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7th Pay Commission

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7th Pay Commission Cabinet approves rise in salaries, pension for government employees. The Cabinet on Wednesday approved the implementations of the 7th Pay Commission recommendations.

Here are ten facts you should know:

  1. Salaries and allowances of over one crore central government employees and pensioners will see a rise by about 23.5 percent upon implementation.
  2. The implementation of the recommendations is expected to allow nearly one lakh crore to flow into the economy.
  3. Aimed at providing a boost to savings, the 7th Pay Commission implementation will impact the remuneration of nearly 50 lakh central government employees and 58 lakh pensioners
  4. The minimum pay is expected to be 18,000 per month and the maximum pay to be to the tune of 2-2.5 lakh per month.
  5. Cabinet will now decide if the six months arrears will be paid at once or in the form of instalments.
  6. The changes are likely to be implemented effective January 1, 2016. A new pay structure is proposed; is expected to be brought in to increase transparency.
  7. 7th Pay Commission head, on Wednesday, said the government will be able to contain panel recommended pay-out. The move is estimated to put an additional burden of Rs 1.02 lakh crore, or nearly 0.7 percent of the GDP, on the government.
  8. Based on the proposed rate of hike, approximately Rs. 73,650 crore of the total pay-out is expected to flow in from the government’s general budget and Rs. 28,450 crore from railways.
  9. The commission headed by justice (retired) AK Mathur had presented its 900-page report to Finance Minister Arun Jaitley in November 2015.
  10. The hike is structured around the recommendation for a 14.27 per cent hike in basic pay.

The implementation of new 7th Pay Commission pay scales recommended by the Seventh Pay Commission is estimated to put an additional burden of Rs 1.02 lakh crore on the exchequer annually.

Statement of Computation of Income

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Statement of Computation of Income

RS RS
1
Income from salary
Income by way of allowance
Taxable value of perquisite
Gross salary
Less:Deduction under section 16
Entertainment allowance
Professional tax
Taxable income under the head salaries”
2
Income from house property
Adjusted net value
Less:Deduction under section 24
Taxable income under the head “income from house property”
3
Profits and gains of business or profession
Net profit as per p & l A/C
Add:Amounts which are debited to P & L A/C but are not allowable as deductions under the act
Taxable under the head “profit and gains of business or profession”
4
Capital gains
Amount of gains
Less:Amount exempt under sections 54,54B,54D,54EC,54ED,54F54G and 54GA
Taxable under the head “Capital gains”
5
Income from other sources
Gross income
Less:Deductions under section 57
Taxable income under the head “income from other sources”
Total (ie 1+2+3+4+5)
Less:Deductions under Sections 80C to 80U
Total income or net income liable to tax
Computation of tax liability
Tax on net income
Add:Surcharge
Tax and surcharge
Add: Education cess and secondary and higher education cess
Less:Rebate under sections 86, 89,90, 90A and 91
Less: Pre-Paid Taxes
Tax paid on self assessment
Tax deducted or collected at source
Tax paid in advance
Tax liability

Section 139(4) – Filing Income Tax Returns After Due Date

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Belated return Section 139(4)

Can the income tax return be filed after the due date?

If due to some unforeseen reason, you couldn’t file your income tax return within the due date [i.e. time allowed by section 139(1)], then don’t stress. You still have ample time file your tax return. However this extended time comes with conditions and consequences. The extended time allowed to you by the income tax act is one year from the end of the relevant assessment year. So for example, if you missed the due date for filing your tax return for assessment year 2014-15, you can still file your income tax return on or before 31st March 2016.

Let us begin by talking about the conditions because there aren’t many. If for some reason, the income tax department assesses you case [assessment in this case refers to the assessment u/s 143(3) and not the intimation u/s 143(1)] before you actually file your tax return, then the above mentioned extended time shall not be available to you anymore i.e. you shall not be able to file your belated income tax return anymore.

As far as the consequences are concerned, the following are listed below:-

  1. The taxpayer shall be liable to pay interest u/s 234 A, provided he has an outstanding tax liability.
  2. Losses such as business and capital loss cannot be carried forward for adjustment.
  3. A penalty of Rs. 5,000 may be imposed under section 271 F if the belated return is submitted after the end of the relevant assessment year.

What is HRA (House Rent Allowance)

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House Rent Allowance (HRA) is best tax saving tools available to employees. With these you can save up to 50% of your salary if you reside in Metro (40% of your salary if you reside in non-metro).

As per income Tax act, for calculation House rent allowance least of the following is available as deduction :

  1. Actual HRA received
  2. 50% / 40%(metro / non-metro) of basic ‘salary’
  3. Rent paid minus 10% of ‘salary’. Basic Salary for this purpose is basic+ DA forming part+ commission on sale on fixed rate.

Cities Like, Delhi, Mumbai, Chennai and Kolkata constitutes Metro. All cities other than these are non-Metro. So if you resides in cites like Gurgaon, Faridabad, Bangalore, Hyderabad, etc it would constitutes as Non metro and only 40% deduction will be allowed.

If actual rent paid is lower than 10% of your basic salary you receive no exemption. The other key point is that you cannot claim any exemption under this section if you live in your own home or if you are not paying rent to anyone.

Read More at House Rent Allowance

Leave Travel Allowance Exemption and Income tax benefit

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Leave Travel Allowance (LTA) is basically defined as the cost of travel granted to employees to travel anywhere in India, while on leave from work.

The amount of exemption depends upon the mode of travel, and it is allowed only towards the travel fare, and not for boarding and lodging. It is allowed twice in a block of four calendar years.

The current block is 2014-17. So, for the period 2014-17 one can claim this exemption for any two occasions.

FAQ On Leave Travel Allowance (LTA) for exemption under section 10(5) of Income tax Act

The LTA exemption is available only for family accompanying the recipient of LTA / employee receiving LTA 

Family Includes

* Spouse and up to two children
* Parents and brothers and sisters who are mainly dependent on you.

Employee (receiving LTA and claiming the same) must be traveling with his family on the journey to claim LTA, otherwise the journey will not be eligible for exemption.

It means if your family is travelling without you, then they you will not be eligible for claiming LTA benefit.

Only the cost of travel by shortest distance is covered. 

It means following are not allowed:

a) Boarding and lodging charges.

b) Food or any recreation charges.

What is block of year concept?

The LTA / LTC tax exemption can be claimed only twice in a block of 4 years.

These blocks of 4 years are predefined by the government. These are:

2002 – 2005
2006 – 2009
2010 – 2013
2014 – 2017
2018 – 2021
And so on. The current block is 2014 – 2017.

(these years are calendar years, and not financial years.)

If you have not availed LTA in one block, can you carry forward LTA benefit

Yes, The exemption doesn’t lapse – it can be carried forward to the next block of 4 years.
The only condition in this case is that the exemption has to be availed in the very first year of this subsequent block.

Can Husband and wife both claim LTA benefit

Yes, both the Husband and wife can effectively claim LTA benefit 4 times in block of four years . ie two by husband and two by wife.

What document is required as proof of travel?

Tickets like – railway ticket and Airlines ticket( with boarding pass) is valid proof for claiming LTA benefit

What is Tax Deducted at Source (TDS) and How is it Calculated?

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What is TDS?

TDS is simply Tax Deducted at Source. As per the Income Tax Act – persons responsible for making payments are required to deduct tax at source at prescribed rates. Instead of receiving tax on your income from you at a later date, the govt wants the payers to deduct tax before hand and deposit it with the govt.

The recipient of income receives the net amount (after deducted of tax at source). The recipient will add the gross amount to his income and the amount deducted at source is adjusted against his final tax liability. Basically take credit of the amount already deducted and paid on his behalf.

Tax Deducted at Source is deducted at the time of payment in cash or cheque or credit to the payee’s account whichever happens earlier.

Tax Deducted at Source is deducted on salaries, interest payment by banks, payment of commission, while paying rent, payments made to consultants, payments to lawyers or freelancers. (Some of these requirements to deduct tax are not applicable to individuals – for e.g. individuals are not expected to deduct TDS while paying rent or while paying fees to doctors or lawyers).

Your employer deducts TDS at the income tax slab rates applicable. Banks deduct TDS @10%. Or they may deduct @ 20% if they do not have your PAN information. For most payments rates of TDS are set in the income tax act and TDS is deducted by payer basis these specified rates.

If you submit investment proofs (for claiming deductions) to your employer and your total taxable income is below the taxable limit – you do not have to pay any tax. And therefore no TDS should be deducted on your income. Similarly you can submit Form 15G and Form 15H to the bank if your total income is below taxable limit so that they don’t deduct TDS on your interest income.
In case you have not been able to submit proofs to your employer or if your employer or bank has already deducted TDS and your total income is below the taxable limit) – you can file a Return and claim a refund of this TDS.

TDS & PAN

Its important to understand how Tax Deducted at Source is linked to your PAN. TDS deductions are linked to PAN numbers for both the deductor and deductee. If Tax Deducted at Source has been deducted from any of your income you must go through the Tax Credit Form 26AS. This form is a consolidated tax statement which is available to all PAN holders. Since all TDS is linked to your PAN, this form lists out the details of TDS deducted on your income by each deductor for all kinds of payments made to you – whether those are salaries or interest income – all TDS linked to your PAN is reported here. This form also has income tax directly paid by you – as advance tax or self assessment tax. Therefore, it becomes important for you to mention your PAN correctly, wherever Tax Deducted at Source may be applicable on your income.

Government wants you to own a house property – income tax benefits extended

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Government wants you to own a house property and the same becomes evident from the various tax benefits allowed under the income tax laws to the persons who own a house. Let us understand the various beneficial tax provisions which prove that the government wants you to own a house property.

Tax benefits for repayment of home loan: As per Section 80C of the Income Tax Act, 1961, an individual and a Hindu Undivided Family are entitled to claim deduction up to Rs. 1.50 lacs in respect of principal repayment of the home loan, taken for the purchase or construction of a residential house. The loan should have been taken from specified institutions, like bank, housing finance company, central government, state government, local authority or even a public limited company which is your employer.

For claiming these benefits the house should be complete and possession should have been taken by you. So in for an under construction house at the end of the year, you cannot claim this benefit.

The government wants you to continue to own the house and not to speculate on it. This is evident from the provision which requires you to retain the house property and not to sell it before completion of five years from the end of the year in which possession of the house is taken. In case you sell, the house before completion of five years no tax benefits shall be available for the year in which you sell the house. Moreover all the tax benefits claimed earlier by you on such house shall be reversed in the year in which you sell the house and shall be treated as income of the year. There is no such reversal provision in case you prepay the home loan even before completion of five years. So the government does not mind you prepaying the home loan but does not want you to trade in the house.

Tax benefits for payment of the amount owed towards cost of the house: Section 80 C also allows you deduction within the overall limit of Rs. 1.50 lakh in respect of payment of instalment or part payment of the amount due to any company or cooperative society where you are a shareholder or a member for amount outstanding in respect to cost of the house allotted to you by such company or cooperative society. Deduction is also available for payment of amounts due to any housing board, or any development authority towards purchase consideration for such house purchased under any scheme of these authorities for construction or purchase of a house property.

Tax benefits for payment of stamp duty etc: It is not only the principal repayment of the loan which is allowed under section 80C, even any amount paid by you towards stamp duty, registration charges or transfer charges are also eligible for the tax benefits. The deduction in respect of these amounts is available only if the possession of the house is taken during the year. So even if you take possession of the house on 31st March of the year, you can claim the tax befits under Section 80C for home loan repayment, cost payment as well as stamp duty and registration charges.

Tax Benefits for interest payment in respect of completed house: Under Section 24(b) of the income tax act, you are allowed deductions for interest paid on money borrowed for purchase, construction or even repair, renovation of the house. This deduction is available from the year in which the constriction of the house is completed and possession taken in case of an under construction property. The quantum of deduction will depend on whether the house is self occupied or let out. In case of let out property full interest is allowed to be deducted. However in case of self occupied house property the amount of deduction shall be restricted to Rs. 2 lakh generally.

However in case of an under construction house if the construction is not completed within a period of three years from the end of the year in which the amount of the loan was disbursed, the quantum of deduction shall stand restricted to Rs. 30,000/- in a year. Looking at the usual delay in completion of the construction of the house in the country and in order to give relief to the tax payers the government, in the budget of 2016, has proposed to extend the period of completion of the construction of the house property from three years to five year.

For claiming interest deduction it is not necessary that the loan has to be taken from specified institutions as is required for claiming deduction for loan repayment. Even interest paid to friends and relatives also qualify for this deduction as long as you are able to establish the linkage between the money borrowed and its end usage for the house purposes.

Since the deduction is available from the year in which the construction of the house is completed and possession is taken, a question may arise as to what happens to the interest paid before completion of the construction. The law has provided for it. You can claim such interest, which is generally referred to as Pre EMI interest, in five equal instalments from the year in which construction of the house is completed. The overall deduction is restricted to Rs. 2 lakh in case the house property is self occupied. Here also the law requires you to continue to own the house for at least for five years failing which the claim for Pre EMI interest not claimed shall lapse for the remaining years.

Latest proposal in the budget for affordable housing: The finance minister has proposed to allow a deduction of Rs. 50,000 in respect of interest on loan taken to buy an affordable residential house. Section 80EE which is being substituted proposes an additional deduction for interest of Rs. 50,000 in respect of loan of an amount not over Rs. 35 lakh for a house costing not more than Rs 50 lakh. This deduction is available only for the loans taken from financial institution or housing finance company. The benefit is available only to the people who do not own any house on the date of sanction of the home loan. This also goes to prove that the government wants each and every one to own a roof over his head. It is interesting to note that completion of construction is not a precondition for claiming this deduction.

Capital Gains Exemption: Section 54 and 54F of the Income Tax Act, provide for exemption for long term capital gains if a house is purchased or constructed within specified period. In case the capital gains arise from a residential house held for more than three years, you are required to invest only the capital gains computed after taking into account the indexation benefits. In case the long term capital gains arise on sale of any asset other than a residential house property, you are required to invest the net sale consideration for purchase of a residential house property provided you do not own more than one residential house on the date of sale of such other asset.

Tax Deducted At Source (TDS) Under Section 192

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WHEN AND HOW TAX IS BE DEDUCTED AT SOURCE FROM SALARY [SEC.192]

The summarized provisions of section 192 are given below:

 

Who is the payer Employer
Who is the recipient

 

Employee
Payment covered Taxable salary of the employee
At what time tax has to be deducted at source At the time of payment
Maximum amount which can be paid without tax deduction INR 2,50,000
Rate of tax deduction at source Tax is to be deducted at source according to the tax slabs.
Is it possible to get the payment without tax deduction or with lower tax deduction The employee can make an application in Form No.13 to the Assessing Officer to get a certificate of lower tax deduction or no tax deduction.

 

The employer may, at the time of deduction tax at source, increase or decrease the amount to be deducted for the purpose of adjusting any previous deficiency or excess deduction.

The employer must keep the following points in consideration while deducting TDS for assessment year 2015-16: –

House rent allowance exemption –Exemption pertaining to house rent allowance shall be calculate by the employer on the basis of specified limit provided by section 10 (13A). This exemption depends upon rent paid by employee .The concerned employee should submit to the employer a written statement pinpointing rent paid, name of landlord, address of the property and PAN of landlord (PAN is required only if rent paid is more than Rs.1,00,000 per annum)along with rent receipt given by the landlord.However, for the purpose of tax deduction ,the Center Board of Direct Taxes has given a concession that rent receipt is not required if house rent allowance is Rs.3,000 per month or less.

Other incomes of employee –An employee (at his option) can declare his other incomes to the employer. He cannot declare negative incomes (except house property loss).

Employer should take into consideration amount deductible under sections 80CC, 80CCC, 80CCG, 80D, 80DD, 80DDB, 80E, 80EE, 80GG, 80GGA, 80TTA and 80U.

Tax liability –Tax is deductible on the taxable income at the rates applicable for the financial year.If the employee does not have PAN, tax is deductible either at the normal rate or at the rate of 20 per cent, whichever is higher. Tax is not deductible, if estimated salary of an employee does not exceed exemption limit (this rule is applicable even if the employee does not have PAN).At the request of an employee, the employer can give relief under section 89. However, this facility is available only if the employer is Government or public sector undertaking or company, co-operative society, local authority, university, institution or association or body.

When an employee and more than one employer during the financial year, each employer will deduct tax separately. However, the employee is under obligation to declare salary received (and tax deducted thereon) from other employers to one of the employers by submitting information in Form No.12B. The employer to whom Form No.12B is submitted shall deduct tax on the basis of aggregate salary.

TDS certificate will be given to the employee in Form No.16 annually on or before May31 after the end of the financial year. This certificate has to be given in paper format. However, if few conditions are satisfied Form No. 16 can be given with digital signature .The employer should also give a statement of perquisites/profits in lieu of salary in Form No.12BA (if salary exceeds Rs. 1,50,000).

Salary without TDS or with TDS-To get salary without TDS or with lower TDS, the employee will have to approach the Assessing Officer by submitting an application in Form No.13 under 197.

Form 15 G and 15H to save TDS on Interest Income

You can Submit a Form 15 G and 15H to avoid TDS on interest income. While Form 15 G is for Indian residents below 60 years of age

What do you do when your bank deducts TDS on your interest income and your overall income falls under the minimum exemption limit of Rs.2,50,000?

Banks are required to deduct TDS when interest income is more than Rs.10,000 in a year. But if your total income is below the taxable limit, you can submit Form 15 G and Form 15 H to the bank requesting them not to deduct any TDS on your interest.

Form 15H is for senior citizens, those who are 60 years or older; while Form 15 G is for everybody else.

Do note that these forms are valid for one financial year, therefore do check whether you satisfy the conditions for filling them each year and submit them at the start of each financial year. Submitting them as soon as the financial year starts will ensure the banks don’t deduct any TDS on your interest income.

Conditions you must fulfill to submit Form 15 G:

  1. You are an individual or HUF
  2. You must be a Resident Indian
  3. You should be less than 60 years old
  4. Tax calculated on your Total Income is nil
  5. The total interest income for the year is less than the minimum exemption limit of that year, which is Rs 2,50,000 for financial year 2014-15.

Conditions you must fulfill to submit Form 15 H:

  1. You are an individual
  2. You must be a Resident Indian
  3. You are 60 years old or will be 60 years old during the year for which you are submitting the form
  4. Tax calculated on your Total Income is nil

Income Tax Return Form for Assessment year 2015-16

Income Tax Return Form for Assessment year 2015-16

ITR-1

Income Tax Department has release new income tax forms for Assessment year 2015-2016 ( financial year 2014-2015). This year new Inome Tax form form 2A has also been introduced for Individuals or Hindu Undivided Family which does not have capital gains or income from business/profession or foreign asset/foreign income, but has income from more than one house property.

The new forms ITR 1 (Sahaj), ITR 2 & 2A and ITR 4S (Sugam) will be used to file returns for the assessment year 2015-16 (for income earned during 2014-15). Individuals having exempt income without any ceiling (other than agricultural income exceeding Rs. 5,000) can now file Form ITR 1 (Sahaj).

It may be noted that the new forms were first notified on April 15, but soon got entangled in a controversy, after which Finance Minister Arun Jaitley ordered a revision of forms.

New Income Tax Forms has brought Major Relief to Tax payers

Under the new forms, in lieu of foreign travel details, it is now proposed that only the passport number, if available, would be required. Similarly, as regards bank account details, only the IFSC code, account number of all the current/savings account held at any time during the previous year will be required. Details of dormant accounts not operational during the last three years are also not required.

Foreign assets In Income Tax Forms

The Ministry said an individual, who is not an Indian citizen and is in India on business, employment or student visa (expatriate), will not mandatory be required to report foreign assets acquired by him during the previous years in which he was non-resident, if no income is derived from such assets during the relevant previous year.

Usage of Forms Person Form No  Instructions
For Individuals having

  1. Income from Salary / Pension/
  2. Income from One House Property(excluding loss brought forward from previous years) /
Individual / HUF Form 1 / Sahaj
3) Income from Other Sources (Excluding Winning from Lottery and Income from Race Horses
  1. Individual who can not file Sahaj above and
  2. where the total income does not include any income chargeable to income-tax under the head “Profits or gains of business or profession”,
Individual / HUF  Form 2
For Individuals/HUFs1) being partners in firms and2) not carrying out business or profession under any proprietorship  Individual / HUF  Form 3
For individuals and HUFs having income from a proprietory business or profession  Individual / HUF  Form 4
Sugam – Presumptive Business Income tax Return  Individual / HUF  Form 4S /Sugam
For Partnership firms, AOPs and BOIs Firms, AOPs and BOIs Form 5 E filing only
For Companies other than companies claiming exemption under section 11 Companies Form 6 E filing only
Acknowledgment for filing Income tax Return ITR V

Get all the income tax forms at http://www.efiler.in/incometaxforms/