The most significant advantage of a joint home loan is the increase in home loan eligibility. Incomes from all joint home applicants are pooled in to enable the applicants to obtain a higher loan amount towards purchasing their dream home.  All the joint home applicants are eligible for tax rebates under Section 80 C for principal repaid and under Section 24 for interest repaid. However, these tax deductions are capped at 1 L for the principal repaid and 1.5 L for the interest repaid.

There are a number of advantages when you combine incomes and apply for a joint home loan. A bunch of these advantages are detailed here for your reference.

a. The most significant advantage of a joint home loan is the increase in home loan eligibility. Incomes from all joint home applicants are pooled in to enable the applicants to obtain a higher loan amount towards purchasing their dream home.

b. All the joint home applicants are eligible for tax rebates under Section 80 C for principal repaid and under Section 24 for interest repaid. However, these tax deductions are capped at 1 L for the principal repaid and 1.5 L for the interest repaid.

c. Another advantage of jointly taking a home loan is that all the borrowers can simultaneously avail these income tax rebates, thus maximizing the tax benefits of the home loan.

d. The number of people who can avail a joint home loan can be anywhere between 4 and 6, depending on their individual credit profiles.

e. The one criteria banks insist on is that all co-owners of the property should also be co-applicants but the reverse need not be true.

Who can take a joint loan?

– A married couple or a parent and child can take a joint loan.

– Some banks allow brothers to take a joint home loan provided they will both be co-owners of the property. Banks insist that all co-owners of the home must be co-borrowers in a joint home loan.

Exceptions: Sisters, friends or unmarried couples living together are, generally, not allowed such loans by banks.

Do both borrowers get tax benefits?

Yes. You as well as the co-borrower can avail tax rebates on the principal and interest repaid on the loan.

This way you can maximize your tax benefits.

If you choose to use the capital gains from selling your house to buy a residential property, you will not be taxed and there is no tax liability from such a sale as stated under Section 54F of the Income Tax Act.

You can also be exempted from tax if the long term capital gains or profit from the sale is invested for a period of 3 years in specific bonds of National Highways Authority of India or Rural Electrification Corporation Limited as stated under Section 54 EC.

We discuss here what you need to know about computing taxes on the rental income for a house and the capital gains from the possible sale of a house is taken up for discussion in this article.

A. Tax on Rental Income from a property

When you own two houses and let out one of them for rent, you receive an income for which you need to pay tax. In such a scenario, the taxable income from the total rent income received by you for that particular financial year will be computed in your tax returns.

How your rental income is computed

For rented out properties the gross rent needs to be the greater of the three values below:

a. Municipal valuation of the property – The rental value fixed by the corporation based on your locality and property value.

b. Actual rent received during the financial year – The rent received by you from your tenant for that particular financial year.

c. Fair rent – The rent of a similar property in the same or similar locality.

From this gross rent, the property tax is deducted to arrive at the net annual value of the rental income.

Deductions possible from the net annual value of the rental income:

1. 30% of the net annual value for repair, maintenance and rent collection expenses for the property

2. Interest paid towards any type of home loan on this particular property.

3. Any property insurance premium you have paid for the financial year.

Here is a simple example:

Actual rent received from property - Rs. 15,000 x 12 = 1.8 L

Less: Municipal Tax/Property Tax paid by you – Rs. 5,000

Balance: i.e. Net Annual Value -Rs. 1.75 L

Less:
(1) 30% of the net annual value – Rs. 52,500
(2) Interest paid on a renovation loan for the house – Rs. 30,000

= Taxable rent income = Rs. 92,500

The taxable rent income will be included by your auditor under income from other sources, along with other such incomes as well as your salary income and deductions you are eligible for, to calculate your final tax outgo.

B. Capital gains tax on selling a property

Let us also quickly consider what happens if you decide to sell your property.

Any profit that you receive by selling any asset at a price higher than at which it was acquired by you is classified as capital gain and clubbed under income from other sources.

Short term and long term capital gains

If you sell your house within 3 years from the date of purchase you will incur a short term capital gain or loss which is included under other sources of income.

In case you sell your house beyond three years then it is considered as a long term capital gain/loss.

Exemptions from capital gains tax

If you choose to use the capital gains from selling your house to buy a residential property, you will not be taxed and there is no tax liability from such a sale as stated under Section 54F of the Income Tax Act.

You can also be exempted from tax if the long term capital gains or profit from the sale is invested for a period of 3 years in specific bonds of National Highways Authority of India or Rural Electrification Corporation Limited as stated under Section 54 EC.

In case you do not choose to make any investments and opt to pay tax, the income is calculated using the indexation method which is nothing but accounting for the effects of inflation.

For example, if you had purchased a house for Rs 5 L and then sold it for 9 L, the capital gain would be Rs 4 L. However, for the sake of income tax calculation a number called indexation number is used which is a percentage of the gain that is assumed as value addition due to inflation.

Thus if indexation is 20% then only Rs. 3 L (Rs  9L – 20% of 5 L + 5 L = Rs 3L) would be taken as capital gain. A capital gain is usually charged @20% in most cases where the calculation is based on indexation.

A better understanding of the tax rules can make your life easier and help you file your tax returns with clarity.

Empirically, the percentage of investments just before 3-6 months of tax filing climbs up while it becomes a bit subdued post the tax filing season. Why such a scenario? What is the relationship between tax filing and investment?

Many investors confuse investment with a tool to save tax and do not see them as a tool to build wealth! Investment certainly helps you save taxes but by making tax saving as the primary goal of investment, you are mismanaging investments that can help you retire early in style!  Take some pointers from the article that unfolds below to make a fresh start this year!

Tax saving versus investment

Tax saving is an integral part of financial planning no doubt. There are several schemes introduced by the Government to encourage individual savings. It is meant to inspire people to see the larger picture and not just to try to save taxes for a particular year. It is true that tax savings is equivalent to earning a return and is supported by the philosophy that a penny saved is a penny earned! The problem arises when you do not see tax as a piece of the saving puzzle and consider it as the puzzle itself! Most individuals just opt for a random investment instrument to save tax without weighing its pros and cons and without understanding why it deserves to be a part of a healthy financial portfolio.

Every investment needs to have an objective. A person starting out on his first job could start investing with a goal to start his own business; a new parent might want to get started early to invest for his child’s education; a senior executive may invest for his retirement savings corpus; an employee with the highest income bracket might want an additional tax benefit and invest in infra bonds solely for tax saving etc. Investment can also be of short term and long term. Investment to save tax will fall into short term investment as the sole purpose is to save tax.

Why should you think beyond tax?

A host of tax saving instruments might be introduced during the tax season for the masses but you must keep in mind that you need to carefully sift through them to suit an instrument that will suit your individual needs. Here  individual needs refers to aspects that will drive investment keeping the larger objective of  building wealth for the future in mind rather than a  last minute rush to save tax! Investors should decide their investment plan based on two aspects: objective and investment horizon.

Investment Objective: The objective of any investment is to get specific returns or an approximate sum of money at the end of the investment horizon. The objective should be realistic and must take into account the risk appetite of the investor. For example, if you are an investor with a low risk appetite you should not invest in stocks and should not expect 20% returns over the period. At the same time, a risk taking investor can build immense wealth by investing in equity and equity oriented mutual funds over a longer term.

Investment Horizon: As an investor you should consider your investment horizon while choosing investment assets. Risky assets such as equity and equity oriented mutual funds are not a good choice for short term investment. Their returns fluctuate drastically in the short term but tend to provide good returns over a longer time frame to the tune of 10-12 years. Those who are interested in short term investments should look at debt assets such as company deposits, Government bonds, bank fixed deposit etc. Similarly, if you wish to stay invested for a longer term, you should consider investing in equities and equity oriented mutual funds. Investing in debt will incur opportunity cost.

Things to remember

Investment planning should be done in advance and you should not wait for the tax filing season to arrive. Investors often make the wrong choices in the last minute rush to save tax. Remember that you do not save much in taxes anyway. Most of the investments fall under article 80C which provides a maximum tax deduction of 1 lakh. This amount is so small that your PPF alone can cover the entire 1L now, as the investment limit on it has been recently increased from 70,000 to 1 L.  Even otherwise your EPF and insurance will anyway cover most of it. Nevertheless, if you still need to invest, you should do it as the saving itself is equivalent to 30% of returns immediately. Infrastructure bond under 80CCF was re- introduced last year to help increase the tax savings and is useful solely for this purpose for most individuals who are intent on saving tax.

Secondly, if you have not taken up any investment for tax savings, do not panic and buy anything that is recommended. Do your own research and take your time. If you find nothing, don’t buy. It is better to pay taxes than lose out more than your tax liability in a bad investment. Some investors invest in properties just to save taxes. This is fine if you have enough disposable income to pay the EMIs. However, if your disposable income is not enough to afford the EMI, avoid investing in properties. Do remember that properties are not easily converted to cash because it takes time, due diligence, and enormous amount of paperwork to sell the property.

Additionally, investment planning requires expertise. The good news is that this expertise can be learnt provided you spend some effort and time in this direction. Asking simple questions such as what is the past returns over last 10 years; what is the rating assigned to this bond; what is PE ratio etc., can go a long way in building wealth and mapping out a wise investment schedule. A healthy financial portfolio is an ideal mix of short and long term investments or the right ratio of debt and equity instruments.

Finally, investment planning is a necessity to secure the future for yourself and your loved ones. Ensure you do not make it solely the function of tax saving alone!

If you and your spouse earn similar incomes, then its best to opt for an equal co-ownership of the property and split the tax benefits of the home loan equally as well. In case one of you fall under a smaller tax bracket,  it is good to let the partner with the higher pay make a higher contribution towards the home loan resulting in a better tax benefit collectively. This would help you optimize the benefits from the tax exemption on principal and interest repaid.

A home loan often means all the more caution with money management and monthly budgets. It also means some smart thinking on the part of the individual who is taking up the home loan. Apart from things like evaluating fund flow, future job prospects, negotiating a pay hike, understanding loan eligibility, maintaining a good credit score and getting the best interest rate in the market, one also needs to consider the possibility of opting for a joint home loan!

Who can opt for it?

Banks insist that all co-owners of the home must be co-borrowers in a joint home loan.

- One could team up with parents or the spouse to be able to maximize the benefits of a joint home loan.

- Some banks allow brothers to take a joint home loan provided they opt to become co-owners of the property.

The exceptions are sisters, friends or unmarried couples living together as most banks generally don’t allow them to opt for a joint home loan.

Key advantages of a joint home loan
a. Banks do not allow a person to borrow to an extent where their EMI exceeds more than around 40-50% of their monthly income. This ensures that there is no stress on an individual’s monthly budget. Hence, when the incomes of all the joint applicants are combined to decide the loan eligibility, the result is a better loan amount for a better home.
b. All co-applicants are eligible for simultaneous tax rebates under Section 80 C for principal repaid and under Section 24 for interest repaid. However, these tax deductions are capped at 1 L for the principal repaid and 1.5 L for the interest repaid. Do note that this is applied for each individual loan applicant thus maximizing the tax benefits on the home loan.
If you and your spouse earn similar incomes, then its best to opt for an equal co-ownership of the property and split the tax benefits of the home loan equally as well. In case one of you fall under a smaller tax bracket,  it is good to let the partner with the higher pay make a higher contribution towards the home loan resulting in a better tax benefit collectively. This would help you optimize the benefits from the tax exemption on principal and interest repaid.

Eg. Let’s say the principal and interest repayment on your home loan for a given year is Rs 2.4 lakh and Rs 3.5 lakh respectively. Now, under Section 80C, you can get a maximum tax deduction of Rs 1 lakh on principal repaid and under Section 24 you can get a tax break of up to Rs 1.5 lakh on interest repaid. However, if you and your spouse have opted for a joint home loan, you would collectively be able to claim a deduction of Rs 2 lakh and Rs 3 lakh on the principal and interest repaid.

Do note that the tax benefits are according to the proportion of the loan. That is, if the ratio of the loan is 70:30, then a loan of say, Rs 50 lakh will be split as Rs 35 lakh and Rs 15 lakh respectively and this ratio will be applicable while calculating tax benefits on the interest and principal repaid on this loan.

Also keep in mind, that tax slabs might change according to new budget specifications each year and there could be changes in the gross income as well, not to mention changes in the total principal and interest repaid in every new year of the home loan. In this respect, the interest repaid will become considerably lesser and the principal repaid will become higher during the latter years of the loan.

For tax purposes, it is best to procure a home loan sharing agreement, detailing the ownership proportion in a stamp paper, as legal proof for ownership.
So taking a joint home loan has the significant twin benefit of increasing your loan eligibility and maximizing your tax rebate.  Do remember that though the banks insist that all co-owners of the property should also be co-applicants in a joint home loan, the reverse need not be true.

Leave Travel Allowance (LTA) is granted by the employers to the employees as part of the remuneration to provide for travel expenses incurred during the year. Leave Travel Allowance also covers such expenses of the spouse, children as well as dependent parents and siblings. However, there is a restriction. The allowance is restricted to two children born on or after October 1, 1998. There is no restriction on the number of children born before this date.

Expenses that Leave Travel Allowance covers
Leave Travel Allowance (LTA) only covers travel expenses incurred on travelling with your family within the country; i.e. exemption can only be claimed if it is within the country under Section 10(5) of the Income Tax Act. Some other expenses which cannot be included are expenses on hotel rooms, sightseeing, food, etc. Another condition is that you must make sure to opt for the shortest possible route, only then can you claim expenses. There is also a restriction on the fare component. Tax exemption can only be claimed for economy class air fare, first class AC rail fare or first/deluxe class bus fare. However in the absence of public transport, you can hire a taxi or rent a car and claim for expenses equivalent to first class AC rail fare.

Can the entire amount be claimed as an exemption?
Yes, provided that the entire amount has been spent according to the tax rules specified under LTA laws.

Can you claim Leave Travel Allowance every year?
While you can claim LTA every year for which you will be taxed, LTA exemption can only be claimed twice in a block of four calendar years.

Does claiming LTA in alternate years mean that the two year entitlement gets added together?

It does. If you are entitled to an LTA of Rs.10,000 per year and do not utilize it for the the first year it is carried forward to the next year. In the second year you can claim the entire amount (Rs.20,000) as tax exempt provided you spend it according to the specification in LTA tax laws as detailed above.

Carry over concession for Leave Travel Allowance
Leave Travel Allowance (LTA) comes with a carry forward feature. You can carry forward your Leave Travel Allowance in the situation that it has not been used. It can be brought forward and claimed in the first year of the next block.

No travel proof required for Leave Travel Allowance (LTA)
Supreme Court announces that there is no need to submit proof of travel in order to claim Leave Travel Allowance. Employers while assessing the travel allowance claims, do not need to collect proof of travel to submit to the tax authorities. Though it is not mandatory for employers to demand proof, they still have the right to demand documentary proof depending on its policy. The announcement by the Supreme Court has only moved the responsibility from the employer to the employee, the assessing officer can still ask for the employee to provide details of travel.

Can both spouses claim Leave Travel Allowance?
If the husband and wife are benefiting from Leave Travel Allowance benefit in their respective offices, then they both have the option of claiming Leave Travel Allowance exemption from their employers. They can also get the benefit of four journeys in just one block. There is no need to make sure that they do not travel twice in the same year. Also, as long as they adhere to the definition of family members, it does not matter whether they choose to take the same family members or different ones. Family in this case consists of spouse, children, siblings and parents who are dependent on you. In the case of kids who are born on or after October 1, 1998, the exemption will be restricted to only two surviving children. The only exception for this is if after the birth of the first child, the second conception results in multiple births (twins or triplets).

If both spouses travel together, can they both claim Leave Travel Allowance simultaneously?
No, both spouses cannot claim Leave Travel Allowance simultaneously. Leave Travel Allowance cannot be claimed twice for the same journey.

The finance minister Mr. Pranab Mukherjee is facing one of the toughest challenges of his long and distinguished career as the man at the helm of financial planning for the nation. This year’s Union Budget comes a time when the ruling coalition faces multiple challenges from almost every quarter and the frustration of the masses is at its peak. There are a multitude of demands and expectations from the FM this year which will certainly be a tough task to tackle. Announcing the new tax slabs that will be applicable for the financial year 2012-13, Mr. Mukherjee has tried to juggle between populist aspirations and practical manoeuvrings. While the promised DTC could not be fully implemented in the current fiscal, there is certainly a move towards its spirit in the new scheme of taxation.

The new tax slabs for salaried and employed classes have been raised by a marginal amount. There will no tax for income up to Rs. 2 lakhs as against the previous figure of RS. 1.8 lakhs. This hike in the minimum income limit for exemption is far short of the expectation that the middle class had from this year’s budget. It is an established fact that the majority of lower middle class gets affected by the initial tax exemption limit. The figure of Rs. 2 lakhs is unlikely to go down well with the masses. The tax rates for income between Rs 2 lakhs to Rs 5 lakhs is stipulated at 10 % this year and the income between Rs 5 lakhs to Rs. 10 lakhs is 20 % and the tax for income above Rs 10 lakhs is 30 %.

Given the fact that there has been a steady rise in the incomes as well as cost of living in the nation, a large number of people have now come into higher income brackets and are likely to be adversely affected by this scheme of taxation. Given the continued inflation there is very little real relief for the common man in this tax scheme. The expectations of a much higher level of tax relief have been shattered and this will directly impact the lifestyles and consumption patterns of the middle class.

There have been no changes in the rates of corporate taxes which will further add to the discontentment among the salaried class. Given the fact that the standing committee of the Parliament had recommended the initial exemption limit ot be raised to Rs. 3 lakhs and a further exemption on eligible investments of up to Rs. 3.2 lakhs, there is likely to political uproar against this proposal. However the only saving grace is that the finance expert of the principal opposition BJP, Mr Yashwant Sinha heading the Direct Tax Code panel had agreed retaining the slabs as 10 %, 20 % and 30 % respectively for the income brackets. However Mr. Sinha had several times stated in public his demand for raising the initial exemption limit.

The initial reaction towards this scheme has been dismal as most tax payers were quite confident of a substantial hike in exemptions. In fact most of the pre-budget surveys indicate that the man on the streets was confident of getting a relief of up to Rs. 3 lakhs on personal income that would permit him to have better savings and a decent living for his family. House panel recommendations having been summarily rejected by the FM, he must have some very convincing concerns, which will be disclosed to the parliament during the budget discussion. However, as for now the majority of the salaried middle class who pay a significant portion of their hard earned money as taxes have been left high and dry.

As long as you are paying rent for an accommodation, you can claim tax benefits on the HRA component of your salary, while also availing tax benefits on your home loan. This could be the case if your own home is rented out or you work from another city etc. However, you need to account for any rental income you receive from the property you own under income from other sources.

It is the beginning of one more brand new financial year. Though the words “income tax” start ringing a frantic bell towards the end of every financial year, the wise planner will have things sorted out when the year begins in April. There are many tax components you need to be clear about and also figure out how to plan your investments to gain maximum returns as well as maximum tax benefits. One such tax component is the tax benefit you can claim from your house rent allowance.

HRA (house rent allowance) is provided to salaried people under Section 10 (13A) of Income Tax Act, 1961, in accordance with rule 2A of Income Tax Rules. Self employed professionals are eligible for tax deductions under section 80GG of Income Tax Act, 1961.

Dependent factors

When you are calculating HRA for tax exemption you take into consideration four aspects which includes salary, HRA received, the actual rent paid and where you reside, i.e. if it is a metro or non-metro. If these aspects remain constant through the year, then tax exemption is calculated as a whole annually, if this is subject to change, as in a rent hike or shift in residence etc. then it is calculated on a monthly basis.

The place of residence is significant in HRA calculation as for a metro the tax exemption for HRA is 50% of the basic salary while for non-metros it is 40% of the basic salary.

On paying rent

It is not essential that you should pay rent only to a landlord to avail your HRA benefits. You can pay rent to your parents or your spouse to claim tax benefits. However, they need to account for the same under`Income from other sources’ and will be entitled to pay tax for the same.

You need to submit proof of rent paid through rent receipts, for which only two need to be submitted, one for the beginning of the year and one towards the end of the financial year. It should have a one rupee revenue stamp affixed with the signature of the person who has received the rent, along with other details such as the rented residence address, rent paid, name of the person who rents it etc.

How is HRA calculated

To figure out how much HRA exemption you are eligible for, consider these three values which includes a. The actual rent allowance the employer provides you as part of your salary, b. the actual rent you pay for your house from which 10% of your basic pay is deducted, c. 50% of your basic salary when you reside in a metro or 40% if you reside in a non-metro.

The least value of these three values is allowed as tax exemption on your HRA. You can discuss restructuring your pay structure with your employer in order to avail the most of your HRA tax benefit.

Here is a sample illustration for your understanding:

Sunitha earns a basic salary of Rs 40,000 per month and rents an apartment in Delhi for Rs 20,000 per month (hence eligible for a 50% of the basic pay for HRA exemption). The actual HRA she receives is Rs 25,000.

These values are considered to find out her HRA tax exemption:

a. Actual HRA received, i.e. Rs 25,000,

b. 50% of the basic salary, i.e. Rs 20,000, and

c. Excess of rent paid over 10% of salary, i.e. Rs 20,000 – Rs 4,000 = Rs 16,000

The value considered for her actual HRA exemption will be the least value of the above figures. Hence, the net taxable HRA for Sunitha will be Rs. 25,000 – 16,000 (available HRA deduction) = Rs. 9,000.

Availing tax benefits on your home loan and HRA

As long as you are paying rent for an accommodation, you can claim tax benefits on the HRA component of your salary, while also availing tax benefits on your home loan. This could be the case if your own home is rented out or you work from another city etc. However, you need to account for any rental income you receive from the property you own under income from other sources.

If you are a couple and one of you have taken a home loan, the other can claim HRA benefits provided again the other pays tax on rental income received.

Government of India has outlined a plan to spend $1 trillion in next 10 years on infrastructure development. This development is needed because infrastructure needs to support and sustain the projected growth rate of Indian economy for next few decades. To fund this initiative, the Government is trying to tap the various sources at its disposal. Infrastructure bond is just one source where Government has given tax breaks for up to Rs 20,000 for individuals. This is to attract retail investment.

Infrastructure bond vis-à-vis other debt instruments

Infrastructure bond is widely welcomed by salaried individuals who have been demanding to increase the tax break from 1 lakh. It has given them another avenue to invest for tax saving purpose. Let’s take a look at other investments that are available and provide a fixed income.

Debt oriented mutual funds

The other debt instruments available for investment are debt oriented mutual funds. These funds allocate major part of the fund in Government securities, corporate bonds and debentures, and sometimes in fixed deposit. They can be a good alternative. However, even though they are debt oriented funds, a small part (up to 30%) goes towards equity. Hence investors do see fluctuation in returns. The average returns from debt oriented funds over a period of time can be about 12% depending upon the market condition and proportion of fund invested in equity.

Bank fixed deposit

The other option is banks where the rates of interest have gone up. Few banks are giving good returns on fixed deposits. For example, bank of Baroda is giving 10% returns on fixed deposit. This is certainly better returns in absolute term. The post-tax returns will be about 7%. There are other banks which are offering similar rates on fixed deposits.

Corporate fixed deposit

Then there are fixed deposits offered by blue chip companies. These are highly rated debt instruments. For example, Mahindra Finance or Tata Motors deposits are two prominent offers that offer 10.25% returns. Mahindra fixed deposit scheme is rated FAAA, the highest rating. The payment is done quarterly. There are other firms which offer even better returns but those firms rated lower. Investors should consider these alternatives too.

Fixed maturity plan

There are mutual funds, also known as, fixed maturity plans (FMP). They are as good as fixed deposits and offer an “expected” return of 9% to 10% . We use “expected” because there is always the risk of corporate default (though it rarely happens).

Hence all the options look better till you consider the tax advantage that the infrastructure fund provides you. Tax advantage is the biggest advantage that infra bonds provide. The interest received on infra bond is taxable though.

Investors’ response

Infrastructure bond has seen tremendous response from retail investors for tax saving purpose. The demand goes up before the end of the financial year. Even though it is a big hit among salaried individuals and retail investors, it did not impress big ticket investors in India and abroad much because they are more focused on getting better returns than saving tax.

To encourage response from FII, Government is planning to reduce the lock in period of infra bonds. The lock in period currently is 5 years. In all probability, this may come down to 1 year. The reduced lock in period may be able to bring foreign capital for infrastructure projects which are delayed because of lack of funds.

Ideally, reducing the lock in period should bring more investors, both domestic and multinational. This seems to be a good way to increase participation and transaction. However, the downside of this is that it will increase speculative investment.

Retail investors anyway invest in infra bonds to save taxes and hence there isn’t much scope left in retail segment.

Important points to keep in mind

First, you must invest in infra bonds because you will save taxes. There is no other way you can save taxes on Rs 20,000 extra. Do not invest more than Rs 20,000 as the tax benefit is limited to just Rs 20,000. Any investment beyond this will be taxed as usual. The disadvantage of infra bonds is the lock in period and the taxable interest.

Second, look at the rating assigned by rating agencies before investing in infra bonds. All bond issuers have to go through rating process before they can raise debt. A high rating such as AAA or even AA is good and implies the capability of the company to pay the interest and principal.

Finally, understand the risk associated with bond investment. While the nature of fixed return looks risk free, it exposes the investors to interest rate risk and inflation risk. Inflation at the rate of 10% will essentially give you negative returns on a bond that offers 9% returns.

It is a good idea to categorize your payments under different headings like daily living expenses, entertainment and vacation, health etc. This will give you a fair idea of how much you spend on different categories. It is easier to keep track and also control your expenses once you know how much portion of your earnings goes into each expense.

Getting married? Starting a job? Getting further education? Starting your own family? Have you planned for these important phases in your life? Good control over your personal finances will help you achieve the goals you have set for yourself and cope with changes in your life. How can you achieve that? The answer is having your own personalized budget.

How do you draw a budget that suits your need? Say, you are interested in taking an educational course and are thinking of taking a student loan. How will you accommodate this additional expense? To begin with, you need to draw your personal budget.

- The first step is to calculate your monthly income. Consider income from all sources including income from your investments. ——- A

- Next, make a list of your monthly expenses. For example, if you are a salaried employee, list your routine expenses like expenses on commute, food expenses, utilities, clothes, charities etc. Then think of any extraordinary expenses that you may have to incur during the budgeted period, such as home improvement projects or purchasing a car. ——- B

- It is a good idea to categorize your payments under different headings like daily living expenses, entertainment and vacation, health etc. This will give you a fair idea of how much you spend on different categories. It is easier to keep track and also control your expenses once you know how much portion of your earnings goes into each expense.

- Calculate the difference (A – B = C).

- The next step is to redraft your personal budget to include expenses related to the educational course like interest and principal payment, course fees, expenses on tuitions and books, loss of wages etc. If you still have a comfortable surplus of cash (C), you can finalize this budget. If not, consider the expenses that you can avoid and reconsider the amount of loan. Once you reach a bottom line that you are comfortable with, finalize your budget.
- When you decide the cash surplus / short you will be comfortable with, you should also think of the percentage of income you would ideally like to save for your future. Think of short term as well as long term or retirement savings.

You may compile your budget into an excel sheet or use a physical book or diary. Alternatively, there are several free softwares available online for the taking.

Here are a few tips of a working budget:

- Keep your working sheet as simple as possible and keep it clean. Each item and category should be clearly defined.

- It is a good idea to create a flexible spreadsheet or if you have a hand written budget in mind, leave – enough space to add items of income or expenses in the existing budget.

- Maintain budgets on a continuous basis. Ideally, one should have a monthly budget rolling into an annual budget. The annual budget should also be in line with the long-term budget.

- An important part of budgeting is keeping track of actual income and expenses and calculating variances. If variances are beyond acceptable limits, then it is time to revisit your budget and make necessary changes.

- If you have a long list of income or expenses, it is advantageous to use excel or other computer software. For example, by using excel you can add comments, format your sheet, create reports using certain information from the excel sheet.

Get the best deals on loan offers

• Home loans
• Personal loans
• Car loans

Some useful personal finance calculators

• EMI calculator
  
• Loan repayment calculator

Any monies that you receive from your company for the purpose of travel to any place in India along with your family for the purpose of leave. The claim can be made two times in a bucket of 4 years. Family includes Wife and children and also parents, brothers or sisters if they are dependent on you. The only check being that you have to maintain original bills to prove travel if the IT department asks for it.

Although the tax man has been vested with the task of collecting taxes on the incomes of the citizens, he has deemed certain kinds of incomes as “not included in total income”. Thus if any earning that you receive which falls under these incomes you don’t have to treat it as income or pay tax on it! Let’s take a look at the different incomes that are not incomes!

Agricultural Income: Any income which you receive as income from any agricultural activity is deemed as not included in total income. If your father is into agriculture and he gives you a part of the income as a gift, then you don’t need to pay tax on it, provided, your father files his tax returns.

Income for being partner in a firm: If you receive any income for being a partner of a firm which has already been assessed separately then the income need not be included in total income. Thus any share in the profits that you have in a firm according to the partnership deed is not taxable.

5000 Rupees: An amount of Upto Rs. 5000 which you receive for any reason other than as prize money and are not a recurring amount can be excluded from your total income. It seems to be a very small amount but sometimes this could be the difference between being in a higher slab or a lower slab.

Travel concession/assistance: Any monies that you receive from your company for the purpose of travel to any place in India along with your family for the purpose of leave. The claim can be made two times in a bucket of 4 years. Family includes Wife and children and also parents, brothers or sisters if they are dependent on you. The only check being that you have to maintain original bills to prove travel if the IT department asks for it.

Retirement/Death gratuity: Any payment received under a pension or death cum retirement gratuity scheme by an individual or his widow, children or dependents. The gratuity should not be more than the number of years in service multiplied by half months salary based on a ten month average. For example if the average salary for the previous ten months prior to receiving gratuity is 10000 and years in service is 15, then 15×5000=75000/- would be not included in total income.

Leave Salary: Any cash amount received as compensation for earned leave which is en-cashed at the time of retirement. (This applies only to employees of Central/State government). For employees other than government employees, the Leave salary can be en-cashed up to a limit of ten months worth of earned leave. It also specifies that the entitlement to earned leave should not exceed 30 days for each year of service. For example if you have 76 days of earned leave and total years of service is 2 years, then, only the cash equivalent of 60 days of earned leave is not added to income.

Retrenchment: Any compensation received by a workman due to the closure of his company or change in the management of the company if new terms are less favorable than what was previously applicable.

Voluntary retirement: Any amount up to a maximum of Rs 5 lakh paid at the time of voluntary retirement in accordance with and scheme of voluntary retirement of the company. But, the company paying the VRS should have a framework for VRS as prescribed by the government.

Life Insurance Policy: Any amount received as benefit from a life insurance policy including bonus payment is not included in total income. The only exception is the amounts paid as part of Key-man policies.

Provident Fund: All payment which is received from a provident fund to which the PF act applies or any PF fund of the Government is not included in total income.

Superannuation: Any payment made from a superannuation fund on the death of the beneficiary or as a refund of contributions or if the employee becomes incapacitated before retirement.

Payment of Rent: any allowance paid by an employer to an employee to meet expenditure actually incurred on the payment of rent for accommodation. But this is not allowed if the house is owned by the employee or he has not incurred the rental.

Income from Government securities: Any earnings from interest, premium on redemption or other payment on securities, bonds, annuity certificates, savings certificates and other instruments issued by the central government and also deposits taken by the central government.

In case of non-residents if the bond have come to us by virtue of being a nominee or survivor on the non-resident or if they have been gifted to us by a non-resident Indian who have purchased the instrument in foreign exchange and the principal and interest will not be taken out of India by the recipient of the gift, the amounts will not be added to income.

Scholarships for Education are not included in total Income.

Awards and Rewards: All payments receive in cash or kind as an award given by the Central or State Government or by a body recognized by the central government to give such awards will not be included in the total income.

Relief funds: Any amounts which are received by an individual as part of the Prime minister’s national relief fund or the promotion of folk art fund or students fund or foundation for communal harmony will be treated as not included in income.

Thus we see that although the tax man is mostly portrayed as a villain in many media, he has been liberal enough to give us the benefit of income tax free income from so many sources.

The above learnings can be applied to our personal lives in two ways. 1. Try to increase the income if any coming under any of the above heads. 2. Invest in any of the tax free avenues given above so that we may get the benefit of the investment as well as tax free income when it comes to our hands later on.