Tax Facts

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We thought the following information on various tax issues would be useful to you. Personal circumstances always vary, so please ensure you contact us for specific advice.

Tax Facts - Income tax


Income tax is the direct tax paid by individuals to the Central Government of India. It is imposed on income to generate government revenue and plays a vital role in economic growth and stability.

Income Tax in modern India began in 1860 when the first Income Tax Act was implemented. After five years the second Income Tax Act came into existence with major changes to the first act including the new concept of Agriculture Income.

After 1865 additional acts were implemented, the most significant being the Income Tax Act of 1961. According to this act, any person whose salary from any source of income exceeds the maximum limit of unchargeable amount is liable for Income Tax. There is also a provision of deduction and exemptions in Income Tax which depends on the:

  • Type of assessee
  • Source of income
  • Residential status
  • Investment in saving schemes

Refunds

Tax authorities have now made it easier for Indian tax payers to determine their refund status. You can simply visit the NSDL-TIN website www.tin-nsdl.com and click Status of Tax Refunds to see whether a refund is due to you.

NOTE: To track your refund status you will have to enter PAN (Permanent Account Number) and Assessment Year information.

Tax Facts - Income Tax Rates

Income Tax Rates

Income tax rates usually change annually. Any adjustments are announced by the Ministry of Finance, Government of India.

Following is the table indicating the impact of changes in income tax provisions proposed by Finance Minister Arun Jaitley in the Budget 2014-15. Tax exemption limit has been raised to Rs 2.5 lakh from Rs 2 lakh.

Income tax rates determine the tax that will be applied to your income. In India, there are different income tax rates for men, women and senior citizens. The table outlines these.

India Income tax slabs 2014-2015 for General tax payers and Women:

Income tax slab (in Rs.) Tax Rate
Up to Rs 2,50,000 NIL
Rs 2,50,001 to Rs 5,00,000 10 per cent
Rs 5,00,001 to Rs 10,00,000 20 per cent
Above 10,00,000 30 per cent

India Income tax slabs 2014-2015 for Senior citizens (Aged 60 years but less than 80 years):

Income tax slab (in Rs.) Tax Rate
Up to Rs 3,00,000 NIL
Rs 3,00,001 to Rs 5,00,000 10 per cent
Rs 5,00,001 to Rs 10,00,000 20 per cent
Above 10,00,000 30 per cent

India Income tax slabs 2014-2014 for very senior citizens (Aged 80 and above):

Income tax slab (in Rs.) Tax Rate
0 to Rs 5,00,000 NIL
Rs 5,00,001 to Rs 10,00,000 20 per cent
Above 10,00,000 30 per cent

Others Tax Benefits in this budget:

  • 80C Limit increased from Rs 1 lakhs to Rs 1.5 lakhs
  • Maximum Limit to PPF increased from Rs 1 lakhs to Rs 1.5 lakhs
  • Home loan interest free calculation increased from Rs 1.5 lakhs to Rs 2 lakhs
  • No change in the rate of surcharge either for the corporates or the individuals, HUFs, firms etc.
  • The education cess to continue at 3 percent
  • Deduction limit on account of interest on loan in respect of self-occupied house property raised from Rs 1.5 lakhs to Rs 2 lakhs

Tax Facts - Capital gains and assets


Capital gains

According to the 1961 Income Tax Act, capital gains are derived according to the transfer of capital assets. Capital gain is the profit or gain of an assessee that comes from the transfer of a capital asset effected during the previous or assessment year.


Capital assets

Under section 2(14) of the 1961 Income Tax Act, a Capital Asset is defined as property of any kind held by an assessee, including property held for their business or profession. A capital asset includes all property types as well as all rights in property. It is also defined as gains on a transfer of assets where there in no cost of acquisition such as:


  • Goodwill of business generated by the assessee
  • Tenancy rights
  • Stage carriage permits
  • Loom hours
  • The right to manufacture
  • Processing and production of any article


Assets that don't fall under heads of capital assets

According to the 1961 Income Tax Act, some assets are not included as Capital Assets, including:


  • Stock and raw materials used by an assessee for their business or profession.
  • Movable properties such as wearing apparel, furniture, automobiles, phones, and household goods that are held by the assessee.

NOTE: Jewelry that is also a movable asset falls under heads of capital assets.

  • Agricultural property in India.

NOTE: Agricultural land that falls under municipal limits (in an area where the population exceeds 10,000) falls under Capital Assets. Agricultural land within 8 km of municipal limit also falls under Capital Assets if notified by the central government of India.

  • A few Gold Bonds issued by the government.
  • A few special bonds issued by the central government (eg Special Bearer Bonds, 1991).


Transferring capital assets

Under Section 2(47) of the 1961 Income Tax Act, transfer of capital assets is defined as:


  • Sale, exchange and relinquishment of assets.
  • Extinguishment of any rights in capital assets.
  • Acquisition of capital assets or rights.
  • Conversion of a capital asset by the owner as stock in trade of their business.

NOTE: This may also be a term of transfer.

  • Transfer of immovable property under Section 53A of the 1882 Transfer of Property Act.
  • Any transaction by which an assessee is able to act as a member of a cooperative society.
  • Any transaction by which an assessee acquires shares in a cooperative society.

Tax Facts - Deductions


 

Tax Deductions (Section 80C)

If it's a long-term investment (typically with a lock-in of 5 years), chances are high that it would qualify for the Section 80C deduction. Tax deductions are used by the government as tools to encourage you to:

  • Save for your retirement
  • Buy insurance and thus protect your loved ones.
  • Invest in Indian economy for longer periods
  • Buy a home

Why you should care?

  • Because it is the closest thing to free money you will ever get. Depending on your income tax slab, you might be saving up to about Rs. 30,000.

A few investment avenues for 80C are:

  • Employee Provident Fund (PF or EPF) - Most of you would be making contributions to your PF. You contribute 12% of your basic salary and your company would put in equal amount as their contribution. Not having a PF account means a serious disadvantage of losing this company contribution. You can withdraw the money at age 55 or retirement, by paying ZERO taxes. PF has a fixed rate of return. It has been 8.5% for last 5-6 years, but for 2010-11, a bonus 1% has been added to make it 9.5%.
  • Equity Linked Saving Schemes (ELSS) - In our opinion, this is the best avenue for 80C investments for those who do not abhor market based returns. It has only 3 years of lock-in while all other products have 5 years or more. And the returns are also tax-free. And equity means higher return potential. A lock-in period also allows the fund manager to execute his strategies with greater assuredness that people won't be pulling out money in between. Usually that results in better returns. This beautiful product might lose its shine if Direct Tax Code removes the 80C advantage attached to it.
  • Public Provident Fund (PPF) - PPF is not mandatory but anyone can open a PPF account. You might have to contribute a nominal amount of Rs. 500 every year to keep the account active. Like PF, PPF has a fixed rate of return which has been 8% for a while now. Annual contribution limit for PPF is Rs. 70,000. One good thing about PPF is that you'll be able to withdraw money after 15-16 years, again by paying ZERO taxes. Learn more about PPF here.
  • New Pension Scheme (NPS) - NPS has the best features of mutual funds and PF. You can withdraw money tax-free when you are 60. By choosing the option E in NPS, you can invest up to 50% of your money in equity. So, 50% of your money would be in safe, fixed options and 50% would be in equity with negligible management fees. To learn more about the benefits of low fees and NPS, visit our NPS section.
  • Life Insurance and ULIPs - We generally discourage investors to buy ULIPs and any sort of money-back life plans. Buying pure insurance (Term Insurance) and investing separately in equities or FDs would be much cheaper to you. Buying these insurance plans would only ensure Thailand trips for your insurance agent. Learn more about Insurance here.
  • Tax Saving FDs
    • 5 years lock in. Could be bought from banks.
    • Currently around 7-8% interest rate. Returns are taxed every year.
    • If the interest income is more than Rs. 10,000, tax will be deducted by the bank (TDS).
  • National Savings Certificate (NSC)
    • 6 years lock-in. Could be bought from post-offices.
    • Currently 8% interest rate.
    • Interest accrues and is deemed reinvested every year. That means you don't get the interest money every year. Instead it is assumed to have bought more NSCs for you.
    • Since the interest money is buying more NSCs for you, you could claim 80C deduction on the interest amount every year.
    • You could pay income tax on this interest every year. Or you could pay a lump-sum tax on maturity. It's usually wiser to spread out your interest income, as a lump-sum interest might push you in a higher tax-bracket.

Other than 80C

There are a couple of other deductions worth exploring.

  • House Loan Interest - If you have taken a home loan, you could apply for deduction (up to Rs. 1.5 lakhs) on the interest part of your EMI.
  • Infrastructure Bonds - You could claim a deduction of up to Rs. 20,000 if you buy these long-term Infra bonds. This deduction is more of a temporary nature and might go away next year.
Deductions From Gross Total Income

Gross total Income is the total of income under all heads for a particular previous year. Out of the said Gross total Income, deductions are allowed under various sections comprised in chapter VI-A. To claim the said deductions, certain conditions have to be fulfilled.

80CCC - Contribution to Pension Fund of LIC

80D - Medical Insurance premia

80DD - Maintenance including medical treatment of handicapped dependent

80DDB - Medical treatment, etc.

80-E - Repayment of loan taken for higher education

80G - Certain Donations to Charitable trusts of institutions for charitable purpose.

80GG - Rent Paid by an Assessee

80GGA - Donations for scientific research or rural or urban development

80-HH - Deduction in respect of profits and gains from newly established industrial undertakings or hotel in backward areas.

80-HHA - Deduction in respect of profits and gains from newly established small scale industrial undertakings in certain areas.

80-HHB - Deduction in respect of profits and gains from projects outside India.

80-HHBA - Deduction in respect of profits and gains from housing projects in certain areas.

80-HHC - Deduction in respect of profits and gains from export of goods outside India.

80-HHD - Deduction in respect of earning in foreign exchange

80-HHE - Deduction in respect of profit from export of computer software, etc.

80-HHF - Deduction in respect of profit from export or transfer of film software, etc.

80-IA - Deduction in respect of profit and gains of certain industrial undertakings or enterprises, etc.

80-IB - Deduction in respect of profit and gains of certain industrial undertakings other than infrastructure development undertakings, etc.

80-JJA - Profits and gains from business of collecting and processing biodegradable waste.

80-JJAA - Deduction in respect of employment of new workmen.

80-L - Interest on securities, dividends, etc.

80 O - Royalties, commissions, fees for professional services etc, earned in convertible foreign exchange

80-P - Certain income of Co-operative Societies

80-R, 80-RR and 80-RRA - Income from foreign sources.

80-U - Income of handicapped Assessee.

Tax Facts - Permanent Account Number - PAN


The Permanent Account Number (PAN) is a number used by the Income Tax Department to identify assessees.

PAN is a 10-digit alphanumeric number that is printed on a laminated card known as a PAN card, along with other details such as the:

  • PAN number
  • Name of applicant
  • Father's name
  • Date of birth
  • Passport-size photo

The PAN number replaces the General Index Registrar (GIR) Number which is given to the assessee by an assessing officer and includes the officer's details.

Under section 139A of the 1961 Income Tax Act, the PAN number is required for individuals:

  • Whose total annual income exceeds the amount that is not chargeable under the income tax act
  • Whose income through business or another profession exceeds Rs. 5 lakhs
  • Who is filing an income tax return

PAN is required in the following situations:

  • Filing an income tax return
  • Any correspondence with the income tax department
  • Submitting challans for payment of any tax to the department
  • Verifying the identity of an assessee in the income tax department

MORE: Click here to learn more about PAN.