income tax

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.

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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?

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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.

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Tweets on 2009-07-01

by Vinaya HS on July 1, 2009

in Finance

A Unique Transaction Number (UTN) is not mandatory for filing income-tax returns this year.

Go ahead and file your income-tax returns.

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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.

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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.

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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.

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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.

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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.

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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.

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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?

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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:

  1. Actual house rent allowance received from your employer
  2. Actual house rent paid by you minus 10% of your basic salary
  3. 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.

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