In this section an attempt is made to analyze and highlight the implications of Budget on common man under various heading.
Home is where many tax saving options still dwell
Buy a home, go for joint ownership if you are two salaried persons, buy a second property, or even sell the existing one...if you plan well, there are various options to save tax on hard-earned money
THE Indian economy has been witnessing a boom in the recent past. However, rising property prices and growing interest burden on home loans are worrying buyers. The Budget has not offered any relief, but you can still make ample use of the existing provisions to save substantially on property investments. Here’s how….
BUYING A HOUSE
Owning a house is not just a dream but a necessity, and there are several tax benefits as well. However, when buying a house, you would do well to consider the following.
(a) It’s always advisable to go in for a housing loan. Interest paid on home loans can be deducted from your taxable income up to a maximum of Rs 1.5 lakh. This can be a double bonanza in the case of joint ownership. If the joint owners equally bear the interest burden, each gets a deduction up to Rs 1.5 lakh. However, the total deduction cannot exceed the actual interest paid by the joint owners. So, if the total yearly interest liability is, say Rs 4 lakh, and the property is equally owned by three people, then each gets a deduction of Rs 1,33,333.
(b) Principal repayment up to Rs 1 lakh is allowed as a deduction from your taxable income under Section 80C, provided the loan is borrowed from a recognized financial institution.
OWNING TWO OR MORE HOUSES
These days it’s not uncommon to see people owning more than one property. While interest paid on loan taken for a single property is eligible for deduction up to Rs 1.5 lakh only, no such ceiling is prescribed for a new loan taken to purchase a second property. Thus, if your rental income from the second property is Rs 4 lakh and the interest expense on loan taken for the second property is Rs 2.5 lakh, then your income from house property shall be calculated as below:
By claiming deduction for the entire interest expense of Rs 2.5 lakh, you can substantially reduce your tax liability.
Had there been no deduction of interest expense, you would have had to pay tax on Rs 2.8 lakh instead of Rs 30,000.
However, if your second house is lying vacant, generating no rental income, you can still claim deduction for the interest paid. There will nevertheless be a notional rental income and the interest will be deducted from this income.
SELLING PROPERTY
To minimize tax outflow while selling a property, take into account the following.
(a) A property or house held for under three years is termed as a short-term capital asset and does not attract any tax incentive. However, if you sell the property only after three years, it is a long-term capital asset, which is eligible for some tax relief.
(b)Selling property attracts capital gains tax. However, if you invest the proceeds from selling the property into buying or constructing another house, the taxman exempts you from paying taxes. But keep in mind the following:
• If you intend to purchase a new house, do so either one year before or within two years of selling your existing property.
• If you are constructing a new house, then ensure that it is done within three years of the sale of the earlier property. You can start construction even before the transfer of the existing property. However, ensure that it is completed within the stipulated time.
• If you have already sold your property, and could not acquire a new house before the due date for filing tax returns, you can deposit the money in the ‘capital gains deposit account scheme’ with any nationalized bank.
(c) Even those who do not want to buy a new house can avail of some tax benefits. All you need to do is invest the proceeds from the sale of the property in capital gains bonds issued by NHAI or REC within six months of the deal. The maximum investment permitted in such bonds is Rs 50 lakh, and these bonds can be redeemed only after three years from the date of investment.
Rental Income 4,00,000
Municipal Taxes NIL
Net Annual Value (NAV) 4,00,000
Standard Deduction (30% of NAV) 1,20,000
Interest On Loan 2,50,000 Taxable Income 30,000
---------------------------------------------------------------------------------
Life SAVERS
Smart tips to better your life Thumb-Rules.
Want to make more bang from the extra buck that PC has gifted? Read on...
Stretch your disposable income
Several expenses you meet in daily life like tuition fee or insurance premium yield tax benefits. So use them effectively to lessen your burden, instead of utilizing the entire Rs 1 lakh limit for investments alone.
Keep your PAN ready
PAN is now mandatory for almost all transactions. So keep copies of PAN card ready for submission. While most investments demand a PAN, now you are also required to flash one to open a bank account.
Play safe, choose the right cover
Treat life insurance as a shield against uncertainties. Select an insurance policy that will provide life cover for you and your dependents rather than focusing only on returns.
Invest wisely
Do not mix investment objectives while selecting financial products. If you intend to have a steady and regular income, opt for debt products. For aggressive investors, equity is always the best friend.
---------------------------------------------------------------------------------
Safe Haven
Investment’s not all about big risks & high returns. It pays to be a disciplined investor
Make most of PPF investments
Invest in the public provident fund before the 5th of the month to earn interest for the full month. If you pay by cheque, make sure your cheque gets cleared by this date.
Start early
Invest early in your PPF accounts, rather than waiting for the year-end as you may lose out on the interest. If lump sum investment is difficult, opt for monthly installments.
Look beyond usual pension plans
Consider and evaluate pension products beyond traditional routes to get a wider choice in achieving financial objectives. Look out for insurance-cum-pension plans for a secure future early on.
Debt’s the best bet for fixed returns
If you want fixed returns, and then select a debt instrument like fixed deposit or post office term deposit or NABARD rural bonds. These are not tradable and have a fixed payout. However, the returns are comparatively lower than equity-based investment avenues.
---------------------------------------------------------------------------------
Cash Cows
Make an early start. Stick to basics. Span out your investments to keep the load light
Maturity’s the key
There are various lock-in periods for various tax saving instruments. While ELSS has a lock-in of 3 years, for term deposits it is up to 5 years. So select the one that suits your investment objective.
Don’t lock in your funds
Choose the dividend payout option in equity-linked savings scheme to get regular payout of the gains rather than face a lock-in on the entire investment. Look out for new avenues to reinvest the dividend so received.
Take the SIP route to prosperity
Equity-linked tax saving investments should be spread out through the year and this will require investments right from the beginning of the year. Thus, SIP route is advisable.
In debt, it’s all about timing
Debt investments for tax saving can be made at one go, but those that are not tradable should be selected in the beginning of the year to maximize earnings. Inflation can further eat into your returns from debt instruments.
Learn to lessen the study load
Save tax on tuition fees & interest paid on loan
BEING one of the key concerns of an average Indian, education is a natural beneficiary when it comes to tax breaks. Over the years, apart from constantly increasing budgetary allocations for education, the government has been making provisions to help students and parents avail of tax relief on money spend on it. Union Budget 2008-09 has maintained the status quo on deductions allowed on tuition fees and interest paid on education loans.
EDUCATION LOANS
Several banks offer loans for educational purpose. Apart from tuition fees, the loan could cover expenses like hostel charges, library/laboratory fees, travel expenses and passage money for studies abroad. The borrower can claim tax exemption on interest paid under Section 80 E.
However, it comes with certain riders. The loan should be taken from a bank, financial institution or a government-approved charitable institution for higher studies. Courses eligible for the deduction include graduation, post-graduation, professional courses and other courses approved by the UGC, the government or the AICTE. As far as studying abroad is concerned, loans can be availed for job-oriented graduation courses offered by reputed universities, post graduation courses like MS, MBA and MCA, and other professional courses from certain institutes like CPA, USA and CIMA, UK.
Effective fiscal 2007-08, a person taking a loan to fund the education of his/her children or spouse will be eligible for claiming deduction on his/her income for taxing purposes. Also, there is no cap on the amount of interest on which one can claim tax exemption; your entire interest outgo on an education loan is eligible for deduction. The tax exemption, though, is not available for repayment of principal.
If you have borrowed Rs 2,00,000 at the rate of 12% per annum for seven years, the total interest paid would be Rs 1,06,776, and the entire amount can be deducted from the total income. The amount repaid as interest will get the benefit each year.
The repayment period for the student borrower starts one year after the completion of the course or six months after he/she secures employment, whichever is earlier. The tax exemption is allowed for the year you start repaying the loan and seven subsequent assessment years. For example, if you have started working in May 2008, the exemption can be claimed from the year 2008-09 to 2014-15. The repayment period specified by most banks is 5 to 7 years. If the loan has been taken by the parent or spouse, they can start repayment immediately after the disbursal of the loan and claim exemptions accordingly.
TUITION FEES
Money spent towards children’s tuition fees — at the time of admission and throughout the course’s duration — can be deducted from your taxable income under Section 80 C. However, other payments made to the school or college, like donations, development fees and other expenses of similar nature are not eligible for tax exemption. The relief is given to tuition fees paid towards full-time education of any two children of an individual. Also, the relief can be availed of only if the children study in universities, colleges, schools or educational institutions in India
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Women to gain more if the planning is sound
WORKING women will be big beneficiaries of the increase in basic exemption limit as it will also help them in the investment planning process. The tax outgo will be less if they can claim all available deductions.
Women doing business need not pay tax on the expenses incurred on earning the income. They would be better off if they can avail of the entire Rs 1 lakh exemption available under Section 80C. The investment options under 80C include insurance premium and some other long term instruments that would help in accumulation of capital. Those who are young can make effective use of the equity-linked savings scheme, by building up a capital base for the future.
But the person would do well to make use of the options on the debt side as some balancing is required. The option can be something like rural bonds that provide for regular income or National Savings Certificates that allow for compounding of the amount.
Adequate coverage in other financial planning areas would keep women well equipped to deal with the uncertainties of the future. The options include insurance policies and some amount kept aside as cash for any disruption in cash flow in future. Changing the nature of receipts to something like dividends would give them tax-free status. This would help a person reduce the overall tax impact.
Wise old men to fare better
Senior citizens have several options to save tax
SENIOR citizens can now plan their investments in such a manner that their tax burden would be less. The higher basic exemption limit and the avenue to get relief for investments in the Senior Citizen Savings Scheme will make things easier for them.
Though there are several options, making use of all the available deductions would significantly bring down their tax burden. Apart from investments in the Senior Citizen Savings Scheme, the premium paid on medical insurance is one of the best options before them. The senior citizen can invest up to Rs 1 lakh in such schemes.
With basic exemption limit at Rs 2.25 lakh, they have a higher disposable income in their hands. Investments up to Rs 28 lakh at an average rate of 8% will be tax free in the hands of senior citizens.
Though this makes large investments possible, they have to be careful enough to carry out the necessary paperwork to ensure that there is no tax deduction at source. Otherwise, they will have to find ways later to get refund from the income tax department.
There are various investment avenues which ensure a regular flow of income for the individual depending on their needs. Some amount can also be channeled towards debt mutual funds, where a fall in interest rates will give the investor good returns. An interest rate fall will boost the prices of bonds that are held by the mutual funds.
---------------------------------------------------------------------------------
Tips to keep you in good health (parents included)
With tax exemption limits for HEALTH insurance going up, ONE needs to take a fresh look at the POLICIES on offer and the MONEY to be set aside
There’s a lot to choose from, post-Budget
AROUND 70% OF Indians end up dipping into their savings in case of a medical emergency. This despite the fact that they could easily avail of medical insurance policies, which not only would protect their savings but also give them a tax break. This year’s Budget gives them even more reason to actively consider medical insurance. Starting this year, besides the existing deductions for medical insurance, an individual can claim an additional deduction of Rs 15,000 every year for medical premium paid on behalf of his/her parents. With numerous products on offer, making a decision is never easy. Here are a few things you would do well to keep in mind before buying a new mediclaim.
KNOW YOUR LIMITS
Because of the rising healthcare costs, some insurers have imposed sub-limits in their policies. The most common sub-limits are room rents, doctor’s fees and diagnostics expenses. So when you sign up for a policy, check if the insurer has assigned a maximum amount for a specific expense.
If you have a sum insured of Rs 1 lakh and the insurer has capped your room rent at 1-1.5% of the sum insured, then your room rent cannot exceed Rs 1,000-1,500 per day. Many insurers also impose a sub-limit on doctor’s fee at about 25-30% of the bill limit. The sub-limit can both be in percentage and absolute terms. This is because leading doctors charge a hefty fee which could inflate the medical bill substantially. So, make sure that you understand the clauses relating to sub limits before hand. Given that medical emergencies can burn a huge hole in your pocket, paying a slightly higher premium for getting a higher coverage might be a wise thing.
CASHLESS COVERS
A cashless policy can be a good option if you don’t want to settle hospital bills by paying cash. Under this policy, you can undergo treatment at the hospitals specified by your insurer. The settlement is done directly by the third party administrator (TPA). Sanction could be of two kinds, full sanction and part sanction. In the case of part sanction, there are two ways in which a TPA can act. The first way is when the TPA approves a part of the amount before hospitalization with the balance to be paid when the final bill is produced by the hospital at the time of discharge. Under the second method, the TPA sanctions only a part of the total estimated amount and you have to pay off the balance.
The TPA, after the submission of documents, will reimburse the balance in 20 days. While cashless insurance policies help you manage your cash flows better, you should be careful because often TPAs end up paying only a part of the total bill.
HEALTH AND WEALTH
Recently, some insurance companies have launched a unit-linked health insurance plan. Like in the case of other unit linked plans, the premium (minus the insurance costs and fund-related charges) will be put in debt and/or equity. The amount of health insurance cover is assured and does not get affected by the fund value. The tax breaks on these are unclear as of now since they are still being worked on.
Health is wealth, but whether you want mix the two is totally your call. Again, the primary reason for insurance is protection. So you ensure you are adequately covered!
TAX ON MEDICAL ALLOWANCE
AN EMPLOYEE SUBMITTED A MEDICAL BILL OF RS 25,000 FOR his wife’s treatment, which was within the company’s rules. To his surprise, he got a written communication from his office that he had crossed the income-tax limit and the reimbursement amount will be taxable. You may receive monetary compensation for medical treatment undergone either by yourself or any of the dependent family members from your employer, but the tax impact has to be considered separately. Any amount in excess of Rs 15,000 is taxable in your hands as defined in clause (b) of the Section 17 (2) of the Income Tax Act. However, like the cashless schemes, they do not have a list of hospitals. If your employer provides medical reimbursement as a part of your pay package, ensure you submit the bills of the equivalent amount. Otherwise the balance will be added to your income and you will be taxed as per the income slab you may fall in.
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NRIs more investment options
But Rising Rupee May Hit Repatriation
AGAINST THE BACKDROP OF A ROBUST economic growth rate of 8.7%, the finance minister presented his budget proposals for 2008-09. Mindful of the impending general elections next year, it was expected that the Budget will have various populist measures and it did so.
The Budget proposals, as usual, present a mixed bag. While there have been no specific proposals for non-resident Indians (NRIs), in general, certain proposals are definitely welcome. However, some proposals will surely have adverse impact. NRIs can cheer about the increase in the threshold limits and liberalization of the tax slabs. Individuals will now not have to pay any tax on income up to Rs 1.5 lakh. The new tax slabs will result in tax saving of around Rs 45,000 for individuals having an income of more than Rs 5 lakh. An additional tax deduction of Rs 15,000 is also proposed for medical insurance cover for parents.
The finance minister has also mentioned that a permanent account number (PAN) will now be required for transactions in the financial market, subject to suitable threshold limits. Thus, NRIs should ensure that they obtain a PAN prior to undertaking such transactions.
NRIs will continue to enjoy exemption on the long-term capital gains on which securities transaction tax (STT) has been paid. Further, NRIs have the option of offering their investment income and long-term capital gains income arising from specified assets to tax at beneficial rates — 20% for investment income and 10% for long-term capital gains. However, the benefit of indexation or deductions under Chapter VI-A are not allowed in computing such income. Further, where appropriate taxes have been deducted at source from these incomes, there is no requirement to file a tax return.
At present, NRIs are also allowed to maintain foreign currency (FCNR) accounts & NRE accounts in India to invest in non-resident (non-repatriable) rupee deposits and also in RBI-approved foreign currency deposits with scheduled banks and claim tax exemption on income arising there from. These provisions remain unchanged. Further, NRIs can freely repatriate, outside India, their earnings in the form of interest, rent and dividend received in India, without any additional tax burden subject to specific conditions. However, with the rupee appreciating, it would not be surprising if NRIs do not opt for repatriation.
STT hike — Right idea, bad timing
JOHN MEYNARD KEYNES MUST SURELY HAVE DONE A LITTLE jig when news of the latest Budget got to him. The Budget itself was dead on arrival, the only death-defying twitch being some good old-fashioned election year populism. A little largesse here (read loan waivers), and a little there (tax cuts for the middleclass) add up to a still meaningful revenue deficit. We have come full circle in these four years from the stated emphasis on outcomes to the actual emphasis on outlays. Paradoxically, in the India of today, a complete debt waiver is probably the most effective way of dealing with farmers’ indebtedness. Poor execution and high frictional costs make any innovative programme like extending debt maturity, swapping debt for real estate equity or reducing the high cost of moneylender debt through subsidized debt programmers almost infeasible.
Capital market participants, who expected to put in a full day at the office analyzing Budget proposals, went home early. After two months of being beaten up by markets, few had the energy to argue with the only proposal of consequence — the increase in short-term capital gains tax from 10% to 15%. Right idea, poor timing. Right because a developing country like India should have a clear incentive to invest for the long-term, rather than punt for the short. Poor timing because it adds (negative) grist to the mill.
For young economists who seek to understand India's sectors, the annual budget speech should be required reading. Each year there is a magnificent excise tax tweak to the most obscure of industries — this year being no exception. Writing paper, packaged coconut water, puffed rice and sterile dressing pads, well you get the point. Better to let this budget rest in peace. And invent a new process that focuses on making things happen
Home is where many tax saving options still dwell
Buy a home, go for joint ownership if you are two salaried persons, buy a second property, or even sell the existing one...if you plan well, there are various options to save tax on hard-earned money
THE Indian economy has been witnessing a boom in the recent past. However, rising property prices and growing interest burden on home loans are worrying buyers. The Budget has not offered any relief, but you can still make ample use of the existing provisions to save substantially on property investments. Here’s how….
BUYING A HOUSE
Owning a house is not just a dream but a necessity, and there are several tax benefits as well. However, when buying a house, you would do well to consider the following.
(a) It’s always advisable to go in for a housing loan. Interest paid on home loans can be deducted from your taxable income up to a maximum of Rs 1.5 lakh. This can be a double bonanza in the case of joint ownership. If the joint owners equally bear the interest burden, each gets a deduction up to Rs 1.5 lakh. However, the total deduction cannot exceed the actual interest paid by the joint owners. So, if the total yearly interest liability is, say Rs 4 lakh, and the property is equally owned by three people, then each gets a deduction of Rs 1,33,333.
(b) Principal repayment up to Rs 1 lakh is allowed as a deduction from your taxable income under Section 80C, provided the loan is borrowed from a recognized financial institution.
OWNING TWO OR MORE HOUSES
These days it’s not uncommon to see people owning more than one property. While interest paid on loan taken for a single property is eligible for deduction up to Rs 1.5 lakh only, no such ceiling is prescribed for a new loan taken to purchase a second property. Thus, if your rental income from the second property is Rs 4 lakh and the interest expense on loan taken for the second property is Rs 2.5 lakh, then your income from house property shall be calculated as below:
By claiming deduction for the entire interest expense of Rs 2.5 lakh, you can substantially reduce your tax liability.
Had there been no deduction of interest expense, you would have had to pay tax on Rs 2.8 lakh instead of Rs 30,000.
However, if your second house is lying vacant, generating no rental income, you can still claim deduction for the interest paid. There will nevertheless be a notional rental income and the interest will be deducted from this income.
SELLING PROPERTY
To minimize tax outflow while selling a property, take into account the following.
(a) A property or house held for under three years is termed as a short-term capital asset and does not attract any tax incentive. However, if you sell the property only after three years, it is a long-term capital asset, which is eligible for some tax relief.
(b)Selling property attracts capital gains tax. However, if you invest the proceeds from selling the property into buying or constructing another house, the taxman exempts you from paying taxes. But keep in mind the following:
• If you intend to purchase a new house, do so either one year before or within two years of selling your existing property.
• If you are constructing a new house, then ensure that it is done within three years of the sale of the earlier property. You can start construction even before the transfer of the existing property. However, ensure that it is completed within the stipulated time.
• If you have already sold your property, and could not acquire a new house before the due date for filing tax returns, you can deposit the money in the ‘capital gains deposit account scheme’ with any nationalized bank.
(c) Even those who do not want to buy a new house can avail of some tax benefits. All you need to do is invest the proceeds from the sale of the property in capital gains bonds issued by NHAI or REC within six months of the deal. The maximum investment permitted in such bonds is Rs 50 lakh, and these bonds can be redeemed only after three years from the date of investment.
Rental Income 4,00,000
Municipal Taxes NIL
Net Annual Value (NAV) 4,00,000
Standard Deduction (30% of NAV) 1,20,000
Interest On Loan 2,50,000 Taxable Income 30,000
---------------------------------------------------------------------------------
Life SAVERS
Smart tips to better your life Thumb-Rules.
Want to make more bang from the extra buck that PC has gifted? Read on...
Stretch your disposable income
Several expenses you meet in daily life like tuition fee or insurance premium yield tax benefits. So use them effectively to lessen your burden, instead of utilizing the entire Rs 1 lakh limit for investments alone.
Keep your PAN ready
PAN is now mandatory for almost all transactions. So keep copies of PAN card ready for submission. While most investments demand a PAN, now you are also required to flash one to open a bank account.
Play safe, choose the right cover
Treat life insurance as a shield against uncertainties. Select an insurance policy that will provide life cover for you and your dependents rather than focusing only on returns.
Invest wisely
Do not mix investment objectives while selecting financial products. If you intend to have a steady and regular income, opt for debt products. For aggressive investors, equity is always the best friend.
---------------------------------------------------------------------------------
Safe Haven
Investment’s not all about big risks & high returns. It pays to be a disciplined investor
Make most of PPF investments
Invest in the public provident fund before the 5th of the month to earn interest for the full month. If you pay by cheque, make sure your cheque gets cleared by this date.
Start early
Invest early in your PPF accounts, rather than waiting for the year-end as you may lose out on the interest. If lump sum investment is difficult, opt for monthly installments.
Look beyond usual pension plans
Consider and evaluate pension products beyond traditional routes to get a wider choice in achieving financial objectives. Look out for insurance-cum-pension plans for a secure future early on.
Debt’s the best bet for fixed returns
If you want fixed returns, and then select a debt instrument like fixed deposit or post office term deposit or NABARD rural bonds. These are not tradable and have a fixed payout. However, the returns are comparatively lower than equity-based investment avenues.
---------------------------------------------------------------------------------
Cash Cows
Make an early start. Stick to basics. Span out your investments to keep the load light
Maturity’s the key
There are various lock-in periods for various tax saving instruments. While ELSS has a lock-in of 3 years, for term deposits it is up to 5 years. So select the one that suits your investment objective.
Don’t lock in your funds
Choose the dividend payout option in equity-linked savings scheme to get regular payout of the gains rather than face a lock-in on the entire investment. Look out for new avenues to reinvest the dividend so received.
Take the SIP route to prosperity
Equity-linked tax saving investments should be spread out through the year and this will require investments right from the beginning of the year. Thus, SIP route is advisable.
In debt, it’s all about timing
Debt investments for tax saving can be made at one go, but those that are not tradable should be selected in the beginning of the year to maximize earnings. Inflation can further eat into your returns from debt instruments.
Learn to lessen the study load
Save tax on tuition fees & interest paid on loan
BEING one of the key concerns of an average Indian, education is a natural beneficiary when it comes to tax breaks. Over the years, apart from constantly increasing budgetary allocations for education, the government has been making provisions to help students and parents avail of tax relief on money spend on it. Union Budget 2008-09 has maintained the status quo on deductions allowed on tuition fees and interest paid on education loans.
EDUCATION LOANS
Several banks offer loans for educational purpose. Apart from tuition fees, the loan could cover expenses like hostel charges, library/laboratory fees, travel expenses and passage money for studies abroad. The borrower can claim tax exemption on interest paid under Section 80 E.
However, it comes with certain riders. The loan should be taken from a bank, financial institution or a government-approved charitable institution for higher studies. Courses eligible for the deduction include graduation, post-graduation, professional courses and other courses approved by the UGC, the government or the AICTE. As far as studying abroad is concerned, loans can be availed for job-oriented graduation courses offered by reputed universities, post graduation courses like MS, MBA and MCA, and other professional courses from certain institutes like CPA, USA and CIMA, UK.
Effective fiscal 2007-08, a person taking a loan to fund the education of his/her children or spouse will be eligible for claiming deduction on his/her income for taxing purposes. Also, there is no cap on the amount of interest on which one can claim tax exemption; your entire interest outgo on an education loan is eligible for deduction. The tax exemption, though, is not available for repayment of principal.
If you have borrowed Rs 2,00,000 at the rate of 12% per annum for seven years, the total interest paid would be Rs 1,06,776, and the entire amount can be deducted from the total income. The amount repaid as interest will get the benefit each year.
The repayment period for the student borrower starts one year after the completion of the course or six months after he/she secures employment, whichever is earlier. The tax exemption is allowed for the year you start repaying the loan and seven subsequent assessment years. For example, if you have started working in May 2008, the exemption can be claimed from the year 2008-09 to 2014-15. The repayment period specified by most banks is 5 to 7 years. If the loan has been taken by the parent or spouse, they can start repayment immediately after the disbursal of the loan and claim exemptions accordingly.
TUITION FEES
Money spent towards children’s tuition fees — at the time of admission and throughout the course’s duration — can be deducted from your taxable income under Section 80 C. However, other payments made to the school or college, like donations, development fees and other expenses of similar nature are not eligible for tax exemption. The relief is given to tuition fees paid towards full-time education of any two children of an individual. Also, the relief can be availed of only if the children study in universities, colleges, schools or educational institutions in India
---------------------------------------------------------------------------------
Women to gain more if the planning is sound
WORKING women will be big beneficiaries of the increase in basic exemption limit as it will also help them in the investment planning process. The tax outgo will be less if they can claim all available deductions.
Women doing business need not pay tax on the expenses incurred on earning the income. They would be better off if they can avail of the entire Rs 1 lakh exemption available under Section 80C. The investment options under 80C include insurance premium and some other long term instruments that would help in accumulation of capital. Those who are young can make effective use of the equity-linked savings scheme, by building up a capital base for the future.
But the person would do well to make use of the options on the debt side as some balancing is required. The option can be something like rural bonds that provide for regular income or National Savings Certificates that allow for compounding of the amount.
Adequate coverage in other financial planning areas would keep women well equipped to deal with the uncertainties of the future. The options include insurance policies and some amount kept aside as cash for any disruption in cash flow in future. Changing the nature of receipts to something like dividends would give them tax-free status. This would help a person reduce the overall tax impact.
Wise old men to fare better
Senior citizens have several options to save tax
SENIOR citizens can now plan their investments in such a manner that their tax burden would be less. The higher basic exemption limit and the avenue to get relief for investments in the Senior Citizen Savings Scheme will make things easier for them.
Though there are several options, making use of all the available deductions would significantly bring down their tax burden. Apart from investments in the Senior Citizen Savings Scheme, the premium paid on medical insurance is one of the best options before them. The senior citizen can invest up to Rs 1 lakh in such schemes.
With basic exemption limit at Rs 2.25 lakh, they have a higher disposable income in their hands. Investments up to Rs 28 lakh at an average rate of 8% will be tax free in the hands of senior citizens.
Though this makes large investments possible, they have to be careful enough to carry out the necessary paperwork to ensure that there is no tax deduction at source. Otherwise, they will have to find ways later to get refund from the income tax department.
There are various investment avenues which ensure a regular flow of income for the individual depending on their needs. Some amount can also be channeled towards debt mutual funds, where a fall in interest rates will give the investor good returns. An interest rate fall will boost the prices of bonds that are held by the mutual funds.
---------------------------------------------------------------------------------
Tips to keep you in good health (parents included)
With tax exemption limits for HEALTH insurance going up, ONE needs to take a fresh look at the POLICIES on offer and the MONEY to be set aside
There’s a lot to choose from, post-Budget
AROUND 70% OF Indians end up dipping into their savings in case of a medical emergency. This despite the fact that they could easily avail of medical insurance policies, which not only would protect their savings but also give them a tax break. This year’s Budget gives them even more reason to actively consider medical insurance. Starting this year, besides the existing deductions for medical insurance, an individual can claim an additional deduction of Rs 15,000 every year for medical premium paid on behalf of his/her parents. With numerous products on offer, making a decision is never easy. Here are a few things you would do well to keep in mind before buying a new mediclaim.
KNOW YOUR LIMITS
Because of the rising healthcare costs, some insurers have imposed sub-limits in their policies. The most common sub-limits are room rents, doctor’s fees and diagnostics expenses. So when you sign up for a policy, check if the insurer has assigned a maximum amount for a specific expense.
If you have a sum insured of Rs 1 lakh and the insurer has capped your room rent at 1-1.5% of the sum insured, then your room rent cannot exceed Rs 1,000-1,500 per day. Many insurers also impose a sub-limit on doctor’s fee at about 25-30% of the bill limit. The sub-limit can both be in percentage and absolute terms. This is because leading doctors charge a hefty fee which could inflate the medical bill substantially. So, make sure that you understand the clauses relating to sub limits before hand. Given that medical emergencies can burn a huge hole in your pocket, paying a slightly higher premium for getting a higher coverage might be a wise thing.
CASHLESS COVERS
A cashless policy can be a good option if you don’t want to settle hospital bills by paying cash. Under this policy, you can undergo treatment at the hospitals specified by your insurer. The settlement is done directly by the third party administrator (TPA). Sanction could be of two kinds, full sanction and part sanction. In the case of part sanction, there are two ways in which a TPA can act. The first way is when the TPA approves a part of the amount before hospitalization with the balance to be paid when the final bill is produced by the hospital at the time of discharge. Under the second method, the TPA sanctions only a part of the total estimated amount and you have to pay off the balance.
The TPA, after the submission of documents, will reimburse the balance in 20 days. While cashless insurance policies help you manage your cash flows better, you should be careful because often TPAs end up paying only a part of the total bill.
HEALTH AND WEALTH
Recently, some insurance companies have launched a unit-linked health insurance plan. Like in the case of other unit linked plans, the premium (minus the insurance costs and fund-related charges) will be put in debt and/or equity. The amount of health insurance cover is assured and does not get affected by the fund value. The tax breaks on these are unclear as of now since they are still being worked on.
Health is wealth, but whether you want mix the two is totally your call. Again, the primary reason for insurance is protection. So you ensure you are adequately covered!
TAX ON MEDICAL ALLOWANCE
AN EMPLOYEE SUBMITTED A MEDICAL BILL OF RS 25,000 FOR his wife’s treatment, which was within the company’s rules. To his surprise, he got a written communication from his office that he had crossed the income-tax limit and the reimbursement amount will be taxable. You may receive monetary compensation for medical treatment undergone either by yourself or any of the dependent family members from your employer, but the tax impact has to be considered separately. Any amount in excess of Rs 15,000 is taxable in your hands as defined in clause (b) of the Section 17 (2) of the Income Tax Act. However, like the cashless schemes, they do not have a list of hospitals. If your employer provides medical reimbursement as a part of your pay package, ensure you submit the bills of the equivalent amount. Otherwise the balance will be added to your income and you will be taxed as per the income slab you may fall in.
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NRIs more investment options
But Rising Rupee May Hit Repatriation
AGAINST THE BACKDROP OF A ROBUST economic growth rate of 8.7%, the finance minister presented his budget proposals for 2008-09. Mindful of the impending general elections next year, it was expected that the Budget will have various populist measures and it did so.
The Budget proposals, as usual, present a mixed bag. While there have been no specific proposals for non-resident Indians (NRIs), in general, certain proposals are definitely welcome. However, some proposals will surely have adverse impact. NRIs can cheer about the increase in the threshold limits and liberalization of the tax slabs. Individuals will now not have to pay any tax on income up to Rs 1.5 lakh. The new tax slabs will result in tax saving of around Rs 45,000 for individuals having an income of more than Rs 5 lakh. An additional tax deduction of Rs 15,000 is also proposed for medical insurance cover for parents.
The finance minister has also mentioned that a permanent account number (PAN) will now be required for transactions in the financial market, subject to suitable threshold limits. Thus, NRIs should ensure that they obtain a PAN prior to undertaking such transactions.
NRIs will continue to enjoy exemption on the long-term capital gains on which securities transaction tax (STT) has been paid. Further, NRIs have the option of offering their investment income and long-term capital gains income arising from specified assets to tax at beneficial rates — 20% for investment income and 10% for long-term capital gains. However, the benefit of indexation or deductions under Chapter VI-A are not allowed in computing such income. Further, where appropriate taxes have been deducted at source from these incomes, there is no requirement to file a tax return.
At present, NRIs are also allowed to maintain foreign currency (FCNR) accounts & NRE accounts in India to invest in non-resident (non-repatriable) rupee deposits and also in RBI-approved foreign currency deposits with scheduled banks and claim tax exemption on income arising there from. These provisions remain unchanged. Further, NRIs can freely repatriate, outside India, their earnings in the form of interest, rent and dividend received in India, without any additional tax burden subject to specific conditions. However, with the rupee appreciating, it would not be surprising if NRIs do not opt for repatriation.
STT hike — Right idea, bad timing
JOHN MEYNARD KEYNES MUST SURELY HAVE DONE A LITTLE jig when news of the latest Budget got to him. The Budget itself was dead on arrival, the only death-defying twitch being some good old-fashioned election year populism. A little largesse here (read loan waivers), and a little there (tax cuts for the middleclass) add up to a still meaningful revenue deficit. We have come full circle in these four years from the stated emphasis on outcomes to the actual emphasis on outlays. Paradoxically, in the India of today, a complete debt waiver is probably the most effective way of dealing with farmers’ indebtedness. Poor execution and high frictional costs make any innovative programme like extending debt maturity, swapping debt for real estate equity or reducing the high cost of moneylender debt through subsidized debt programmers almost infeasible.
Capital market participants, who expected to put in a full day at the office analyzing Budget proposals, went home early. After two months of being beaten up by markets, few had the energy to argue with the only proposal of consequence — the increase in short-term capital gains tax from 10% to 15%. Right idea, poor timing. Right because a developing country like India should have a clear incentive to invest for the long-term, rather than punt for the short. Poor timing because it adds (negative) grist to the mill.
For young economists who seek to understand India's sectors, the annual budget speech should be required reading. Each year there is a magnificent excise tax tweak to the most obscure of industries — this year being no exception. Writing paper, packaged coconut water, puffed rice and sterile dressing pads, well you get the point. Better to let this budget rest in peace. And invent a new process that focuses on making things happen
