Invest your money in Right Scheme to Save on Tax.

Prashant Mahesh takes a look at some of the schemes that offer tax benefits for individuals Investors are wary of investing in tax-saving mutual funds (equity-linked savings schemes or ELSS in mutual fund parlance) this tax-planning season, say financial advisors. The abysmal performance of these schemes in the past three years and the current higher level of the market are cited as the reasons for investor disinterest. According to Value Research, a mutual fund tracking entity, ELSS funds, as a category, have given a mere 0.33% returns in the last three years. With the tax planning season

Planning to save tax? Here are some investment options to benefit you

Planning to save tax will certainly be one of the key objectives for any person and particularly this time of the year should be ideal for taking any such measures. It is certainly, not prudent to wait till the fag end of the financial year to think about saving tax given that we may tend to miss and realise later by which time, it may not be possible to do any planning.

Major Mistakes to be avoided while filing Income Tax Return

As the 31 July deadline approaches to file your returns, here's how to ensure you don't commit errors and receive a tax notice.

1) Availing of deduction twice
This is a common error that many salaried taxpayers commit. If you had switched jobs during the previous financial year, you might have got the Form 16 from both employers. While the first company may have deducted the tax correctly, the second might have deducted very little. It would have considered only the income for the rest of the year and given you the basic exemption of Rs 2 lakh, as also the deduction under Section 80C. However, these must have already been factored in by the previous company. "You might have to pay additional tax in such a situation," says Sudhir Kaushik, co-founder of tax filing portal, Taxspanner. com.

HighLights of Rail Budget 2012.

Presenting a populist budget, Railways Minister Dinesh Trivedi on Wednesday announced marginal hike in passenger fares ranging from 2 paisa per kilometre to 30 paisa per kilometre in various categories of trains despite noting that Railways was passing through a "difficult phase".

He also announced introduction of 75 express trains, 21 passenger trains and extension of 39 trains besides increase in the frequency of 23 trains.

Platform tickets have also been raised from Rs 3 to Rs 5. In his first Railway Budget, Trivedi announced increase in passenger fares by 2 paise per km for suburban and ordinary Second Class, 3 paise per km for Mail/Express Second Class and 5 per paise per km for Sleeper Class, 10 paise per km for AC Chair Car, AC-3 Tier and First Class.

AC-2 Tier will cost more by 15 paise per km while AC-1 will be dearer by 30 paise per km.

In his over 100-minute speech, Trivedi said these were aimed at rationalising the fares to cause "minimal impact" on the common man and "to keep the burden within tolerance limits in general".

He said he had been counselled to go for steep increase in passenger fares as there had been no increase in last eight years but he desisted from doing so "guided by the overriding concern for aam aadmi (common man)".

The proposed adjustments, he said, do not even cover fully the impact of increase in fuel prices during the last eight years.

"I am keeping the valuable passengers of Indian Railways insulated from the burden of increasing staff cost," he said.

Are you evading tax?

They may not be aware, but even honest individuals can end up evading tax. Find out if you also fall foul of tax laws and how to stop doing it.

   Do you know somebody who is guilty of evading taxes? Most people would, because the Income Tax Act has created more criminals than any other legislation in the country. Don’t think all tax evaders are suspiciouslooking characters with wads of unaccounted money stacked in lockers. Even seemingly honest and upright citizens could be underpaying tax. It’s a malaise more widespread than the common cold. From school teachers to engineers, from banker to sales executives, millions of Indians may be liable for penalties, even prosecution, for under-reporting their income or not paying the due tax. 

GIFTING SHARES IN WEDDING

Tired of presenting the same old wedding gifts to newlywed couples? Well, it seems like the need for innovation is more pronounced now with traditional gifts losing their charm. Gifting something solid and substantial to the couple would be worthwhile, wouldn’t it? Ever thought of making a gift of stocks?

 

It may sound ridiculous, but stocks are a high value idea to give newlyweds a head start in their married life.

 

Why gift stocks?
 

A wedding is a special occasion. You try and make it more special by giving the newlyweds gifts they can cherish, use, and remember you by. However, selecting unique gifts for every occasion that are both useful and aesthetic is difficult. Leading stores that sell wedding gifts say that up to 12% of all gifts are returned soon after the wedding because of duplication.

 

So what’s one thing that will make the couple happy and that’s not likely to be returned? Something different, something that has lasting value, something that will appreciate over time and will give the newlyweds greater returns. This is where stocks come in. Gifting stocks and investments is the next big thing at weddings.

 

How do you do this?

Either give the couple stocks that are already highly valued, or buy them new stock and allow them to build on it.

 

Wedding registries that accept cash from you and translate it into whatever gift the couple wants already exist. There’s a social dialogue creating etiquette for the use of these registries, making them universally acceptable. Some of these registries have expanded into stocks.

 

How do they work?

The registries accept your money, charge you a fee, and inform the couple of your gift. The couple can then advise them either to hold the money or to transfer it to a brokerage who will then invest it suitably. Some registries even offer a list of stocks they will invest in for you. These are usually single stock investments that the couple can build on later.

 

Registries presently don’t offer to transfer stocks for you, nor do they offer investment advice. Gifting securities except as charities don’t give you tax benefits. What they do is help you give the newlyweds a meaningful gift.

 

Do you think gifting stocks is a great deviation from tradition? Do you think it’s a drab gift? What other gift can you think of that’s not traditional and that’s really useful – other than investments? Do share your thoughts with us and other readers!

Government may make declaring of overseas assets details mandatory by

The government may make it mandatory for all taxpayers to provide details of their overseas assets, including bank accounts, while filing their annual tax returns, as the drive against tax evasion gains momentum.

The proposed Direct Tax Code, or DTC, has a provision that seeks to cast an obligation on taxpayers to furnish full details of foreign assets.

The government is now considering a proposal to amend the Income Tax Act to incorporate this provision as the DTC may not come into effect from April 1 2012, as originally planned, an official with knowledge of the matter said.

The official, who declined to be named, said tax authorities are seeking legislative changes to ensure taxpayers declare foreign assets.

Once this is made mandatory, taxpayers will have to come clean on their offshore accounts, as wilful non-compliance would lead to prosecution, the official said.

The move comes in the wake of a determined attempt by India to extract details of overseas accounts of Indians.

India's income-tax laws do not specify that locals have to disclose their foreign assets or income. But there are provisions in the law that state global income of an Indian citizen is taxable in India. Failure to report this is a punishable offence.

However, officials concede that detection of unreported offshore bank accounts or assets and prosecution of the taxpayer are not easy.

The government now thinks it will soon be able to generate more information about global financial activities of Indians than in the past, thanks to tax treaties and agreements it has signed with countries and regions dubbed as tax havens earlier.

By making it mandatory to declare details of overseas assets in the income-tax returns, they reckon that the Income-Tax Department would be able to match the information provided in the returns with data that the government hopes to generate globally

High tax bracket investors should invest in infrastructure bonds

It is time to start working on your tax savings. With just 2 months away from March 31, it is time to execute some action. Infrastructure bonds are gaining popularity as a tax saving instrument because of the recently introduced tax benefit under 80CCF.

Under this Section of the Income Tax Act, an investor can seek tax relief on the investment amount up to Rs 20,000 in the long term infrastructure bonds. After a spate of infrastructure bond issuances such as IDFC, IFCI, REC, PFC, L&T Infrastructure Finance has launched a long term infrastructure bond issue. The earlier bond issuances were priced in the range of 9-9.16% per annum. L&T Infrastructure Finance is offering 8.70% on its bonds.

Should you invest in such bonds?

"It definitely makes sense to invest in these bonds, if you have not invested in infrastructure bonds as yet. These bonds are priced lower than the earlier bond issuances reflecting a possibility of rate cut in near future. If there is no liquidity pressure you should opt for the cumulative option for a maximum period of 10 years, under which the interest rate is compounded annually," says Pankaj Mathpal, certified financial planner.

Investors having a demat account can take purchase the bonds dematerialised form and trade after the minimum lock in period, which is 5 years.

"Investing in Infrastructure Bonds will be useful most to those in the highest tax bracket as the tax savings potential is the highest. Even for 20% tax slab it is fine. For those in 10% taxslab, it is not really that lucrative and not recommended," says Suresh Sadagopan, Certified Financial Planner, Ladder 7 Financial Advisories.

For choosing the bond one needs to see the rating assigned to the bond. "You have to choose the correct tenure ( 10/15 years ), based on which they will have the option for buy back after 5/7 years. Investor needs to choose yearly interest paying or cumulative options based on their requirement for regular cashflows," says Sadagopan.

Seven not-so known ways to cut income tax burden

The phrase 'tax savings' brings to mind life insurance,Public Provident Fund, National Savings Certificate, and equity-linked savings scheme, among others, that qualify for tax deduction under Section 80 C of the Income-Tax Act. An individual can claim tax deductions of up to Rs 1 lakh under 80 C.

However, there are other lesser known avenues that offer additional tax breaks to individuals. They are not widely discussed as they involve special situations in life such as having a special dependant, paying rent to parents, owning a house in another city, and so on. Here is a small list you could explore.

Paying rent to your parents 
If you are staying in your parents' house, you can consider paying rent to them. "This can help you saveincome tax if your parents fall in a lower tax bracket. However, note that it is advisable that you enter into an agreement with them and actually make the payment every month, preferably by cheque,"

"If your parents are retired and do not derive any significant taxable income, the amount of rent would be tax free in their hands,"

Take a look at the example to see the tax implications. Let us assume your monthly basic salary is Rs 40,000 and HRA is Rs 16,000. Your monthly rent is also Rs 16,000. In this case, of the total monthly HRA, Rs 12,000 will be tax exempt. Assuming you are in the 20% tax bracket, your annual tax saving would be Rs 29,664.

Please note that you will have to submit copies of rent receipts or rent agreement, depending on what your organisation stipulates. However, avoid claiming tax benefits on rent payments made to the spouse as the arrangement can be characterised as a sham transaction, say experts. 

Renting and Home loan in two different locations 
Individuals today are constantly on the move for better job prospects. This could result in a person living in a rented place in the city he is working while repaying the loan for a home bought in his native city or any other city.

"In such a scenario, the rent that an individual pays is eligible for HRA exemption. Further, a deduction can be claimed on the interest paid for the housing loan used to purchase the property at the native place/any other city,"

Let us assume your monthly basic salary is Rs 40,000 and HRA is Rs 16,000. Your monthly rent is Rs 16,000 and annual interest payment on your housing loan is Rs 1.45 lakh. In this case, of the total monthly HRA, Rs 12,000 will be tax exempt in your hands. Further, you can claim deduction under section 24(b) of the Income-Tax Act, 1961, on the interest payable on your housing loan.

For claiming HRA exemption, you need to submit copy of the lease agreement or rent receipts. For claiming deduction on housing loan interest, you need to submit a copy of the tax certificate issued by the housing finance company. 

NRI's guide to renting out property in India

Reasons for this is its ability to generate regular cashflows through rent. In this column, we will look at the various aspects involved when an NRI rents out a property in India. The definition of NRI for the purposes of repatriation will be that of the FEMA and for the purposes of income tax will be that prescribed in the Income Tax Act.

Can NRIs earn rental income?

An NRI can rent out property that he owns in India. The rent proceeds can be credited to the NRE or NRO account. Rent proceeds received in these accounts can be freely repatriated. If you do not have an NRE or NRO account, the proceeds can also be directly remitted abroad but you would need an appropriate certificate from a chartered accountant certifying that all taxes have been duly paid.

Yes, since this income is earned in India, tax will be payable by the NRI in India. In fact, tax will be deducted at source by the payer of the rent. The payer of the rent, in this case, must obtain a TAN number and deduct TDS of 30 per cent from the rent amount. He must also provide a TDS certificate to the NRI.

"The onus of deducting tax is on the payer. So in case the payer does not deduct tax and the NRI too fails to declare the income and pay the tax, the income tax authorities can hold the payer responsible," explains Sandeep Shanbhag, Director, Wonderland Investments.

Having said that, if the tenant does not deduct tax at source, it is prudent to file your tax returns and pay the taxes thereof.

Is rental income taxed in the country of residence?

When you are an NRI, you are obviously a resident of another country for tax purposes. And in most cases, countries levy tax on residents on their global income. So it may happen that as per provisions of the Indian Income Tax laws, tax will be deducted at source on income earned in India, as is in the case of rent. But at the same time, that income will be subject to tax in your country of residence. In such cases, we need to refer to the Double Taxation Avoidance Agreements that India has entered into with various countries