by Vinaya HS on June 22, 2010
in Finance
In an article on taxation, Outlook Money — June 16, 2010, suggests:
Buy your car in your spouse’s name. Then lease it to your company, which in turn can let you use it as an employer-provided vehicle. [Due to certain deductions, you reduce the amount of income tax that you need to pay.]
I’ve also seen variations of this theme that suggest buying your car in your father’s or mother’s or relative’s name. I honestly believe that it isn’t worth structuring your vehicle ownership this way just so that you can avoid paying a certain amount as income tax. That said, in general, you should never monetarily tie yourself to your employer — be it the mechanism: employer loans, car leases, and such.
Keep the car in your name. Pay income tax. Sleep without worry. That’s what I would advise.
What do you think?
by Vinaya HS on June 15, 2010
in Finance
Here’s an interesting tip I read in Outlook Money, June 16, 2010:
A married and working couple can plan and claim Leave Travel Allowance (LTA) in all four years of a prescribed block. The husband can claim LTA in two out of four years and the wife in the other two.
Have you done this before? I’ve personally never claimed LTA this far in my career but I plan to try this tip over the next four years.
And here’s a great article that explains the ins and outs of Leave Travel Allowance.
Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.
by Vinaya HS on April 12, 2010
in Finance
Each Monday morning, I plan to post my thoughts on Organizing Your Finances. Through this series, I hope to share a tip or two that address a common problem that many of us face in our daily lives — that of organizing our finances. I’d love to hear your thoughts on this initiative and would love it more if you could share a tip of your own. And, as always, do spread the word if you find this useful.
As I have written before, when you file your income tax returns, you’re building a history about yourself — that you exist and earn. Your annual income tax returns are therefore one of the most important documents that you need to keep organized and available on hand.
They’re useful in quite a number of situations. For example:
- When you apply for a loan from a financial institution
- When you apply for a visa
- When you need to answer an income tax audit
Given their significance, here’s what you should do to organize your income tax returns:
- Gather all your income tax returns.
- Sort them by year — in descending order with the most recent one on top and the earliest one at the bottom.
- File them together.
- Label this file “Income Tax Returns.”
- Subsequent returns go directly to the top of this file.
And in case you can’t find one or more of your returns, here’s what you could do.
What do you think? Do you already have your returns organized? How did you go about it? Share your thoughts in the comments.
by Vinaya HS on February 11, 2010
in Finance
There was a recent circular issued by the Central Board for Direct Taxes (CBDT) that reads:
The Finance Act, 2005 introduced a levy namely Fringe Benefit Tax (FBT) on the value of certain fringe benefits as contained in Chapter XII-H (sections 115W to 115WL) of Income-tax Act, 1961. By the Finance (No. 2) Act, 2009 a new section 115WM was inserted to abolish the FBT with effect from assessment year 2010-11. Consequently, benefits given to employees are taxed as perquisites in the hands of employees in terms of amendments to clause 2 of section 17 of Income-tax Act, 1961.
Note the highlighted words — benefits given to employees will now be taxed as perquisites in the hands of employees [in the current financial year]. This means you will now have to pay income tax on benefits such as vehicle fuel and maintenance, communication expenses, etc. — expense items for which you were so far not required to pay income tax since your employer was bearing the tax burden in the form of FBT.
Given that,
- this change is applicable for the Financial Year 2009 – 10, and
- there are hardly two months left in the Financial Year,
many of us might find ourselves in a situation where most of our salary would go towards paying this income tax deficit in the months of February, 2010 and March, 2010. That means you might potentially have negligible to no salary for the next couple of months.
This is where an emergency fund proves its worth. With an adequate emergency fund in place, you wouldn’t have to worry about such unforeseen situations. I am affected by this ruling — thankfully, I do have an emergency fund.
How about you? Are you affected by this ruling? If yes, how are you handling it?
by Vinaya HS on December 28, 2009
in Finance
by Vinaya HS on July 28, 2009
in Finance
I often get emails that read,
I want to invest in so-and-so financial instrument so that I can avoid paying income tax. Do you think this [financial instrument] is a good option? Alternatively, can you suggest other financial instruments that will further help me avoid paying income tax?
In my opinion, paying income tax and investing in a financial instrument ought to be independent and mutually exclusive actions. You should invest in a financial instrument only if it helps you achieve your financial goals — and no, “I want to avoid paying income tax” is not a financial goal.
Pay income tax. Define your financial goals. Invest in the right financial instruments; if a financial instrument does qualify for income tax deductions/exemptions, you just got the best of both worlds!
What do you think?
Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.
by Vinaya HS on July 26, 2009
in Finance
A reader asks,
I have lost my acknowledged (i.e. stamped) income tax returns (form ITR-V) for last year. What is the procedure for obtaining a duplicate?
My opinion: Visit the income tax office in your geography and meet your assessing officer. A requisition letter along with an unacknowledged copy of your income tax returns (Form 16, or ITR-V, or whatever you have) should be handy. You might want to carry your PAN Card along too.
Have you ever been in a similar situation or know someone who was? What do you think this reader should do?
by Vinaya HS on July 21, 2009
in Finance
If you’re filing your income tax returns on your own, an essential piece of data that you would need is the Assessing Officer’s Ward/Circle number. Thankfully, this information has been made publicly available by the Income Tax Department of India at Know Your Assessing Officer (use Internet Explorer to open this page).
Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.
by Vinaya HS on July 1, 2009
in Finance
by Vinaya HS on June 16, 2009
in Finance
A colleague recently asked,
I understand why we should pay income tax. But what is the need for filing income tax returns every year?
Short answer: You’re building a history about yourself — that you exist and earn.
This piece of history proves useful in a variety of situations — when you’re applying for a loan with a financial institution, when you’re applying for a visa for traveling to a different country, and such. The earlier you start building this history the better. You should continue to file your income tax returns irrespective of whether you pay income tax or not (say when you take a break for higher education and therefore aren’t earning).
What do you think?
Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.
by Vinaya HS on May 26, 2009
in Finance
For most of us, filing our income tax returns involves paying someone else to do that for us. The most common reason: “Oh. But I don’t know how to.” Filing income tax returns is pretty straightforward — all it requires is a little bit of reading and the right documents. The software (another one) handles all the complexity.
Give it a shot this year. File your income tax returns on your own. The learning is priceless.
Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.
by Vinaya HS on March 6, 2009
in Finance
The Income Tax Department of India has on it’s website provided free income tax information booklets. These booklets cover a wide variety of topics on personal income tax and provide a wealth of information on how you should compute your income tax. Read through these booklets and you might find those elusive answers to your questions on income tax.
Click here to browse the income tax information booklets catalog.
Awareness Fridays is my initiative to spread awareness on topics relevant to personal finance — every Friday. I urge you to take some time off and absorb this information — it’s pretty useful. And, as always, do spread the word if you find this useful.
by Vinaya HS on February 24, 2009
in Finance
This post is the result of a conversation I recently had with a reader.
If your employer offers you the option to avail of Employees’ Provident Fund (EPF) facility as part of your salary package, I’d strongly recommend that you take up this option. Often, employers make salary offers which compare your salary package with and without the EPF option. The package without the EPF option is deceptively alluring since it always shows a higher monthly gross — but not necessarily net (which is not shown) — pay. You shouldn’t jump up and choose this option simply by looking at the illustrative (and often illusory) gross figures.
So, what do you gain by opting for the EPF facility?
- You contribute 12% of your monthly basic each month. Your employer also contributes an equal amount each month. That’s 24% of your monthly basic saved each month!
- The total contribution earns 8.50% per annum compounded (interest rates are decided each year though).
- Your annual contribution (i.e. 12% of your monthly basic x 12 months) automatically qualifies for income-tax exemption under Section 80C.
- When you change jobs, you can choose to withdraw the accumulated balance (takes a few months for the amount to be credited) or you can transfer the accumulated balance into the account opened by your new employer.
For me, the automatic savings each month is good enough a reason to opt for this facility. Over a period of few years, this can grow into quite a substantial sum. I doubt if I’d voluntarily save this much money!
What do you think? What has your experience been?
Update: February 25, 2008
Below is a continually updated list of EPF-related queries which are answered in leading financial magazines such as Outlook Money and Money Today.
From Money Today, March 05, 2009 — Page 06
Q: I have been working with an MNC for the past three years. Now, the company is shutting down and I am moving to a new job with a private firm. Should I withdraw the money from my provident fund or transfer the balance to my new account?
A: The taxability of the provident fund amount withdrawn depends on the duration for which the employee contributes to it. If he has worked for more than five years with the same company, the amount withdrawn from the provident fund is exempt from tax. If he has worked for less than five years, the entire amount withdrawn is taxable. As you have been with the firm for only three years, it is advisable to transfer the balance to your new employer. This will help consolidate your provident fund money and you will not have to pay any tax.
Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.
by Vinaya HS on January 20, 2009
in Finance
I completely forgot to do this, but you shouldn’t.
It’s a good habit to take a photocopy of all the receipts and documents that you are going to submit at your company as proofs of investment or expense for income tax savings. It’s one extra step, but worth it because:
- In case something goes wrong and your original receipts are lost, you have a ready backup.
- It’s good to have a complete set of receipts filed away along with your income tax returns.
Don’t make the mistake that I did. Make a photocopy before you submit.
Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.
by Vinaya HS on January 6, 2009
in Finance
It’s January. Your employer’s asking you to submit receipts for all those tax-saving investments you promised you’d make way back in April last. You know that if you don’t submit these receipts you’re going to have to pay additional income tax. For no reason, you don’t want to pay income tax. You look around and see everyone making a mad and frantic last-minute dash for ULIPs, ULPPs, ELSS, return-guaranteed products (the latest craze), and other exotically structured products guaranteed to make you poor. Everyone’s asking you: “Have you made this year’s savings?” Your mind plays tricks on you; you finally join this race, make a really lame investment, and then regret forever.
Here’s my advise:
- Think long-term; not short-term.
- It’s sensible to pay additional income tax this one year rather than being stuck with lame investments that require you to fork out large sums every year.
- Your investments should be planned and should match your goals; last-minute tax-saving investments don’t do either.
- Run away whenever you hear someone say “tax saving.”
What’s your experience been?
Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment or use this form to submit your tip. And, as always, do spread the word if you find this useful.
by Vinaya HS on July 1, 2008
in Finance
I have made this mistake once before and thought I’d share my experiences. Here’s why I believe you should not opt for a loan from your employer:
-
Any loan from your employer ties you to your job. You can’t come out until the loan amount has been cleared in full. You might argue that you can always ask your new employer to bear the loan. But where does that take you? From one chain to the next? Plus, I’m not sure if any employer today would be willing to bear existing loans.
-
It’s psychologically debilitating to see your take home salary cut by the EMI (Equated Monthly Installment) amount on the loan even before it’s credited into your salary account. I used to end up getting frustrated when this continued to happen each month, but they served as a good reminder of my mistake and actually motivated me to get out of the situation.
-
There’s a hidden cost. Though you do not actually pay any direct interest on the loan amount, the notional interest surfaces as a perquisite in your income tax calculations and adds directly to your taxable income. I didn’t know this fact until I saw my income tax calculations; it was already too late.
With some fanatic fiscal steps, I managed to come out of this situation sooner than I thought it would take. I know I will NEVER repeat this mistake again. Once was good enough a lesson for me.
What do you think? Do you have an experience to share?
by Vinaya HS on January 5, 2007
in Finance
If you happen to be a salaried employee claiming House Rent Allowance (HRA) from your employer, you are eligible for an Income Tax exemption under Section 10(13A) of the Income Tax Act. How do you calculate this exemption amount? Simple.
Find the minimum of the following three options:
- Actual house rent allowance received from your employer
- Actual house rent paid by you minus 10% of your basic salary
- 50% of your basic salary if you live in a metro or 40% of your basic salary if you live in a non-metro
This minimum figure is the allowed income tax exemption on house rent allowance. It’s prudent to work this out so that you can structure the other components of your variable pay better.
Have you ever looked close at the statement of tax generated each month (along with your salary slip) by your employer? Do you understand where your money is going? If no, it’s high time you did.
