Is your Pension Plan the hanging sword of taxation?

Ramesh Sexena, an IT professional aged 45 years having been lured by the touchy-feel advertisement of new launching of various pension plans. The pension product, which was meant to make his retirement easy, has played the devil’s role in his life. Let’s see that how Mr Sexena, got in pension trap as well as tax trap which could havoc later? His pension plan became like chewing gum, which he could neither swallow, nor throw out, he has to just chewy.

How can You avoid Cascading effect on Gifts Received from your Relatives?

Death and payment of taxes are always painful. So, one question that goes through in the mind of every tax payer is “how can I minimize my tax liability?” Since, minimize tax liability is not always a bad or illegal exercise, unfortunate, there is also a tendency to reduce tax through malpractices or colorable methods. These are not acceptable by law and can pose multiple problems. Tax department not only imposes huge penalties but also initiate prosecution in such cases. So, there are legitimate many ways to minimize taxes through tax planning within the four corners of the law and such methods are always encouraged.

Tax Liabilities for Salaried employees do not end at TDS

There is a misconception in all individuals including salaried employees whose tax liability after deduction of their TDS during the financial year is more than Rs10,000 hence, they are not liable to pay advance taxes. They sit relax on that TDS has to be deducted by their employers on their salary earned during the financial year. But, they do not know that their full tax liability does not end without paying advance tax.

Are your Fixed Deposit Returns axed by TDS?

You must have bank fixed deposits with your bank as bank fixed deposits are amongst the safest avenue of investments. But, have you ever checked, exact how much return you would get when those matures. We often know the fixed rate of interest per annum, say 8% or 9%, but you may not know how banks calculate your interest on the principal and deduct TDS thereon.  In this article, you would see the exact picture how your bank follows the practice on calculation of your interest and deduction of TDS onto.

Nitty-gritty of your taxable Pay Package!

Today, professional companies do not engage on the basis of what will you get take-home salary but your cost to company (CTC), the money what they will spend on you.

 

So, let’s first understand what constitutes CTC? Though, the CTC has no clear standard definition and varies from company to company but it can contain both monetary and non-monetary benefits.  Ironically, the government does not recognize the concept of CTC in computing wages. So, there are no such rules, and the structuring are mostly the company's prerogative. However, in these times of tight budgets and cost control, companies have the most powerful terminology to save their cost in the name of CTC. 

How mom and dad can help you save tax?

Since inception of birth, your mom and dad are always there to protect you, even if you feel independent. Now, thanks to your parents, they will be again ahead to help you indirectly by letting you save more tax. They can bring down your tax liability in various ways, provided they are in a lower tax bracket or already retired. If your mom or dad falls in lower tax bracket, you can invest money on their name to save more income tax. It is not just income tax, but you may even earn higher interest as interest rate for senior citizens is usually more.

Thinking Beyond Section 80C

For many tax planning starts as well as ends with Section 80C - which enunciates investment instruments for tax saving. But investing only in these investment instruments would not lead to optimal reduction of your tax liability. Our Income Tax Act, 1961 also considers the humane side of our life and also gives deduction for such expenditure.

Tax Saving Instrument under Section 80C

This article would enable you to effectively invest in tax saving instruments, in order to optimally reduce tax liability; and this is seen as one of the most sought after sections when it comes to tax planning. It offers a host a popular investment instruments mentioned below which qualify for a deduction under Section 80C of the Income Tax Act from your Gross Total Income (GTI):

Higher Tax Bracket: Think Tax-free Bonds

Bond is a debt instrument in which an investor loans money to an entity (corporate or governmental) that borrows the fund for a defined period of time at a fixed rate. Tax-free bonds: One should not confuse tax-free bonds with infrastructure bonds, which enjoy tax deduction under Section 80CCF which have already been discontinued from the FY11-12 or capital gain bonds offered by REC and Nabard. Tax-free bonds mean its interest is not to be taxed in a tax free bond. Moreover, if you hold on to the tax-free bonds till maturity, you suffer no tax during the entire tenure of the bond and get full benefit of the higher rates. A word of caution of here is that if you exit and redeem your investment in a tax free bond through selling them in the secondary market, any gain arises from the sale of  these bonds  will be treated as capital gain and will be taxed depending on the holding period of the bond.

Early withdrawal could lose your Tax Benefits under Section 80C

March is always a hectic month for many salaried tax-payers and concentrate all their energy into tax savings. They spend a lot of time in searching of the financial products in which they could save more tax because of their obsession with Tax saving as primary motto. Most of them, however fail to note that every investment under Section 80C of the Income Tax Act carries with a lock-in period in the range of 3 to 15 years.  In the rush to optimize the tax breaks at the last minute, they do not read the fine print, especially the crucial one on under what circumstances the tax benefits can be rolled back or revoked, if they early withdraw from their PF, insurance and other schemes.  Therefore, before taking leap the process of finalising investments, read verbose the fine print to avoid the nasty surprise later.

Your Home Loan and Tax Planning!

While all of us have a dream of buying a dream home or constructing or reconstructing or repairing our homes, it’s also important to consider the tax angle when we decide to do any of these activities. For some, the amount of wealth they have created allows buying or constructing or reconstructing or repairing or renovating homes from their own funds - i.e. without opting for a “home loan”; but again doing so precludes you to avail of the tax benefit, which are attached if one takes a home loan for such activities.

All about HUF (Hindu Undivided Family)!

What is HUF??

‘Hindu Undivided Family’ or ‘Hindu Joint Family’ or Hindu United Family’ is governed by the 'Hindu Law’ only and it has not been defined under the Income Tax Act. So the concept of HUF can be defined as an extended family arrangement prevalent among Hindus of the Indian subcontinent, consisting of many generations living under the same roof. It means a ‘Family’ that consists of all persons lineally descended from a common ancestor, including wives and unmarried daughters. In other words, a HUF cannot be formed by a group of people who do not constitute a family; lineal descendents with a common ancestor is a must. This means your membership into a HUF does not come from a contract but from your status.

A Recipe of Tax-Savings Tips for Risk-Averse Investor

Mukesh is averse to equity exposure and do not want to go for risk-oriented financial instrument like equity mutual funds, stocks and derivatives etc. But, Mukesh has also scared about various the debt instrument alternatives like bank fixed deposits (FDs), NSCs (National Saving Certificates) and MIS (Monthly Income Saving) etc., but all its interest is taxable as he is already in the highest tax bracket.  So, he has been putting all the money in public provident fund (PPF) as maximum allowed limit for over 10 years which is completely its income tax free. Today, the limit has been increased to Rs1 lakh making it his best option as PPF tax-free investment under section 80C. It is a retirement kitty that Mukesh is creating. Not only does PPF qualify for tax exemption under section 80C, the current interest rate of 8.70% pa (per annum) tax-free work out really well. Read about: One Stop Shop for all things PPF!

Tax saving is not Tax Planning !

“I have several insurance policies like Money-back, endowment plans and ULIPs or any other market linked products to save my taxes.” This is a common enough statement. Only that they don’t realize that they have got trapped in unwanted products because of their obsession with Tax saving. Most of the people today are investing in products which do not suit them, which they don’t need, which they do not understand. All because of their idiotic decision of “Investing for Tax Saving!!”