Posts Tagged ‘Income Tax’

House Rent Allowance (HRA) Exemption

September 5, 2012

All the working people must aware with the term House Rent Allowance (HRA). It is part of your salary package which your employer provides. As per income tax rule in India, you can claim for  HRA exemption on the amount that you pay for your accommodation. However, income tax department have set a limit for HRA exemption as per your salary structure.

Many people who are reading this article are not aware of the method to calculate their HRA exempt. There is a general rule many organizations are using in India to calculate the HRA exemption of their employees. This rule basically comprises of three conditions:

  1. Actual House Rent Allowance (HRA) received by the employee.
  2. Excess of rent paid for accommodation over 10% of the salary.
  3. 50% of the salary for the person living in metro cities and 40% of the salary for the person living in non-metro cities.

Least of above three is takes for HRA exemption. Let us understand it with the help of an example;

Ram have a basic salary of Rs 12000 and HRA of Rs. 6000. He pay an amount of Rs 5000 as rent. In this case, HRA exemption can be calculated as:

  1. Rs. 6000
  2. 5000 – 1200 = Rs 3800
  3. Rs. 6000 for metro cities and Rs 4800 for non-metro cities.

Least of above three is Rs 3800. So, Ram will get an exemption of Rs 3800 per month on his rent paid for accommodation.

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How to Save Tax Smartly

August 28, 2012

Are you planning to save tax on your income but due to lack of knowledge or poor money management not able to do so ? Don’t worry ! You are not the only one who is facing such situations. There are thousand of people who are facing the same problem. Some people take services of a financial experts to make their investment, others pay a large amount of money in the form of income tax. Both the options consumes your money.

However, many smart people plan their financial needs and make their investment accordingly. You can also set your goals and make an investment from your earning. If you starts looking for investment schemes available in the market, you will found many options. Some of the investment schemes return a good profit on your investment while some other gives you tax benefit along with a good return. Such schemes generally have a lock-in period of 3 to 15 years but the amount earned as return are completely tax free. Different investment schemes are given below:

  1. Mutual Funds – Tax saving mutual funds helps you to invest money in the market. Investment through mutual funds is one of the safe mode as the money you invest in mutual funds are invested in different shares. With a lock-in period of three years, mutual funds give a good return depends on the market situation. However, you can keep your investment even after the lock-in period. You can invest a minimum of Rs. 500 and there is no limit for maximum investment in the mutual funds. But, you will get tax benefit only upto Rs. 1 Lac invested in the mutual funds.
  2. Employees Provident Fund – EPF saving scheme is compulsory for all the salaried person. As per the government rule, as a salaried person, you need to contribute 12% of your basic salary in EPF. This contribution is deducted automatically every month from your salary. Your employer contribute another 12% of your basic salary in your EPF account. EPF gives an average return of 9.5% and the amount received from this investment is completely tax free. You can withdraw your money after leaving the job with an employer or after the retirement. You can transfer the money from your previous EPF account to the new EPF account.
  3. Public Provident Fund – It is a long term investment scheme widely used in the India. You can get your PPF account opened through post office and state bank of india. With an annual compounded interest of 8.6%, PPF account have a maturity period of 15 years, and the amount received on maturity is completely tax free. You can have only one PPF account at a time with your name. You can make a minimum investment of Rs 500 and maximum of Rs 1 Lac under this investment scheme.

You can also invest money in other tax benefit saving schemes such as NSC, ULIP, tax saving fixed deposits and life insurance.

How to Apply for PAN Card

August 28, 2012

Permanent Account Number (PAN) is a ten digit alphanumeric number, issued by the Indian income tax department in the form of plastic card. A person can have only one PAN card issued under his name. PAN card is mandatory for all the financial transactions such as sale and purchase of assets over a specified limit, getting the taxable salary, opening a bank account and investing money in mutual funds and share markets.

You must have a PAN card, if you are filing the income tax return. For a transaction of Rs 50000 or above, you need to mention your PAN number. PAN card also works as permanent ID proof. If you do not have a PAN card and want to apply for the same then here is the process: 

  1. Download or purchase Form 49A.
  2. Complete the application form in all aspects and sign it.
  3. Affix two photographs on the space provided.
  4. Sign one photograph in a way so that half of the signature appear on the form and half on the photograph.
  5. Attach an identity proof with the application form. The documents whic can be used as id proof are:
    1. School leaving certificate
    2. Matriculation certificate
    3. Degree of recognized educational institution
    4. Photocopy of passbook front page and recent transaction page
    5. Ration card
    6. Voter card
    7. Passport
    8. Driving license
    9. Credit card statement
  6. Attach an address proof with the application form. The documents which can be used as address proof are:
    1. Telephone bill
    2. Photocopy of passbook front page and recent transaction page
    3. Credit card statement
    4. Ration card
    5. Passport
    6. Voter card
    7. Driving license

Collect all the documents as mentioned above and submit the application form with a nominal fees of Rs 94 at the nearest IT pan service centre. PAN card will be issued within 10-15 days after receiving the application form.

Effective Tax Saving Ideas

August 25, 2012

When the term income tax comes in our mind, we start looking for ideas to save the tax on our hard earned money. Indian government imposes a tax on the income that we earn through various sources in a financial year. A limited amount of money from our earning is tax free and rest of the amount is taxable. Every year, Indian government release a tax slab which helps us to calculate our taxable income.

We need to pay a small amount of money from our taxable income. This income may range as per the tax slab issued by the government. However, we can make some investment and get benefit on the taxable amount. As per the government rules, if me make an investment of Rs 1 Lac in a financial year then we also get tax benefit on this investment completely. Government has provided us various investment schemes. We can select one or many schemes and make our investment under that scheme. Some schemes which helps you to invest and get tax benefit are given below:

  1. Public Provident Fund (PPF) – PPF is the long term investment scheme widely used in the India. PPF account can be opened in a post office, state bank of india, and some other dedicated banks. PPF account provides us a compounded interest of 8.6% annually on the investment. With a maturity period of 15 years, the amount received on maturity is completely tax free in PPF accounts. An individual can have only one PPF account at a time under his name. A minimum of Rs 500 and maximum of Rs 1 Lac can be invested in a PPF account during a financial year.
  2. Equity Linked Saving Scheme (ELSS) – ELSS are tax saving mutual funds which helps us to invest money in the market. This is a safe mode of investment in the market as the money that we invest in mutual funds are invested in multiple shares. However, when we directly invest money on a share in the share market then chances to get profit or loss totally depends on the share price on a particular day. But in case of mutual funds, our money is invested in various shares which increases chances to get profit because all the share’s prices in which mutual fund’s money is invested will not go down on a particular day. Lock-in period in mutual funds are generally three years but we can continue our  investment even after lock-in period gets over. Return on the investment totally depends on the market situation. We can do a minimum investment of Rs. 500 and there is no limit for maximum investment in the mutual funds. But, we get tax benefit only upto Rs. 1 Lac invested in the mutual funds.
  3. National Saving Certificate (NSC) – NSC is also a saving investment scheme generally used in India. NSC can be purchased at post offices or banks. With a maturity period of 5 to 10 years, NSC gives a return of 8% compounded half yearly. A minimum of Rs 100 and there is no upper limit of money one can invest in NSC. Income earned through interest on NSC’s investment are taxable.
  4. Employees Provident Fund (EPF) – This saving scheme is compulsory for all the salaried individuals. If your are a salaried person, you need to contribute 12% of your basic salary in EPF. This contribution is deducted automatically every month from your salary. Your employer contribute another 12% of the basic salary in your EPF account. An average return of 9.5% is given on such investments. However, you can withdraw the entire amount after leaving the job with an employer or after the retirement. Partial withdrawal can also be done for home, medical or marriage related expenses. Return received from this investment is completely tax free. 
  5. Unit Linked Insurance Plans (ULIP) – It is a type of life insurance where a part of your premium is used to provide you insurance, the remaining amount is invested in the stock market. With a lock-in period of 5 years, returns on ULIP plan totally depends on the market condition. A policyholder can apply for premature exit without any penalty.
  6. Tax Saving Fixed Deposits – Money invested in fixed deposit is another investment scheme. With lock-in period of 5 years, a return of 9-9.5% annually is earned on such investments. Tax benefit is applicable only upto a maximum investment of 1 Lac under this scheme. Once invested, you cannot withdraw or exit from this scheme before lock-in period gets over. You can take this scheme from various banks or post offices. The interest earned on the maturity under this investment is taxable. 
  7. Life Insurance – This mode of saving is widely used in the India. Money invested in life insurance is completely tax free upto Rs 1 Lac. An individual can take such insurance policies under his name or for his/her spouse. Maturity period depends on the policy term selected by the investor. An annual return of 6-7% is earned on such investments.
  8. Health Insurance – The premium that you pay for your health insurance is completely tax free upto Rs 15000. You can get tax benefit of same amount for the premium that you pay for your parent’s health insurance. If your parents falls under senior citizen category, this exemption is exceeds upto Rs 20000. In this way, you can get a total tax benefit of Rs 30000-35000 under health insurance. This tax benefit comes under section 80D which is apart from the other modes of saving which falls under section 80C.

 These are the various options available to save tax on your taxable amount.