tax plannig for an employee

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R Venkatakrishnan &AssociatesChartered Accountants

Offices at

Chennai Bangalore Hyderabad Salem Devanahalli

http://www.rvkassociates.com

Tax Planning for Employee

https://www.rvkassociates.com/

R Venkatakrishnan & Associates, Chartered Accountants

Topics

Introduction1

Salary Income2

Special Exemptions in Salary Income3

Deductions from Taxable Income4

Other Information5

Confusions in Jan to Mar


How do I learn about my investment and taxes?

Can I use both HRA and Home loan to save taxes?

What is the max I can save on Taxes?

How much tax I Need to pay this year?

PPF,FD or Insurance for Tax saving?

What is the mystery of 80’s in tax planning?

Why did I buy that insurance thing which I never require? How much

benefit I can get for my home and education loan?


1. Introduction Income tax:- Tax on the income earned. Income tax is an

important source of revenue for government in all the countries today.

Income :- Income means some monetary returns periodically received from some definite source.

Who is supposed to pay income tax :-- An individual- A company- A firm - A HUF- A local authority- A BOI or AOP- AJP


Total Income of an Individual Assessee

Particulars Amount

Income from Salary 7,50,000

Income from House Property (1,50,000)

Profits/Gains from Business or Profession 50,000

Income from Capital Gains 35,000

Income from other source 15,000

Gross Total Income 7,00,000

Less : Deductions under Chapter VI-A (1,20,000)

Total Income 5,80,000

* The above figures are illustrative


2. SALARY INCOME(SECTION 15,16 & 17)

What is salary? Every payment made By employer to employee For services rendered Includes both monetary and non monetary facilities Foregoing salary is salary income Tax free salary should include the tax paid by the employer

Basis of Charge Salary is chargeable to tax when it is due to be paid whether it is paid or not Salary is chargeable to tax when any amount is paid whether it is due or not Arrears of salary paid to employee is chargeable to tax (in the year of receipt)


2. SALARY INCOME contd..

Salary includes…



Income from “Salary” includes

Salary Allowances

Fully Taxable

Fully Exempted

Partially Exempted

Special Exemptions

Perquisites

Taxable Perquisites

Non Taxable

Perquisites

Profit in lieu of salary



Salary includes: Basic salary and allowances DA Advance salary

Arrear Salary Leave salary

Fully Taxable Salary: Family Allowance Overtime, servant, warden

Allowance. Lunch or Tiffin allowance Leave encashment during service Monthly or uncommuted pension

Bonus Commission Profit in lieu of salary



Travelling Allowance Daily Allowance Conveyance Allowance

Helper Allowance Academic Allowance Uniform Allowance

Fully Exempted Allowances:

Note: Allowances received should be expensed towards official performance of duties only.

Partially Exempted Allowances:

Type of Allowance Amount of Exemption (in Rs.)

Children Education Allowance ` 100 p.m. per child (restricted to 2 children)

Children Hostel Expenditure Allowance ` 300 p.m. per child (restricted to 2 children)

Transport Allowance ` 800 p.m. (` 1600 p.m. if the employee is blind/handicapped)

Note: Partially exempted allowances mentioned above are not complete and includes other allowances mentioned in section 10(14) of the Act.



Perquisites includes any amount due to or received in lump sum or otherwise, by an assessee, from an employer. Perquisites are usually attached to a position, by an organization.

Perquisites Meaning:

Value of Rent free accommodation given by the Employer. Value of Accommodation given at concessional rate. Value of benefit given free of cost or at concessional rate. Sum paid by employer on behalf of the employees for any obligation payable by

the employee. Value of any specified securities or sweat equity shares allocated to employee at

free of cost or at a concessional rate. Amount contributed by employer to an approved superannuation fund in excess

of Rs.1,00,000/-. Sum paid/payable by the employer towards insurance on the life of the Individual.

Perquisites includes


3.Special Salary Exemptions

House Rent Allowance• The HRA exemption, that can be claimed for

the Tax Exemption is minimum of the following:• Actual HRA received.• Rent paid less 10% of the Salary.• 40%/50% of Salary.

• If the rent paid during the year exceeds 1 lakh, you need to submit the PAN of the landlord or declaration from landlord(if PAN not available) to employer.

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salaried employees drawing upto 3000 pm not required to submit rent receipt


3.Special Salary Exemptions contd..

Leave Travel Assistance (LTA)• Meaning: Leave Travel Assistance may be provided by the employer to the employee

and his family - • In connection with his proceeding on leave to any place in India, while in service.• Proceeding to any place in India after the retirement or termination from service.

• Family of an Individual means:• Spouse and children of the Individual, and• Parents, Brothers and Sisters of the individual or any of them, wholly or mainly

dependent on him.• Conditions for Benefit:• The Individual can avail the benefit of LTA offered by his employer twice in block of

four years, • This exemption is available only for two children of an Individual born on or after

01.10.1998. But there is no limit in case of children born before 01.10.1998.• Amount of Exemption for LTA:• The maximum amount of exemption is the cost of travel on the shortest route. The

Exemption amounts for various travelling modes are calculated in the following manner:

Mode of Travel Class of Travel Amount Exempt

Airways Economy Class Travel Charges on the Shortest Route collected by National Airways

Train I class AC Travel Charges on the Shortest Route

Recognized Transport Deluxe Class Travel Charges on the Shortest Route

Other Transport - I Class AC fare as per Railways, equivalent for the distance for Shortest Route.



Unfurnished accommodation

Owned by Employer

Population > 25L

– 15% of Salary

Population > 10L

– 10% of Salary

Other places – 7.5% of

Salary

Not owned by employerRent paid by employer or

15% of salary,

whichever is lower

Accommodation in the hotel24% of

salary or actual

charges, whichever is

lower

Furnished Accommodation

Furniture owned by Employer

Value of Unfurnished Accommodation + 10% p.a. of Cost of

furniture

Hired from Third Party

Value Unfurnished Accommodation +

Actual Charges

Taxability of Rent Free Accommodation

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Includes Basic,DA,Bonus Commision, Ex-gra, All taxable allow, Monetary payment



Private purpose Official Purpose Private and official purpose

Car owned by the employee and expenses met by him

Not a perquisite Not a perquisite Not a perquisite

Car owned by the employee and expenses are reimbursed by the employer

Actual ExpenseLess : Amount recovered

Not a perquisite Actual Expense Less:

Up to 1.6Ltrs 1800+900 for chauffer

Above 1.6Ltrs 2400+900 for chauffer

Car is owned/ hired by the employer and expenses met by the employer

Actual ExpenseAdd: Depreciation @10% / hire chargesLess : Amount recovered

Not a perquisite Taxable Value



Car is owned/ hired by the employer and expenses met by the employee

Depreciation @10% / hire chargesLess : Amount recovered

Not a perquisite Taxable Value



Taxability of Motor Car Benefits

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Need to maintain a seperate seperate records for using for official purpose


4.Deductions from Taxable Income

Tax Saving Sections:

Section 80C (Lots of Options

discussed in detailed later)

Section 80CCC (Pension Products)

Section 80CCD (Approved Pension

Scheme)

Maximum Deduction of Rs.1,00,000/-

Inve

stm

ent &

E

xpen

ditu

re

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Annuity Plans of LIC & Other Insurers


Section 80C,80CCC,80CCD The Maximum deduction available combining all the following

investments/expenditures is Rs 1 Lakh. All the investments in 80C,80CCC,80CCD can be categorized as follows:

Investment Options (I)

Provident Fund

Public Provident Fund

National Savings Certificate(NSC)

Senior Citizens Savings Scheme

Tax Savings Fixed Deposits

Investment Options (II)

Life Insurance Premium

Pension plans from insurance companies

New pension Scheme

Tax Savings Mutual Funds

Central Govt Employees Pension Scheme

Expenditures

Principal payment on Home loan

Stamp duty and registration cost of the

house

Tuition Fee for 2 children


Tax Saving Sections contd..D

onat

ions

Section 80GDonations to

charitable funds and charitable institutions

10% on Adjusted GTI50% or 100% of

donation

Section 80GGADonations for

scientific research or rural development

No limit

Section 80GGC

Donations to political parties

No limit

Hea

lth

and

Wel

l be

ing

Section 80DMedical

Insurance for Family and

parents

Deduction up to Rs.15,000/- or

Rs.20,000/-

Section 80DD

Maintenance and medical treatment

of Disabled dependent

Deduction up to Rs.50,000/- or Rs.1,00,000/-

Section 80DDB

Treatment of Certain

disease/ailment

Deduction up to Rs.40,000/-or Rs.60,000/-

Section 80U

Physically disabled

Assessee

Deduction of Rs.50,000/- or Rs.1,00,000/-


Tax Saving Sections contd..O

ther

s

Section 80GG

Payment of rent in the place of HRA

Deduction up to Rs.24,000/-

Section 80CCG

Rajiv Gandhi Equity Savings Scheme

Deduction up to Rs.25,000/-(50% of amount invested)

Section 80TTA

Interest received in Savings Account

Deduction up to Rs.10000/-

Loa

ns

Section 80GG

Payment of rent in the place of HRA

Deduction up to Rs.24,000/-

Section 80CCG

Rajiv Gandhi Equity Savings Scheme

Deduction up to Rs.25,000/-(50% of amount invested)

Section 80TTA

Interest received in Savings Account

Deduction up to Rs.10000/-

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Rent paid less 10% adjusted Income2000 pm25% of Adj Total IncomAdj Total Income:GTI - LTCG-STCG-All other Chapter VIA

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IndividualLoan not >25LLoann taken durinng FY 2013-14HP value >40LNo resi house on the loan saction date

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From AY 2013-14GTI<10L for 13-14GTI<12L for 14_15locked in for a per of 3 years


Rajiv Gandhi Equity Savings Scheme(RGESS)

RGESS is a new tax saving scheme which was announced in 2012 to encourage first time investors in stock market

Under RGESS, you are eligible for a tax deduction on 50% of the amount invested The maximum amount eligible for investment in a year is 50000.

So limit on max deduction is 50% of 50000=25000 You can invest in BSE-100 and CNX-100 and public sector enterprises ( Navaratna, Maharatna,

Miniratna) Mutual funds which invests only in these companies are also eligible for deduction

Who can Invest in RGESS: This scheme is for new investors to come into stock market. Encourage them to invest in stock markets. Who didn’t have a Demat A/c on Nov 23, 2011(i.e the date on which the scheme notified. Have not transacted in equity or derivative before the above date. Had a demat account but as second joint holder. Your Gross Total Income Should be less than 12L

Open a Demat

Account

Designate the A/c as RGESS account

Buy Eligible Stocks

Submit Demat statement as

proof to claim tax benefit

Steps to claim Tax Benefit in RGESS

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Gains are Tax freeHas short locking periodbadhigh riskComplicated for normal investor


5.Other Important Information

Home Loan: Interest and Principal Buying a house is one of the top most priority for most The Good news is you get tax deduction on both principal and interest payment on your

Housing Loan

Home LoanPrincipal

Deduction u/s 80C up to Rs.1 lakh

InterestDeduction u/s 24 up to Rs.1.5 lakh

Addl Deduction u/s 80EE up to Rs.1 lakh

Deduction on Principal payment on Home Loan Deduction up to Rs 1 Lakh is allowed on the principal repayment of the housing loan if the house is self

occupied or vacant. The house should be registered in the name of the assessee. (Can be Joint owner as well) The loan should be from Banks, NBFCS or respective employers. Loans taken from friends/relatives

does not qualify for this deduction. The deduction is available also for people with multiple properties.

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Only from the year of possessionShould be held for 5Years.


Home Loan: Interest and Principal

Deduction on Interest payment on Home Loan Deduction up to Rs.1.5Lakh is allowed on the Interest payment of the housing loan in case of

single non-rented house. Incase of rented or multiple houses there is no limit on amount of deduction. All the rent you received will be your taxable income(Income) Interest paid will be taken as expense(Expense) Net amount will be considered as your Income/Loss from House Property.

Additional Deduction on Interest Payment on Housing LoanA new section 80EE has been inserted w.e.f FY 2013-14, which gives additional deduction of

Rs.1lakh on payment of interest on housing loan subject to following conditions: The Loan needs to be taken in the financial year 2013-14 Loan should be taken from banks or housing finance companies Loan < 25L Value of House <40L No other property at the time of loan sanction.

The additional deduction on Interest payment of home loans can be claimed in FY 2013-14, in case you are not able exhaust the limit in FY 2013-14, The balance can be claimed in FY 2014-15

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Only after completionInterest before completion will be allowed in 5 instLockin period of 5YearsLoan taken before 1999, limit is 30000/-


When?


Any Questions

Prepared By:

Korada Devi Vara Prasad

Audit Executive –CA Final , CWA Final

R Venkatakrishnan & Associates

Email us at: [email protected]

Visit us at : http://www.rvkassociates.com

tax plannig for an employee

Law

salary income tax free

salary income section

taxable salary

salary allowances

basic salary

arrears of salary

introduction income

salary income3 deductions