Ever wondered what does TDS refers to? Tax deducted at source is one of the modes of collecting Income-tax from the assessees. Such type of a collection takes place at the source when income arises or accrues. If an individual is earning a “specified type” of income the Income-Tax Act enjoins on the payer of such income to deduct a stipulated percentage of his income in the name of income tax and pay only the balanced amount to the recipient. The tax so deducted is then submitted to the Government treasury to the credit of Central Govt. within a specified time. Basically the concept of TDS is used as an instrument in enlarging the tax base. A few income subjected to TDS include dividend, interest on securities, salary, interest, winnings from lottery, horse races, commission and brokerage, rent, technical services, fees for professional, payment to non-residents etc.

With the month of January almost ending, you must have been showered with repeated reminders to share your tax related investment proofs with your HR and payroll colleagues. Wanna know why? Here taxsavers brings to you the importance of making a timely submission of these proofs.

Why is it important to submit tax proofs?

Tax proofs ensure that the right amount of tax is deducted from your paycheck. An individual should never over or underpay his taxes. The income tax of an employee is deducted by his employer in the form of tax deducted as source (TDS). Therefore in order to make a correct evaluation of all the deductible investments that the individual has done, the employers need the tax proofs.

Every employee has to submit a declaration from the employee stating that deduction and exemption to which he or she is entitled in the beginning of the year itself. Some of these examples are House Rent Allowance (HRA), Leave Travel Allowance (LTA), Section 80C deductions etc.

An Employee’s annual tax liability is calculated by keeping in mind this declaration. Thereafter the employer deducts taxes on a monthly basis from his salary. In order to substantiate the claims made by the employees, the employers need the documentary evidence for the investments done.

The tax liability is adjusted to account for any deviation in actual expenditure incurred or investments done as compared to the original declaration.

Your tax liability will go down if your tax saving investments turn out to be higher than what you initially declared which will result in a lower tax paid that year. On the contrary you will be liable for additional tax payments at year-end incase your tax saving investments are lower than what you declared and your employer has given you a tax benefit on that.

An individual has to submit the following proofs:

• Rent Receipts: If you want to claim HRA deduction
• Travel receipts: Required for LTA claims
• Home loan repayment certificates from Lender: Both principal and interest repayment
• Section 80C deduction proofs
• For other deductions like health insurance premium, education loan, donations etc.

Of course! It’s an important part of your financial planning to mention all the incomes generated by you. Along with the investment declaration you can also mention other incomes like interest, capital gain on shares and rental etc.  The advantage of doing this is that your payroll can then deduct the right amount of tax these incomes. If this is not done, then you might be surprised to find a big tax liability on these sources of income at the time of filing your return. In certain circumstances you might end up paying fine on overdue taxes.

• Easy access: Taxes can be paid anytime from any location through your net-banking account.
• Instant Transfer: Funds can be easily transferred from your account.
• No data entry: Whatever you will write on the e-challan will be directly sent to the Income Tax Department. There will be no data entry done by banks.
• Save: A print out of the challan and the receipt copy can be saved.
• Receive receipt: You will have a legible and clear receipt/counterfoil from your bank once they authorize payment of the amount.
• Transaction id: Your bank statement will consist of your transaction id of the e-payment transaction.

• Check Online: You can check just by sitting at home whether your money has actually reached the I-T Department.

The incidence of lifestyle diseases and the sky rocketing cost of quality health care has led to the need for health insurances. Health Insurance policy helps an individual save his investments and capital in the event of any critical illness in the family. This is  a tax saver policy under which the premiums paid provide tax benefits as a deductible expense under the provisions of Section 80D of the Act. The more you pay the premium, the lesser becomes the taxable income and more the tax savings. Therefore a health insurance plan is considered to be an effective way to save tax along with risk cover.

In India, health insurance saw the light of the day fifteen years ago. It started with a medical reimbursement plan which primarily covered hospitalization. However it didn’t receive a good response at that point of time. Today the entry of multiple insurance players in the market has cascaded the need for several aspects of health insurance. This has subsequently led to new products, practices and services.

Insurance companies are providing their customers an array of unique and innovative health insurance plans which cover much more than basic hospitalization, in order to make sure that you taken care of when the need arises.

While an individual health plan covers the prosper singly, the family insurance plan takes care of the entire family. At the same time group insurance schemes provide cover only to the salaried employees and are provided by their employer.

If the employee has to contribute for the group scheme, then the amount which has been contributed can be availed by him as his tax break.

The electronic filing of income tax return was introduced in 2004. Under this scheme, a user can file his income tax return online while sitting at home by just clicking on a website. Under this scheme any person can file their returns of income electronically through authorized persons to act as e-return intermediaries on or before the due date.

The data of the return filed is digitized by the intermediaries and transmitted electronically to the filing server of Income Tax Department under their digital signatures.

The fiscal year-end is around the corner and many choose to make tax-related investment decisions around this time. Despite this being a regular, annual ritual, several tax payers have some misconceptions, some of which are listed below:

Misconception No 1

Many people have a feeling that filing tax returns is a difficult and cumbersome process. While many think that a charted accountant might be needed to assist you while filing the tax returns. However in reality filing a tax return involves a simple and a completely uncomplicated process.

A digital signature enables you to handle the entire process while sitting at home through e-filing.

However you can also submit the returns online and then submit the hard copy of the acknowledgment, a one page receipt in the income tax office within a period of fifteen days of submitting the returns.

There are no documents required for the submission of the receipt.

Misconception No 2

Many people think that the interest they are paying on a home loan is deductible from their income from house property up to a maximum of Rs. 1,50,000 per year.

This point is true only to an extent if you take home loan for a single house and it is self-occupied. Whereas if you take a home loan for a second house, you can claim for the entire interest paid as a deduction from your income on house property.

Misconception No 3

Tax exemption is received on the actual rent paid for the rented home.

This statement is not completely true. According to Section 13 A of the income tax Act the maximum amount that is exempt from tax is the lower of the following amounts:

(i) The House Rent Allowance given by the employer
(ii) If you are living in a metro then 50% of your basic salary
(iii) Actual rent paid minus 10% of your basic salary.

However you receive no exemption if your actual rent is lower than 10% of your basic salary.

Misconception No 4

Many people believe that under Section 80C tax saving benefits can be availed only by investing in government organization or paying a premium on insurance.

An individual can claim for deduction also for tuition fee paid in schools and colleges for his children (maximum of two). The children need to be enrolled in a full-time course in any Indian institute.

Misconception No 5

People think if they avail of tax-free medical reimbursement from their employer of up to Rs 15,000 they cannot claim deduction on the premium paid on health insurance.

However the fact is that the tax-free medical reimbursement provided by your employer up to an amount of Rs 15,000 is different from the deduction of Rs 15,000 available under Section 80 D for the health insurance premium paid.

Both these exemptions are two different sections. While the latter assures you for your expenditure for hospitalization, the former looks after the cost of your daily medical needs and outpatient treatment (OPD).

Misconception No 6

Some people are not aware that interest payment on home loans is not the only interest payment for which they can claim an exemption. There is a section of the Income Tax Act called 80E that permits deduction on interest paid on loans taken for higher education for self, spouse and children.

There are unlimited things on which you can claim deduction, all you need to do is to keep in mind the programme for which you are taking loan should be graduate or post graduate programme in engineering, medicine or management or a post-graduate course in the pure or applied sciences. There is no limit on the amount of deduction you can claim. The only thing to keep in mind is that the programme for which the loan is taken should be a graduate or post-graduate program in engineering, medicine or management or a post-graduate course in the pure or applied sciences.

We can’t suggest much about love but we can surely tell you how you can claim tax benefits and enjoy tax savings on gifts and purchases you made for your spouse.

The bad news is that if you gift flowers and chocolates to your loved ones this valentine’s day, you would not be eligible for this tax benefit. However under the following scenarios you can claim tax benefits for gifts that you have given to your spouse or loved ones.

The tax benefits for a gift to a fiancé or spouse

If you gift your spouse in kind or cash then it is not taxable in their hands but any income generated by the gift in kind or cash shall be treated as your income. If you are gifting your fiancé in cash then there is no tax implication. However you have to restrict the cash amount to Rs.50,000. If you do not abide by this the entire amount shall be added as an income to your fiancé.

Tax on wedding gifts

The good news is that no gifts received on the occasion of your marriage shall be taxable. However there is a monetary limit attached to this exemption.

Transferring assets to spouse or fiancé- does that create a tax issue?

If you transfer a property, for example a house to your spouse, then any income accruing to your spouse from this property shall come under your income and taxed in your hands.

However if you transfer the same property to your fiancé and you are supposed to get married soon then even after  your marriage any income generated from this property shall not be clubbed under you income. As the marital relationship did not exists during the time of transfer.

Giving gifts to parents

There is no tax liability for you if you wish to gift your parents in cash or kind.

Can I reduce my taxable salary by getting a car lease in favour of my wife?

We can’t say if true love is leasing a car from your wife, but we can certainly tell you that you can get a tax benefit if your employer can structure your salary such that your company leases your car from your wife. Accordingly you can reduce your taxable salary by the lease rental amount.

Lets take an example. Shyam has a salary package of Rs.15 lakhs. He also maintains a car taken in name of his wife Radha, who is a housewife and has no major taxable income. Shyam can ask his employer to take his wife’s car on lease, say for Rs.20,000 per month ,.i.e., Rs.2.4 lakhs per annum. This reduces Shyam’s salary by Rs. 2.4 lakhs and accordingly he can save taxes on this amount.

The lease rental income shall now be taxable as Radha’s income. She can claim car maintenance and running expenses against the rental income. Further, after applying her tax slab, her tax liability can be virtually reduced to zero.

Therefore, as a married couple Shyam and Radha have managed to save on taxes

Tax benefit on co-owing the house with your spouse

In a situation where you have taken a home loan for your house and are co-owing the house with your fiancé then both of you will be separately entitled to tax deduction on account of interest and principal repayment.