Little known schemes u/s. 80C of Income Tax Act

If an individual falls in the 30% tax bracket and has exhausted the maximum limit of Sec 80C, one can save Rs 46,350 in taxes.  We runs you through the provisions of Section 80C. However, we highlight those schemes that are little known and which many investors avail of sparingly.

Stamp duty and registration charges

The first and foremost provision that many taxpayers are not aware of is stamp duty and registration charges. According to the law, ‘the amount paid towards stamp duty, registration fees and other expenses for the purpose of transfer of house property to the owner also qualifies for tax exemption’. This is over and above the principal payment that qualifies under Section 80C. But deduction u/s. 80C for total amount including Principal Loan Repayment and stamp duty and registration charges can’t exceed Rs. 1.50 Lakh.

Exemption for interest payment towards home loan is permissible under another section hence the above limit of Rs 1 lakh does not apply to it.

Let us take an example, Mr A purchases a house property of Rs 32 lakh and takes a home loan of Rs 25 lakh at 10%. His stamp duty and registration charges on this work out to approximately Rs 1.75 lakh.

The interest for the first year comes to Rs 2.48 lakh and principal payment comes to Rs 41,376.

Thus, Mr A can claim maximum tax exemption of Rs 2 lakh on his interest payment under Sec 24. The entire principal payment (not more than Rs 1.50 lakh) of Rs 41,376 can be claimed under Sec 80C.

Nonetheless, it still leaves Rs 1,08,624 to be invested in other tax-saving instruments to reduce overall tax liability. In reality, buying a house is quite often an expensive affair, leaving little cash with the home buyer. On top of it, if one has to make additional investment to save on tax, it becomes difficult.

But with the inclusion of registration and stamp duty fees under Section 80C, it not only reduces tax liability but also saves the property buyer from further cash outgo. As in this case buyer has not to invest further Rs. 1,08,624 in tax-saving instruments to claim Full deduction U/s. 80C as his Payment of Rs. 1.75 lakh towards Stamp duty and registration charges also qualifies for deduction Under Section 80C.

Fixed-deposit with HUDCO or any housing board

Another provision that would be eligible for exemption under Section 80C is ‘any sum paid towards fixed-deposit schemes of HUDCO or to any housing board, which is constituted in India for the purpose of planning, development or improvement of cities or towns’.

Typically, these schemes are promoted by state housing boards to promote long-term social sector objectives, or for infrastructure development of city.  In fact, principal payment towards home loans taken from Housing and Urban Development Corporation (HUDCO) also qualifies for exemption under Sec 80C.

Even subscription to a home loan account scheme of the National Housing Bank (NHB) or contribution to any notified pension fund set up by the NHB also meet the requirements. Hence, if these two offer home loans at competitive rates, one can avail loan from them as well.

Contribution to a non-commutable deferred annuity plan

Further, contribution to a non-commutable deferred annuity plan is also an option to avail tax exemption. In normal parlance, this is nothing but a standard pension plan eligible for tax exemption under Section 80C.

This includes schemes such as Jeevan Suraksha by LIC or Pension Plus plan by HDFC Standard Life. Contribution to an approved superannuation fund is also a way to claim tax benefit.

Typically, large organisations maintain superannuation funds and contribute to them. In case employees want to make a higher contribution; they can do so to the extent of 15% of basic plus dearness allowance. Besides these lesser-known options, the other commonly used options are contribution to employee provident fund, life insurance premium, or payment of tuition fees. Five-year tax saving fixed deposits issued by banks can also be bought.

These FD’s have an edge over NSC with a one-year lesser lock-in period. However, the NSC has an edge because of the fact that interest accrued is also eligible for 80 C limit for the first five years that is not the case with FDs.

Equity-linked savings scheme MF or Ulips

Besides, these low risk options, one can go for high-risk return schemes such as equity-linked savings scheme MF or even Ulips. ELSS usually provides a higher return in the long run than small savings schemes and carries a lower lock-in period of three years.

Small savings schemes offer a lower return of around 8 to 9.3%. Further, there is a relatively long lock-in period -15 years for the PPF and six years for NSC. The advantage with these schemes is that they offer a guaranteed return unlike equity-based products where there is no guaranteed return and one can lose money like when the markets tumbled in 2008.

Risk profile and investment strategy are the key determinants for allocating funds to any scheme. Also, one must consider inflation-adjusted returns before taking a decision.

(Republished with Amendments)

14% Service Tax rate not with effect from 1st April 2015

14% Service Tax rate not with effect from 1st April 2015


The department of Customs, Central Excise and Service Tax has announced that the 14% Service Tax Rate is not effective from 1st April 2015.

Notification is as below.

OFFICE OF THE COMMISSIONER
CUSTOMS, CENTRAL EXCISE AND SERVICE TAX
KNDRIYAUTPADSHULKHBHAWAN, TElANGKHEDI ROAD
CIVIL LINES, NAGPUR-440001

It is brought to the notice of the Public that the new Service Tax rate of 14% has been proposed In the Finance Bill, 2015 by the Hon’ble Finance Minister on 28-02-2015. The new Service Tax rate 14% is not effective immediately and shall come into effect only from a date to be notified later.

The existing rate of Service Tax is 12.36% (Inclusive Cesses)

It has come to the notice of this office that though the new Service Tax rate of 14% has not yet been given effect, some of the service tax providers have started billing & recovering the amount of Service Tax at the rate of 14% from their customers. This practice is not only completely illegal but amounts to collecting consideration from the general public which is not so required to be collected as Service Tax.

It is therefore appealed to, bring any ­such instance to the notice of Customs, Central Excise & Service Tax Department.

(Ashish Chandan)
Commissioner

Most Popular Exempt Allowances for Salaried Employees

Most Popular Exempt Allowances for Salaried Employees

Salaried Employees can avail the benefit of various exemptions with respect to the allowances given by their employers during their tenure of service like House Rent Allowance, Gratuity Allowance, Leave Encashment, Conveyance/Transport Allowance, Leave Travel Allowance and many others. Today we are enumerating the exemptions and benefits received by the employees with respect to three most popular allowances namely:-

I)  Leave Travel Allowance and

II) House Rent Allowance.

III) Conveyance/Transport Allowance

I)  Leave Travel Allowance (LTA) is the most common element of compensation adopted by employers to remunerate employees due to the tax benefits attached to it.    Section 10(5) of the Income-Tax Act, 1961, read with Rule 2B, provides for the exemption and outlines the conditions subject to which LTA is exempt. Here I would like to shed light on the taxability and some other interesting relevant aspects which you as a salaried employee must keep in mind.

Who and what is covered?

LTA exemption can be claimed where the employer provides LTA to employee for leave to any place in India taken by the employee and their family. Such exemption is limited to the extent of actual travel costs incurred by the employee. Travel has to be undertaken within India and overseas destinations are not covered for exemption.

For example, where an employer provides LTA of Rs 35,000, but an employee spends only Rs 30,000 on the travel cost, then the exemption is limited to only Rs. 30,000.

Travel cost means the cost of travel and does not include any other expenses such as food, hotel stay etc. The meaning of ‘family’ for the purposes of exemption includes spouse and children and parents, brothers and sisters who are wholly or mainly dependent on you.

An individual would not be able to claim the exemption in relation to his parents, brother or sisters unless they are wholly or mainly dependent on the individual. Further, exemption is not available for more than two children of an individual born after October 01, 1998.

This restriction does not apply in respect of children born before this date, and also in cases where an individual, after having one child, begets multiple children (twins or triplets or quadruplets, etc.) on the second occasion. The term “Child” includes a step-child and an adopted child of the individual.

Is exemption available every year?

No. The tax rules provide for an exemption only in respect of two journeys performed in a block of four calendar years. The current block runs from 2014-2017. If an individual does not use their exemption during any block on any one or on both occasions, their exemption can be carried over to the next block and used in the calendar year immediately following that block.

In such cases, the journey performed to claim such exemption will not be counted for the purposes of regulating future exemptions allowable for the succeeding block. For example, Mr. X joins an organisation on April 1, 2012 and is entitled to a LTA of Rs 35,000 per annum (financial year 2012-13).

X undertook a journey in December 2012 and used his exemption. However, for his LTA entitlement for 2013-14, he did not undertake a journey during the calendar year 2013.

He can undertake the journey in 2014 to claim the exemption in relation to the LTA. He would also be able to use the LTA benefit for two other journeys which he can undertake in the current block 2014-17 in relation to his LTA entitlement for future years.

Proof of travel

The individual needs to submit proof of travel to his/her employer and also keep copies for his or her own records. Such proofs are helpful at the time of the audit of the tax return of the individual. Proof of travel could be, for example, tickets, boarding passes, invoice of travel agent, duty slip etc .

Q. To qualify for exemption is it necessary to perform actual journey?

A. Yes, certainty. In case the L.T.C. is encashed without actually performing the journey the entire amount received by the employee would be taxed in his hands.

During the Fringe Benefit tax (FBT) regime, provision of paid holidays, including travel cost to any place, stay expenses etc. were subject to FBT in the hands of employers and were not taxable in the hands of individuals. Many employers extended the paid holiday benefit instead of LTA.

Now with the elimination of FBT, with effect from. April 1, 2009, paid holiday benefit is fully taxable in the hands of employees.

Exemption Limit

What are the limits of exemption in L.T.C. is granted to an employee in connection with the journey on leave by him or his family? It is exempt from income tax within certain limits as under: -

(a) Where journey is performed by rail; railway-fare in Second AC class by shortest route to destination.

(b) Where places of origin and destination are connected by rail but the journey is performed by any other mode then Second AC class fare by shortest route to the place of destination.

(c) Where place of origin of journey and destination, or part thereof, are not connected by rail and journey is performed by any other transport; then

(i) If a recognised public transport system exists between such places the first class or deluxe class fare of such transport by shortest route, or,

(ii) If in other case, Second AC class fare for the distance of the journey by the shortest route, as if the journey has been performed by rail.

Exemption will, in no case exceed actual expenditure incurred in the performance of journey.

Leave Travel Concession Rules have been amended on the recommendation of the Fifth Pay Commission to extend the facility of travel by air economy Y- Class to certain categories of employees of the Central Government with effect from 1st October, 1997.

Consequently, where the journey is performed on or after 1st October, 1997 by air, an amount not exceeding the air economy fare of the National Carrier by the shortest route to the place of destination.

Also, where the entitlement was previously for air-conditioned Second Class Rail fare, it has been upgraded to air-conditioned First Class Rail fare. [l.T. (First Amendment) Rules 1998, O.O.I. Gazette Notification No. S.O. 34(E) dt. 12th Jan. 1998; CBDT F.No. 142/85/97-TPL No. 105021].

Q. Will the above change apply only to government employees or does it apply also to employees of other sectors?

A. The change applies to all employees.

Taxability of Leave Travel Allowance (LTA) – Section 10(5)

II)  House rent allowance (HRA) is received by the salaried class. A deduction is permissible under Section 10(13A) of the Income Tax Act, in accordance with Rule 2A of the Income Tax Rules. You can claim exemption on your HRA under the Income Tax Act if you stay in a rented house and get a HRA from your employer.

How is HRA Exemption calculated?

The HRA deduction is based on salary, HRA received, the actual rent paid and place of residence. The place of residence is important. For Mumbai, Kolkata, Delhi or Chennai, the tax exemption on HRA is 50 percent of the basic salary, while for other cities it is 40 percent of the basic salary.

The city of residence is to be considered for calculating HRA deduction.

The least value of these is allowed as tax exemption on HRA:

1) Actual rent allowance the employer provides as part of salary in the relevant period during which the rental accommodation was occupied

2) Actual rent paid for the house, less 10 per cent of basic pay

3) 50 percent of basic salary if you reside in Mumbai, Calcutta, Delhi or Chennai, or 40    per cent if you reside in other cities.

In order to claim the exemption, the rent must actually be paid for the rented premises which you occupy.

Also, the rented premises must not be owned by you. As long as the rented house is not owned by you, the exemption of HRA will be available up to the limits specified.

For the purpose of this deduction, salary means basic salary and includes dearness allowance, if the terms of employment provide it, and commission based on a fixed percentage of turnover achieved by the employee.

The deduction is available only for the period during which the rented house is occupied by the employee and not for any period after that. It is to be noted that the tax benefits for home loans and HRA are two separate aspects.

In case you are paying rent for an accommodation, you can claim tax benefits on the HRA component of your salary, while also availing tax benefits on a home loan.

Proof of Rent:

You need to submit proof of rent paid through rent receipts, duly signed and stamped, along with other details such as the rented residence address, name of the owner, period of rent, PAN of Owner  etc.

How it applies:- Assume one earns a basic salary of Rs 20,000 per month and rents a flat in Mumbai for Rs 5,000 per month. His actual HRA is Rs 8,000. He is eligible for 50 percent of the basic pay for HRA exemption.

Least of:

·         Actual HRA received – Rs 8,000

·         50 percent of basic salary – Rs 10,000

·         Excess of rent paid over 10 percent of salary, i.e., Rs 5,000 less Rs 2,000 – Rs 3,000.

·         As such, Rs 3,000 per month is the least and will be the exemption allowable for HRA deduction.

House Rent Allowance (HRA) Taxability & calculation

III) Conveyance/Transport Allowance – Tax Exempt up to Rs. 9,600 per annum (800 Per Month) irrespective of actual expense. (No bills/receipts needed). Finance Bill 2015 has proposed to increase the Exempt Limit to Rs. 19200 per annum (1600 Per Month).

(Republished with Amendments)

WOMAN EMPOWERMENT ??? WOMAN DIRECTOR IN EVERY COMPANY

Companies Act, 2013 along with Companies (Appointment and qualification of Directors) Rules, 2014 had made it mandatory for the following class of companies to have at least one women director in their Board:

a) All Listed Companies

b) Every Public Company having a Paid-Up Share Capital of Rs. 100 Crore or more.

c) Every Public Company having a Turnover of Rs. 300 Crore or more

Sub section 2 of section 149 gives the transition period of 1 year from the date of commencement to comply with the above said rule.

SEBI has further strengthened the idea by the amendment in corporate governance norms i.e. Clause 49 making it mandatory for listed companies to have at least one women director in their board by 1^st October 2014 which is further extended to 1^st April, 2015.

SEBI Circular No. CIR/CFD/POLICY CELL/2/2014 dated April 17, 2014 – This Circular Mandates Appointment of atleast one Women Director in Listed Companies.

SEBI Circular No. CIR/CFD/POLICY CELL/7/2014, Dated- September 15, 2014 – This Circular Extends last date to 31.03.2015 for Compulsory appointment of women director by Listed Companies.

Now just 10 days left to comply with this requirement of Companies Act and Listing Agreement. But as per the data of prime database, about one third of listed Indian companies do not have a woman director on their boards till date i.e. 451 of the 1,479 companies listed on the National Stock Exchange have not met the requirement yet. If all companies started complying this requirement today 45 women directors would have to be appointed everyday for the next 10 days which is obviously not going to be happen.

Finding efficient end capable women Director from a huge work force is really such a big task for Indian Companies?????

Or it is the male dominating Indian Companies that are not digesting the concept of at least one women Director on the Board??

The other loop hole plucked by the companies is that they are appointing mothers, wives, sisters and daughters of the promoters. A prominent example is Nita Ambani, the wife of India’s richest man, Mukesh Ambani. She was appointed to the board of Reliance Industries in June 2014. There are many other such examples also. This seems that corporate are complying the law in its letters only not in its true spirit. Women from the promoter group will have the voice as that of promoters. By doing this the actual intention of the law defeated.

Recently, SEBI has threatened to penalize companies that do not meet the April 1 deadline. But the penalties are not yet known. Countdown begins, let’s see what happens.

Acche Din- Mandatory documents for Import/ Export Reduced to 3

Acche Din- Mandatory documents for Import/ Export Reduced to 3

IMPORT AND EXPORT MANDATORY DOCUMENTS REDUCED

Mandatory documents required for import and export of goods reduced to three documents each (w.e.f 1^st Apr,15):

India took a step forward in improving ‘Ease of Doing Business’ by reducing the compulsory documents required for import and export of goods. The Directorate General of Foreign Trade (DGFT) issued a Notification No. 114 (RE-2013)/2009-2014.

A committee ‘Inter Ministerial Committee’ was set up by the department of commerce to recommend devices to reduce requisite number of mandatory documents, transactions cost and time for Exports and Imports.

Based on the recommendations of “Trading Across Borders” report submitted by committee,

The India’s central bank RBI has agreed to do away with the ‘Foreign Exchange Control Form (SDF)’ by incorporating the same in the ‘Shipping Bill’ (for exports) and dispensing with the ‘Foreign Exchange Control Form (Form A-1)’ (for imports).

Customs have also agreed to merge the ‘Commercial Invoice’ with the ‘Packing List’ and have issued a Circular for accepting ‘Commercial Invoice cum Packing List’ that combines the required details of both the documents. Optionally the exporters and importers may fill separate, ‘Commercial Invoice’ and ‘Packing List’ also, if they so want.

Shipping Ministry has also agreed to do away with the requirement of ‘Terminal Handling Receipt’ and make the process online.

The following mandatory documents are prescribed for exports and imports of goods from/into India:

MANDATORY DOCUMENTS FOR EXPORT & IMPORT
S. No.	EXPORTS	IMPORTS
1	Bill of Lading/ Airway Bill	Bill of Lading/ Airway Bill
2	Commercial Invoice cum Packing List	Commercial Invoice cum Packing List
3	Shipping Bill/ Bill of Export	Bill of Entry

Below listed 7 and 10 documents were mandatory respectively for export and import from/to India:

OLD MANDATORY DOCUMENTS LISTED
S. No.	EXPORTS	IMPORTS
1	Shipping Bill	Bill of Entry
2	Commercial Invoice	Commercial invoice
3	Packing List	Packing List
4	Bill of Lading	Bill of Lading
5	Foreign Exchange  Control Form (SDF)	Foreign Exchange Control Form (Form A-1)
6	Terminal Handling Receipt	Terminal Handling Receipt
7	Technical Standard Certificate	Certified Engineer’s Report
8		Cargo Release Order
9		Product manual
10		Inspection report

Now it is expected that this step would improve India’s ranking. India ranked 126th in Trading Across Borders component of “Ease of Doing Business”, out of 189 countries ranked by the World Bank in its 2015 Report.