Archive for Income Tax

Reckoning of Running Allowance as pay for the purpose of deduction of Income Tax

GOVERNMENT OF INDIA
MINISTRY OF RAILWAYS
(RAILWA BAORD)

No. F(X)I-91/23/3                           New Delhi, Dated 28-12-2010

As per Standard List I, II, III

Sub: Reckoning of Running Allowance as pay for the purpose of deduction of Income Tax.

**************

In continuation of Board’s letter of even number dated 13.07.2000, a copy of the Notification of Ministry of Finance (Central Board of Direct Taxes) No. S.O. 2820(E) dated 22nd November 2010 regarding substitution of the letters figures and words "Rs.6,000/- per month" with letters, figures and in sub rule (2) in the table against serial number 4 in column 4 is enclosed for information and guidance.
Receipt of this letter may please be acknowledged.

s/d
(V.Rama Manohar Rao),
Joint Director, Finance (Exp.)-I,
Railway Board

DA : As Above

 

With the Efforts of AIRF, Railway Board has issued orders for reckoning of Running Allowance as pay for the purpose of deduction of Income Tax.

Leave a comment »

No Income tax on additional interest on EPF money

No tax on additional interest on EPF money (diff. of 9.5 and 8.5 %)

The additional quantum of interest on Employees Provident Fund deposits would be exempted from income tax, the LokSabha was informed today. The provident fund trustees had on September 15 decided to raise the EPF interest rate by 1% to 9.5 for 2010-11.

However as per income tax rules interest on EPF is exempted only upto 8.5 % only .so as per present rule though the interest payable is 9.5% but interest exempted is only 8.5% means additional 1 % is taxable in employee’s hand .But now in Lok sabha Govt has declared that in rate given in income tax for exemption for interest on EPF will also be increased to 9.5 %

"The matter has been discussed with Finance Ministry and they have informed that they will revise the notification to 9.5% once it is approved by the Government," Minister of State for Labour and Employment Harish Rawat said in a written reply. The decision taken by the Central Board of Trustees of EPF to raise the interest rate would benefit 4.71 crore employees in both public and private sectors.

Comments (1) »

Due to Efforts By AIRF, Running Staff Tax Free Mileage Limit increased to Rs.10000/- retrospective effect from 01-09-2008

Hot smile Due to Efforts By AIRF, Running Staff Tax Free Mileage Limit increased to Rs.10000/- w.e.f. 01-09-2008
Personal expenditure Allowance to transport system employee’s exemption Increased
As per Income tax Act section 10(14) exemption limit of various allowances has been prescribed under rule 2BB of income tax rules. One of them is allowance to transport system employee to meet personal expenditure during his duty performance.
Present rule is given as under Allowance description: Any allowance granted to an employee working in any transport system to meet his personal expenditure during his duty performed in the course of running of such transport from one place to another place, provided that such employee is not in receipt of daily allowance
Exempted Amount :70 % of the allowance subject to `.6000/- Maximum

Now as per Income-tax (Eighth Amendment) Rules, 2010 – Amendment in Rule 2BB vide NOTIFICATION  NO. 85/2010 [F. NO. 149/45/2010-SO (TPL)], DATED 22-11-2010 the maximum amount has been increased to ` 10000/- with effect from 01.09.2008 (retrospectively effected)
complete Notification is given below:
Income-tax (Eighth Amendment) Rules, 2010 – Amendment in Rule 2BB
NOTIFICATION NO. 85/2010
[F. NO. 149/45/2010-SO (TPL)], DATED 22-11-2010
In exercise of the powers conferred by section 295 read with clause (14) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rule further to amend Income-tax Rules, 1962, namely :—
1. (1) These Rule may be called the Income-tax (Eighth Amendment) Rules, 2010.
(2) They shall be deemed to have come into force retrospectively with effect from 1st day of September, 2008. 2. In the Income-tax Rules, 1962, in rule 2BB, in sub-rule (2), in the Table, against serial number 4, in column 4, for letters, figures and words “`. 6,000 per month” the letters, figures and words, `. 10,000 per month” shall be substituted.

Comments (1) »

Central Govt taken back net Rs1,400 crore + Education cess as tax (TDS) from pay arrears to staff

Central govt to net Rs1,400 crore as tax from pay arrears to staff

The government will mop up Rs 1,400 crore (Rs 14 billion) this fiscal by taxing the second installment of arrears due to central government employees, who were awarded increased salaries by the Sixth Pay Commission.
The first installment of arrears (representing 40 per cent of the increased pay) was disbursed during financial year 2008-09.
The employees will also have to pay two per cent education cess on the total amount of the arrears.
"The total arrears for this fiscal is Rs 18,000 crore (Rs 180 billion). The arrears that would fall in the tax net would be about Rs 9,000 crore (Rs 90 billion). Barring the grade-IV employees, and according to calculations, around 15 per cent of this amount– about Rs 1,400 crore (plus education cess) would go into government’s coffers during this fiscal as tax," a senior finance ministry official said.
"The Central and State government and various organisations under them are advised to compute the correct tax liability of every employee on second installment of arrears drawn by him and immediately recover the full tax liability along with education cess thereon at the rates in force," a recent CBDT circular asked all government employers.
Distribution of the remaining 60 per cent of arrears has already begun. The I-T department has received the TDS on arrears from various government departments, while the rest would be received soon, the official said.
"The deduction of tax at source on such arrears payment should not be deferred in any circumstance. They (employers) should further ensure that the tax so recovered is paid to the account of Central government account immediately as per the Income Tax Rules, 1962," the CBDT circular said.
The total arrears, accumulated after the Sixth Pay Commission recommendations, were Rs 12,000 crore (Rs 120 billion) during 2008-09 fiscal, the official said.
The government has also said that employers "should ensure that the PAN details of the deductees (recipient of arrears) are correctly quoted in the relevant quarterly e-TDS returns filed by them so that government servants get proper credit of their tax deducted in their respective income tax returns."
Those who (employers) fail to comply with the provisions of Section 192 of the Income-tax Act, 1961 would be liable to pay interest under section 201 of Income Tax Act along with other penal consequences.

Leave a comment »

Central trade unions to oppose taxing of withdrawals from savings schemes

Central trade unions to oppose taxing of withdrawals from savings schemes

The central trade unions will press for shelving of a proposal, that wants to tax withdrawals from savings schemes, including provident funds, at the pre-Budget meeting with Finance Minister Pranab Mukherjee on January 14. “(The) Finance Minister has invited trade unions for pre- budget consultations on January 14,” All India Trade Unions Congress Secretary D L Sachdev told media.
Although the central trade unions are meeting here next week to prepare their charter of demands, he said, “we would definitely raise the issue of Exempt, Exempt Tax (EET) mode for savings schemes”.
The draft Direct Taxes Code (DTC), on which the government has invited comments from public, proposed to tax all long-term savings schemes at the time of withdrawal by the subscribers.
Currently, there are no taxes on long-term savings and pension schemes. Besides EET issue, Hind Mazdoor Sabha (HMS) Secretary A D Nagpal said, “We will also demand for higher income tax slabs to provide relief to the working class.”
As part of the budgetary exercise, the minister meets the representative of different interest groups like economists, industrialists, trade unions etc to get their views on the budget. The trade unions, Sachdev said, would also press for the creation of a National Security Fund for urorganised workers in the country.
In view of unionists the funds should have a corpus of a size equal to three per cent of Gross Domestic Product of the country for the welfare of these workers.
The other major issue which could rock the meeting, is imposing service tax on the contributions made to the Employees Provident Fund scheme being run by the country’s largest retirement fund manager Employees’ Provident Fund Organisation (EPFO).
The issue came to light when some months ago, the Central Board of Excise and Customs slapped EPFO with a notice for not paying service tax on the contributions to these scheme. The scheme has around 4.7 crore subscribers across the country.

Leave a comment »

TAX BENEFIT ON HRA AND HOME LOAN -AVAILABLE OR NOT?

 

HRA – allowance is one of the components of salary package, which is normally offered to employees by their employers to meet the higher cost of renting a home. Tax exemption under Income Tax Act for HRA is allowed to salaried persons who are occupying a rented accommodation. It is being regulated by 2A of Income Tax Rules, 1962 and Section 10(13A) of the Income Tax Act, 1961. Accordingly, least of the following three options will be exempt from tax

  • [a.) 50% of the basic salary and DA, where the residential house is situated at Mumbai, Kolkata, Delhi or Chennai and an amount equal to 40% of above salary where residential house is situated in any other place. 
  • [b.] HRA actually received by the employee in respect of the period during which rented accommodation is occupied by the employee during the financial year
  • [c.] the excess of rent paid over 10% of the salary. 

Some times, salaried persons who avail home loan for acquisition or construction of residential house properties but could not stay in such properties owing to employment or other reasons and they stay in rented houses. In such circumstance, when they are receiving a HRA – allowance from their employer, a question often arises

whether they can get exemption of HRA under section 10(13A) of the Act?, based on the rent actually paid by them as well as the interest payable on the housing loan taken by them towards acquisition or construction of a property.

To avail HRA benefit,

  • salaried employee who is in receipt of HRA from his employer
  • should be actually paying house rent for the rented premises which he has occupied and
  • such rented premises must not owned by him. 

It is evident from the above section the exemption of HRA is available to an assessee so long as he occupies the rented premises which is not owned by him. At the same time, the assessee is not barred from claiming exemption under section 10(13A) read with rule 2A, because he be the owner of any other house property, which was acquired through housing loan. It is to be noted that provisions of deduction of interest on borrowed capital for the acquisition or construction of house property and exemption of house rent allowance are two different issues under the Act, as one would not influence other. The benefits accrue on account of availing home loan are interest payments which is exempted under section 24(b) and the principal repayment is exempted under section 80C of the Income Tax Act. Conversely, HRA benefit can also be availed by the assessee on fulfillment of certain circumstances depicted above.

Courtesy: http://www.simpletaxindia.org

Leave a comment »

LIC will no more useful for Income Tax Rebate in near future due to New Tax Code- 2011

LIFE INSURANCE POLICY AND NEW DIRECT TAX CODE

In India, nearly two-thirds of all new life insurance policies are sold during the six months between September and March — an indicator that life insurance is bought primarily for tax saving. However, the New Direct Taxes Code, slated to be implemented from April 2011, proposes to do away with the disproportionate tax advantage that life insurance products have so far been enjoying over other savings instruments. The proposals of the direct tax code are still open for debate and discussions, but the underlying policy directions indicate that life insurance will be the most affected among all other investment instruments. This may affect your financial planning if you don’t understand the implications and plan your insurance buying accordingly.

PREMIUM PUNCH

At present, premium payment for a life insurance policy is tax-exempt provided the premium amount is not more than 20 per cent of the sum assured. Similarly, any sum received under a life insurance policy — be it money back at regular intervals, death benefit, maturity benefits, including bonus and loyalty additions — is tax-free. But the new tax code envisages that any sum received under a life insurance policy, including death benefit, will be exempt from tax if and only if the premium paid for any of the years does not exceed 5 per cent of the sum assured. This provision, if it finds its way into the final bill, will prove the most significant because the premium installments of all life insurance policies, be it a traditional plan or a unit-liked one, as a percentage of sum assured is much higher than 5 per cent, except in the case of term assurance plans. In other words, benefits under all life insurance policies (except for term assurance) will become taxable from April 2011 unless insurers drastically reduce their premium rates to comply with the 5 per cent criteria. In other words, the sum assured of a policy should be at least 20 times of the annual premium — if you pay an annual premium of Rs 15,000 for a policy, the minimum sum assured should be Rs 3 lakh — to receive tax-free benefits from a life insurance policy. At present, insurance companies offer a minimum sum assured of only five times the annual premium — for an annual premium of Rs 15,000, you get a life cover of Rs 75,000.

POLICYHOLDERS’ LOSS

Now, if life insurance products with their current features have to comply with the requirement for tax exemption under the direct tax code, the mortality charge payable by policyholders will increase four times (since the minimum sum assured will have to be increased four times). An increase of mortality charge will surely reduce the ultimate return to policyholders. Little wonder why life insurers lobbied and were successful in persuading the Insurance Regulatory and Development Authority (IRDA) to exclude mortality charges when the regulator put a cap on various charges under unit-linked plans — the largest selling product in the life insurance space. Had the mortality charge been included in the overall cap on ULIP charges, insurers would not have any other way but to reduce the commission payable to agents in order to provide for higher sum assured to policyholders. Now that mortality charges are excluded from overall cap on ULIP charges, it is only the policyholder who will have to pay a higher cost and sacrifice return.

TAXING TIMES

What we have discussed so far is only one aspect of the fallout of the new tax regime on life insurance. The New Direct Taxes Code has another bearing on life insurance policies. Under the new tax regime, premium payment up to Rs 3 lakh for a life insurance policy will be tax-exempt. But if the sum assured is not equal to or higher than 20 times the annual premium, any sum received under the policy will be taxed at the marginal rate applicable to the income bracket taking into account the benefits received.

For example, you have bought a policy having a sum assured of Rs 10 lakh and on maturity it amounted to Rs 30 lakh. Let us assume that your annual income at the time of the policy maturity is Rs 10 lakh. So, for income tax purposes, your total income would be considered as Rs 40 lakh (= Rs 10 lakh + Rs 30 lakh) and you shall have to pay income tax on the entire sum at the rate corresponding to the Rs 40-lakh income bracket. Let us now see what it actually means.

For this we consider two separate tax regimes — one is taxed-exempt-exempt and the other is exempt-exempt-taxed. Under taxed-exempt-exempt, you invest tax-paid income while the accumulation on the invested amount and its withdrawal are exempt from tax. Under exempt-exempt-taxed, your income is not taxed initially neither the accumulation on the invested amount. You pay tax on the withdrawal amount. .Till the rate of tax remains the same there is no financial difference whether it is TEE or EET regime. But if the tax rate is a progressive one, that is, the tax rate increases with the level of income, EET will yield much lower post-tax return than in TEE.Given the proposed tax slabs in the New Direct Taxes Code, you may have to pay a much higher tax on benefits received under a life insurance policy than a 10 per cent capital gains tax on investment in other instruments

Read more: http://www.simpletaxindia.org

Leave a comment »

14 tax-free incomes for FY 2009-10 for details visit www.ltrsnrmu.blogspot.com

In a few months’ time the taxman will coming knocking on your door. However, he cannot tax you on the following 14 important items of income and receipts, as they are fully exempt from income tax and which a resident individual Indian assessee can use with profit for the purpose of tax planning.

1. Agricultural income

Under the provisions of Section 10(1) of the Income Tax Act, agricultural income is fully exempt from income tax.

However, for individuals or HUFs when agricultural income is in excess of Rs 5,000, it is aggregated with the total income for the purposes of computing tax on the total income in a manner which results into "no" tax on agricultural income but an increased income tax on the other income.

2. Receipts from Hindu undivided family (HUF)

Any sum received by an individual as a member of a Hindu undivided family, where the said sum has been paid out of the income of the family, or, in the case of an impartible estate, where such sum has been paid out of the income of the estate belonging to the family, is completely exempt from income tax in the hands of an individual member of the family under Section 10(2).

3. Allowance for foreign service

Any allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India, rendering service outside India, are completely exempt from tax under Section 10(7).

This provision can be taken advantage of by the citizens of India who are in government service so that they can accumulate tax-free perquisites and allowances received outside India.

4. Gratuities

Under the provisions of Section 10(10) of the IT Act, any death-cum-retirement gratuity of a government servant is completely exempt from income tax.

In respect of private sector employees, however, gratuity received on retirement or on becoming incapacitated or on termination or any gratuity received by his widow, children or dependants on his death is exempt subject to certain conditions.

The maximum amount of exemption is Rs 3,50,000. Of course, this is further subject to certain other limits like the one half-month’s salary for each year of completed service, calculated on the basis of average salary for the 10 months immediately preceding the year in which the gratuity is paid or 20 months’ salary as calculated. Thus, the least of these items is exempt from income tax under Section 10(10).

5. Commutation of pension

The entire amount of any payment in commutation of pension by a government servant or any payment in commutation of pension from LIC pension fund is exempt from income tax under Section 10(10A) of IT Act.

However, in respect of private sector employees, only the following amount of commuted pension is exempt, namely:

(a) Where the employee received any gratuity, the commuted value of one-third of the pension which he is normally entitled to receive; and

(b) In any other case, the commuted value of half of such pension.

It may be noted here that the monthly pension receivable by a pensioner is liable to full income tax like any other item of salary or income and no standard deduction is now available in respect of pension received by a tax payer.

6. Leave salary of central government employees

Under Section 10(10AA) the maximum amount receivable by the employees of central government as cash equivalent to the leave salary in respect of earned leave at their credit upto 10 months’ leave at the time of their retirement, whether on superannuation or otherwise, would be Rs 300,000.

7. Voluntary retirement or separation payment

Under the provisions of Section 10(10C), any amount received by an employee of a public sector company or of any other company or of a local authority or a statutory authority or a cooperative society or university or IIT or IIM at the time of his voluntary retirement (VR) or voluntary separation in accordance with any scheme or schemes of VR as per Rule 2BA, is completely exempt from tax.

The maximum amount of money received at such VR which is so exempt is Rs 500,000. As per Finance (No. 2) Act, 2009 an assessee cannot enjoy both the exemption in respect of VRS upto Rs 500,000 and also a deduction under Section 89.

8. Life insurance receipts

Under Section 10(10D), any sum received under a Life Insurance Policy, including the sum allocated by way of bonus on such policy, other than u/s 80DDA or under a Keyman Insurance Policy, or under an insurance policy issued on or after 1.4.2003 in respect of which the premium payable for any of the years during the term of the policy exceeds 20% of the actual capital sum assured, is fully exempt from tax.

However, all moneys received on death of the insured are fully exempt from tax Thus, generally moneys received from life insurance policies whether from the Life Insurance Corporation or any other private insurance company would be exempt from income tax.

9. Payment received from provident funds

Under the provisions of Sections 10(11), (12) and (13) any payment from a government or recognised provident fund (PF) or approved superannuation fund, or PPF is exempt from income tax.

10. Certain types of interest payment

There are certain types of interest payments which are fully exempt from income tax u/s 10(15). These are described below:

(i) Income by way of interest, premium on redemption or other payment on such securities, bonds, annuity certificates, savings certificates, other certificates issued by the Central Government and deposits as the Central Government may, by notification in the Official Gazette, specify in this behalf.

(iia) In the case of an individual or a Hindu Undivided Family, interest on such capital investment bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf (i.e. 7% Capital Investment Bonds);

(iib) In the case of an individual or a Hindu Undivided Family, interest on such Relief Bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf (i.e., 9% or 8.5% or 8% or 7% Relief Bonds); (iid) Interest on NRI bonds;

(iiia) Interest on securities held by the issue department of the Central Bank of Ceylon constituted under the Ceylon Monetary Law Act, 1949;

(iiib) Interest payable to any bank incorporated in a country outside India and authorised to perform central banking functions in that country on any deposits made by it, with the approval of the Reserve Bank of India or with any scheduled bank;

(iv) Certain interest payable by Government or a local authority on moneys borrowed by it, including hedging charges on currency fluctuation (from the AY 2000-2001), etc.;

(v) Interest on Gold Deposit Bonds;

(vi) Interest on certain deposits are: Bhopal Gas victims;

(vii) Interest on bonds of local authorities as notified, and

(viii) Interest on 6.5% Savings Bonds [Exempt] issued by RBI

(ix) Stipulated new tax free bonds to be notified from time to time.

11. Dividends on shares and units – Section 10(34) & (35)

With effect from the Assessment Year 2004-05, the dividend income and income of units of mutual funds received by the assessee completely exempt from income tax.

12. Long-term capital gains of transfer of securities – Section 10(38)

With effect from FY 2004-05, any income arising to a taxpayer on account of sale of long-term capital asset being securities is completely outside the purview of tax liability especially when the transaction has been subjected to Securities Transaction Tax.

Thus, if the shares of any company listed in the stock exchange are sold after holding it for a minimum period of one year then there will be no liability to payment of capital gains.

This provision would even apply for the old shares which are held by an assessee and are sold after the Finance (No.2) Act, 2004 came into force.

13. Amount received by way of gift, etc – Section 10(39)

As per the Finance (No.2) Act, 2004, gift, etc. received after 1-9-2004 by individual or HUF in cash or by way of credit, etc. is being subjected to tax if the same is not received from relative, etc. However, Section 56(2) provides that the amount received to the extent of Rs 50,000 will, however, be exempt from the purview of income tax.

Similarly, amount received on the occasion of marriage from a non-relative, etc. would also be exempted. It may be noted that the gift from relatives. as mentioned in the Section can be received without any upper limit.

14. Tax exemption regarding reverse mortgage scheme – sections 2(47) and 47(x)

Any transfer of a capital asset in a transaction of reverse mortgage for senior citizens under a scheme made and notified by the Central Government would not be regarded as a transfer and therefore would not attract capital gains tax. The loan amount would also be exempt from tax.

These amendments by the Finance Act, 2008 apply from FY 2007-08 onwards.

Leave a comment »

1% interest subvention on housing loans upto Rs.10 lakh

1% interest subvention on housing loans upto Rs.10 lakh


The Cabinet today approved the Scheme of 1% interest subvention on housing loans up to Rs.10 lakh and the allocation of a sum of Rs.1000 crore for the Scheme.
Point-wide Details
• Interest subvention of 1 percent will be made available on individual housing loans upto Rs.10 lakh for construction / purchase of a new house or extension of an existing house provided the cost of the construction/price of the new house/extension does not exceed Rs. 20 lakh.
• The Scheme will be implemented through Scheduled Commercial Banks (SCBs) and Housing Finance Companies (HFCs) registered with the National Housing Bank (NHB).
• The first twelve instalments of all such loans sanctioned and disbursed during the period of twelve months from the date of publication of the scheme will be eligible for interest subvention.
• Subsidy of one percent will be computed for 12 months on disbursed amount and adjusted upfront in the principal outstanding irrespective of whether the loan is on fixed or floating rate basis.
• Reserve Bank of India (RBI) will be designated the nodal agency for SCBs and National Housing Bank (NHB) will be designated the nodal agency for HFCs.
Background
There has been a notable deceleration in the sectoral flow of credit to the housing sector which is attributable to increase in the price of houses, slackening of income growth and a rise in interest rates for housing loans.
The Finance Minister in his reply to the debate on the Finance Bill in the Lok Sabha on 27th July, 2009 made the announcement that housing, particularly lower and middle income housing, deserved to be supported. In order to stimulate this segment of house owners, he proposed to provide support to borrowers by way of interest subvention of 1% on all housing loans up to Rs.10 lakh to individuals, provided the cost of the house does not exceed Rs.20 lakh.
Implementation Strategy and targets
All Scheduled Commercial Banks (SCBs) and Housing Finance Companies (HFCs) will submit a monthly consolidated return to the Reserve Bank of India (RBI) and National Housing Bank (NHB) respectively, specifying interest subvention given.
The nodal agencies will put up a demand to the Government of India for release of subsidy amount and the Government of India in turn will sanction and release the subsidy amount based on demand received.
The number of beneficiaries covered under the scheme will depend, interalia, upon the size of the loan amount and the number of beneficiaries approaching the nodal agency for interest subvention. Being a demand driven scheme no specific targets for coverage of beneficiaries have been fixed.
Major Impact:
It is expected that cut in interest rates should reduce Equated Monthly Instalments (EMIs) of borrowers and create additional demand for housing. This in turn should stimulate demand in construction industry as well as industries such as steel & cement having employment potential and income multiplier effect.
Expenditure involved:
An amount of Rs.1000 crore will be allocated in the Budget for the year 2009-10 for implementation of the Scheme.
No. of beneficiaries:
On a housing loan of Rs.10 lakh, the 1% interest relief available will amount to Rs.10,000/- per account. As such, the Scheme of a size of Rs.1000 crore is expected to cover 10 lakh beneficiaries in one year period.
States/Districts covered:
The scheme will cover all States & Union Territories of the country, including rural & urban areas.

****

Leave a comment »