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.

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.

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.

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.

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.

The most neglected is health insurance. Most often this tax saving instrument is brushed aside with the logic that after all it’s an expense (no monetary gains) and well we all save for the “rainy day”. So why incur an additional expense? The moot point – Is it truly an additional expense?

It’s soon going to be time for filing income tax returns. Most of us will be in a hurry to make the most of the tax deductions available. It’s done in haste to meet the deadlines. How many of us look at tax planning from a holistic perspective?  How many of us have discussions on what would be the best tax saving instrument to utilise from a variety of perspectives- returns, coverage, benefits among others. The most neglected is Health Insurance. Most often this tax saving instrument is brushed aside with the logic that after all it’s an expense (no monetary gains) and well we all save for the “rainy day”. So why incur an additional expense? The moot point – Is it truly an additional expense?

Why should Health Insurance be given due consideration?

- Medical Inflation: Prices of medicines and treatment are constantly on the rise making it difficult to rely on savings.

- Lifestyle related issues: Increase in incidence of medical problems due to

- The stressful environment we work in

- Change in the eating habits – fast food and meals at irregular hours

-  Irregular sleep patterns

- Dependents: If you have dependents and are overwhelmed with responsibility, the  health insurance coverage can come to your rescue.

- Health insurance coverage will release you from the burden of worrying how much to save for the rainy day. After all how much is enough?

Case Study

Imagine a situation where due to a medical emergency Mr. X had to be admitted to a hospital for an operation and the bill comes to a whopping Rs. 1 lakh- Guess what? Mr.X does have health coverage which covers this medical emergency and is within the overall limit. Mr. X would not have to shell out a penny. Neither Mr. X nor his family will have to undergo any financial strain. Isn’t the premium more of an investment than an expense? So what if there is no claim every single year. Didn’t it help Mr. X reduce the burden of worrying on an important parameter- saving for health related emergencies? Besides, most insurance companies provide some incentive for every claim free year (5% is added to the sum assured).

Your work does not end at making the decision of buying a health insurance product, choosing the right one is equally important. There is a bouquet of products in the market offered by several public and private insurance players. Earlier only general insurance companies and pure-play health insurance companies offered health related products but now even life insurance companies have entered this domain. So in all you have almost 30 players in the market offering health insurance products- A wide basket to choose from.

Types of Health Insurance Plans:  A Brief Snapshot

Individual Health Plan: These are commonly known as mediclaim policies. They mainly cover hospitalisation expenses provided it is for at least 24 hours. Usually pre-existing diseases are not covered. Claims for specific ailments may not be allowed in the first or second year. For every claim-free year, most plans add 5 per cent to the sum insured.
Family Floater Policy: As the word suggests, this is a plan that will cover members of the family. Single premium is to be paid for the entire family. The benefits of the policy are similar to the individual health plan except for the fact that the sum insured can be availed by any or all members of the family and not a single person. Thus it has an advantage over an individual plan if more than one plan is required in a family. E.g. If a one lakh policy is required person, your family will need two individual policies if there are two people. Instead, if one family floater policy is taken for the two of them, for two lakhs, the coverage for each member will be Rs. 2 lakhs unlike the individual plan where the coverage per person is one lakh.

Critical Illness Plan- Add on: This product is not a substitute for any mediclaim plan (simple traditional product); instead it is a rider that could be added to it. This rider provides coverage if the insured develops a list of ailments spelt out by the company, generally of a serious nature such as cancer, coronary heart disease, stroke among others. If critical illness occurs, the company pays the entire sum insured.

Senior Citizen Health Plan: These plans are available for people between the age of 60 and 80 years. The coverage is generally fixed and the policy can be renewed lifelong or in some instance up to the age of 90 years. Read the fine print carefully on illness covered. An add-on in the form of a critical illness plan may be required.

Unit Linked Health Plan: This is a plan that serves dual purpose- coverage and returns. Part of the premium goes towards coverage and the balance is invested in a fund that functions like a mutual fund (a mix of debt and equity instruments can be chosen)

Things that may matter

Read the fine print carefully: The devil usually lies in the details. So a careful reading would help.

Product Details: Make sure you have carefully read about the exclusion of diseases such as pre-existing illness etc. Be aware of the sub-limits in the policy for specific expense heads.
Claim Settlement: There are two ways in which settlements are made. Reimbursements and Cashless settlements. In order to avail of the cashless settlement facility, the network hospitals should be utilised. Make sure you have details on the same. Take note of the time you have at hand to notify the required party for claim. Third party administrators (TPA) handle claim settlement on most occasions. At this point, claims on health insurance are very high in India, so if you want your claim to pass through smoothly, kindly follow the rules outlined.

Documentation: For any claim settlement, proper documentation is a must. Please ensure that documents are kept safely and also keep a tab on the premium payments (monthly, quarterly, semi-annually or annually) else the policy will lapse.

Tax Advantage- An incentive

In order to encourage individuals to invest in health insurance, Section 80 D of the Income tax Act provides a deduction on health insurance premium paid

- Up to Rs. 15,000 for self, spouse and dependent children and

- Additional Rs. 15,000 for parents (Rs. 20,000 in case of senior citizens)

So pick up the phone or surf the net and set the ball rolling. Remember “Health is Wealth”. We all believe in it. It’s now time to act.

Since the start of your professional life your well wishers including family members and friends might have told you, “Work Hard and Earn More”. You possibly made it the mantra of your life but the day you received your pan card and approached the income tax department, the mantra started to sound like a myth after your rendezvous with the demon called Income Tax. Now the mantra caption sounds like “Work Hard and Earn More to Pay More in Taxes”.

In such a scenario as a taxpayer you are likely to look out for good news whenever you hear that the policymakers are doing something regarding Income Tax. One such policy decision that is likely to affect you is the introduction of the DTC (Direct Tax Code). The Finance Minister has reassured that the DTC will be hopefully cleared in the winter session of Parliament and will be implemented from Apr 2012.  Let’s look at what is in store based on the decisions that stand as of today.

The Good News

Enhancement of Tax Slab

Smile as the tax exemption limit now stands at Rs 2 lakhs which was earlier 1.6 lakhs. The tax burden is lessened by 41,000 in the highest tax slab.

Investor friendly Capital Gain Tax

Only half of the short term capital gains on equity will be taxed. Long term capital gains from equity have been left untouched. Capital gains from property will be considered as income and for tax purposes the gain will be added to your income. Hence your tax liability will be calculated as per the slab you fall under after the addition of gains.

Enhancement of Exemption limit from 1.2 Lakhs to 1.5 lakhs

With DTC now it will be easier to claim exemptions as it will reduce the confusing number of investment options available. An individual can still claim deduction of Rs 1 Lakh as per old tax regime but the investment options will reduce to NPS, Superannuation funds and pension funds like EPF and PPF. Also, the exemption for tuition fee for children is now part of this 1.5L where you can claim a deduction for a tuition fee of Rs 50,000 if you pay tuition fees (max 2 children) or if you have taken health insurance/mediclaim policy or if you have invested in pure life insurance product where the sum assured is 20 times annual premium.

Tax benefits of home loan

It is unclear if the principal due repaid for your home loan will continue to enjoy tax benefits but the new DTC bill has most definitely retained the tax benefits on the interest due repaid on your home loan.

EEE treatment of GPF, PPF and pure life insurance products

In earlier tax code, investments in the above schemes were governed as per EET where investment and accumulation was tax free but withdrawal was not. In the New DTC it’s proposed that the withdrawal from these schemes will also be tax exempt.

Enhancement of medical reimbursement limit

Now you can be happy even if you fall sick as DTC proposes to enhance the medical reimbursement limit from Rs 15,000 to Rs 50,000.

The Not So Good News

No Leave Travel allowance

If you like to go on holidays, DTC will tax you from now onwards.

No special treatment for being a woman

No gender bias as per DTC as the extra tax benefit for women seems to be non-existent.

Reduction in tax exemption period of NRIs

NRIs will be taxed if they are earning in India and their stay exceeds from 60 days. Earlier tax exempt period was of 180 days. This sounds like a bad news but the finance minister has assured that this is under discussion and just staying in India for 60 days doesn’t make NRI’s liable for taxation as there are other clauses attached to it.

DTC in its current form sounds to be tax payers friendly and let’s hope Indian Government carry’s on with tax reforms so that we start loving the Tax Daemon. For the time being “Thumbs Up” for the DTC.

Filing incoming tax returns is not a laborious ordeal anymore. E-filing or filing tax returns online has made the process a whole lot simpler. E-filing of tax returns acts as one of the options for the direct tax payers in India. There are three different ways of filing returns online:

1.       File returns using a digital signature. By this option there is no need for a paper return to be submitted.

2.       File without using the digital signature. By this option the ITR-V form has to be filled. This form is a one-page receipt but also serves as a verification form.

3.       Take help from an E-filing intermediary who makes the filing returns and filling the ITR-V form a whole lot easier.

Details required before logging in to the site

You will need an account with a bank that has net-banking facility. The bank must be one that has e-payments.  If you are a first time user, i.e if you have never e-filed your returns you will need to register with this website www.incometaxindiaefiling.gov.in and create a user name and password.  You will need your PAN card number for the same. Your address details are extracted from the PAN. You must enter other personal details carefully. The email address is important as all communication regarding this will be through the email address you provide. Once you have registered, an e-mail will be sent to you confirming registration after you activate your account. Once this is done, you are ready to file your income returns online. You must now download the appropriate ITR form.

Steps to file Income Tax Return online

• Log into www.incometaxindiaefiling.gov.in and create a username and password.
• Go through all the heads of income under which you will be taxed and select the relevant Income Tax Return.
• Download the Return Preparation software and fill in the details of your ITR. The Income Tax India website also provides an instruction sheet on how to fill the ITR form.
• If there is any tax to be paid then make an online payment and generate the challan counterfoil along with the CIN. Now complete the Income Tax Return form with the details from the challan and CIN along with the payment details and the details of the bank through which the e-payment has been made.
• After this generate an XML file from the filled return using the software downloaded earlier. An XML is a format that helps the IT Department enter the details into its database.
• Now select the appropriate form on the left side of the page and click ‘Submit return’. Select the XML file and click ‘Upload’. Once the uploading is successful it will be acknowledged on the screen.
• Click on ‘Print ’ to get a copy of the ITR-V form.

If the return has a digital signature then the filing process is complete upon the acknowledgement notification and the print out is required only to keep a personal copy. But if it does not have a digital signature then the ITR-V form needs to be printed out by the tax payer. As mentioned earlier, this is an acknowledgment as well as a verification form and all the details need to be filled in and verified. The tax payer has to fill-up the verification part and verify the same. A duly verified ITR-V form should be mailed to “Income Tax Department – CPC, Post Bag No – 1, Electronic City Post Office, Bangalore – 560100, Karnataka,”BY ORDINARY POST OR SPEEDPOST ONLYwithin 120 days after the date of transmitting the data electronically.

Benefits of e-filing over paper filing

One of the foremost benefits of e-filing is the flexibility of filing your returns anywhere / anytime with access to the internet.  Online tax returns are processed much faster than paper returns and the tax is worked out automatically as the payee completes the form. With this the payee also gets the acknowledgment slip immediately. Also online filing is a safe and secure mode.

Deadlines for filing returns

The last date to file your returns is July 31, 2011. For those who need to get their account books audited under the Income Tax Act, the last day is October 1, 2011.

No income tax return will be accepted without the PAN and incorrect PAN can result in a fine being levied. Communication address should be correctly stated as all notices or other communication from the IT department will be sent to the provided address. Also make sure that the MICR code is correct if you want an electronic refund and also ensure that bank account details are correctly stated for hassle free refunds.

Filing tax returns is an annual mandate that tax payers have to comply with, the last date for which is in sight i.e. July 31^st, 2011. In a haste to meet the deadline, make sure you do not miss key elements that can cause trouble later.

Critical information should be cross verified

No income tax return will be accepted without the PAN and incorrect PAN can result in a fine being levied. Communication address should be correctly stated as all notices or other communication from the IT department will be sent to the provided address. Also make sure that the MICR code is correct if you want an electronic refund and also ensure that bank account details are correctly stated for hassle free refunds.

Safe keep all relevant documents for future use

The IT department has done away with enclosing documents while filing returns i.e. proof of tax, statement showing computation of taxable income etc. Not having to produce it at the time of filing returns doesn’t meet that you can put away the documents carelessly. In case of scrutiny, the tax authorities may need supporting documents for verifying the claims made in the return.

Disclose exempt income and investments made

Income such as dividends from mutual funds and long-term capital gains on listed securities, are exempt from tax. Even though the tax laws do not require you to pay tax on the same, the law requires you to report these in your tax return.

Investments above a prescribed limit have also to be disclosed as per IT laws. They include

• Mutual fund investment in excess of Rs. 2 lakh
• Cash deposits in excess of Rs. 10 lakh
• Credit card payment in excess of Rs. 2 lakh
• Bond investment in excess of Rs. 5 lakh
• Property bought or sold in excess of Rs. 30 lakh

Report income from a previous employer

Employers deduct TDS from the employee’s salary. While computing the TDS, employers generally provide the basic exemption deduction to the employee. If at the time of changing the job, the employee has not informed the new employer, it could lead to a situation where the TDS cut by the new employee would be low, as he may be taking in to consideration the full deduction amount while calculating tax. Thus you may have tax liability at the time of filing returns. Not disclosing income from the previous employer may result in an income tax notice as it will be spotted when the TDS data is being reconciled.

Revision of Income

If the IT return has been filed before the due date i.e. 31^st July, tax payers are entitled to submit a revised return in case of any error or omission therein. However, revision is not permitted if the return is filed beyond the due date.

Precautions taken at the time of filing returns will prevent hassles later. To make sure you file your returns before the 31^st, start the process now- Procrastination is the thief of time!