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Plan your taxes the smart way

Plan your taxes the smart way
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First Published: Mon, Mar 02 2009. 01 15 AM IST

Updated: Sun, Aug 02 2009. 10 23 PM IST
LEAVE TRAVEL ALLOWANCE
Do I get any tax benefits from leave travel allowance (LTA)?
The exemption is allowed only with respect to the fare. Expenses incurred towards boarding and lodging or on conveyance to and from the railway station/airport do not qualify for exemption.
How often can I claim this exemption?
You can claim LTA exemption twice in a block of four calendar years. The current block is 2006-09.
What if I am not able to claim exemption in a particular block?
One journey can be carried forward and claimed in the first calendar year of the succeeding block. Thereafter, you can claim the two remaining journeys of that block.
Who can come along?
Travel exemption is available only for your spouse, up to two children, dependant parents, brothers and sisters.
How is the exemption amount calculated?
The travel concession is exempt to the extent of the amount spent on travel or the following specified limits, whichever is less:
• If the mode of transport is air: economy airfare on a national carrier on the shortest route.
• Any mode other than air: If the destination is connected by rail, then it would be first-AC rail fare on the shortest route.
If it is not connected by rail, then it is first-class or deluxe fare where a recognized public transport system exists.
For places where a recognized public transport system does not exist, it would be first-AC rail fare for an equivalent distance.
Do I need to submit travel bills to my employer to claim LTA?
According to a 21 January Supreme Court judgement, employers are under no statutory obligation to collect travel bills from their employees to allow LTA exemption.
What if I failed to claim LTA and my employer had deducted tax on the LTA amount?
You can claim it in your income tax returns and you’ll get a refund for the tax deducted.
GIFTS AND TAXES
If I receive a gift, is it taxable?
Any sum of money which exceeds Rs50,000 and is received as a gift (i.e., without consideration) by an individual or a Hindu undivided family is taxable.
Does this mean nothing will be taxable if the gift amount is up to Rs50,000?
Yes. Gifts up to Rs50,000 are not taxable. Also, this is applicable to aggregate gifts received by an individual from various sources. Let’s take an example. Ganesh receives a gift of Rs25,000 from Amit and another Rs26,000 from Mohan. Since the aggregate value of the gift received exceeds Rs50,000, the entire amount of Rs51,000 will be taxable.
Are there any exceptions?
It does not apply to gifts received from any relative, during the individual’s marriage, under a will or by way of inheritance in contemplation of death of the payer, any local authority, trust or university.
What about the taxability of gifts in kind?
Gifts in kind or of immovable property are not covered and are exempt without limit. A gift in kind does not include monetary instruments such as national savings certificates (NSCs), fixed deposits (FDs), cheques, etc. Those gifts are taxable.
What are the tax benefits for a gift to a spouse?
If you make a gift in kind or cash to your spouse, it is not taxable in their hands. However, any income generated by the gift in kind or cash shall be treated as your income.
What if I give a gift to my fiancé?
The good news is that if you make a gift in kind to your fiancé, then there is no tax implication. However, if your gift amount exceeds Rs50,000, then the entire amount will be added to your fiancé’s income.
If I transfer my assets to my spouse or fiancé, does that create a tax issue?
If you transfer an asset—for example, a house—to your spouse, any income accruing from this asset shall be clubbed with your income and taxed in your hands.
But if you transfer the same property to your fiancé, and are to get married soon after the transfer, then even after your marriage, any income accruing on this asset will not be taxed as your income. This is because the marital relationship did not exist at the time of the asset transfer.
What are the tax implications of giving a gift to my parents?
Any gift in kind or cash is tax free in the hands of your parents and does not lead to any tax liability for you either.
Is there anything else to be taken care of while making a gift?
While receiving a gift, it is always in the interest of the donee to get a gift deed signed by the donor. This might be required to justify gift receipts in the event of future issues raised by the tax authorities.
HOUSE RENT ALLOWANCE
House rent allowance (HRA) is given by an employer to an employee to meet expenses for the rent of accommodation. For HRA, it is important that you don’t own the property and that you are paying rent.
How is HRA calculated?
Your HRA is the least of the following three limits:
1. Rent paid in excess of 10% of salary.
2. 40% of salary (50% if the property is located in Delhi, Mumbai, Kolkata,and Chennai).
3. Actual HRA allowance received.
Salary for the purposes of this calculation is the sum of the following:
• Basic salary;
• Dearness allowance, if being paid by employer;
• Commission, if given as a fixed percentage of the turnover achieved by the employee.
Can I claim HRA exemption if I am staying in property belonging to my parents or my spouse?
If you are living in a house owned by your parents or spouse and you are paying rent to them, then you can certainly claim HRA. However, the rental income they earn must be shown by them as income in their tax return to avoid any problems.
Can I claim HRA exemption along with other home loan tax benefits?
Yes, it is possible. Home loan repayment tax benefits are available as a deduction for repayment of home loan. If your employment requires you to be in a different location or city as a result of which you cannot occupy your own house and end up living in rented accommodation, you can certainly claim both benefits.
TDS STATUS AND MULTIPLE EMPLOYMENT
If you have held two jobs during the financial year, how do you know if the right amount of TDS is being deducted? If you have taken the wrong amount of deductions or taken the deductions twice, you might end up paying extra interest.
Should I disclose TDS deducted by my old employer to my new employer?
You should disclose it to avoid problems. When you file your tax return, your income from both employers will be clubbed together. The deductions and tax-slab benefits will be allowed only at one place. If you have taken these benefits twice, you will have saved on paying taxes. Additionally, there can be a large amount of interest added to your tax liability for late payment, as this tax ought to have been deducted by the employer at the time of giving your salary.
What should I disclose to my new employer?
• Salary received from the previous employer;
• Tax deducted (TDS) by the previous employer;
• Tax savings and investments eligible for deduction already declared with the previous employer.
CONNECT
ACT
Every year, inflation eats away at our disposable income, which ultimately results in a much higher cost of living. This issue is even more critical for retired people whose incomes cannot keep pace with inflation. However, if you actively manage your investments, you can protect yourself from the effects of inflation. You can invest in instruments that offer you long-term capital appreciation that is higher than the inflation rate. For instance, you could look at equities or equity mutual funds as opposed to fixed deposits.
GIFT
As mentioned above (see GIFTS AND TAXES), any gift in cash or kind to your parents is tax-exempt. In fact, if you gift them a health insurance plan, you can get a tax benefit for yourself as well. As your parents age, their health care needs will increase. After 60, it gets tougher to get health insurance. Make sure you get them health coverage sooner than later, and also save up to Rs6,600 in taxes this year.
Under section 80D of the tax code, you can get up to Rs15,000 tax deduction towards the premium paid for health insurance for your parents, whether they are dependent on you or not. Additionally, if your parents are senior citizens, then you can get a further Rs5,000 deduction.
KNOW
For a self-occupied property, interest deduction in your income-tax return on a home loan is capped at Rs1.5 lakh. But if you let out the house, the entire amount paid on the loan can be deducted in full. Whatever interest you’ve paid in the current financial year, plus one-fifth of the interest paid during the construction period, will be allowed in full, without any cap of Rs1.5 lakh. If you own multiple properties and all of them are occupied for residential purposes, then you can claim any one as self-occupied, and the others shall be deemed let out.
AVOID
Are you aware that credit card debt is the most expensive form of debt? A typical credit card charges you an annualized percentage rate of approximately 30-45% on any unpaid balance on your card after the due date. Compare this with typical personal loans that would cost less than 20%. Additionally, there will be hefty late payment charges that could be around 5% of the outstanding amount. If you withdraw money from an ATM using your credit card, there will be transaction fees of around 2.5% of the withdrawal amount, subject to a minimum fee of up to Rs300, and there will be finance charges as well. The bottom line: Avoid credit card debt as much as you can.
Content provided by iTrust Financial Advisors
Write to us at businessoflife@livemint.com
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First Published: Mon, Mar 02 2009. 01 15 AM IST