DELIBERATION ON TAX PLANNING, WEALTH PLANNING & CREATIVITY IN WORK AREA

26th August, 2014 TuesdayJacobs Engineering Pvt. Ltd.

CA Nitin PathakF.C.A ,CISA, CISM,CIA, CISSP(USA)DISA(ICAI) ,DIRM(ICAI) ,SAP(FICO) Certification course on International taxation( ICAI) Certification course on IFRS ( ICAI)

Thanks to Ms Vartika for calling on me for deliberation on the subject of IT, Wealth creation and creativity in work area

The diplomatic and the invitation deliberation has overwhelmed me about young generation, how they are effective in the communication skill

The young generation is not only powerful but they are speedy and effective

They are caring for their parent, siblings, relatives, colleagues, and seniors

They are fast, clear and unambiguous, so someone may feel arrogant, but they are not so

  Income Slabs Tax Rates

i. Less than Rs. 2,50,000/-

NIL

ii. Rs 250000 to 500000 10% of amount by which the total income exceeds Rs. 2,50,000/-.

iii. Rs 500000 to 1000000 Rs. 25,000/- + 20% of the amount by which the total income exceeds Rs. 5,00,000/-.

iv. Above Rs. 10,00,000/- Rs. 125,000/- + 30% of the amount by which the total income exceeds Rs. 10,00,000/-.

3% cess also levy on tax amount

EXEMPT INCOME1. Interest on PPF/GPF/EPF.2. Interest on GOI/other approved tax free

bonds.3. Dividends on Shares and on Mutual Funds.4. Any sum received under a life insurance

policy 5. Long term capital gain on sale of share

and equity mutual funds if the security transaction tax is paid/imposed on such transactions.

6. Saving bank interest of bank upto Rs 10,000 u/s 80TTA

GIFT TAXGift received above Rs.50,000/- is

taxable, except from specified persons. 1. Spouse . 2. Brother or sister 3. Brother

or sister of the spouse 4. Brother or sister of either of the parents of the individual 5.Any lineal ascendant or descendant of the individual 6. Any lineal ascendant or descendant of the spouse of the individual 7. Spouse of the person referred to in (2) or (6)

Also, gifts received on the occasion of marriage or under a will by way of inheritance are also tax free

Tax PlanningFilling income tax return of wife, sons, daughters, etc.

Creating HUF/Company/Firm/LLP.Invest/Income flow in such a manner that creates minimum tax liability

Transferring the fund directly in the name of spouse, daughter-in-law or minor child will lead to deem income in the hand of transferor

COMPUTATION OF GROSS TAXABLE INCOME

Five heads of income1. Income from Salaries2. Income from House Properties3. Profit & Gains of Business & Profession

4. Capital Gains5. Income from Other Sources

INCOME FROM HOUSE PROPERTY

Self occupied :- Up to Rs200000 for HBA interest: No other rebate . Before possession interest 5 years

Other than self occupied:A. Determine Annual Rental Income

B Municipal taxC Deduct 30 % : Statutory deduction:

D HBA interest

PROFIT FROM BUSINESS / PROFESSION

Income derived from business and profession

The expenses which are incurred to earn the income is allowable as business expenditure

Capital expenditure not allowedPersonal expenditure not allowed

INCOME FROM OTHER SOURCES

Interest Income:Company depositsDebentures/bondsSavings / Fixed deposits with banks

Post office savings schemes like MIS, NSC, Time Deposit etc.

Private loans given to relatives, friends or any other entity.

Government securities.

15G AND 15H

The above form one can not submit if income of the assessee is higher than basic exemption limit.

If you still submit the form you are liable for penal action

CAPITAL GAINS

Any sale of a personal asset ( Certain assets exempt), capital gain is taxable between sale price and purchase price

Capital gain tax is a levy on sale of immovable property, FMV, Shares & Mutual funds, etc.

Certain deduction is available to reduce tax liability.

WHAT IS SHORT TERM ASSET ?

If holding period is less than 3 years in case of immovable property, FMV, Debt mutual fund .

Less than one 1 year in case of shares listed in a stock exchange & on which STT is paid.

Tax rate- 15% on gain on which STT is paid

LONG TERM CAPITAL GAIN

In case of long term asset:- Tax rate -20% on gain with indexation or - 10% on gain without indexation

DEDUCTION 80C

Under this section, a deduction of up to Rs. 1,50,000 is allowed from taxable Income in respect of investments made in some specified schemes.

1. Life Insurance Premiums2. Employee’s Contributions to Employees Provident Fund/GPF

3. PPF(Maximum Rs.1,50,000/-)

DEDUCTION 80C4. NSC (National Savings Certificates)5. Unit Linked Insurance Plan (ULIP)6. Repayment of Housing Loan (Principal)7. Equity Linked Savings Scheme (ELSS)

of Mutual Funds8. Tuition Fees including admission fees or

college fees paid for full-time education ofany two children of the assessee (Any

development fees or donation or payment of a

similar nature shall not be eligible for deduction).

DEDUCTION 80C 9. Interest accrued in respect of NSC VIII issue. 10. Pension scheme of LIC of India or any other

insurance company. 11. Fixed Deposit with Banks having a lock-in

period of 5 Years 12. Amount deposited under Post Office Senior

Citizens Scheme. (Current Rate of interest is 9% P.A.) 13. Amount deposited in Five Year Time Deposit

Scheme in Post Office 14. Amount deposited in the NABARD (Rural

Development Bonds of NABARD)

80DOn whose life healthInsurance Policy is taken

Self & spouse, dependent Children

Parents

Total

Premium paid + preventive health check up expenses of self, family, Dependent

15000 15000

30000

Additional Deduction if oneof the Insured is SeniorCitizen (60 year of Age)

5000 5000 10000

Total 20000 20000

40000

HOUSE RENT ALLOWANCE 50% of salary (Mumbai, Kolkata, Delhi or Chennai) and 40% of salary where residential house is situated at any other place;

HRA paid Actual rent paid over 10% of salary Where Salary = B+A+B+C

LEAVE ENCASHMENT Encashment of earned leave while in service will be treated as income

Exempt at the time of retirement:10 months salary * last 10 months average salary or

` Rs.3,00,000/- whichever is less Entitlement to earned leave not to exceed 30 days for every year of actual service.

Limits aggregate n of employers.

LEAVE TRAVEL CONCESSION For himself/spouse/children/dependent

parents/siblingsAmount actually spent for travellingIn India onlyTwice in a block of four calendar years.

(Block year 2014-17)Two surviving childRoad travel on vehicle, second class train

fairAir fare of a economy class/Air condition

first class rail fare/1st class or deluxe class public transport fare

For C/f entitlement one is allowed

Situations Amount of exemption

Where journey is performed by air

Amount of economy class air fare of the national carrier by shortest route or amount spent whichever is less

Where journey is performed by rail

Amount of air-conditioned first class rail fare by the shortest route or amount spent whichever is less

Where the place of origin of journey-destination are connected by rail and journey is performed by any other mode of transport

Amount of air-conditioned first class rail fare by the shortest route or amount spent whichever is less

Situations Amount of exemption

Where the place of origin of journey and destination are not connected by raila. where a recognised public transport exists

First class or deluxe class fair by the shortest route or the amount spent whichever is less

b .where no recognized public transport exists

Air conditioned first class rail fare by shortest route or the amount spent whichever is less.

MEDICAL BENEFITS a. Medical treatment for self &

family( Spouse, dependent children, siblings) in:

Hospital maintained by an employerHospital approved by GovernmentHospital approved by the Chief

Commissioner for specific ailmentsb.Medical insurance by employer paid to

GICRe-reimbursement of medical expenses

in aggregate 15,000/- in F.Y. other than a and b

SPECIAL ALLOWANCES EXEMPTAny allowance, not in the nature of perquisite, granted to meet expenses wholly, necessarily and exclusively incurred in the performance of duties, to the extent to which actually incurred.

Allowance granted to meet personal expense at the place where duties of his office are ordinarily performed or at the place where he ordinarily resides or to compensate for increased cost of living as may be prescribed in Rule 2BB.

SPECIAL ALLOWANCES EXEMPTTravel expenses on tour or transfer,Ordinary daily charges on account of absence from normal place of duty on tour or journey in connection with transfer

For conveyance in performance of duties where it is not provided

For expenditure on helper engaged for performance of office duties

SPECIAL ALLOWANCES EXEMPT

For encouraging academic, research and training pursuits in educational and research institutions

For purchase or maintenance of uniform,

Special Compensatory Allowance in specified areas to extent specified

1 City Compensatory Allowance

2 Fixed Medical Allowance

3 Tiffin/Lunch/Dinner/Refreshment Allowance

4 Servant Allowance

5 Dearness Allowance

6 Project Allowance

7 Overtime Allowance

8 Interim Allowance

9 Any Other Cash Allowance

Sr Allowances Exemption limits

1 Children Education allowance ₹ 100 p.m per child maximum 2 children

2 Children hostel exp. allowance ₹ 300 p.m per child maximum 2 children

3 Tribal area allowance ₹ 200 p.m

4 Transport allowance (between residence & office)

₹ 800 p.m & ₹ 1600 p.m for blind/handicapped

5 Transport allowance for transport employee (During the course of transport)

Least of 70% of allowance or ₹ 10,000 p.m

6 Underground allowance ₹ 800 p.m

Sr Allowances Exemption limits

7 Compensatory field area allowance

Maximum ₹ 2600 p.m.

8 Compensatory modified hill area allowance

Maximum up to ₹ 1000 p.m.

9 Special Compensatory hill area or high altitude

₹ 300 p.m to ₹ 7000 p.m allowance, etc.

10 Border area, Remote area, Disturbed area allowance

₹ 200 p.m to ₹ 1300 p.m.

11 High altitude allowances (Non-congenial climate)

₹ 1,060 p.m. (Altitude for 9,000 ft. to 15,000 ft.), ₹ 1,600 p.m. (Above 15000 ft.)

12 Special compensatory for highly active field area allowance to member of armed force

Limit is ₹ 4,200 p.m.allowance

13 Island allowance to member of armed force

Limit is ₹ 3,250 p.m.

14 Counter Insurgency Allowance

Limit is ₹ 3,900 p.m.

PERQUISITES

Value of rent-free accommodation/value of concession in rent. 15 % of Salary or rent paid whichever is lower

Value of any security or sweat equity shares allotted or transferred by employer/former employer as free or concessional cost.

Contribution to an approved superannuation fund by the employer, up to Rs.1,00,000/-

Any sum payable either directly or through a fund by employer (other than recognized PF, approved superannuation fund, etc.) to effect an assurance on the life of the employee or to effect a contract for an annuity.

LOAN TO EMPLOYEE

Any loan given by an employer is taxable at the rate of for the same purpose, if given by SBI, on maximum monthly balance

Reduced by any amount charged by an employer

Assets given Value of benefits

a) Use of laptops and computers

Nil

b) Movable asset other than Laptops and computers

i. 10% p.a. of the actual cost of such asset, or

ii. the amount of rent paid, or payable by the employer

iii. Less: amount recovered from employee.

Assets transferred Value of perquisites

Computers & electronics

Depreciated value of asset [depreciation is computed @50% on WDV for each completed year of usage] less: amount recovered from employee.

Motor cars Depreciated value of asset [depreciation is computed @20% on WDV for each completed year of usage] less: amount recovered from employee.

Any other asset Depreciated value of asset [depreciation is computed @10% on SLM for each completed year of usage] less: amount recovered from employee.

MISCELLANEOUS  

Free meals during office hours

Actual cost to the employer in excess of ₹ 50 per meal or tea or snacks

(Free meal in remote area or offshore installation area is not taxable perquisite)

less: amount recovered from the employee. (Tea or non-alcoholic beverages and snacks during working hours is not taxable)

Value of any gift or voucher or taken other than gifts made in cash or convertible into money (e.g. gift cheques) on ceremonial occasion

Value of gift. In case the aggregate value of gift during the previous year is less than ₹ 5,000, then it is not a taxable perquisite

MISCELLANEOUS  

Expenditure incurred on credit card or add on card including membership fee and annual fees

Actual expenditure to employer is taxableLess: amount recovered Less spent for official purpose

Expenditure on club other than health club or sports club or similar facilities provided uniformly to all employees

Actual expenditure incurred by the employerLess: amount recovered Less spent for official purpose (Initial fee of corporate membership of a club is not a taxable perquisite)

Any other benefit or amenities or service or right or privilege provided by employer other than telephone or mobile phone

Cost to the employerLess: amount recovered from employee

Specified employee Section 17(2)(iii)Director of the company or

Employee having 20% or more voting power in the employer company or

Employee having salary* more than ₹ 50,000*Salary means all taxable monetary benefit after deduction u/s 16

WHAT IS THE DEFINITION OF SALARY FOR CALCULATION ?Salary = basic salary + DA + bonus (current year) + commission + taxable portion of all allowances + monetary payment from employer other than PF (not include perquisites)

TAX FREE PERQUISITES

Employer’s contribution to staff group insurance scheme

Actual traveling expenses paid/reimbursed for journeys undertaken for business purposes

Payment of annual premium on personal accident policy, if such policy is taken to safeguard the employer’s interest

Statutory Provident Fund

Recognised Provident Fund

Employers contribution to provident fund

Not taxable Not taxable up to 12 per cent* of salary

Employee’s contribution

Available deduction u/s 80C

Available deduction u/s 80C

Interest credited

Fully exempt Exempt up to 9.5%

Lump sum payment received at the time of retirement/ termination/ withdrawn

Exempt u/s 10(11)

Exempt from tax u/s10(12)Subject to conditions: not taxable if employee retires after 5 years of service or due to inability of work. Otherwise treated as URPF

Unrecognised Provident Fund

Public Provident Fund

Employers contribution to provident fund

Not taxable Employer does not contribute

Employee’s contribution

Not available U/s 80C Available deduction u/s 80C

Interest credited

Not taxable at the time of credit

Exempt from tax

Lump sum payment received at the time of retirement or termination of service or withdrawn

Employee’s contribution exempt from tax & Interest thereon is taxable under the head of Income from other sources.Employer s contribution and interest thereon is taxable as Profits in lieu of Salary, under Salaries )

Exempt from tax u/s

How to Invest?

Investment in FD

Investment in FMP

Investment is shares

Investment in Mutual fund

Investment in IPO

Debt fund

Investment in immovable property

CRITERIA OF SELECTING A MUTUAL FUND

A) Management of the fundB) Brand image of the fundC) Type of Scheme

(Debt/Equity/Mix)D) Expenditure RatioE) Quantum of fundF) Average returnG) Risk InvolvedH) Perception of individual

INVESTMENT TOOLScheme Rate of Interest Time period Risk

PPF 8.7 15 Low

NSC 8.5 5 Low

NSC 8.8 10 Low

Time saving post office

8.4 1 Low

Time saving post office

8.5 5 Low

MIS 8.4 5 Low

RD 8.4 5 Low

Mutual Fund Market Linked NA Medium

ULIP Market Linked 5 Medium

Shares Market Linked NA High

ANALYSIS OF SHARE MARKET:-Particulars 5 Years 10 Years 15 Years 20 Years

Return as per BSE Sensex at 31st March

10.94% 12.08% 12.36% 11.57%

Return in Bank (After tax ) 6.75% 6.75% 6.75% 6.75%

Cumulative investment of Rs 100 in Market

168.05 312.81 574.35 893.20

Cumulative investment of Rs 100 in Bank

138.62 192.17 266.39 369.28

Additional benefit 21% 63% 116% 142%

Wealth TaxAssessee is also required to file return annually of an asset held on 31st march

Certain movable and immovable properties are exempt

Assets transfer to spouse, daughter in-law and minor child will be the wealth of transferor

Valuation of assets is as per valuation rule provided in the Act.

WEALTH TAXWT is applicable to manyWT is chargeable on net wealth of the assessee (Individual, HUF, Company) as on 31st March, at the rate of 1% exceeding Rs 30,00,000/-. We need to file separate return for the same.

HOUSEAny building or land appurtenant thereto, residential or

commercial (including a farmhouse within 25 kilometers of municipal limits and a guest house) is liable for WT

1. One house is non taxable wealth for individual, HUF 2.In case of a Company, a house

a. meant exclusively for residential purposeb. allotted to an employee, for the purpose of own business

3.Residential property let out for at least 300 days in the previous year

4. Commercial establishments or complexes in non taxable

 

Motor cars- held for business is tax free

Jewellery, bullion and furniture, utensils or any other article made of gold, silver, etc. is taxable wealth

Urban Land except certain specified area and specified population as per last census

 Cash in excess of Rs.50000 for individual and HUF, for rest as per books

CEO OF PEPSICO :- INDIRA NOOYI She passed BA from Madras But she acquired all basic skills later on Communication skill, digital use for interaction, EQ Marketing her company by talking about it Family/Daughter CSR V/s capitalism with integrity of stake holder Digital savvy: Facebook history,use blogs, whattsapp,

use it,Do not waste your time and not allow any one to nag you

She focuses on “Performance with purpose” & “ Capitalism with conscience”, “You cannot get everything”

She believes in “Creating a backup from your group including staff.”

WHAT IS COVERED TILL NOW ?What are the heads of income ?What is the perquisites ?What is allowable as deduction in details like a professional tax consultant to take advantage of legitimate CTC planning ?

What are the option of tax planning ?What is the investment opportunity ?How you can be brand ambassador of your own , department , company ?

In the end prayer ?

PrayerOh god give me a courage,To change the things which I can,Oh God give me a serenity to accept the things,Which I cannot change,Give me a wisdom to know,What I can change and what I can’t change.

Thanks once againGod bless us all

Thanks you all for being with me

To much regards for listening to me & in particular to Ms Vartika for trusting me and allowing me to share with you

QUESTIONS IF ANY?nitinmpathak@gmail.com