Tag: Tax

Gift Tax in India – Everything you wanted to know about rules and exemptions

Posted on by Jagoinvestor

Do you know that, when someone deposits some money in your bank account, what is its taxation angle ? A lot of people take some loan from their friends for few months and then return it back, but never think twice about it from taxation angle? Your parents deposit some money to your bank account because you want to pay the down payment of your house. While it’s a help from your parents, have you ever thought if you have to pay tax on that amount or not?

In this article lets see all the aspects about these kind of transactions, when money comes and goes out of your bank account and what are the rules for income tax on gifts received from relatives or other people in India .

Taxation on Gifts

Let us first see what kind of situations we are talking about ?

  • You swiped your credit card for your friend Rs 20,000 purchase and then your friend paid back money to you by transferring it to your bank account.
  • You asked Rs 50,000 from your friend as loan and paid him back after 1 month.
  • You got Rs 50,000 cheque from your relative on your wedding.
  • Your father transferred some money you your bank account as help for some purpose.

These are few instances, which happens in our lives. But its very important for you to understand the tax implications in various scenarios and the possible issues which can come up in the future, if income tax department decides to scrutinize your income tax returns for example. By understanding the gift tax rules and precautions to take, you will be safe. So now, let’s look at 5 points which will help you understand rules about incomes tax on gifts in a better way.

By virtue of Section 56(2), any sum of money exceeding Rs. 50000 received without consideration by an individual or an HUF from any person is chargeable to tax as income under “other sources” subject to some exclusions . Below we are going to see all those exclusions and gift tax rules.

1. Upto Rs 50,000/year is not taxable

The first major rule which every person should know is that there is no tax to be paid on gifts received (cash or kind), if the amount of the gift is upto Rs 50,000 in a year. However if the total amount crosses Rs 50,000 . Then you will have to pay the tax on the total amount received (not additional). For example – If a friend of yours gifts you Rs 30,000 in a given year, you don’t have to pay any tax on that amount, as its below the limit of Rs 50,000 .

Now suppose you also get Rs 20,000 after that, still you don’t have to pay the tax as the total worth of the gift you got in the year was Rs 50,000 till now (less than the limit of Rs 50,000) . But now, if someone gifts you another Rs 10,000 . Your total gifts in a year is Rs 60,000, so you will have to pay tax on the total amount of Rs 60,000 , not just on additional Rs 10,000 . This Rs 60,000 will be included in your income and you will have to pay tax on this Rs 60,000, as per your tax slab. Note that this is exactly how the written law is.

Since 1/10/2009, Section 56(2) has been amended and the scope of ‘’gifts’’ will include even immovable properties or any other property besides sums of money under its ambit.

2. Any amount received by relatives is not taxable at all

Another rule for income tax on gifts, is that any amount received from specified relatives is totally tax free in the hands of recipient. So if a relative gives you gift in form of cash/cheque or in consideration, you will not have to pay any tax on the amount received.

Following is the list of relations which are considered as “relatives” for this

  • Your spouse
  • Your brother or sister
  • Brother or sister of your spouse
  • Brother or sister of either of your parents
  • Any of your lineal ascendants or descendants
  • Any lineal ascendant or descendant of your spouse
  • Spouse of the persons referred  in above points

Example – So if you want to buy a house and your father/mother/sister/brother etc transfer Rs 20 lacs to your bank account. You don’t need to worry about the taxation part, because its a gift from your relatives and you will not have to pay any tax on this amount. However its a good practice to do the documentation for this, if the amount if pretty big like in this example. All you need to do is document this transaction on a paper which clearly states that who transferred the money and the reason for it, along with the signatures of both parties. In future, if there is any income tax scrutiny, this small piece of proof will be handy and will help you a lot.

Important – Note that, there is no income tax to be paid on the money received from relatives, however at times income clubbing provisions may apply, for example, if a husband gifts Rs 10,00,000 to wife, there is no ta to be paid by wife on Rs 10 lacs received, however when she invests that money and if any interest income is generated, it will be clubbed with husband income. Read all about income tax clubbing rules  here.

3. Any amount received as Wedding Gift is not taxable

One of the few advantages of getting married is that any amount you get, as wedding gift is not taxable in your hands, either from relative or non-relative 🙂 . So even if you get Rs 1 crore as wedding gift from someone in your wedding, it’s not taxable in your hands.

Lets see some examples –

Suppose if your spouse parents give you some gift worth Rs 10 lacs on marriage, it will be treated as a wedding gift and will not be taxed. However, it is not clear by provision, whether the gifts should have been on the exact date of marriage, or a few days before or later. Normally, it should be sufficient if the gift is given just on the occasion of the marriage, means either on the day of the marriage itself or a day or two before or after. Practical common sense view would prevail in such cases.

4. Gift Tax on Movable/ Immovable properties

There is a valuation aspect involved in gifting of immovable properties

  • If the property is gifted without any consideration then if the stamp duty value exceeds Rs. 50000/-, stamp duty value will be taken
  • If the property is gifted for a consideration, then the actual value of the property will be taken

In case of other properties:

  • If gifted without consideration and fair market value exceeds 50,000, then the fair market value will be taken as the final value
  • If gifted for a consideration and the Fair Market Value (FMV) less consideration is greater than 50000, then the FMV less consideration amount will be taken as the value of the gift.

5. No tax on the amount received through WILL or Inheritance

When any sum of money or any property is received under a will or by way of inheritance, it is totally exempt from Gift Tax. So if you get a real estate worth Rs 50,00,000 and some other things worth Rs 30,00,000 through inheritance , you will not have to pay any tax on that amount received.

Be cautious about the take and give transactions

At times, we ask for money from our friends for some purpose and then give it back. One of the examples I can give is what I heard from one of the readers in comments section. He swiped his credit card for a friend for Rs 50,000 and then asked his friend to pay him back through online banking. Here if you see, the amount came to his account, however it was a reverse transaction and not actually a gift, so ideally this transaction should not be considered at all.

If its a small amount and can be justified with proofs, there is not much to worry about this. But in this case, lets say there is a income tax scrutiny, and tax inspector asks you about this “Rs 50,000” coming to your account. Now – You can clearly say that the money you got from your  friend was a amount which you got back because you paid Rs 50,000 to him through your credit card. But just saying this will not be enough, He will ask you to prove it. Then you will have to bring your credit card statement, and prove to him that this was done by you for your friend and no one else.

gift tax rules in give and take

The point here is – no matters how truthful you are, there should be something you can show to income tax officers in case this is questioned. So for any transaction like this, which involves a big amount, its always a good idea to have a proof, like in the example I just gave, the credit card statement will be handy along with a small note, where you friend signs saying that you swiped your credit card for him and he will pay back the money through netbanking.

In this same case, If you ccan’tprove that this money was just a “reverse entry” , you can imagine the situation. Even if you were clean, the whole amount would be added to your income and you need to pay income tax based on your tax slabs on the ground of unaccounted income.

Another point, worth noting is that just because you have a reverse transaction, the other party can get into trouble. For example, suppose you give Rs 20 lacs to your friend, who wanted the money for buying a house and then your friend gives back those Rs 20 lacs in 3 months. Note that now there is a clear entry that you gave your friend Rs 20 lacs, so in future income tax department can reach you through your friend and ask you about this Rs 20 lacs and from where you got so much of money. They can ask you to justify the source of this money. So always keep these points in your mind.

How to document Gift transactions, Registered Deed or plain paper?

A gift deed is a deed, that is executed and delivered in which the donor transfers title to the receiver without any payment or considerations. It a document which transfer the legal title of the property to the donor, where the consideration is not monetary but is made in return for love and affection. There is indistinctness with respect to compliance of the gift deed at times, Whether a gift deed is required to be made in every circumstance

When it is required to be stamped OR get registered?

Gift made by way of cash or cheque does not mandatory requires to be executed through a gift deed. Writing a plain typed note on a paper will generally suffice. It is not required to be stamped and registration is also not needed. You may simply mention the names of persons, their relation and that the gift is being given out of love and affection.

Gift made by way of movable property is required to be made in stamp paper and stamped by the notary or court, and registration of gift deed is not required in this case. For the purpose of making a gift of immovable property, the transfer must be effected by a registered instrument signed by or on behalf of the donor. Gift of immovable property which is not registered is not valid as per law and cannot pass any title to the receiver.

Conclusion on Income Tax on Gifts received

As far as you make the transactions which can be justified, there is not much to worry, however its always a good and safe practice to document things on a paper with proper signatures. This will help you because income tax scrutiny can go back to many years of your life. The stronger your documentation and proof, the smoother will the situation be.

Thanks to Rishabh Parakh (www.rishabhparakh.com), a chartered accountant who helped me while this post and gave his inputs. He is founder  director of Money Plant Consulting (www.moneyplantconsulting.net ) a leading Tax & Investment Advisory service provider in Pune.

Check your Income tax refund status online & Learn how to use RTI

Posted on by Jagoinvestor

Do you have any idea about your income tax refund status ? Have you filed your Income tax return long back, but have no idea when will you get your tax fund?

This is one issue faced by millions of tax payers in India. They file an income tax return where they claim back their income tax refund, but have no idea what happens to their cases after that!

Income tax refund status online

For months and years, they keep waiting for the refund status, but they have no idea when they will get their money back. Ideally they should get it back in few months, but in many cases they wait for as long as 3-4 yrs.

In this article, we will see how you can find out your income tax refund status online and how you can use RTI application to find out the status of your tax refund and speed up the process of getting it back.

How to find income tax refund status online

If you have filed income tax return asking for your tax refund, and you have no clue about the current status, the first thing you do is track its status online. All you need is your PAN number and assessment year for which you have applied for refund. Here is what you need to do

Income Tax Refund Status Online

You can also track your income tax refund status by contacting the help desk of SBI at 080-26599760 or contacting the Aaykar Sampark Kendra at 0124 2438000

File RTI application for income tax refund status

If you are not able to do much and you feel that just finding out online status is not helping you and you want to now get 100% clarity about your tax refund status, the next step is to file RTI application against income tax department.

We have earlier seen how one can use RTI to find EPF withdrawal or transfer status and how their issues were solved within weeks and months of filing a RTI against EPFO. So your next step is to file RTI in your tax refund case also. But you should wait for at least a year before you file for RTI against the income tax department.

Note that the RTI application has to be addressed to CPIO officer. Now the next question is how to find out the CPIO information. It’s actually not organized in a clean manner, but you need to start by going to this website https://www.incometaxindia.gov.in and then on that page you need to choose your state (your jurisdiction) from the drop down and click on “go.”

It will take you to the next page where you need to click on “CPIO/CAPIO” and play around to find out the exact place where they have dumped all that information. Below you can find a RTI template which you can use.

Download this RTI template for income tax refund

What should you ask while filing RTI

  • You should ask for name and designation of the officer who is supposed to process your income tax refund claim
  • Also ask for the officer official address and his contact number
  • Also ask for how long the refund is pending with the officer and the reason for the delay
  • Ask if some senior authority has instructed for delay and the certified copies if any
  • Also ask for the name, telephone number and address of the higher officer with whom you can file the first appeal

These above mentioned 5 things if asked in RTI, will be enough to move the earth below the concerned authorities feet and they might act faster on your case, because in most of the cases there are no valid reasons for delay. The delay is created just because of lethargy and at times in expectation that someone will visit them and bribe them to process the request!

Note that only the concerned person can file the RTI, no one else on his behalf can file it. In case you have tax refund for different years, better file separate RTIs for each. Do not mix them into one.

Tips while filing for Income Tax Refund

There are few well known mistakes people do while filing returns, because of which income tax refund delays happen. Let’s see those points and make sure you don’t do them.

1.Make sure your give permanent Address

A lot of salaried people, who live on rent, give their present temporary addresses while claiming tax refund, and when after 1-2 years their tax refund cheque arrives, in many cases the person has moved out of the current location. This causes the cheque to return back and the person is not there on the given address.

So make sure you always give the permanent address where you or your family lives and there are almost no chances of cheque returning back.

2. Give accurate Account Details, IFSC code

There have been cases where the account number given was inaccurate by 1-2 digits or the IFSC code was wrong, and that created the problem. This small thing can result in lot of frustration later, so double-triple check these details.

3. Try to do E-filing of your tax returns, if possible

As far as possible, try to file your income tax returns online and apply for tax refund, because the tax refund is much faster if e-filing was done. In case you are filing offline manually, make sure you fill form 30, contact your CA if you want to delegate this totally to someone else!

Conclusion

If you have been waiting for your tax refund from years, it’s the time to file a RTI application for it and find out why your income tax refund has been delayed for so long.

RGESS Tax Saving Scheme – Too Complicated !

Posted on by Jagoinvestor

RGESS or Rajiv Gandhi Equity Saving Scheme is the new tax saving scheme, for saving taxes. This is mainly  for first time equity investors in securities market. The whole idea for introducing the RGESS scheme is to promote an ‘equity culture’ in India as well as widen the  retail investor base in the Indian securities markets. Look at the below video where a discussion is going on RGESS.

Lets us look at some major points which defines RGESS

1. Maximum Investment Limit and Tax Saving

RGESS scheme is available only to those investors whose taxable limit is less than 10 lacs per year; and the maximum limit of investment is Rs 50,000 per year. The tax advantage will be available on only 50% of the amount invested –  which means that tax saving can be done only on upto Rs 25,000. Which means, if you invest Rs 50,000 and belong to 20% tax slab , you will be able to save 20% money on 25,000 (50% of 50,000) – a Rs 5,000/- tax saving.

2. Applies to new Investors Only

The RGESS Scheme is available only for “new investors”; defined as those whose PAN numbers don’t have equity transactions, which means either a person has not opened a demat account ever, or has opened a demat account, but have never invested in equity before the scheme came into effect. The investment can be done throughout the year, and not restricted to a one time investment, so investing Rs 50,000 in one shot or investing Rs 10,000 in 5 shots , both are eligible. But the big confusion is for those investors who already have equity investments through mutual funds, but do not have demat account ?

3. Lock In period of 3 years

This rule is a little messy. There will be 3 year lock in period for this investment. However if an investor wants to, he can collect “profit” part after a year of investment.  So for the entire first year, you cant sell your shares! And after the first year of investment, he can take out the profits if he so chooses. He can sell all his shares if he wants, but he will have to bring back the same amount through some other stock.  After first year, 2 more years of lock in will apply, and in this period, you have to maintain your balance at the end of first year, which should be minimum of the amount on which you claimed income tax or the balance at the end of the 1st year .

So if a person invests Rs 50,00 , and in next one year

Case 1 : His worth is Rs 55,000 , then he can take out 5,000 and after that he has to keep his balance minimum 50,000 (the amount on which tax exemption is claimed), if a person wants, he can sell off his shares totally, but then again has to come back with 50,000 investment in some other or same stock. He can take out the profits part (above 50,000) if he wants in these next 2 yrs

Case 2 : His worth is Rs 25,000 , then in this case, he has to maintain this 25,000 balance in next 2 years. If you are still unclear, Deepak Shenoy has done a better job in explaining this lock in part, in his article on RGESS.

4. Where can you invest for RGESS Scheme?

You can invest in stocks which belong to

  • CNX 100
  • BSE 100
  • IPOs of PSUs whose annual turnover is not less than Rs. 4000 Crore for each of the immediate past three years
  • Large Listed PSU’s
  • And any ETF , Mutual fund which are listed and traded in stock exchange and whose portfolio includes stocks which are eligible under RGESS

Should you invest in RGESS ?

Personally, I feel that RGESS has too many terms and conditions to follow, and is not that easy to understand for a common man. Especially a new investor who is anyways afraid of markets and his money being lost. The restriction of “can’t not sell at all in first year” is kind of scary, especially for those who are too risk averse.

Another bad point about RGESS is that it’s a once in a life time investment scheme. Once you become eligible for this scheme, for next year you will not be a “new investor” and hence wont be eligible, so its only for the fresh batch of new investors each year. The only positive point is that for those who were anyways going to take plunge in stock markets will get extra benefit of some tax saving and might instill some compulsory discipline of investing (lock in period).

Let us know what do you think about this RGESS Scheme (Rajiv Gandhi Equity Saving Scheme) , and if it interests you. Will it be a hit tax saving scheme or a flop one? What do you think?

Free Tax Filing for Women in India by Cleartax.in

Posted on by Jagoinvestor

Cleartax.in – a tax filing portal has made tax filing for women totally free. Women all over India can now file their tax returns for free, sitting at home at www.cleartax.in . Women will have free access to its very user friendly tax filing website till July 26, 2012. The ClearTax platform is an easy to use to file one’s tax returns. The offer is an initiative by the company to invite women to take ownership of their finances.

Cleartax observed that  more men than women e-filed online with them and their team learnt that in aggregate, women spent significantly less time paying attention to tax planning and personal finance compared with men. Jagoinvestor had done an article on Women & Personal Finance which revealed how 88% or more of urban women (who are well educated and live in big cities) have Zero or very less personal finance knowledge. Most of the tax filing work is handled by their father or husband and they generally refrain from any taxation related work.

What you can do ?

You can spread a word about this into your office and share it with all the women employees, you can also use this opportunity to file taxes online for your wife, sister, mother or any female relative.

What is form 26AS and how to view it online?

Posted on by Jagoinvestor

Form 26AS is a consolidated statement which reflects all the advance tax paid by you personally or through TDS way. The best part about it is that you can view Form 26AS online by just quoting your PAN Number. You can view your Form 26AS online or download it in PDF or Excel format, but for that, you need to register on the income tax website.

Why do we need Form 26AS?

We all check our bank accounts when someone deposits money into it. Once we see that the amount is matching, we feel at peace and confirmed that there is no issue. Now in the same way throughout the year, we might pay the tax in parts. It can be in form of the Advance tax cut by our companies, TDS cut by the bank on your fixed deposits, TDS cut by some third party who is making payment to us. They all pay this tax on our behalf to the tax department and it is linked to our PAN card.

Now at the end of the year before filing for tax returns, we might want to check that how much tax is already paid by us through different ways and then we might want to pay additional remaining tax or ask for a refund in case we see that we paid more tax in a year.

An important point to note is, do not disclose your PAN information to someone else, otherwise, it becomes a security issue. Others can also view your Form 26AS and hence find out how much tax you paid.

How to view Form 26AS online?

Click on this website to login or register. I have attached a screenshot as to how to register in this website so that you can view form 26AS online.

Step #1- To fill in the registration form, Enter Basic Details.

to register on e-filling income tax website to view your form26AS

Step #2- Once you enter the basic details, fill in the registration form.

fill in registration form to register

Step #3- Now verify your registration by entering OTP sent on your registered mobile number and email-id. Now click on validate.

once you fill in registration form ,verify your registration from otp sent on registered mobile number and email id

Step #4- Once you validate your registration, now you will have to log in so that you can view form 26AS

login in to e-filling website to view your form 26AS

Step #5- After you log in a pop-up window comes if your Aadhaar number is not linked with the PAN number. Enter details and click on Link now.

once you login, a pop up window comes if you have not linked your aadhaar number with pan. Link it now

Step #6- Now you are successfully logged in. Click on my account and again click on View Form 26AS (Tax Credit).

after login click on my accounts and then click on view form 26 AS

Step #7- To view your form 26AS, read the disclaimer and click on confirm.

once you click on view tax credit you get this window where you have to accept to there disclaimer. Now click on confirm

Step #8- Once you click on the disclaimer below window opens and again you have to click on View Tax Credit (Form 26AS).

now click on view form 26 AS

Step #9- Now select the assessment year ( for which year you want to view your form 26AS) and view as HTML and then click on export as PDF. You can now see your form 26AS.

once you click on view form 26AS this window appears. Now select the assessment year and view your form 26AS

Step #10- This is how form 26AS looks like

this is how form 26 AS looks like

Is it possible to link Form 26AS in your net banking?

Yes, A lot of banks like ICICI, SBI etc provide a direct link to your form 26AS through internet banking. On clicking the link, You can directly see 26AS.

Wasn’t this a very simple and easy way to register and view your form 26AS online. Let us know your past experience when you needed form 26AS online and how it was useful to you in the comment section.

Changes are required in Indian Taxation laws – Everything you want to know about income tax in India

Posted on by Jagoinvestor

A lot of people are trying to change our country. The way elections happen, the way schools run, the way govt. uses CBI for its own use, the way the judicial system works, etc. – the whole system needs to be changed!

In the same way, Taxation is one aspect of personal finance which needs some changes too. This is one sensitive topic I want to raise today – “Expenses allowed for Tax Deductions before paying tax”

Taxation rules in India

We all are aware that some deductions are allowed for saving tax – like up to Rs 1 lac through section 80C and many more. However, the taxation law has not considered some of the things which are very relevant in today’s world and should be considered as per logic, but the law does not recognize it.

There is only one parameter for taxation today and that’s “Income”. What about “Expenses“?

Each person is different and the number of family members compared to others is different. Each person’s living expenses are different and their liabilities are different too. Hence, there should be some consideration for this while taxing that person.

Imagine this situation:

There are two people Robert and Ajay. Robert lives in Mumbai earns Rs.12 lac per year in hand, whereas Ajay works in Indore and earns Rs.6 lacs a year. Robert and Ajay both put Rs.1 lac in 80C investments and then have to pay the taxes. Ajay pays tax on 11 lacs, which comes around 1.8 lacs, where as Ajay gives a tax of Rs.30,000. So Roberts pays higher taxes than Ajay.

Now, what about a number of family members in Robert’s House? What about the burden of children education on Robert which is very high in Mumbai- which Ajay might not have?

What about the expensiveness of the city like Mumbai where Robert has to spend a lot of money on fruits for his elder parents- which might not be the case with Ajay? If Robert has 6 family members including parents, 2 children and 1 sister- total of 7 members, then what will happen?

All them need food, clothes, basic necessities which one can’t escape! Should govt not consider these points before applying the tax. Should there be a minimum limit of deduction for all these points? Read these 7 Income tax-saving tips you might now know

Some Deductions allowed but are they realistic?

1. Conveyance Allowance-

Till date its just Rs.800 per month, which I feel is way too low for many people. A lot of people spend on an average 3,000 – 4,000 in commuting and that makes a 30k-40k valid deduction on travel to work.

2. Tuition Fees for Children Education –

Why only tuition fees is allowed for deductions, what about school dress, books, coaching classes, school bus fees, computer for study purpose. Are these not justified these days?

3. Health Expenses –

Only Rs.15,000 worth of medical bills are reimbursed, but are they realistic today? What if I have both parents who are not well and I spend Rs.50,000? What is the basis of limiting to medical expenses which are not in my control.

4. Rent –

Why rent paid is not considered as a valid deduction? What if I don’t have HRA component? What if I am not a salaried class? Why do I pay price for high rentals in our country? What if my rent is high because I live in Bangalore or Mumbai?

5. Grocery –

Food bills are a necessity and I don’t think one should be paying any tax on the amount spent on grocery. If a family has 5 people and their grocery bills are around Rs.8,000, that’s around 1 lac a year, then should this amount be not allowed as a valid deduction?

That’s a necessity of life, I can’t do anything about it.

Watch this video to learn more about Indian Tax System:

Single vs Married?

There should also be a consideration for married people who have just one source of earning. Why families should not be seen as one entity. If there is a family where husband and wife both are earning, but the consumption level is almost what a family with an earning husband and a housewife is there.

There can be a single earning point and multiple consumption points. That should also be accommodated in some manner.

These are all the points which just come to my mind, some of these might be making sense and some might not. Not sure how others think about it?

Can you share your comments on this?

FREE Online Tax Filing Coupons from Taxspanner & Cleartax

Posted on by Jagoinvestor

You can now enjoy FREE Online Tax Filing from taxspanner and clear tax websites. Tax filing season is on and I dont want jagoinvestor readers to wait till last moment. In all probabilities you have paid your taxes now and you are all set to file the returns now. We did Action Month last year were a lot of people completed a few important tasks in few days which were pending in their financial life. So now we are doing TAX FILING month where its an opportunity for you to file your returns online. So I have arranged for 1000+ Free tax filing coupons from 3 websites and you can file your taxes online for free. So Early action takers can file it for FREE, but later comers will have to bear there own cost.

Details of Free Online Tax Filing Coupons

 

Company Number of Coupons Coupon Code About
Cleartax.in 1000 JAGOINVESTOR

(Almost over)

 ClearTax – Income Tax filing portal for Individuals. We aim to be the easiest to use & Perfect for first-timers. You can just upload Form-16 and ClearTax reads all the relevant values. Usable from any Mobile, Tablet or a Computer.
Taxspanner.com 750 TSJAGO2012 (Almost over) Taxspanner is the largest online tax filing firm in India providing ITR1, ITR2 & ITR4 and they are the only portal which is certified for security and vulnerability by CERT-IN
Perfios.com 50 Not available now Perfios is the Leading and the most Automated Online Money Manager in India with more than 250000 registered users. Perfios is offering FREE Online Tax Filing for the jagoinvestor readers – for the first 50 Sign-Ups! If you miss it, you still get to file at a very economical rate of Rs.125″ Hurry Sign Up now !!

 

Free Online Tax Filing using the Govt Website

One can also file the taxes online using the official tax website of govt using the following steps.

  • Login to https://incometaxindiaefiling.gov.in/
  • Download the appropriate software from the website as per your case. This software is nothing but a nice detailed excel sheet (enable the macros)
  • Once you have the excel sheet on your computer, fill up all the details (if you dont have form 16, you can still fill all the details manually).
  • Once you fill up all the details, verify it once again and then export it to XML (the export button is there in the software itself)
  • Once you have the XML file with you, you need to login to the website (you will have to register for it once).
  • Once you are logged in there will be an option called “Upload Return” on the left side. Click on it
  • There will be two options called “Digital Signature” and “No Digital Signature” . As most of the people would not have a digital signature, just choose the option. Upload your XML file and just create your acknowledgment form called ITR-V, You need to download it. Once you have the acknowledge form, just verify it once again.
  • Just send this acknowledgment form using a regular or speed post (no courier allowed) to“Income Tax Department – CPC, Post Box No.1, Electronic City Post Office, Bangalore – 560100, Karnataka”
  • You will get the receipt of your ITR-V receipt by email in some weeks (takes time), you can track its status here

You can read the step by step procedure to file online taxes that are mentioned here in this article. I hope you know that tax refunds are processed faster if you file your taxes online. Ask your questions on tax filing here on this thread and I will try to bring in few experts on taxation to answer all your queries. I hope you have completed your FREE Online Tax Filing through these websites.

Should Income Tax limit be raised to 5 lacs ?

Posted on by Jagoinvestor

Do you know that 89% of tax payers in India have income of less than 5 lacs per year? Yes that’s true! Such is the case of most of the low earning people form the tax-paying population. However can you guess what is their share in total tax paid? It’s just 10%.

why doesn’t govt make income tax limit as 5 lacs ?

Yes, 10% of total income tax comes from 89% of taxpaying population. Now that brought a very interesting question in my mind, that why doesn’t govt make 5 lacs income as Tax free?  Only those who have more than 5 lacs income will be paying tax. Imagine what will be the situation!!

In one shot, 89% of the tax-payers will be free from the headache of paying tax each year and the govt will still get 90% of the taxes. What they can do is increase the taxation rate a little bit, so that they still get 100% of the taxation recovered from the rest 11% tax payers (having income of more than 5 lacs). If you look at deep down into the statistics, do you know that 1% of tax payers earn more than 20 lacs income and they account of 63% of tax payment. Imagine this – 63% tax coming from just 1% tax payers.

Tax Payer numbers in India 2012

Source

But it will not happen

Let’s come back to reality now. It was great to imagine that govt should raise the income tax limit to 5 lacs. But do you know that collecting tax from this segment is the easiest. Because these 89% tax payers are mostly salaried employees and the overall tax collected comes in the form of TDS. Companies hiring them have the responsibility of cutting the tax each month and paying it to govt. Hence Govt has almost no work to do to collect the tax from this section of 89%.

This brings us to a very important conclusion now, How should govt restructure the taxation rates and limits such that they increase their tax collection, but it impacts a small percentage of population? What about doubling the taxation rates for those having income of more than 20 lacs? What about making a marginal increase in taxation rates for those having income of more than 10 lacs?

I know I might be overlooking some important points here, but what do you think about it ? Dont you think govt should raise the income tax limit to 5 lacs or something like that ?

How to find your Income Tax Refund Status Online

Posted on by Jagoinvestor

Do you know how to find your income tax refund status online? Yes, there is a simple way of finding out the status of your income tax return online. A lot of people are clueless about the refund status!

Now, one can just enter their PAN number and the Assessment year for which the refund status is to be known and get the status update on a click of a button.

check your income tax refund status online

How to check Income tax refund Status Online

All you need to do is go to this website and enter your PAN number and choose the Assessment year and click on submit. This will give you the current status of your income tax refund. You can also track the status of the income tax refund by contacting the help desk of SBI’s at toll free number: 18004259760 or email them at [email protected]or refunds@incometaxindia.gov.in

Note that the income tax refund is valid only if you file your income tax return on time. If you delay the income tax return filing, in that case you will lose the interest on your refund money. I hope you know that filing your tax return online helps one to get tax refund faster than offline return filing.

What can be different types of Income tax refund Status?

1. Change in address

A lot of income tax refunds get dispatched at right time, but they go back because of the change in address. A lot of people keep moving from one place to another and because of this the income tax refund status shows “Refund Cheque returned because of change in address” reason in the status.

Look that the snapshot below

income tax refund wrong address status

2. Cheque Encashed Status

In case one has already en-cashed the cheque which has come for income tax refund, and then he will see the following message in the status box. If you see this and haven’t already got the cheque – you are in problem!

There can be other status also depending on the situation. The above two status’s were just for demo purpose.

income tax refund encashed status

Some Important Points about Income Tax Refund

  • The State Bank of India (SBI) is the refund banker to the Income Tax Department (ITD). So State bank of India sends the income tax refunds
  • Refunds are generated in two modes i.e., ECS and paper. If the taxpayer has selected mode of refund as ECS (direct credit in the bank account of the taxpayer) at the time of submission of income return the taxpayer’s bank A/c (at least 10 digits ) and MICR code of bank branch and communication address are mandatory. For taxpayers who have not opted for ECS refund will be disbursed by cheque or demand draft. For generation of refund through paper cheque bank account no, correct address is mandatory.
  • The status of the refund would be available for tax payers, only 10 days after the refund has been sent by the Assessing Officer to the refund banker.
  • Refund status can be viewed only if you have received an acknowledgement from the IT department of having received the ITR form.

Did you check your Income tax refund status? If No, then check it soon and let us know what is the status?

Hindu Undivided Family – Save more tax by creating a HUF in India

Posted on by Jagoinvestor

Do you know how you can use Hindu Undivided Family (HUF) to reduce your overall tax liability? In this article I will give you tips and real life examples on how you can use HUF to save taxes legally.

Before that let’s understand what HUF is.

HUF Hindu Undivided Family

The concept of HUF says that apart from individuals there is another separate entity called “Family” which can also have its own assets and liabilities and even regular source of income, which should be taxed separately.

For example :

If an ancestral residential property is rented out, then the rent arising would be considered as Family’s income and not as income of individual. In real life this rent is shown as income of one individual and he pays the tax on it, however a HUF can be formed and the rent can be shown as the whole family income (HUF) and it can be taxed separately.

Until a few years, many Indians used to keep multiple PAN cards and used to show Income under different PAN cards and used these tricks to avail the benefit of slab rates by showing themselves as different persons. This however is illegal by law and is a punishable offence as one person cannot have more than 1 PAN Card.

But, one legal way of obtaining an extra PAN Card is to form an HUF. As the Income of an HUF is taxable in the hands of HUF and not in the hands of any Individuals, a separate PAN Card is issued for an HUF and the benefit of income tax slab rates can be availed on this PAN Card.

Formation of HUF

A false impression amongst people is that HUF needs to be created whereas the truth is that an HUF comes automatically into existence at the time of marriage of an Individual and no formal action needs to be taken for the same.

However, in case a person who wants to specifically register for creating an HUF, he can furnish a creation deed on a stamp paper (The Format of Creation Deed can be downloaded from here).

As HUF is governed by the Hindu Law and not by the Income Tax Act, individuals belonging to other religions are not allowed to form HUF except Jain’s and Sikhs who can create HUF even though they are not governed by the Hindu Law. Two entities are extremely important for you to know in HUF are the coparceners and members.

Coparcener is someone who has the right to demand the share of the property of family; coparceners are generally the Karta (Main decision maker of family, usually the Father, but Manmohan Singh had 5 years ago brought an amendment which stated that Females can become Karta & there can be an all female HUF as well), then sons & daughters, grandsons and great grandsons in order of their first right.

Wife of the Karta is not a coparcener or even spouse are not coparceners and hence can’t demand/ ask for any share in HUF, they are just merely members of HUF.

Example of Tax Saving by forming an HUF

As discussed above, the main advantage of an HUF derives from the fact that an extra PAN Card is issued for the HUF. We’ll explain this tax saving benefit with the help of following example.

Lets say there are 4 members in a family

  • Husband – Salary 9 lacs
  • Wife – Salary 7 Lacs
  • 2 Children without Salary
  • Additionally, one  ancestral property which fetches them an annual rent of 6 Lacs p.a

Now the Question is – In whose hands should this Rental Income of Rs. 6 Lakhs p.a. be taxed? In real life, the most sought after solution is to show the rent as income of wife or anyone who has no income or less income so that the tax liability is least. But is it the best solution?

Let’s see 3 different cases here in which this additional rental income can be shown and how tax can be saved!

Option 1 – If this Rental Income is shown in the hands of the Husband.

Hindu Undivided Family HUF tax advantage

Option 2 – If this Rental Income is shown in the hands of the Wife

Hindu Undivided Family HUF tax advantage
As this Income is arising to the family as a whole, the Govt has also extended this option of taxing this Income in the hands of the whole Family. Although very few people in India know this fact family income can also be taxed in the hands of the whole family by forming an HUF.

Option 3 – If this Rental Income is shown in the hands of the HUF

Hindu Undivided Family HUF tax saving

The above 3 options clearly indicate that Option 3 is the best option as the least tax would be payable by the family if the Rental Income is taxed in the hands of the HUF.

The tax saved by showing this income in the hands of the HUF is Rs.1,18,000 (i.e. difference between “tax paid if rental income is taxed in the hands of HUF” and the “tax paid if shown in the hands of the wife which is the 2nd best alternative”)

Please Note: For the sake of simplicity, Taxes have been computed without taking into account the “Deductions available under Section 80C“ and “Education Cess applicable on the Tax Payable”

Procedure to create HUF

These are the steps to create capital of a HUF.

  • First one should open a bank account with the name of Hindu undivided family like “AJAY HUF” with a stamp, ID Proof and the proof of the members of the family of HUF.
  • Important :- While opening a Bank Account in the name of HUF – Banks always ask for a rectangular stamp which states the name of the HUF and also the Karta who is signing it. A round stamp is not accepted as per RBI Circular. The same applies at the time of opening of bank account of Sole Proprietor as well.
  • Next is to apply for PAN (Permanent Account Number) of the income tax.
  • Now transfer money by gifts etc to HUF capital keeping in view the clubbing provisions and tax on gifts under Income tax act, Remember there is no Tax on gifts in kind though they may attract clubbing provisions in some cases.

3 real life tricks of saving taxes through HUF

1. Saving tax by getting gifts

One way of saving tax is by transferring the money received from strangers or family are taken as gifts in name of HUF. So if Ajay starts his HUF called “Ajay HUF” and he is getting some gifts from his father, friends or anyone else, he can ask them to give it to “Ajay HUF” and not Ajay itself.

That way the gift will be treated as income/asset of HUF and taxed separately.

One important point here, if some stranger is giving gift to HUF, there is a limit of Rs.50,000 on which no tax has to be paid, but actually it can go up to Rs 1.8 lacs as the taxable limit is that much, and if one also has to do investments of 1.2 lacs (total 80c limit), then one can afford to receive up to Rs.3 lacs of gifts in a financial year and there will be no tax liability at all.

2. Assign ancestral properties and wealth to HUF and invest it

If family is going to receive an ancestral property or any wealth, then it’s better to transfer it on HUF name so that whatever earnings happen in future in form of rental income or capital appreciation of assets becomes income of HUF itself and taxed in its own hands.

That way the total tax liability of family can be minimized.

3. Use HUF income for expenses and Insurance for Family

As HUF enjoys separate tax benefit under sec 80C, one can use the income of HUF for buying Life & health insurance for family and the permissible deductions can be availed for tax purpose in hands of HUF, so if the total premiums for insurance requirement of family is Rs.50,000 per year, then It can go from HUF income and also the individual can exhaust his 1 lac limit separately via PPF, ELSS and other tax instruments.

Also family day to day expenses can be used from HUF income and hence it will leave other members with more disposable income which one can use to service higher EMI’s if required.

Watch this video to learn more about HUF and Tax saving:

Some important Points you should know about HUF

  • For creating the HUF one need to get married, there is no need to have child or children for creating the HUF.
  • An HUF can recieve any amount in gift from bigger HUF’s (HUF of Father, HUF of Grandfather) or any gifts received by the members of HUF (birthday, marriage, etc.) can be treated as assets of HUF , but stranger can gift HUF, not more than 50000 rupees.
  • Daughter also continues to be a Coparcener after her marriage of that family whether she also will be a member of HUF of her husband. So that way daughters can be co-parancers in two HUF’s 🙂
  • HUF can pay remuneration to the KARTA of family for the interest and expenditure to run the family business.

Be cautious with HUF creation

While all the above points excites people on opening a HUF account immediately and start taking tax benefit, there are some caveats and one has to be little careful. Remember that HUF is a separate entity and represents the whole Family. So once some assets is assigned to HUF, then it becomes part of HUF only and one can be suddenly take money from HUF for personal purpose .

If other co-parceners of HUF demand the partition of HUF only then one can get his/her share of the HUF. Otherwise it will not break. Also for taxation point, a lot of people mislead the tax department buy using fake HUF transactions and therefore, HUF is looked with high degree of scepticism.

If the HUF is not formed properly and if the assets are income are fudged for evading tax, it can get you in trouble, therefore it’s highly advisable to hire a good CA and create your HUF in the best possible manner with right advice. There is no harm in paying 10,000-12,000 to a CA if HUF can give you 5-10 times tax savings.

It would be a great investment, not an expense!

HUF property cant be mentioned in the WILL

Though HUF is very useful tool but one has to use it very judiciously and thoughtfully. Don’t look for tax benefits only , but practical problems also. Be aware that you cannot make a will out of HUF property. Once transferred to HUF, the assets /property becomes of HUF and you no longer have any individual right on it.

To explain with example –

“A”, who has 2 daughters and a son.He long back ago purchased a house in the name of HUF and put that house on rent, so that the Rental income comes to HUF and will not be be added in his or his spouses’s income .

But now , he ‘s retired and wants that this property should be transferred to his son after his demise. But this is not possible as that property belongs to HUF. He can’t even write a WILL for HUF property and with the huge rise in Real estate prices, none of daughter is ready to leave her share in it.

Thanks to Manikaran Singhal to add this point

Who should actually go for HUF

HUF will be extremely efficient for those people who have a higher income and high saving rate and some form of ancestral assets which can be marked as “Family Assets”.

Evaluate if HUF can really give you that kind of tax advantage or not for people who do not have high salary or who do not have a big enough family. So make sure you can get the maximum out of the HUF and understand the limitations of opening HUF before you go for it.

This article has been authored by CA Karan Batra who blogs on charteredclub.com (Content added by Jagoinvestor with inputs from Karan)

Can you share how was the article and did it help you in understanding Hindu undivided Family? Are you going to open a HUF account?