual Taxpayers”:

Step-1 Visit NSDL-TIN website (www.tin-nsdl.com), Click on the link for “e-payment: Pay Taxes Online

Step-2 Select the relevant Challan i.e. ITNS 280 Challan no.

Step-3 You will be redirected to the next screen for entering, tick on (0021) INCOME-TAX (other than companies) and provide the following information like Permanent Account No (PAN), Assessment year, Full Name & Address.

Step-4 Select Type of payment from Advance Tax, Self Assessment or Tax on regular assessment. Then choose Name of the bank where you have Net Banking.

Step-5 Click Proceed and the next screen will show you the following message.

“For the TAN/pan given by you above, the name as per Income Tax Department database is ‘……………………………………………………………………………….’. If the name is right, then click on “Submit to the Bank”

After clicking on “Submit to the Bank” you will be directed to your bank’s net-banking site.

 Step-6 – You need to login to the net-banking site with the user id/ password provided by the bank for net-banking purpose and enter relevant payment details like basic tax, surcharge, cess, interest etc. and after successful payment it will generate a printable acknowledgment indicating the Challan Identification Number (CIN).

Your e-payment of tax procedure is now complete.

Important points to note:

  • You can verify the status of your challan i.e. whether the tax as paid online has been properly deposited in IT dept.’s account in the “Challan Status Inquiry” at NSDL link https://tin.tin.nsdl.com/oltas/servlet/QueryTaxpayer using the CIN after around seven days of making e-payment.
  • In case of any issues/problems encountered at the NSDL website while entering data, then you may write to e-tax@nsdl.co.in. If the issue/problem pertains to entering the details at the net-banking webpage of your bank, then you should contact your bank for assistance.

Benefits of E-tax payment!

This system is beneficial to all the taxpayers as they do not require to personally visit their bank to make payments of outstanding tax liability. With e-tax payment facility one can pay taxes anytime as per their convenience either from their residence/ office or at the place where internet connection is available.

The entire transmission of data to the website for e-tax payment through NSDL-TIN site is encrypted and is with SSL authentication and with respect to the banks; it depends on the security measures provided by the bank for net banking.

How to file IT Returns Free of Cost: The e-way

 

Filing income tax returns is not a difficult task anymore. E-filing or filing tax returns online has made the process a whole lot simpler and more especially when only few days are left.

Steps by step guide to file Income Tax Return online

ü  You need to go to the website www.incometaxindiaefiling.gov.in and if you are a first time user i.e. if you have never e-filed your returns you will need to register with the site and create a user name and password.

ü  You will need your PAN card number for the same. Your address details are extracted from the PAN. You must enter personal details carefully.

ü  Now select the appropriate ITR form & download the Return Preparation Software based on your sources of income.

ü  Then fill up all the mandatory fields in the form, particularly ensure that you have written your PAN number correctly.

ü  Then pressing the ‘Calculate Tax’ button on the form tells you how much tax you need to pay or how much refund you will get.

ü  If there is any tax to be paid then make an online payment and generate the challan counterfoil.

ü  Then pressing the ‘Validate’ button on top of each form tells you whether you have filled up the forms correctly.

ü  Once validated, press the ‘Generate XML’ button on the top right of the form and an XML version of the form gets created on your PC.

ü  After checking the details of your ITR click on ‘Submit return’.

ü  Select the XML file and click ‘Upload’. Once the uploading is successful it will be acknowledged on the screen.

ü  Click on ‘Print’ to get a copy of the ITR-V form.

If the return has a digital signature then the filing process is complete upon the acknowledgement notification. But if it does not have a digital signature then the ITR-V form needs to be printed out by the tax payer. ITR-V is an acknowledgment as well as a verification form and all the details need to be filled in and verified. The tax payer has to fill-up the verification part and verify the same.

A duly verified ITR-V form should be mailed to “Income Tax Department – CPC, Post Bag No – 1, Electronic City Post Office, Bangalore – 560100, Karnataka, BY ORDINARY POST OR SPEEDPOST ONLY within 120 days after the date of transmitting the data electronically.

Benefits of e-filing over paper filing

One of the foremost benefits of e-filing is the flexibility of filing your returns anywhere / anytime with access to the internet.  Online tax returns are processed much faster than paper returns and the refund, if any due is credited within 3 months.

 

8 Important Tips before you file your Income Tax Returns this year!

As the July 31st deadline for filing income tax returns is fast approaching, there is usually a huge rush among the taxpayers. To avoid the long queues and complications.Here are some of the tips which will help you file Income tax return.

1.  Know your situation:

Determine all your sources of income. Does your income comprise of only salary and interest on savings bank account? Or you also earn rental income, capital gains and / or income from any other source?

2.  Select the appropriate IT form as applicable to Individuals:

Form No. Which income is it applicable for?
ITR – 1 (SAHAJ) Salaries
House Property (one house property)
Other Sources
ITR – 2 Not applicable for income from business and profession
ITR – 3 Partners not carrying out business / profession as a proprietorship concern
ITR – 4 Proprietary business or profession
ITR – 4S (SUGAM) Business / profession, opted for taxation on presumptive basis under Sections 44AD & 44AE

3. Do you need to File a return even if your employer has deducted TDS (tax at source).

Many of us suffer from the Wrong perception that if tax has already been deducted at source then no tax return has to be filed. You must file taxes if your combined annual income from all sources is above the basic exemption limit.

4. What is the basic Income-tax exemption limits?

In respect of F.Y. 2012-2013 (A.Y. 2013-2014) the basic exemption limit for Individuals & HUFs is Rs.2,00,000 for male and female tax payers, Rs.2,50,000 for Senior Citizens & Rs.5,00,000 for Senior Citizens above 80 years of age.

5. What Papers are required to be enclosed with the Income Tax Return.

No papers are required to be enclosed with your Income tax Return. Profit & Loss A/c & Balance Sheet, computation Statement, Copies of Challans for Tax Payment and copies of TDS Certificates are Not required to be enclosed with your  I.T. Returns.

6. Compulsory “Online” filing of returns:

All individuals having total income exceeding  Rs.10 lakhs for the financial year 2011-2012  compulsorily required  to file their IT Return electronically.

 7. How to file your return?

The Income-tax Return can be filed in any one of the following modes:-
a)  In Paper form b)  Electronically with or without Digital Signature.

You can file your return online or offline, by yourself or with the help of experts. You can file your return Online & free of cost through official website of tax department i.e.  https://incometaxindiaefiling.gov.in/portal/index.do .

8. Maintain documents after Filing:

Always maintain your bank statements, Form 16 and 16As, proof of other income as you may be required to produce these documents before the I-T authorities if your return is selected for scrutiny.

Can you afford to file returns after 31st July!

Can you afford to file returns after 31st July!

  Most of us pay the taxes before the deadline of 31st March, but when it comes to filing the return many times we miss the deadline to file the  same which is 31st July. As per IT Department; “a tax return may be furnished any time before the expiry of two years from the end of the financial year in which the income was earned’.

This means that if you earned your income during FY 2011-12, you may file a belated return any time before 31st March, 2014” . After that it becomes time-barred, that means it cannot be filed. But there are some disadvantages if you don’t file your returns on time as follows:

  • Interest Penalty: 

In case you have some outstanding tax liability which may happen if you have income from other sources or in case you have changed your job in the previous year etc. If there is tax due after deducting advance tax ,TDS and self assessment tax than interest will be applicable @1% per month u/s 234A and part thereof up to the date of filing of the return besides interest applicable u/s 234B or 234C.

  • Late/belated return cannot be revised.

This is a major drawback. If you miss the deadline, you will not be able to revise your returns.

  • You cannot carry forward losses:

If you do not file your income tax return by deadline then you cannot carry forward losses like short term/long term capital loss on shares. However, there is an exception to this rule for loss on house property, which means this loss can be carried forward even if the income tax return is filed after the deadline.

  • Section 80 Deductions:

Some of the Deductions u/s 80 will not be available in case of late filing of return.

  • You have a Tax Refund:

You may loose interest on refun


d u/s 244A as delay in filing is attributable to taxpayer for the delayed period.

  • Penalty For Filing Late Return:

If you fail to file the return within a year from the end of tax year you will have to pay a discretionary penalty of Rs. 5000.  For example, there will be no penalty if the return of income for tax year ended 31 March 2012 is filed by 31 March 2013. If it is filed after that, the tax officer can levy this penalty.

  • Other Practical Aspects:

Keeping aside the legal and technical aspect return of income is compulsory for applying  for bank loans, visas, etc. Further, late filing can delay processing for tax refund. Filing a return on time is always an excellent   habit which will keep you away from tax implications especially if you have Tax Liability, Carry Forward Losses and Tax Refund etc.

 

RGESS

Save more in Taxes by investing in Rajiv Gandhi Equity Savings Scheme (RGESS) 

 

What is RGESS?

In the last Union Budget, Finance Minister announced a new Section 80 CCG, which would give you deductions in respect of investments made under the Rajiv Gandhi Equity Savings Scheme. The scheme is designed exclusively for the first time retail individual investors in securities market.

Who is eligible to participate?

The tax deduction under the Scheme shall be available to a new retail investor who:

ü  is a resident of India

ü  has not traded in equity market or derivatives market

ü  has Gross Total Income for the Financial Year less than or equal to Rs. 10 Lakh

ü  complies with all the other conditions of the Scheme

How to invest?

To be eligible for investment under this scheme, you must open a demat account. You can invest in any of the eligible mutual funds or stocks in lump sum or in instalments.

What are the associated Tax Benefits?

A maximum of Rs. 50,000/- investment eligible for tax benefits and for the first year of investment only and maximum 50% of invested amount i.e. Rs.25,000 is deductible from taxable income.

  • For investors in 10% tax bracket: saving = Rs. 2,500 (for investment of Rs. 50,000/-)
  • For investors in 20% tax bracket: saving = Rs. 5,000 (for investment of Rs. 50,000/-)

Why RGESS Investments are limited to top 100 stocks?

The Scheme is designed for new investors who are venturing in the equity markets for the first time. The choice of investments have been restricted to the stocks included in BSE 100 or CNX 100 and to selected PSU stocks as they  generally  have shown relatively lower volatility, higher liquidity and it also provides enough scope for diversification.

I have already claimed tax benefit under Section 80C. Can I avail of RGESS?

Yes you can. The tax deduction for RGESS is u/s 80CCG and it is over and above Rs. 1 lakh limit specified under Section 80C.


What are the benefits of investing in RGESS?

ü  Investors can get the returns of Equity of top 100 BSE companies.

ü  Gains, arising of investments in RGESS, can be realized after a year.

ü  Dividend payments are tax free.

 

Should you invest in this?

RGESS attempts to encourage first time investors to invest in equity, directly or indirectly, and avail tax benefits. You can get the benefit (for the current financial year) by investing in RGESS on or before 31st March’2013. It is a good move considering that individual taxpayers have very limited scope of tax saving investment options and RGESS will serve as an additional benefit over and above existing section 80C. But presently there are numerous conditions which needs to be satisfied before investing in RGESS and that makes investing in it very difficult but we will surely see lot of relaxation and ease in these conditions in the upcoming budget.

 

5 ways to become a Crorepati

5 Secrets to become a Crorepati !!!

                     (1). Getting wealth in inheritance

 (2). Winning a Lottery

    (3). Become a Celebrity

     (4). Marry a rich person

&

(5). Save & Invest !

Well 4 of the out of the five ways are not  in our direct control but the fifth one is surely in our control and that is save and invest.

Eat less and exercise more, that is the rule to be followed if you have a weight-loss goal in mind, they say. Well, it is no different when there is money involved.

A parallel universal truth with regard to money is spend less, save more, for you to reach your ideal level of wealth. The earlier you start saving for your rainy day the richer you will be when it finally arrives.

In this context, you need not be a whiz in your attempt to make yourself financially secure for the future. You simply need to be consistent in saving a portion of your money and let it compound over time. The fascinating effect of compounding gathers up momentum over longer periods of time and becomes an avalanche of wealth.

How does compounding work?

When you save Rs 100 and get an annual interest of 10%, you will have Rs 110 at the end of one year. Due to compounding the next year you will get a 10% interest on Rs 110, which will then leave you with Rs 121. The next year, interest will be calculated on Rs 121 at 10% and so on. In time, these savings will grow exponentially.

The Rule of 72: 72 divided by your return rate = the number of years it’ll take to double your money.

There are certain number rules that have been evolved to figure out a quicker method for calculations, especially in finance. Rule 72, is one such quick method of calculating how much time it will take, for your investment to double.

So, if you invest Rs 100 with a compounding interest of 10% per annum, the rule of 72 gives 72/10 = 7.2 years as the approximate time frame required for the investment to become Rs 200.

like that way you can surely get Rs. 1 crore if you start today and invest 1444 per month for the next thirty years assuming a return of 15% per annum. lets look at the table with the different amount you need to invest to achieve your desire wealth!!!

Desired wealth & amount to be invested per month
Target for years 5 lacs 10 lacs 20 lacs 50 lacs 1 crore
5 5645 11290 22580 56450 112899
10 1817 3633 7267 18167 36335
20 334 668 1336 3339 6679
30 72 144 289 722 1444/-

Power of compounding and why you must start early

Let’s take an example to understand it better. Say ajay who is 30 years old and wants to retire at 60. He has 30 years to go. If he starts investing Rs 1,500 per month for the next 30 years, then at the rate of 15 per cent (assuming s/he is doing a systematic investment plan in equity mutual funds) s/he will have a corpus of Rs 1.03 crore.

Where as if Ajay doesn’t start at an early but decides to invest when he turns 50 the to have a corpus of Rs one crore he will require to invest Rs 41,500 per month, the reason for the huge difference in per month investment is the extra 20 years if Ajay starts early. when he starts at age 30 then with power of compounding his investments got a period of 30 years

While this may not be possible starting your retirement planning when young is. It is not necessary to start with a bang. You can start with small amounts and increase it as your salary increases.

That’s why Albert Einstein said about Compounding of Capital: “Compounding is mankind’s greatest invention because it allows for the reliable, systematic accumulation of wealth.” He called it the 8th wonder of the world.

Where to invest?

well I have assumed a rate of return of 10% and 15% in my above mentioned examples, if as seen above one plans to invest regularly and for long term then looking at the history of share market and mutual funds SIPs one can expect a return of 15-20 % per annum but even those who doesn’t want to take any risk then any invest options like PPF, increase in the amount of PF, FDs can get you 8-10% returns. the main purpose of this article is to let you know the power of compounding and we will see in next series of articles about where to invest and the best schemes available for the same looking at the age, income and risk taking appetite of the investor.

So what should You can do to benefit from Compounding?

You don’t have to be rich to invest. In fact, you can surely become rich; just by starting with a very small amount of money and letting it compound over a long period of time.

Here is a practical list of action steps that can help you benefit from Compounding:

  1. Start early: even if you start with a small amount.
  2. Invest regularly: consider investing through the entire period detected.
  3. Leave your money uninterrupted: don’t disturb the process of compounding.
  4. Be patient: Compounding works only over long periods of time.