Brief on New Pension Scheme - NPS

New Pension Scheme (NPS) is one of the best retirement products available today in India.  This is a Defined Contribution based pension scheme, which is being administered in India by Pension Fund Regulatory and Development Authority (PFRDA).  If planned properly and if the contribution is made by employer we can avail tax exemption under section 80CCE.  Main advantages of this scheme are

1. It is open to all citizens of India between the age of 18 and 55. 
2. Administration cost is one of the lowest, for non Government employees charge is subject to a limit of 0.25% which is lowest amongst all existing schemes
3. Scheme closely monitored by PFRDA
4. Clearly defined investment options which choice resting with employee or in case employee feels it can be an automated option, it is also available.  The auto choice is as below (Class G - Government securities; Class E - Equity; Class C - Corporate Debt).  The visibility is clear, higher the age lesser the risk and viceversa

 

The next question arises what is the return over the last 3 years.  I have been investing since 2010 April and in these 3 years I have received 8% returns which is a decent return considering the additional interest due to tax benefit which I received on contribution.  The calculation of my contribution is as below as on 7th May 2013 and on that date my fund value was Rs.37,350

I would recommend for all non governmental employees who do not have a proper pension plan to adopt NPS and start contributing from an early age to benefit from decent returns and a handsome corpus on retirement.

A Brief guide to Income tax returns filing - PY 2012-13 / FY 2013-14

Select your relevant form

 

ITR1

• Income from salary / pension
• Income from one house property (excluding losses brought forward from previous year)
• Income from other sources (excluding lottery, horse races)

ITR2 – ITR1 categories plus / or 

• Income from Capital Gains
• Income from other sources including Lottery, races 

ITR3 

• Income from partnership firms by way of salary, interest, bonus, commission includable under the head “Profits or Gains of business or profession”

ITR4

• Individual or HUF who is carrying on a proprietary business or profession

 ITR4S – ITR1 categories plus / or 

• Income from business computed under special provisions of section 44AD & 44AE of income tax act (presumptive taxation)

ITR5 

• Returns by Firms, Association of Persons, Body of Individuals

ITR6

• Returns by companies 

ITR7

• Returns under section 139(4A) , 139(4B), 139(4C) & 139(4D) – belated returns but before completion of assessment year

Compulsory E-filing of Returns with or without digital signature – Previous Year 12-13 / Assessment Year 13-14

ITR1, ITR2, ITR3, ITR4, ITR4S, ITR5 is mandated for compulsory e-filing (with or without digital signature) if income exceed Rs.5 lacs.  Income below Rs.5 lacs can go in for manual filing.

 

Compulsory E-filing of Returns with digital signature – Previous Year 12-13 / Assessment Year 13-14

 

ITR4 & ITR5 is mandatory for e-filing with digital signature if section 44AB is applicable (audit of accounts)

 

ITR6 is mandatory for e-filing with digital signature

 

How to file returns

Visit site https://incometaxindiaefiling.gov.in/ and download the relevant ITR in excel format.

 

View your 26AS following this link https://services.tdscpc.gov.in/serv/tapn/welcome26AS.xhtml. If you have not registered in income tax website, there will be a promt to register using your PAN.  After registration or login this site provides you all details of your tax deducted by your employer or any other person like your banker on interest income. Also it provides details of advance tax paid & details of high value transactions reported in your name. Cross check the tax deducted & advance tax, ensure that these figures are reflected in your ITR returns. If there is a mismatch then there will be query from income tax as to the mismatch. If there are any discrepancies take it up immediately with the TDS deducing authorities to correct if discrepancy is in TDS or take it up with your banker if discrepancy is in advance tax payment.

Once you have filled in the ITR, convert into an XML file and go to site https://incometaxindiaefiling.gov.in/e-Filing/MyAccount/UploadReturnsHome.html?ID=1707942105  to upload your returns. If you would wish to digitally sign your returns register your token in the “Profile settings” menu or follow this link https://incometaxindiaefiling.gov.in/e-Filing/MyAccount/UpdateDscDetailsLink.html?ID=579614307.  Upload the returns.

 

Download the acknowledgement and forward it to CPC Bengaluru, if you have digitally signed the return you need not forward to CPC Bengaluru.

Expatriates in India - Actual Tax Calculation

To bring in a clear understanding and as a supplement to my blog on expatriate taxation http://ssaravanan-vvu.blogspot.in/2012/07/expatriates-taxation-in-india.html, I have tried to demonstrate here a calculation of expatriate taxation and then finally calculate his / her take home salary in India.

Assumptions

1. The expatriate is first time in India and hence he is considered a Non Resident for tax purposes
2. His income is split into two parts
• Salary paid by overseas parent for services rendered in India- USD 50,000 per annum
• Income paid by Indian company for services rendered in India - INR 5,000,000 per annum
3. He has been given the following perquisites in India
• Furnished housing
• One Motor Car with Driver
• Indian company pays school fees for his children
• Indian company pays for maintenance of the house & domestic help
4. The country from which the expatriate is based does not have a Social Security Agreement (SSA) with India, and hence Providend Fund (PF)  has to be deducted @12% on both International & Indian salary (effective from 1.10.2008)
5. No Other Income for this expatriate in India
6. No Other tax savings in India other than 80C
7. No Sweat Equity or ESOP

The tax calculation will be as below for the expatriate

Calculation of perquisites

Calculation of Take Home Salary in India is as below

This is a simplified example of expatriate tax and his / her take home salary, but in practice there will be more complicated scenarios which need to be handled according to the relevant laws prevailing at that time

Perquisites Valuation for Salaried Employees

Section 17(2) of the income tax act, 1961 defines Perquisites and it includes within its gambit a variety of perquisites provided by the employer.   This articles provides an insight into the valuation of these perquisites.

Provision of Unfurnished Accommodation

If the employee is employed with Central or State Government the valuation of accommodation is

• licence fee determined by the concerned government
• Less rent actually paid by the employee

If the employee is employed by other "employers" then

1. if the accommodation is owned by the employer then the valuation
• is 15% of salary in cities having population exceeding 25 lacs as per 2001 census or
• is 10% of salary in cities having population exceeding 10 lacs but less than 25 lacs as per 2001 census or
• is 7.5% of salary in other places
2. if the accommodation is leased / rented by the employer then the valuation
• is 15% of salary or
• actual amount of lease rent payable by the employer

         whichever is lower, and reduced by any amount of rent paid by the employee

If accommodation is provided in a hotel for a period exceeding 15 days on transfer from one place to another then valuation is

• 24% of annual salary or
• actual charges payable to the hotel as reduced by the amount paid by the employee

         whichever is lower

Provision of furnished Accommodation

Perquisite valuation will be in addition to the valuation under "Provision of unfurnished Accommodation".  To the said valuation will be added

1. 10% of the cost of furniture, appliance and equipments or
2. actual cost of rental of these furniture, appliance and equipments

    less any amount paid by the employee

Personal Attendants

Value of services paid by the employer for provision of

1. Sweeper
2. Watchman
3. Gardener

will be treated as perquisite.  Actual cost of payment by the employer will be taken as perquisite less any amount paid by the employee

Gas, Electricity & Water

Actual cost (less any amount paid by the employee) of provision of gas, electricity or water to employee's household consumption will be treated as perquisite

Free or Concessional Education

Cost of free education is a perquisite less any amount paid by the employee.  If the employer runs the educational institution then valuation will be based on cost of education in a similar institution in a nearby locality.

Interest free or concessional loans

Any loan provided by the employer, in excess of Rs.20,000, either at NIL rate of interest or reduced rate of interest then perquisite valuation will be

• Difference in interest rate charged by State Bank of India for similar types of loans and interest payable by the employee.  If for example State Bank of India charges 16% for personal loan and the employer extends to the employee personal loan at 2% interest.  Then perquisite value will be equivalent to 14% of the loan amount

However loan extended for any medical purpose does not get covered under this clause provided the employer does not reimburse the same under any medical insurance scheme

Use of Assets

If any assets of the employer, except computer & laptop, is used by the employee then perquisite valuation will be 10% of the value of these assets less any amount paid by the employee

Transfer of Assets

Any asset of the employer transferred to the employee is a perquisite, the value of perquisite is as follows

1. Motor Car - Original value less Depreciation at the rate of 20% in Written down value method for every completed year of usage less any amount paid by the employee
2. Computer or any other Electronic Gadgets - Original value less Depreciation at the rate of 50% in Written down value method for every completed year of usage less any amount paid by the employee
3. Any other asset - Original value less Depreciation at the rate of 10% in Straight line value method for every completed year of usage less any amount paid by the employee

The above perquisites valuation can change depending on rules prevalent at various times, you are requested to check the same before proceeding for any decisions

Salary TDS Provisions and Proofs to be given to Employer

Objective of this article is to explain various provisions tax savings / planning under income tax for salaried persons and documents they need to provide to their employers to enable exemptions / tax deductions by the employer

Multiple Employments - Section 192(2)

An employee who is employed with more than one employer during a financial year should provide to his present employer details of salary earned, tax deduted during his previous employment. 

Documents to be submitted to employer

1. Duly filled in Form 12B duly signed by the employee
2. If possible, Form 16 provided by the previous employer till the time the employee was in service with the previous employer (as additional proof

Loss from House Property (section 22 - 24) - (Let out Property)

If an house is let out (not occupied by the employee) then exemption can be claimed under this section if there is a loss from house property income.  The formula for calculating loss from house income is as follows (an example of Rs.10,000 per month rent, interest paid during the year is Rs.2,55,000 & municipal / water taxes paid is Rs.9,675)

                Actual Rent Received or Annual Value                                            1,20,000
   Less :  30%  of Actual Rent received or Annual Value                                    36,000
   Less :  Interest on capital borrowed for purposes of construction /
                                                                                           repair                      2,55,000
   Less :  Municipal / water taxes paid for the house                                             9,675

                Loss Under House Property                                                              1,80,675

This loss will be recognised by the employer and taken for tax deduction accordingly.

Documents to be submitted to employer

1. Details of full address of the property
2. Details of loan along with copy of loan / interest payment certificate from the bank / financial institution from which loan is availed
3. Details of Annual rent / municipal taxes (copy of receipts)
4. A self signed declaration with the following words: I, …………………. (name of the assesse), do declare that what is stated above is true to the best of my information and belief.  

Interest on Self occupied house

If housing loan is taken on or after 1.4.1999 for construction or acquiring of a residential unit then a deduction upto maximum of Rs.1,50,000 is allowable on interest on such housing loan.   This is not available in case loan is taken for purpose of repair or renovation of an existing residential house.  The following points are worth noting

1. This deduction is available only after completion certificate is obtained from the builder and regular EMI is commenced by the financial institution
2. All Pre-EMI's can be shown as deduction in 5 equal instalments (5 years) commencing from the year in which the construction is completed

Documents to be submitted to employer

1. Details of loan along with copy of loan / interest payment certificate from the bank / financial institution from which loan is availed - clearly detailing the amount of interest paid on the housing loan

Medical Allowance - Section 17(2)(v)

Medical expenditure incurred by an employee for himself or any member of his family (who are his dependents) shall be exempted to a maximum extent of Rs.15,000 in a year

Documents to be submitted to employer

1. Medical bills pertaining to the relevant financial year and in the name of the employee or any member of the family (who are dependents)

Leave Travel Allowance - Section 10(5) - Rule 2B

 

Expenses incurred on travel for proceeding on leave to any place in India is exempt provided employer pays him a specific allowance to this regard or can allocate a portion of the salary to this allowance.  The following are the conditions to avail of this exemptions from income tax.

1. Cost of the travel is restricted to Economy Air Fare by the shortest route
2. If travelled by any other mode than Air, then exemption is restricted to cost of First Class Air Conditioned fair by the shortest route
3. The exemption can be claimed in respect of two journeys in a block of four years
4. This exemption can be claimed only for expenses incurred on family.  Family is defined as Spouse, Children, Parents, Brothers and Sisters wholly dependent of the individual

Documents to be submitted to employer

1. Proof of Travel - Tickets etc
2. Proof of availing leave to prove that the employee travelled
3. If travel by Car / Taxi then as a corroborative evidence Toll Bills, Parking bills etc.

House Rent Allowance - Section 10(13A) - Rule 2A

HRA exemption is restricted to the least of the following

1. Actual HRA Received by the employee
2. 40% of salary - Salary means Basic + Dearness allowance.  (50% of salary if the rented accommodation is situated in Delhi, Mumbai, Kolkata or Chennai)
3. Actual Rent Paid in excess of 10% of salary (Salary means Basic + Dearness Allowance)

Documents to be provided to employer

1. Proof of Rent Paid - Rent Receipt (not required to provide if monthly rent is less than Rs,3,000)
2. Rent receipt should be stamped with revenue stamp and duly signed by the landlord
3. If rent exceeds Rs.1,80,000 per annum then the PAN number of the landlord should be mentioned in the rent receipt.  If the landlord does not have a PAN then a declaration to the effect that no PAN number is available should be taken from the landlord along with the name and address of the landlord

Deductions under Chapter VIA

Deductions under Section 80C

Exemption under 80C is restricted to Rs.1,00,000 and it covers the following.

Payment towards insurance Premium

Payment of insurance premium (including ULIP's) to keep in force an insurance to cover the life of the individual or spouse of the individual or any dependent child of the individual.

It may be clarified that the amount of premium so allowed on the insurance policy is subject to a maximum limit of 20% of the actual sum assured (ie) if sum assured value for a policy is Rs.2,00,000 then the premium allowed per year under section 80C for this policy will be maximum Rs.40,000 or actual premium paid.

Documents to be submitted to employer

1. Receipt of premium paid
2. Proof of sum assured (if available in Premium receipt above not required seperately)

Contribution to Public Providend Fund

Contribution to any Providend fund set up by the Central Government and notified accordingly. 

Documents to be submitted to employer

1. Receipt of contribution made
2. In case of Passbook entry copy is submitted, to submit originals for verification and return

Deposit in Savings Certificates

Deposit in savings certificates as defined under section 2(c) of the Government Saving Certificate Act, 1959.  Currently the Government has notified National Savings Certificate VIIIth issue.

Documents to be submitted to employer

1. Copy of the savings certificate in the name of the individual or spouse or children of the individual who are dependent on the individual

Deposit in Mutual Funds

Deposit in units of any mutual fund referred to in Clause 23(D) of section 10.  The Centre has notified that the deposit should be made in an "Equity Linked Savings Scheme"

Documents to be submitted to employer

1. Proof of investment in designated mutual funds

Repayment of loan borrowed for purpose of construction of residential house property

Deduction will be allowed on repayment of housing loan availed by an employee from any bank or reputed financial institution.  For the purpose of this deduction expenses incurred on Stamp Duty, registration fees and other expenses incurred on transfer of property is also exempt in the year of transfer.  Note - no other expenses will be allowed for deduction under this clause regarding house property.

Documents to be submitted to employer

1. Copy of payment certificate from the financial institution clearly mentioning the principal and interest repayments.

Tuition Fees of Children

Tuition Fees for any two children incurred whether at the time of admission or thereafter, paid to any university, college, school or other educational institution situated in India for the purpose of full time education.  Full time education includes play-school activities, pre-nursery and nursery classes.  Also note payment in nature of development fees, donations or capitation fees or fees of similar nature are not allowed as exemption.

Documents to be submitted to employer

1. Children's fees receipts - copy

Fixed Term Deposit

Investment in a term deposit for a fixed period of not less than 5 years with a scheduled bank.  Please take care to invest only in banks and schemes of the banks which are covered under "Bank Term Deposit Scheme, 2006"

Documents to be submitted to employer

1. Copy of the deposit receipt

Other deductions (more than Rs.1,00,000

Contribution to New Pension Scheme - Section 80CCD

Contribution made by an Employer into the New Pension Scheme (NPS) is exempt subject to a maximum of 10% of employee's salary (Salary defined to include Basic + Dearness Allowance).  The Employer should deduct from the employee salary NPS and deposit the same in Tier 1 account of the employee to enable the employee to avail this benefit.  This benefit overrules the limit of Rs.1,00,000 of section 80CCE. 

Document to be provided to employer

1. The law here is that employer should deduct and pay into NPS account, so proof is available with the employer himself similar to Providend Fund (PF) deduction

Contribution to Infrastructure bond - Section 80CCF

This section is extended for financial year 2011-12 and may not be continued for subsequent years.  Under this section investment of maximum Rs.20,000 in specified long term infrastructure bonds as notified by Central Government is exempted. 

Document to be provided to employer

1. Copy of infrastructure bond
2. If demat account copy of transaction statement of demat account

Medical Insurance Premium - Section 80D

No Cash Payment is allowed for this premium (ie) payment for medical insurance premium should be by "other than cash" mode to avail exemption under this section.  The deduction allowed for medical insurance premium is 2 fold.

1. Premium paid on medical insurance of family of assessee for an amount of Rs.15,000
2. Premium paid on medical insurance of parents of assessee for an amount of Rs.15,000.  If the parents are senior citizens (more than 60 years) then the exemption allowed is maximum of Rs.20,000 instead of Rs.15,000.

Document to be provided to employer

1. Copy of medical insurance premium paid
2. Copy of policy to prove that it is a Health / Mediclaim policy

Medical treatment of a dependent with disability - Section 80DD

Deduction is provided for Rs.50,000 towards medical treatment, and if treatment is for persons with severe disability then deduction is provided for Rs.1,00,000. 

Documents to be provided to employer

1. Certificate from medical authority in prescribed form

Repayment of Interest on loan taken for higher education - Section 80E

Deduction is allowed for interest on loan taken for purposes of pursuing higher education from any financial institution or Charitable institution.  Deduction is allowed for the individual's education loan or loan for spouse or dependent Children or for a student for whom the assessee is a legal guardian.  This deduction is allowed for 7 years from the year in which the loan is availed or until the loan is fully repaid whichever is earlier. 

Documents to be provided to employer

1. Details of loan and clear specification of interest on the loan

Donations - Section 80G

Generally no deductions should be provided by employer in deducting TDS from salary for purposes of donations under section 80G, the assessee should claim the same in his return.  Only those donations which are deducted by employer for donations and paid by the employer to Prime Minister's Relief fund, the Chief Minister's Relief Fund or the Lieutenant Governor's Relief fund should be deducted from salary

Important Note

The above is only a illustrative list and may not cover all scenario's.  There may be certain instances when the above scenarios may be interpreted differently by taxation authorities.  Please treat this article as a basic guide and seek expert advise for taxation purposes.

Section 206AA - Compulsory quoting of PAN

 

From 1.4.2010 income tax act has inserted section 206AA which makes furnishing of PAN compulsory for all employees in case they are liable for payment of TDS. If the employee fails to produce PAN then the TDS for the employee will be deducted at the higher of the following rate

1. at the rate specified in income tax act
2. at the rate or rates in force
3. at the rate of 20% 

In short, if PAN is not obtained tax will be calculated @ the minimum rate of 20% or higher rate as per tax calculation.  It is advisable to obtain PAN numbers immediately by all employees.

 

Providend Fund (PF) Balance through SMS

Employee Providend fund (EPF) is being deducted from employees and is being remitted with PF authorities and the PF authorities provide employees with annual statement slips.

Now this process has been simplified, employees can get their PF balances through SMS.  For this employees can visit

http://59.180.233.84/epfo/member_balance/member_balance_office_select.php 

and provide their PF number and in a few minutes they can get their balance in their account through SMS.

However there are couple of catches here :

1. The company should have filed their monthly / annual returns along with the payments for PF deductions
2. The PF office should have updated the records

I tried my PF number which is in Tambaram (Tamilnadu) PF office, I got the balance upto 31.03.2010 within 15 mintues through SMS.   The issue here is my company has filed their annual returns upto 2011, whereas the PF office has not updated records upto March 2011. 

But still I feel this is a good initiative and it will be a matter of time before the data will become more uptodate.  I will encourage all of you to check your EPF balances online.

This online checking will ensure that employees monies are safe in the PF account.  I am reminded of the case of "Subshika retail" who has not remitted the PF dues of its employees