Deliberation On Tax planning, Wealth planning & Creativity in work area • 26th August, 2014 Tuesday • Jacobs Engineering Pvt. Ltd. • CA Nitin Pathak • F.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
Exempt income 1. 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 Tax • Gift 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 Planning • Filling 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 income • 1. Income from Salaries • 2. Income from House Properties • 3. Profit & Gains of Business & Profession • 4. Capital Gains • 5. 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 tax C 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 allowed • Personal expenditure not allowed
Income from Other Sources • Interest Income: • Company deposits • Debentures/bonds • Savings / 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 Premiums • 2. Employee’s Contributions to Employees Provident Fund/GPF • 3. PPF(Maximum Rs.1,50,000/-)
Deduction 80C • 4. NSC (National Savings Certificates) • 5. Unit Linked Insurance Plan (ULIP) • 6. Repayment of Housing Loan (Principal) • 7. Equity Linked Savings Scheme (ELSS) of Mutual Funds • 8. Tuition Fees including admission fees or college fees paid for full-time education of any 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)
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/siblings • Amount actually spent for travelling • In India only • Twice in a block of four calendar years. (Block year 2014-17) • Two surviving child • Road travel on vehicle, second class train fair • Air 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
Medical benefits a. Medical treatment for self & family( Spouse, dependent children, siblings) in: • Hospital maintained by an employer • Hospital approved by Government • Hospital approved by the Chief Commissioner for specific ailments b.Medical insurance by employer paid to GIC • Re-reimbursement of medical expenses in aggregate 15,000/- in F.Y. other than a and b
Special Allowances Exempt • Any 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 Exempt • Travel 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
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
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
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 • Management of the fund • Brand image of the fund • Type of Scheme (Debt/Equity/Mix) • Expenditure Ratio • Quantum of fund • Average return • Risk Involved • Perception of individual
Wealth Tax • Assessee 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 tax • WT is applicable to many • WT 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.
HOUSE Any 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 housea. 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