The government is considering raising the tax deduction limit for a housing loan in the coming Budget. The Budget is scheduled to be tabled on March 16.

At present, a deduction of up to Rs 1.5 lakh is available from taxable income towards interest on loan taken for a house. Besides, borrowers can enjoy exemption on payment of principal amount. However, it is part of exemption to savings capped at Rs 1 lakh per annum.

As per sources, with property prices and interest rates rising with each passing year, there is needed to revise the limit. In order to arrest the declining growth rate, the industry associations have demanded raising the tax limit ceiling for the housing loan.

According to Ficci Secretary General Rajiv Kumar the exemption should be harmonized with the rising interest rates and increased to at least Rs 2.5 lakh.

As per CII Director General Chandrajit Banerjee, they recommended that the existing tax deduction limit on income tax of an individual should be increased from the current level of Rs 2.5 lakh to at least Rs 5 lakh.

Rs 3 lakh should be towards interest payment to offset the impact of high interest rates, he said, adding the remaining Rs 2 lakh should be exclusively towards principal loan repayment as the present limit of Rs 1 lakh is already overcrowded with several other items.

Echoing views, Assocham and PHD chamber said that exemption limit needs to be raised both for interest and principal. As per the Direct Taxes Code, which would replace the decades old Income Tax Act, there is income tax exemption for up to Rs 1.5 lakh paid as interest on housing loans in a year.

Once they become a resident, they may have to pay tax on their global income , if their stay in India for the past seven tax years exceeds 729 days and if they are residents in two out of the past 10 tax years. In a nutshell, NRIs run the risk of triggering worldwide taxation soon if they spend a significant time in India.

The Direct Taxes Code (DTC) proposals relating to individual taxation have undergone significant change since the DTC was proposed in August 2009. One will really need to wait for the final bill, which will become operational from April 1, 2012.

For example, last minute investment decisions can lead to mistakes. May be you can end up buying a too expensive product which was never required.

Most importantly, it becomes a very big financial stress if the entire investment process has to be completed within a couple of months. Let’s understand this with a few numbers. An individual can take advantage of the following benefits to save his taxes:  relief of Rs 1 lakh under Section 80C, relief of Rs 20,000 under Section 80CCF, relief of Rs 15,000 (Premium) for medical insurance (self) and relief of Rs 20,000 (Premium) for dependent (parents).

There are a host of other tax benefits that one can take advantage of, but only after proper planning. If one starts making all these investments at the end of the year, the number will shoot up to over Rs 2 lakh.

Therefore April 1 should always be the day to begin investment planning. You can make a fresh beginning by simply creating a proper calendar of investments to be made during the year. This helps a lot as the salaried will soon have to submit details of proposed investments to their organizations. If you will have a clear plan it will be easier for you to give the correct details which ultimately will lead to the right adjustments in your salary.

Let’s take an example, under Section 80C if you plan to invest Rs 50, 000 in Public Provident Fund PPF, Rs 40,000 in equity-linked saving schemes (ELSS) and another Rs 30,000 in life insurance premiums or five-year fixed deposits, then prepare a proper chart and follow it.

Starting early also helps an individual get better return. You should rather invest the entire Rs 50,000 before April 5 in order to seek maximum interest on your PPF money. This will benefit you with the entire 8 percent of interest for 12 months on the invested amount as well as the existing corpus.

Some of the instruments like National Savings Certificates calculate the interest half-yearly. In this way an investor earns slightly more than the existing rate of 8 per cent (8.16 per cent).

If you purchase a medical insurance family floater at the beginning of the financial year, it will give your family cover for the entire year.

Apart from investments you can also start some simple things that will help you save money. For example, filing bank statements properly. For self-employed, maintaining details of expenses is important. It is always advisable to create a regular reminder for payments. This will help save a lot of money on extra charges and penalties that one keeps forking out because of sheer laziness or forgetfulness.

]]> http://www.taxsavers.in/start-tax-planning-for-next-year-from-april-1-580.html/feed 0 http://www.taxsavers.in/10-tasks-to-be-accomplished-before-march-31-566.html http://www.taxsavers.in/10-tasks-to-be-accomplished-before-march-31-566.html#comments Mon, 29 Mar 2010 10:26:22 +0000 editor http://www.taxsavers.in/?p=566 The financial year ends in India on March 31. This date holds great significance as the income of the period April 1 to March 31 is considered as a person’s income for the financial year for which he has to pay Income Tax.

Salaried employees are expected to submit all the necessary proofs to their employer so that they can consider and compute the balance taxes to be deducted from their salary.

While people who generate income through business or who are self-employed will need to estimate the amount of income till March 31, so that necessary advance taxes can be deposited into the government treasury.

TaxSavers.in brings to you ten basic points an individual needs to keep in his mind before filing his income tax return.

1. Submission of the investment proofs: In order to claim benefits under the tax deduction schemes, you need to submit the proof of investments to your employer. A variety of investments  under section 80C of the Indian Income Tax Act offer tax rebate, for example:

• Insurance
• Investments in equity-linked savings schemes (ELSS)
• Deposits in public provident fund (PPF) account
• Purchase of National savings certificates (NSC)
• Education fees for higher studies.

Every employer needs the details and documentary proof of the investments made by his employee in order to provide him the deduction under Section 80C of the Income Tax Act. An individual can claim for a deduction of up to Rs. 100000 in a financial year.

2. Home Loan (submission of the principal and interest repayments certificates): If you are paying interest for home loan, then you can claim tax deduction. All you need to do is to collect the appropriate principal and interest repayment certificate from the lender for the amount paid during that financial year. The person also has to provide a computation to his employer specifying the income/loss under the head ‘House Property’ along with the proof of interest and principal repayment, to claim the deduction.

3. House Rent Allowance and Travel receipts: Tax deduction can also be claimed if you submit house rent allowance proofs or travel receipts. The necessary receipts under this category include; rent receipts, lease papers etc.

4. TDS certificates: TDS are tax deducted at source. In order to claim for tax deduction, you will have to collect all your TDS certificates from banks and his previous employer well in advance.

5. Health insurance premium: Even if you are paying premiums for health insurance, you can claim tax rebates. However, for this you must have the receipt for the premium paid. You can claim for the following deductions under Section 80C:

• Rs. 15,000 on premium paid for insurance on the health of the assessee and his family.
• In case the insured is a senior citizen, the above mentioned limit will go up to Rs 20,000.

6. Donations: Under Section 80 G of the Indian Income Tax, you can claim for tax deductions if you have donated money to any recognized charitable organization across the country. There are many charitable organizations which are recognized under Section 80G. However, you will be required to produce the receipt for the donation amount while claiming for tax deduction.

7. Medical, telephone and other bills: If a particular employer is offering his employees any reimbursements towards telephone or medical expenses, then he will have to submit the receipts for all such miscellaneous bills to his employer.

8. Education Loans: In case you are paying interest on education loan then you can claim for tax benefits. But you have to make sure that you have all the necessary records to authenticate your claim.

9. Capital gains: In case if you have sold or transferred any capital asset like house property, shares, mutual funds etc during that financial year, then you have to compute capital gains/losses on these transactions. There are different rates for long-term and short-term capital gains. Your taxability will be determined only after the classification and the type of the asset.

10. Compute the taxable income and Income tax to be paid: Once you are through with the calculation of your investments done, you should start computing your tax for the year and determine if you are liable to pay any tax or not.

The art of budget making is actually all about making the first impression as mind-gripping and positive as it could get. This is what happened in this budget. While the opposition walked off , the entire budget speech raced through bumper free house. Most TV viewers also missed what they wanted to really hear about in the budget.

The Service tax is considered to be the winner for a common man in this year’s budget.

Various concessions and preferences have been offered which are considered as the ambidexterity of the Finance Minister by some people, while the other lot may term it as unfair and non-transparent methods of policy making as too many retrospective amendments have been made to prevail over some inconvenient judicial pronouncements. But if you think practically, there is no end to such debates.

A few most interesting feature of this includes ‘The Macro Economic Framework Statement’ and ‘Implementation of Budget Announcements’.

A tax expenditure budget statement was laid before Parliament for the first time during Budget 2006-07 which lent credence to the Government’s intention of bringing about transparency in the matter of tax policy and tax expenditures. It was decided to be made as an integral part of budget documents, encouraged by the pleasant response. And thus it is the fifth such statement which has been laid in the house this year.

]]> http://www.taxsavers.in/income-tax-overview-562.html/feed 0 http://www.taxsavers.in/higher-tax-free-gratuity-will-soon-see-the-light-of-the-day-560.html http://www.taxsavers.in/higher-tax-free-gratuity-will-soon-see-the-light-of-the-day-560.html#comments Fri, 05 Mar 2010 13:26:08 +0000 editor http://www.taxsavers.in/?p=560 An amendment has been cleared by the centre whose logical conclusion is expected to exempt private sector employees’ gratuity up to Rs 10 lakh from income tax. Currently gratuity below Rs. 3.5 lakh is exempted from the tax. Companies can pay higher amount but income tax will have to be paid on the sum above Rs 3.5 lakh.

The union cabinet cleared the proposal to raise the ceiling for payment of gratuity to private sector employees from Rs 3.5 lakh to Rs 10 lakh.

According to the Union labour minister Mallikarjun Kharge, the cabinet bill has approved the bill seeking to amend the Payment of Gratuity Act which will be introduced in the current session of Parliament. However the minister did not disclose when the income tax would be amended.

Finance Minister Pranab Mukherjee has widened the slabs in his budget proposal for 2010-11. The new tax code suggests a 10 per cent tax on income between Rs 1.6 lakh and Rs 10 lakh, 20 per cent on income up to Rs 25 lakh and 30 per cent on income beyond that.

However, according to revenue secretary, Sunil Mitra a further widening of tax slabs is possible but it will see the light of the day when the revised (draft direct taxes code) paper comes. The finance ministry will come out with the revised draft in the first quarter of the next fiscal so that a bill can be tabled in the monsoon session of Parliament.

It has been so following a number of grievances on draft direct taxes code proposed by the finance ministry currently.

The finance minister stated that the period is going to be between April and June as this is the time when the ministry has time for this purpose.

Vital points about LTV

Firstly LTV depends upon the lender’s valuation of the home and not upon the valuation done by the borrower. This is even more important if an individual is buying a home in the resale market. As there are no objective barometer of what the value of the home should be.

For example an individual might be buying a house for Rs 40 lakhs but the lender’s surveyor’s might value for Rs 30 lakhs only so the bank will provide a loan of around Rs 32 lakh to the individual while the individual will have to balance the rest of the 8 lakhs on his own.

Secondly, in case the lender sees an Individual as a high-risk borrower which means that they do not have full comfort in his ability to repay the loan, they might reduces the LTV and demand that the individual pays higher amount of the value of the house.

Finally, in case an individual wants a high LTV and the lender agrees to give it to him, it’s likely that he will be expected to pay a higher area of interest and a result higher loan EMI.

LTV is one way the lender is going to see the risk of lending to an individual.

Section 80 C allows the deduction for principal repayment and the amount which gets deducted is Rs. 1 lakh per annum. However if you take this whole deduction towards principal repayment, then you wont be eligible for other 80C options like an insurance policy or ELSS. The balance amount can be spread across other 80C options only if you take a part deduction towards the principal repayment.

Section 24(b) allows the deduction for annual interest payments under the following scenarios:

• The deduction for the annual interest payment shall be counted from the year in which the property was purchased or constructed.

The interest paid from the date of the loan and up to the beginning of the financial year in which property is purchased or construction is completed shall be allowed 1/5th in next successive five years along with the interest repayment of that particular financial year

Key points on taxation:

• In case if you don’t have the possession of the house then there is no tax benefit available.
• If two people have taken a home loan jointly then both of them can enjoy the tax benefit in the ratio of the EMI payment that they are making.
• In case if you are staying in a rented house then you can reap the benefit of home loan tax benefits and HRA benefits.
• However this tax benefit is not available for loan against existing property or loan taken to purchase land.

EMI is a fixed amount and remains constant unless an individual changes the tenure of the length of the loan. However, in the case of home loan interest and principal component of the EMI, it can change on a monthly basis.

The fees associated with home loans

There are fees to be paid before the loan is disbursed to an individual, as well as during the life of the home loan.

Before the disbursal

• Processing fee: while an individual submits an application form, he will be asked to pay a cheque of the home loan processing fee by most lenders. This fee is non-refundable in most of cases. The fee amounts to Rs 5000.
• Legal and technical charge: many lenders also recover the costs that they spend for legal and technical verification of the property by the person who is taking loan. These are known as legal and technical charges.
• Stamp Duty: On the purchase of a house you have to pay the stamp duty to the Government. Many banks also recover the stamp duty paid on the registration of the loan agreement.

Post disbursal

• Payment and Foreclosure Charges: It is the penalty paid by the borrower for making extra payment before the repayment schedule. This is waived by most of the lenders. While foreclosure charges are levied while an individual repay the entire amount of the home loan before the actual tenure. In these days banks charge this amount only when an individual transfers home loan balance to another home loan lender and not when foreclosing with his own funds.
• Duplicate Statement Charges: the lender sends a settlement to the borrower every year giving details of the money that has been paid to him towards the home loan. The amount is broken into interest paid and principal repayments. This is done for an individual’s annual tax filing purpose. The lender might charge an individual if he loses the settlement.  A settlement is send by the lender giving details of the amount of money that has been paid to him by you towards the home loan every year.