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Taxation of a salaried employee and planning for tax saving, Tax saving options, how to minimize tax...
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R Venkatakrishnan &AssociatesChartered Accountants
Offices at
Chennai Bangalore Hyderabad Salem Devanahalli
http://www.rvkassociates.com
Tax Planning for Employee
R Venkatakrishnan & Associates, Chartered Accountants
Topics
Introduction1
Salary Income2
Special Exemptions in Salary Income3
Deductions from Taxable Income4
Other Information5
Confusions in Jan to Mar
R Venkatakrishnan & Associates, Chartered Accountants
How do I learn about my investment and taxes?
Can I use both HRA and Home loan to save taxes?
What is the max I can save on Taxes?
How much tax I Need to pay this year?
PPF,FD or Insurance for Tax saving?
What is the mystery of 80’s in tax planning?
Why did I buy that insurance thing which I never require? How much
benefit I can get for my home and education loan?
R Venkatakrishnan & Associates, Chartered Accountants
1. Introduction Income tax:- Tax on the income earned. Income tax is an
important source of revenue for government in all the countries today.
Income :- Income means some monetary returns periodically received from some definite source.
Who is supposed to pay income tax :-- An individual- A company- A firm - A HUF- A local authority- A BOI or AOP- AJP
R Venkatakrishnan & Associates, Chartered Accountants
Total Income of an Individual Assessee
Particulars Amount
Income from Salary 7,50,000
Income from House Property (1,50,000)
Profits/Gains from Business or Profession 50,000
Income from Capital Gains 35,000
Income from other source 15,000
Gross Total Income 7,00,000
Less : Deductions under Chapter VI-A (1,20,000)
Total Income 5,80,000
* The above figures are illustrative
R Venkatakrishnan & Associates, Chartered Accountants
2. SALARY INCOME(SECTION 15,16 & 17)
What is salary? Every payment made By employer to employee For services rendered Includes both monetary and non monetary facilities Foregoing salary is salary income Tax free salary should include the tax paid by the employer
Basis of Charge Salary is chargeable to tax when it is due to be paid whether it is paid or not Salary is chargeable to tax when any amount is paid whether it is due or not Arrears of salary paid to employee is chargeable to tax (in the year of receipt)
R Venkatakrishnan & Associates, Chartered Accountants
2. SALARY INCOME contd..
Salary includes…
R Venkatakrishnan & Associates, Chartered Accountants
2. SALARY INCOME contd..
Income from “Salary” includes
Salary Allowances
Fully Taxable
Fully Exempted
Partially Exempted
Special Exemptions
Perquisites
Taxable Perquisites
Non Taxable
Perquisites
Profit in lieu of salary
R Venkatakrishnan & Associates, Chartered Accountants
2. SALARY INCOME contd..
Salary includes: Basic salary and allowances DA Advance salary
Arrear Salary Leave salary
Fully Taxable Salary: Family Allowance Overtime, servant, warden
Allowance. Lunch or Tiffin allowance Leave encashment during service Monthly or uncommuted pension
Bonus Commission Profit in lieu of salary
R Venkatakrishnan & Associates, Chartered Accountants
2. SALARY INCOME contd..
Travelling Allowance Daily Allowance Conveyance Allowance
Helper Allowance Academic Allowance Uniform Allowance
Fully Exempted Allowances:
Note: Allowances received should be expensed towards official performance of duties only.
Partially Exempted Allowances:
Type of Allowance Amount of Exemption (in Rs.)
Children Education Allowance ` 100 p.m. per child (restricted to 2 children)
Children Hostel Expenditure Allowance ` 300 p.m. per child (restricted to 2 children)
Transport Allowance ` 800 p.m. (` 1600 p.m. if the employee is blind/handicapped)
Note: Partially exempted allowances mentioned above are not complete and includes other allowances mentioned in section 10(14) of the Act.
R Venkatakrishnan & Associates, Chartered Accountants
2. SALARY INCOME contd..
Perquisites includes any amount due to or received in lump sum or otherwise, by an assessee, from an employer. Perquisites are usually attached to a position, by an organization.
Perquisites Meaning:
Value of Rent free accommodation given by the Employer. Value of Accommodation given at concessional rate. Value of benefit given free of cost or at concessional rate. Sum paid by employer on behalf of the employees for any obligation payable by
the employee. Value of any specified securities or sweat equity shares allocated to employee at
free of cost or at a concessional rate. Amount contributed by employer to an approved superannuation fund in excess
of Rs.1,00,000/-. Sum paid/payable by the employer towards insurance on the life of the Individual.
Perquisites includes
R Venkatakrishnan & Associates, Chartered Accountants
3.Special Salary Exemptions
House Rent Allowance• The HRA exemption, that can be claimed for
the Tax Exemption is minimum of the following:• Actual HRA received.• Rent paid less 10% of the Salary.• 40%/50% of Salary.
• If the rent paid during the year exceeds 1 lakh, you need to submit the PAN of the landlord or declaration from landlord(if PAN not available) to employer.
R Venkatakrishnan & Associates, Chartered Accountants
3.Special Salary Exemptions contd..
Leave Travel Assistance (LTA)• Meaning: Leave Travel Assistance may be provided by the employer to the employee
and his family - • In connection with his proceeding on leave to any place in India, while in service.• Proceeding to any place in India after the retirement or termination from service.
• Family of an Individual means:• Spouse and children of the Individual, and• Parents, Brothers and Sisters of the individual or any of them, wholly or mainly
dependent on him.• Conditions for Benefit:• The Individual can avail the benefit of LTA offered by his employer twice in block of
four years, • This exemption is available only for two children of an Individual born on or after
01.10.1998. But there is no limit in case of children born before 01.10.1998.• Amount of Exemption for LTA:• The maximum amount of exemption is the cost of travel on the shortest route. The
Exemption amounts for various travelling modes are calculated in the following manner:
Mode of Travel Class of Travel Amount Exempt
Airways Economy Class Travel Charges on the Shortest Route collected by National Airways
Train I class AC Travel Charges on the Shortest Route
Recognized Transport Deluxe Class Travel Charges on the Shortest Route
Other Transport - I Class AC fare as per Railways, equivalent for the distance for Shortest Route.
R Venkatakrishnan & Associates, Chartered Accountants
3.Special Salary Exemptions contd..
Unfurnished accommodation
Owned by Employer
Population > 25L
– 15% of Salary
Population > 10L
– 10% of Salary
Other places – 7.5% of
Salary
Not owned by employerRent paid by employer or
15% of salary,
whichever is lower
Accommodation in the hotel24% of
salary or actual
charges, whichever is
lower
Furnished Accommodation
Furniture owned by Employer
Value of Unfurnished Accommodation + 10% p.a. of Cost of
furniture
Hired from Third Party
Value Unfurnished Accommodation +
Actual Charges
Taxability of Rent Free Accommodation
R Venkatakrishnan & Associates, Chartered Accountants
3.Special Salary Exemptions contd..
Private purpose Official Purpose Private and official purpose
Car owned by the employee and expenses met by him
Not a perquisite Not a perquisite Not a perquisite
Car owned by the employee and expenses are reimbursed by the employer
Actual ExpenseLess : Amount recovered
Not a perquisite Actual Expense Less:
Up to 1.6Ltrs 1800+900 for chauffer
Above 1.6Ltrs 2400+900 for chauffer
Car is owned/ hired by the employer and expenses met by the employer
Actual ExpenseAdd: Depreciation @10% / hire chargesLess : Amount recovered
Not a perquisite Taxable Value
Up to 1.6Ltrs 1800+900 for chauffer
Above 1.6Ltrs 2400+900 for chauffer
Car is owned/ hired by the employer and expenses met by the employee
Depreciation @10% / hire chargesLess : Amount recovered
Not a perquisite Taxable Value
Up to 1.6Ltrs 600+900 for chauffer
Above 1.6Ltrs 900+900 for chauffer
Taxability of Motor Car Benefits
R Venkatakrishnan & Associates, Chartered Accountants
4.Deductions from Taxable Income
Tax Saving Sections:
Section 80C (Lots of Options
discussed in detailed later)
Section 80CCC (Pension Products)
Section 80CCD (Approved Pension
Scheme)
Maximum Deduction of Rs.1,00,000/-
Inve
stm
ent &
E
xpen
ditu
re
R Venkatakrishnan & Associates, Chartered Accountants
Section 80C,80CCC,80CCD The Maximum deduction available combining all the following
investments/expenditures is Rs 1 Lakh. All the investments in 80C,80CCC,80CCD can be categorized as follows:
Investment Options (I)
Provident Fund
Public Provident Fund
National Savings Certificate(NSC)
Senior Citizens Savings Scheme
Tax Savings Fixed Deposits
Investment Options (II)
Life Insurance Premium
Pension plans from insurance companies
New pension Scheme
Tax Savings Mutual Funds
Central Govt Employees Pension Scheme
Expenditures
Principal payment on Home loan
Stamp duty and registration cost of the
house
Tuition Fee for 2 children
R Venkatakrishnan & Associates, Chartered Accountants
Tax Saving Sections contd..D
onat
ions
Section 80GDonations to
charitable funds and charitable institutions
10% on Adjusted GTI50% or 100% of
donation
Section 80GGADonations for
scientific research or rural development
No limit
Section 80GGC
Donations to political parties
No limit
Hea
lth
and
Wel
l be
ing
Section 80DMedical
Insurance for Family and
parents
Deduction up to Rs.15,000/- or
Rs.20,000/-
Section 80DD
Maintenance and medical treatment
of Disabled dependent
Deduction up to Rs.50,000/- or Rs.1,00,000/-
Section 80DDB
Treatment of Certain
disease/ailment
Deduction up to Rs.40,000/-or Rs.60,000/-
Section 80U
Physically disabled
Assessee
Deduction of Rs.50,000/- or Rs.1,00,000/-
R Venkatakrishnan & Associates, Chartered Accountants
Tax Saving Sections contd..O
ther
s
Section 80GG
Payment of rent in the place of HRA
Deduction up to Rs.24,000/-
Section 80CCG
Rajiv Gandhi Equity Savings Scheme
Deduction up to Rs.25,000/-(50% of amount invested)
Section 80TTA
Interest received in Savings Account
Deduction up to Rs.10000/-
Loa
ns
Section 80GG
Payment of rent in the place of HRA
Deduction up to Rs.24,000/-
Section 80CCG
Rajiv Gandhi Equity Savings Scheme
Deduction up to Rs.25,000/-(50% of amount invested)
Section 80TTA
Interest received in Savings Account
Deduction up to Rs.10000/-
R Venkatakrishnan & Associates, Chartered Accountants
Rajiv Gandhi Equity Savings Scheme(RGESS)
RGESS is a new tax saving scheme which was announced in 2012 to encourage first time investors in stock market
Under RGESS, you are eligible for a tax deduction on 50% of the amount invested The maximum amount eligible for investment in a year is 50000.
So limit on max deduction is 50% of 50000=25000 You can invest in BSE-100 and CNX-100 and public sector enterprises ( Navaratna, Maharatna,
Miniratna) Mutual funds which invests only in these companies are also eligible for deduction
Who can Invest in RGESS: This scheme is for new investors to come into stock market. Encourage them to invest in stock markets. Who didn’t have a Demat A/c on Nov 23, 2011(i.e the date on which the scheme notified. Have not transacted in equity or derivative before the above date. Had a demat account but as second joint holder. Your Gross Total Income Should be less than 12L
Open a Demat
Account
Designate the A/c as RGESS account
Buy Eligible Stocks
Submit Demat statement as
proof to claim tax benefit
Steps to claim Tax Benefit in RGESS
R Venkatakrishnan & Associates, Chartered Accountants
5.Other Important Information
Home Loan: Interest and Principal Buying a house is one of the top most priority for most The Good news is you get tax deduction on both principal and interest payment on your
Housing Loan
Home LoanPrincipal
Deduction u/s 80C up to Rs.1 lakh
InterestDeduction u/s 24 up to Rs.1.5 lakh
Addl Deduction u/s 80EE up to Rs.1 lakh
Deduction on Principal payment on Home Loan Deduction up to Rs 1 Lakh is allowed on the principal repayment of the housing loan if the house is self
occupied or vacant. The house should be registered in the name of the assessee. (Can be Joint owner as well) The loan should be from Banks, NBFCS or respective employers. Loans taken from friends/relatives
does not qualify for this deduction. The deduction is available also for people with multiple properties.
R Venkatakrishnan & Associates, Chartered Accountants
Home Loan: Interest and Principal
Deduction on Interest payment on Home Loan Deduction up to Rs.1.5Lakh is allowed on the Interest payment of the housing loan in case of
single non-rented house. Incase of rented or multiple houses there is no limit on amount of deduction. All the rent you received will be your taxable income(Income) Interest paid will be taken as expense(Expense) Net amount will be considered as your Income/Loss from House Property.
Additional Deduction on Interest Payment on Housing LoanA new section 80EE has been inserted w.e.f FY 2013-14, which gives additional deduction of
Rs.1lakh on payment of interest on housing loan subject to following conditions: The Loan needs to be taken in the financial year 2013-14 Loan should be taken from banks or housing finance companies Loan < 25L Value of House <40L No other property at the time of loan sanction.
The additional deduction on Interest payment of home loans can be claimed in FY 2013-14, in case you are not able exhaust the limit in FY 2013-14, The balance can be claimed in FY 2014-15
R Venkatakrishnan & Associates, Chartered Accountants
When?
R Venkatakrishnan & Associates, Chartered Accountants
Any Questions
Prepared By:
Korada Devi Vara Prasad
Audit Executive –CA Final , CWA Final
R Venkatakrishnan & Associates
Email us at: [email protected]
Visit us at : http://www.rvkassociates.com
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