Impact of Direct Tax Code on investment strategy

The world of investments is about the future. It is about planning for tax-adjusted returns for future years. As investors do their math of investments today, they have to keep in mind that the income tax map is set for a substantial change in April 2012. This change will come if the new Direct Tax Code Law is passed by the Parliament in this winter session.

The new tax code will have an impact on most investment avenues such as insurance policies, home loans, PPF, mutual funds and stocks. Many tax exemptions in existence today will no longer be valid as the government slowly migrates from the exempt-exemptexempt (EEE) regime to a simpler and more straightforward tax structure.

The Direct Tax Code (DTC) is nothing but a step in that direction. Investors have to now get used to having fewer exemptions and plan their investments from a returns perspective rather than a tax perspective.

Impact on mutual funds

Equity-linked saving schemes (ELSS): The main reason why investors invest in ELSS funds is to save tax. At the end of every financial year there is a rush to subscribe to ELSS funds. The major change that will come under the new DTC is that tax exemptions for ELSS funds will no longer be valid. They are treated like any other equity mutual fund for tax purposes.

Tax exemption on postal savings account interest capped at Rs 3,500 :

NEW DELHI: You will now have to pay tax on interest earned beyond Rs 3,500 on a postal savings bank account. In a recent decision, the Central Board of Direct Taxes , the apex direct taxes body, withdrew the blanket exemption enjoyed hitherto by the scheme.

The exemption will be available only on interest earned up to Rs 3,500 in case of individual accounts and Rs 7,000 in case of joint accounts from the current fiscal year itself. Experts say some of the concessions granted earlier had to be reviewed to see if they were in line with the current economic reality or had outlived their utility.

How to fill Income Tax Return Form 1 (ITR1)-Part2

How to fill Income Tax Return Form 1 (ITR1)-Part1

Six smart things you should know about capital gains from online trading

1) Transactions in equity shares using the Internet trading platform are subject to taxation and have to be included in the income tax returns.

2) All gains from the sale of shares within one year of the date of purchase are subject to capital gains tax at 15%, along with the applicable surcharge and cess.

3) All losses from the sale of shares within one year of the date of purchase are eligible to be set off against capital gains for a period of eight years.

4) If you sell shares after a holding period of more than a year, the gains are exempt from tax. So, the losses from such a sale are also ineligible to be set off against gains.

5) The gains or losses have to be computed on the first in, first out principle. This means that the shares you buy first will have to be sold first.

6) If the income from such transactions exceeds Rs 20 lakh per year, the accounts have to be audited and treated as business income. 
~
Source : ET

FAQs on Tax Savings :

1. What is a tax deduction?
   
   A tax deduction is simply an item that helps you reduce your taxable income by the amount of the deduction. So by utilizing that particular deduction, you can reduce the amount of income tax by reducing the amount of your taxable income.
   
   For example: If you have a taxable income of Rs. 2,50,000 for the financial year, and you invest Rs. 70,000 in PPF and Rs. 30,000 in Equity Linked Savings Schemes, then your taxable income is: Gross Taxable Income: Rs. 2,50,000
   
   Deductions:
                       PPF: Rs. 70,000
                       ELSS: Rs. 30,000
   Total Deductions:         Rs. 1,00,000
   Net Taxable Income:    Rs. 1,50,000
2. How can I save tax using different tax deductions?
   
   There are different tax deductions available to an individual under different Sections of the IT Act. Section 80C for example has a deduction limit of Rs. 1 lakh per annum.
   You can save tax by making use of the various deductions available to you under different sections of the IT Act i.e. investing in these instruments.
3. What are the investment avenues available under Section 80C?
   
   The specified investment schemes under section 80C are:
   
   
   1. Life Insurance Premiums
   2. Contributions to Employees Provident Fund (EPF)
   3. Public Provident Fund (PPF)
   4. National Savings Certificates (NSC)
   5. Unit Linked Insurance Plan (ULIP)
   6. Repayment of Housing Loan (Principal)
   7. Equity Linked Savings Scheme (ELSS) of Mutual Funds
   8. Fixed Deposit (FD) with Banks having a lock-in period of five years
   9. Pension Funds
4. Does Section 80C include Section 80CCC and 80CCD?
   
   Yes. The total deduction available under Section 80C is Rs. 1 lakh, inclusive of Section 80CCC and Section 80CCD. These two sub sections are to do with pension. Under Section 80CCC, you can invest up to Rs. 1 lakh in a Pension fund of LIC of India or any other insurance company. Under Section 80CCD you can invest in the National Pension Scheme of the Central Government up to 10% of your salary. Any contribution to this scheme of more than 10% of your salary will not be eligible for tax deduction.
5. What is the limit for Section 80CCF: Long Term Infrastructure Bonds?
   
   An additional deduction of Rs. 20,000 has been introduced by way of investment into long term infrastructure bonds.
   Here, any investment made into the specified long term infrastructure bonds between April 1st, 2010 and March 31st, 2011 will be eligible for a tax deduction up to Rs. 20,000.
   This is in addition to the Rs. 1 lakh deduction available under Section 80C.
6. How does Life Insurance Premium payment contribute to Section 80C investment?
   
   An amount up to Rs 1 lakh that you pay towards life insurance premium for yourself, your spouse or your children can be included in Section 80C deduction and reduced from your taxable income.
   If you are paying premium for more than one insurance policy, all the premiums can be included, subject to the limit of Rs. 1 lakh.
   
   
   1. Can I include life insurance premiums paid for my parents?
      
      No. Life insurance premium paid for your parents or your in-laws is not eligible for deduction.
   2. Does this apply to all life insurance products such as endowment, money back, term plans, ULIPs etc?
      
      Yes. Any premium paid for any life insurance in any life insurance product is eligible for tax deduction under Section 80C.
      
      Also note that any sum, including the bonus, received on maturity of a life insurance policy is tax free. Death benefits received are also exempt from tax.
      
      Most importantly, remember to invest in a life insurance policy only if you need it, and not for the tax benefit. If you opt for it keeping in mind the tax benefit, you may end up being under-insured or possibly over-insured.
7. How do I save tax by contributing to my employee’s provident fund?
   
   The EPF is a scheme intended to help employees from both private and non-pensionable public sectors save a fraction of their salary every month in a savings scheme, to be used in an event that the employee is temporarily or no longer fit to work or upon retirement.
   
   An employee can withdraw full amount at the credit in the fund on retirement from service after attaining the age of 55 year.
   
   EPF is automatically deducted from salary. Both employee and employer contribute to it. Employee’s contribution is counted towards Section 80C investments.
   
   Employees also have the option to contribute additional amounts through voluntary contributions (VPF).
   
   SUMMARY OF EMPLOYEES PROVIDENT FUND
   

   Return (p.a.)	8.5%
   Risk	NIL
   Lock In	Working Life
   Income from Investment	Interest earned is Tax Free
   Maturity Proceeds	Exempt under Section 10(11).
   NRI/PIO eligible	Yes

8. How do I save tax by contributing to the Public Provident Fund (PPF)?
   
   PPF is eligible for tax deduction up to Rs. 70,000. So any amount up to Rs. 70,000 invested towards your PPF account will be eligible for tax deduction. The minimum investment in PPF is Rs 500 per year and the maximum investment is Rs 70,000 per year.
   
   The unique feature of PPF is that in case of insolvency it will not be attached to the assets of the insolvent. So this is an attractive tax saving tool for business people in fluctuating and highly leveraged businesses. Withdrawals from your PPF account are allowed during certain years for specific purposes.
   
   SUMMARY OF PPF DETAILS
   

   Return (p.a.)	8.0%
   Risk	NIL
   Lock In	15 years
   Income from Investment	Interest earned is Tax Free
   Maturity Proceeds	Exempt from tax.
   NRI/PIO eligible	No

9. How do I save tax by investing in the National Savings Certificate (NSC)?
   
   NSC is a good medium term investment option. An advantage of the NSC is that it can be pledged as security against a loan to banks/ government institutions.
   
   The minimum investment starts from Rs 100 and there is no maximum limit for the investment in a year.
   
   

   Return (p.a.)	8.0% compounded half-yearly, i.e., the effective annual rate of interest is 8.16%.
   Risk	NIL
   Lock In	6 years
   Income from Investment	Interest accrued every year is liable to tax (i.e., to be included in your taxable income). However, interest is also deemed to be reinvested and thus eligible for section 80C deduction.
   Maturity Proceeds	It includes interest which is already taxed
   NRI/PIO eligible	No

10. How do I save tax by taking a Unit Linked Insurance Plan (ULIP)?
    
    Unit-Linked Insurance Plan (ULIP) is life insurance solution that provides for the benefits of risk protection and flexibility in investment. Part of the premium you pay goes towards the sum assured (amount you get in a life insurance policy) and the balance will be invested in whichever investments you choose as per what is available under the scheme - equity, debt or a mixture of both.
    
    SUMMARY OF ULIP DETAILS
    

    Return (p.a.)	Market linked
    Risk	Market and Fund manager risk
    Lock In	5 years
    Income from Investment	N.A.
    Maturity Proceeds	Exempt under Section 10(10)D for any sum received from insurance policy as maturity proceeds. Death benefits are exempt from tax. However for ULIPs the maturity benefit is tax free only if the premium paid per year is less the 20% of the life insurance cover. In other words the life cover has to be at least 5 times the premium.
    NRI/PIO eligible	Yes

11. How can I use my home loan to save tax?
    
    The EMI (equated monthly installment) that you pay to repay your home loan consists of two components - one is the principal and the other is the interest. The principal component of the EMI qualifies for deduction under section 80C.
    
    Even the interest component can save you significant income tax - but that would be under Section 24 of the Income Tax Act. Currently, anybody with a housing loan gets a deduction up to Rs 150,000, paid as interest for the loan, from his total income, for a self occupied property.
    
    For more information on how a home loan can help you save tax – please see our Section on Income from House Property (Question 10).
12. How do I save tax by investing in Equity Linked Savings Schemes (ELSS)?
    
    Investment in ELSS is considered to be one of the best option to save tax because of many reasons like low expenses, short lock-in period, high liquidity and high growth in long-term. Year 2008 and 2009 had been extremely volatile. Still, many mutual funds have delivered positive return in past 3 years.
    
    The limitations in ELSS are that premature withdrawal is not allowed. There is a 3 year lock in period. Also ELSS returns are not guaranteed as they are market linked investments.
    
    SUMMARY OF ELSS DETAILS
    

    Return (p.a.)	Market linked (The last 5 years' return from ELSS has been approximately 20% compounded annually)*
    Risk	Market and Fund manager risk
    Lock In	3 years
    Income from Investment	Basically, dividend which is Tax Free
    Maturity Proceeds	Long term capital gain on sale of equity oriented mutual fund is tax free.
    NRI/PIO eligible	Yes

13. How do I save tax by investing in the 5 Year Bank FD?
    
    A fixed deposit is meant for those investors who want to deposit a lump sum of money for a fixed period; say for a minimum period of 15 days to five years and above. Investor gets a lump sum (principal + interest) at the maturity of the deposit.
    
    The 5-year tax-saving bank deposit gives tax benefit under Section 80C as the amount you invest in the 5 year FD is deducted from your taxable income.
    However interest received on the FD is taxable.
    
    SUMMARY OF 5 YR BANK FD DETAILS
    

    Return (p.a.)	Typical interest rate is 8.00 to 8.50% with an additional 0.25 to 0.5% for senior citizens. The interest rate varies between banks and with time.
    Risk	NIL
    Lock In	5 years
    Income from Investment	Interest received is taxable
    Maturity Proceeds	Includes interest which is already taxed
    NRI/PIO eligible	Yes

14. How do I save tax using the New Pension Scheme?
    
    This is a new, market-linked vehicle for those who do not have an EPF facility to target long-term retirement planning. It is open to any Indian citizen between the age of 18 and 55. Minimum investment is fixed at Rs. 6,000 p.a.
    The NPS offers two accounts: tier I and tier II. Currently only tier I account is available. This is a non-withdrawable account and investments in this keep accumulating till you turn 60.
    
    SUMMARY OF NEW PENSION SCHEME DETAILS
    

    Return (p.a.)	Market Linked
    Risk	Market and Fund Manager Risk
    Lock In	Till age of 60
    Income from Investment	N.A.
    Maturity Proceeds	Tax will be levied if you withdraw the money on maturity You can save paying tax by transferring the entire corpus to an annuity service provider and receiving a pension
    NRI/PIO eligible	No

15. How do I save tax by investing in the Senior Citizens Savings Scheme (SCSS)?
    
    It allows a retired person having a lump sum to invest it at a reasonably good interest rate. If you are 60 years old (or took voluntary retirement at 55), you are eligible for the scheme.
    
    Minimum Investment under the scheme is Rs. 1,000 and maximum Rs. 15 lakhs.
    The amount invested into SCSS is eligible for tax deduction under Section 80C thus reducing your taxable income in the year of investment.
    
    This is a popular investment with senior citizens as it offers liquidity as well as periodic income – interest is paid out quarterly.
    
    SUMMARY OF SCSS DETAILS
    

    Return (p.a.)	9%
    Risk	NIL
    Lock In	5 years (May be extended for another 3 years at the option of depositor)
    Income from Investment	Fully taxable
    Maturity Proceeds	Maturity proceeds includes interest which is already taxed every year
    NRI/PIO eligible	No

16. How do I save tax by investing in the 5 Year Post Office Time Deposit (POTD)?
    
    POTDs are similar to bank fixed deposits.
    Although available for varying time duration like one year, two year, three year and five year, only 5-Yr post-office time deposit (POTD) qualifies for tax saving under section 80C.
    The current rate of interest on the 5 year POTD is 7.50% p.a., compounded quarterly. The minimum investment amount is Rs. 200, there is no maximum investment amount. Interest on these deposits is calculated quarterly and paid out annually.
    
    

    Return (p.a.)	Effective 7.71% as interest is compounded quarterly
    Risk	NIL
    Lock In	5 years
    Income from Investment	Fully taxable
    Maturity Proceeds	Maturity proceeds includes interest which is already taxed every year
    NRI/PIO eligible	No

17. How do I save tax by taking a Pension Plan?
    
    Today pension plans are available with all life insurance companies. They typically come without any life cover (zero death benefit).
    
    Pension funds are exempted under Section 80CCC, this section stipulates that an investment in pension funds is eligible for deduction from the income.
    
    Section 80CCC investment limit is clubbed with the limit of Section 80C which means that the total deduction available for 80CCC and 80C is Rs 100,000. This also means that your investment in pension funds up to Rs 100,000 can be claimed as deduction under section 80CCC.
    
    Of the maturity amount only one-third can be commuted in cash as tax free maturity. The rest of the amount (or the full amount as the case may be) has to be used to by a pension plan (annuity). Pension receipts from the same will be treated as income in the hands of the assessee and taxed accordingly. Recently, the Insurance Regulatory and Development Authority (IRDA) has come out with a clear rule that maturity amount should not be withdrawn as cash this is coming to effect from July 1, 2010. Currently, the maturity amount can be withdrawn as cash but the amount will be added to income and will be taxed accordingly.
    
    Now that you know about the various investment instruments available, before you invest – ask yourself the following questions:
    
    
    1. How much risk are you willing to take on the investment?
    2. For how long will you not need to use these funds? i.e. what lock in period is suitable for you?
    3. Do you want your returns to be tax free?
    4. Do you want the maturity values of your investments to be non taxable?
    5. Do you need liquidity?
    
    

    S. No.	Factor	Criteria
    1.	Risk and Returns	Fixed rate of return with more safety - NSC, PPF, Bank FD OR Market return with more risk - ELSS or ULIP.
    2.	Lock-in period	Range: Up to 15 years lock-in; ELSS has the least lock-in period of 3 years, whereas PPF has the highest of 15 years; Others fall in between
    3.	How return are taxed	The most crucial part is to look at how the returns are taxed. Only PPF and ELSS offer tax free returns; whereas Interest on NSC, Post Office term deposits and bank FDs is taxable
    4 (a)	Tax Treatment on Maturity	Usually products offer tax deduction on investment Few offer tax exemption on returns at the time of maturity The taxability on maturity reduces the effective return that an investment offers.
    4 (b)	EEE or EET category	Exempt-Exempt-Exempt (EEE) tax status - tax benefits at the investment stage, the accrual (accumulation) stage and maturity stage - PPF, ELSS and Life Insurance Exempt-Exempt-Tax (EET) tax status - tax benefits at the investment stage and the accrual (accumulation) stage and are taxed at the maturity stage - Bank FDs. In the new Direct Tax Code, lot of investment products will shift from EEE to EET wherein these products will be taxed at the maturity stage
    5.	Maximum Investment Limit	If a product has maximum investment limit in a year, a tax payer will not be able to claim entire tax benefits for any amount invested above the maximum limit; PPF has maximum investment in a year of Rs. 70,000 In case of ELSS and ULIPs there is no maximum investment limit.
    6.	Liquidity	Most tax saving investment products come with a lock-in period; PPF allows partial withdrawal during the 15 years tenure of the investment. Tax savings bank FD cannot be broken before maturity and also banks normally don’t give loans against these FDs. Traditional Life insurance policies and ULIPs allow partial withdrawals but only after completion of 3 years. Also, as an investor you can take loans against life insurance policies. An investor can also take loan against NSC Certificates.
    7.	Inflation protection	Returns from financial products should beat inflation; Low fixed returns products are to be avoided by investors during periods of high inflation as they yield negative returns. In the long run equities have consistently given higher inflation adjusted returns than returns given fixed return securities.

~
* Source: PersonalFN

Income Tax Saving Tips Beyond Section 80C :

We will only tell you what's available, and what's good for you, from a tax saving point of view.

When we think about making tax saving investments, the first thing that comes to mind is Section 80C.

But readers, slow down.

There are some things you need to keep in mind about Section 80C. And once we've gone through these things, we'll see what else you can do, that does not involve making fresh investments, to save tax.

Let's finish off with 80C first and then we'll move on to other deductions you can use.

First, Know Your 80C.

The most common investments people think of, when they think of 80C are PPF and ELSS.

The split in most people's minds is Rs. 70,000 into PPF and Rs. 30,000 into an ELSS fund.

But hang on.

a.                You've been contributing to your own Employee Provident Fund (EPF) all year.
Find out what this figure is from your friendly neighborhood HR department, and make a note of it.

b.               Also, do you have a home loan? If yes, the principal repayment this year counts under 80C as well.
Call your bank / housing finance company and ask them for a copy of your amortization table to see how much principal you have repaid this year.

c.                Have you been sold a ULIP recently? If yes, then first read more about ULIPs and prepare yourself better, but also – your premium, or at least part of your premium, is deductible under 80C too.

d.               Invested into any 5 year FDs in the last Financial Year? These funds count as well.

Also:

e.                Pension funds,

f.                 National Savings Certificate,

g.                Senior Citizen Savings Scheme investments

h.                Investments into the National Pension Scheme

i.                  Any life insurance premium you might be paying…

All of these investments are deductible under 80C.

Total up everything that applies to you, and now you'll know what you have left to invest under 80C to meet your Rs. 1 lakh deductible limit.

Now that you know this, lets see where you can put this money.

a.                PPF: a well-loved option. Earning interest of 8% per year, with tax deduction on the investment, and no tax on maturity, these are all great qualities. This is definitely a good investment option. Remember to limit your investment to Rs. 70,000 per year, any investment above this amount does not get any tax deduction.

b.               ELSS: You can invest up to Rs. 1 lakh into a good equity linked savings scheme, it has a lock in period of 3 years and is currently tax free on maturity as it is equity. When the Direct Tax Code comes out, this might or might not change, we will have to wait and see.

So remember, 80C involves a lot more than just PPF and ELSS. Remember to submit proof of investment when quoting 80C investments on your tax return. If you want details on all the options mentioned above, refer our article on Section 80C for more information. Remember to come back to this article and read the rest of it though.

Now we can see what else the IT Act has to offer.

New Section this year – 80CCF

This year only, you can invest into Long Term Infrastructure Bonds, and avail an extra Rs. 20,000 of tax deduction under Section 80CCF. If you're in the 30% tax bracket, you will save roughly Rs. 6,000 on tax by investing into these bonds. They are launched by IFCI, LIC, IDFC, and any non banking finance corporation such as IDBI and REC. The funds are long term i.e. a minimum tenure of 10 years, and are offering approximately 8% per annum yield, but remember that interest earned is taxable.You have until March 31st, 2011 to invest into these bonds, for it to be eligible for deduction this year.

Got Health Insurance?

This is Section 80D.

A straightforward mediclaim policy can save you tax on the premium paid.
If you are paying premium for yourself, spouse and kids, you can avail up to Rs. 15,000 deduction per annum (Rs. 20,000 if you're a senior citizen) and you can also avail deduction for premiums you are paying for your parents (Rs. 20,000 if they are senior citizens, Rs. 15,000 if they are not).
There's a reason that the IT Act includes this deduction – because it's important for people to have health insurance. So if you don't have a simple mediclaim policy, do opt for one immediately and also make use of the tax benefits.

Taken an education loan?

This is Section 80E. If you have taken an education loan for yourself, your spouse, your kids, or even of a child of whom you are a legal guardian, then every year you can avail a full deduction of the interest you are paying on the loan (capped at 8 years).

Living on rent?

Show your rent receipts to claim deduction using your HRA (House Rent Allowance) benefit available to you in your salary structure. You can avail the least of the following:

a.                Actual HRA received

b.               Rent paid in excess of 10% of your salary (Basic + DA)

c.                50% of salary (Basic + DA) if you live in a metro, 40% of salary (Basic + DA) if you live in any other city

Claimed your medical bills reimbursement?

Like everybody else, you probably spend some money on medicines each year. Keep the bills (just like everybody else does), and claim a reimbursement up to Rs. 15,000 per financial year. This has to be on actual bills paid, and you have to produce the original bills. Speak to your HR department, they will ask you to fill up a simple form, produce the bills, and will adjust it with the allowance you are entitled to.

Took a holiday anytime in this past year?

Kept your travel expense records? You can claim your Leave Travel Allowance as an exemption as well, for travel within India, for yourself and your dependents who have travelled with you. Speak to your HR department, fill a small basic form, produce your tickets, and you can claim your LTA peacefully.

Also, apart from the above, do read our article on Popular Tax Saving Deductions to see even more options that are available to help you save tax.

Your Action Steps

Once you've done all these things, and saved tax because of them, remember, make your tax saving investments on time, and save yourself the trouble of running around at the last minute, and the unpleasant feeling of being nagged by your well-meaning financial planning company.

You can invest in your PPF and your ELSS through the year rather than at the very end. The next time you take a holiday, keep your travel expense records such as flight or train tickets for yourself and your dependents. Keep a shoe box aside to hang on to your medical bills through the year. And of course, plan your tax saving investments in line with your larger financial plan

~

Source : prajnacapital

Know your tax Liability

In these competitive times, doing things at the right time makes all the difference. So is it with your tax planning- timely and periodic tax planning lessens your burden during the financial year end.
What are your objectives for tax planning?
 

• Know your tax Liability
• Understand the current regulations
• Awareness about the various Investment options available
• Making the right choice

 Know your tax Liability :

Taxable income slab (Rs.)	Rate (%)
Up to 1,60,000(for individuals other than women and senior citizens) Up to 1,90,000 (for women below 65 years of age) Up to 2,40,000 (for Resident Individual of 65 years or above)	NIL
Rs 1,60,000 to Rs 5,00,000	10%
Rs 5,00,000 to Rs 8,00,000	20%
Rs 8,00,000 and above *	30%
* No surcharge is applicable

Note

• Education cess is applicable @ 3 per cent on income tax.
• These calculations are illustrative and based on our understanding of current tax legislations, which are subject to change.
• Please contact your tax consultant for exact calculations of your tax liabilities

Tax Planning Investment Products available :

Long Term Infrastructure Bonds  :

In accordance with Section 80 CCF of the Income Tax Act, the amount, not exceeding Rs. 20000/- per annum, paid or deposited as subscription to Long Term Infrastructure bonds during the previous year relevant to the assessment year beginning April 01, 2011 shall be deducted in computing taxable income of a resident individual or a HUF. In the event, that any applicant applies for bonds in excess of Rs. 20,000 per annum, the aforestated tax benefit shall be available to such applicant only to the extent of Rs. 20,000 per annum.

Insurance  :

nsurance is designed to offer financial protection for you and your family during the times of uncertainties. One can choose from a range of traditional insurance, unit linked and general insurance plans designed to help you with your savings, retirement, investment, protection needs and also save taxes.

Income Tax Section	Gross Annual Salary	How Much Tax Can You Save?	HDFC Standard Life Plans
Sec. 80C	Across All income Slabs.	Upto Rs 30900/- saved on Investments of Rs 1,00,000/-	All Life Insurance Plans
Sec. 80CCC	Across All income Slabs	Upto Rs 30900/- saved on Investments of Rs 1,00,000/-	All Pension Plans
Sec. 80D*	Across All income Slabs	Upto Rs 9,270/- saved on Investments of Rs 30,000/- (Inclusive of Rs 15000/- towards health Insurance of parents) Upto Rs 10,815/- saved on Investments of Rs 35,000/- (Inclusive of Rs 20,000/- towards health Insurance of parents who are senior citizens)	1)All Health Insurance Plans 2)All the Health Insurance Riders available with Conventional Plans
Total Savings Possible**	Rs 41715/- 1) Rs 30,900/- towards Sec 80 C and Sec 80CCC 2) Rs 9,270/- or Rs 10,815/- under Sec 80 D 3) Above figures calculated for a male with gross annual Income exceeding Rs 5,00,000/-
Sec. 10 (10)D	Under Sec 10(10)D,the benefits received by you are completely tax-free

applicable to premiums paid for all Health Insurance Plans, Critical Illness Benefits, Accelerated Sum Assured and Waiver of Premium Benefit.
**These calculations are illustrative and based on our understanding of current tax legislations.
^The above mentioned tax benefits are subject to changes in the tax laws.Please contact your Tax Consultant for an exact calculation of your tax liabilities.

Mutual Funds :

Equity Linked Saving Scheme (ELSS) is an open-ended equity scheme that is offered by mutual funds in line with existing ELSS rules. The investments under this type of scheme are entitled to deductions u/s 80C of the Income Tax Act, 1961 to such extent (presently Rs.1 lakh) and subject to such conditions as may be notified from time to time. The invested money in ELSS is locked for a period of 3 years i.e., once invested in a ELSS fund, the money cannot be taken out or redeemed for a period of 3 years from the date of investment/allotment of units. Also, it has to be noted that any amount (irrespective whether Rs. 1 lakh or higher) which is invested into these schemes cannot be redeemed for the first 3 years.

ELSS has certain distinct advantages:

• The 3-year lock-in period in ELSS allows the fund manager to build a portfolio for the long-term without worrying about everyday redemptions.
• The profits on the sale of ELSS units are treated as long-term capital gains, and as per current tax laws, these are not subject to tax. Also, there is no dividend distribution tax on equity investments and dividends earned and are tax free in the hands of the investor. 

Other Tax Saving Schemes v/s ELSS :

Parameter	PPF	NSC	ELSS
Returns	8%	8%	Equity Market linked
Tenure	15 Years	6 Years	Minimum 3 Years
Minimum Investment p.a.	Rs. 500	Rs. 100	Lumpsum: Rs. 500/-
Maximum Investment p.a.	Rs. 70,000	No Limit	No Limit

Note: Please note, as per Section 80C, an individual will get the tax benefit for a maximum investment of Rs. 1 lakh (in a Financial Year) across any one or all the investment avenues put together. 

Making the right choice:

At SAMPARK we offer a number of advantageous tax saving investment options. We are here to help you with the right investment solutions to suit your particular circumstances and needs. We understand the value of your hard earned money. Looking forward to helping you make your money work as hard as you do.

An early beginning ensures a relaxed journey. Start tax planning now!

To know more, walk- in to our office at JALAN BHAWAN, 52 N S ROAD, ASANSOL-713301

OR CALL : +91-9333100221/9093440221
For Investment Services Account customers, click to login to your account.

Time to complete your tax planning:

The current financial year has come to an end and it's time for individuals to give the final touches to their income tax planning and savings.

There are many sections defined under the Income Tax Act that enable individuals to save tax by investing in various qualified instruments.

It's time for investors to review their investments in tax-saving instruments and look at possibilities to save maximum possible tax in the current financial year.

These are some of the major sections that enable you to reduce your income tax liability:

Section 80C:

Section 80C of the Income Tax Act allows income tax exemptions to individuals on investments in certain instruments. The maximum limit to claim deduction under this Section is Rs 1 lakh.


You can invest Rs 1 lakh in one or more of these instruments to avail tax rebate under Section 80C.

Employee Provident Fund and Public Provident Fund
Life insurance (term insurance as well as endowment plans)
Pension plans
Equity-linked savings schemes (ELSS) of mutual funds
Specified government infrastructure bonds
Principal repayment of housing loans
National Savings Certificates (NSC) and interest accruals on previous years' NSCs can also be added to the Section 80C limit

Infrastructure bond:

You can invest in specified long-term infrastructure bonds to claim a deduction up to Rs 20,000. The tax rebate for infrastructure bonds is in addition to Section 80C.

Home loan benefits: Housing loans provide tax relief. The principal repayment of a housing loan attracts rebate under Section 80C up to Rs 1 lakh and the interest payment attracts a rebate of Rs 1.5 lak

Medical insurance:

In addition to Section 80C, there is Section 80D that enables an individual to claim rebate on mediclaim policies. Payment of premium for medical insurance (mediclaim) is eligible for tax exemption up to Rs 15,000. You can avail this deduction on medical insurance premium paid for yourself, spouse, parents and children.

Other deductions for salaried taxpayers: If your employer provides medical allowance, you can available an income tax deduction of up to Rs 15,000 per year by offering proof of the relevant expenses.

If the employer gives leave travel allowance as a part of your salary, you can avail income tax deduction on travel expenses (family travel expenses can also be covered if family travels along with the taxpayer).

Leave travel allowance can be availed twice in a block of four calendar years. Presently, the block applicable is from 2010 to 2013. Leave travel allowance can only be availed on the expenses incurred on domestic travel. However, the travel mode can be anything (taxi, bus, train or air).

Time to review savings:

Since it is the end of the financial year, it is advisable for you to review your tax savings and planning, and explore available options to minimise the tax liability.

These are some factors you should keep in mind while taking decisions on saving tax:

First of all, try to exhaust the quota for Section 80C.

You can look at various options to invest and save tax under Section 80C

Salaried people can also look at saving tax by planning the expenditures under medical allowance, child education allowance and conveyance allowance

Investing in a medical insurance policy is another option to save tax, if your Section 80C limit is already exhausted. However, it is not advisable to take another medical policy just for the sake of saving tax, if you already have one.
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Source: ET

Eight tax saving secrets you should know:

The Income Tax Act 1961 is a voluminous piece of legislation. Taxmann Publications’ latest edition of the Act runs into 1,125 pages. It’s enough to intimidate even the most diligent law student and tax expert, leave alone ordinary taxpayers.

But hidden away in the 300-odd sections and 14 schedules are clauses that can benefit ordinary taxpayers-provided they know how to claim those benefit.
 
ET Wealth spoke to a range of tax experts to glean information on little-known tax benefits you may be entitled to. Here are eight deductions that can help you save tax over and above the tax saving investments you make during the year:

1. Use losses in stocks to cut tax:

Can you gain from the short-term losses you made on stocks? Yes, says the Income Tax Act. If you have made any long-term capital gains from sale of property, gold or debt funds, you can set them off against short-term capital losses made on stocks and bring down your tax liability.

“Short term capital losses can be set off against both shortterm capital gains as well as taxable long-term capital gains,” says Sandeep Shanbhag, director of Wonderland Consultants, a Mumbai-based tax planning and financial consultancy.

This can be especially useful for someone who has booked profits on gold ETFs and physical gold this year. Suppose you have sold a property and made a long-term capital gain of Rs 30 lakh after indexation.

At 20%, the tax payable on this long-term capital gain is Rs 6 lakh. However, if you have also sold some junk stocks during the year and made a short-term loss of Rs 3 lakh, you can set this off against the gains from the property. Then the gain from the property will get reduced to only Rs 27 lakh and the tax payable will be Rs 5.4 lakh. However, the law makes a distinction here.

One cannot set off short-term gains from stocks against long-term capital losses from the other assets. “Long term capital losses can only be set off against taxable long-term capital gains,” says Shanbhag.

How much tax can you save: Setting off a short-term loss of Rs 3 lakh against longterm gains can help you save Rs 60,000.

Proof required: Keep record of your equity trading account statement with details of the transactions that resulted in losses.

2. Get deduction for rent even without HRA:

House rent can account for as much as 40-50% of the total household expense. That’s why the house rent allowance is exempt from tax to a certain limit. But what if your salary does not include an HRA component or you are a self-employed professional or businessman?

Under Section 80GG, you can claim deduction of the rent paid even if you don’t get HRA. “Not many people are aware of this deduction,” says chartered accountant Mehul Sheth. But there are stiff conditions to be met. The least of the following three can be claimed as deduction: rent paid less 10% of total income; or Rs 2,000 a month; or 25% of total income. Also, the taxpayer should not be drawing any HRA or any housing benefit.

Besides, he or his spouse or minor child should not own a house in the city where he stays and he should not be claiming tax benefits for some other self-occupied house. Whew. Incidentally, if you are living in your parents’ house, you can pay rent to them.

If your parent has no other income or pays a lower tax, this can bring down your tax liability significantly. However, the rent will be taxable as the income of the parent after a 30% standard deduction. This means, you can pay a senior citizen parent up to Rs 3.43 lakh a year.

How much tax can you save: Given the stiff conditions, one can’t claim more than Rs 2,000 as deduction per month under Sec 80GG. But this can bring down your tax by Rs 7,400 a year in the highest tax bracket.

Proof required: Taxpayer has to submit a declaration on form 10-BA that he is paying rent and not receiving HRA.

3.Pay lower tax if someone is ill:

The treatment of a chronic illness can be a drain on the finances of a taxpayer. That’s why the Income tax Act allows a taxpayer to claim a deduction of Rs 40,000 if he has a dependent who suffers from any of the ailments specified under Section 80DDB. “The deduction is higher at Rs 60,000 if the patient is a senior citizen,” says chartered accountant Paras Savla.

The diseases include, neurological diseases (including dementia, dystonia musculorum deformans, motor neuron disease, ataxia, chorea, hemiballismus, aphasia and Parkinson’s disease), malignant cancers, full-blown AIDS, chronic kidney failure and haematological disorders (haemophilia and thalassaemia). Dependents can include spouse, children, parents and siblings. However, there are a few conditions.

The patient should be wholly or mainly dependent on the taxpayer and should not have separately claimed deduction for the disability. If the amount spent is reimbursed by the employer or an insurance company, there is no deduction. If the taxpayer gets a partial reimbursement of the expenses, the balance can be claimed as deduction.

How much tax can you save: If a dependent is a patient, the taxpayer’s liability comes down by 12,360 in the highest income bracket. If the patient is a senior citizen, the tax is lower by Rs 18,540.

Proof required: One needs a certificate of the illness from a specialist in a government hospital.

4. Claim benefits for your political affiliations:

Can you lower your tax if you have political connections? Apparently you can. Any amount contributed to a recognized political party can be claimed as a deduction under Section 80GGC (80GGB for corporates). “This is a new deduction and was introduced in April 2010. The donation can also be made to the electoral trust which works for the purpose of conducting elections,” says Sheth.

Interestingly, unlike other deductions, there is no ceiling on the amount that can be claimed as a deduction. Of course, the deduction is available only if the donation went into the party coffers.

Cash given to individuals doesn’t count. Other donations also get you tax benefits. Under Section 80G, donations to charitable organizations get deduction ranging from 50% to 100%. It’s a good idea to know how much deduction would be available before you write a cheque.

However, There is a ceiling to the deduction a taxpayer can claim in a year. “The quantum of deduction is limited to 10% of the gross total income of the donor,” says Tapati Ghose, partner at Deloitte Haskins & Sells. Also, only cash donations are taken into account. Food, clothes and medicines do not qualify.

How much tax can you save: In the highest tax bracket, a donation of Rs 1 lakh to a political party can bring down your tax by Rs 30,900.

Proof required: You must have a stamped receipt of the payment from the political party. 

5. Use education loan to lower tax:

The rising cost of higher education is forcing people to borrow money to pay the fee of their children’s professional courses. The taxman is sympathetic and offers a deduction that can lower the cost of the loan. The interest paid on an education loan is fully deductible from taxable income under Section 80E. Till a few years back, this deduction was available only to the borrower.

Now, even a parent or a spouse can avail of it. What’s more, this now includes loans taken for vocational courses. “If a parent or legal guardian takes the loan, he can claim deduction for the interest paid for up to eight successive years, starting from the year in which the interest is first paid,” says Shanbhag.

However, loans taken for siblings and other relatives do not qualify. Also, the lender must be a recognised financial institution; loans from employers or individuals do not count.

How much tax can you save: If you take a Rs 10 lakh education loan at 10% interest for 8 years, you can save Rs 1.41 lakh in tax in the highest tax bracket. This will bring down the effective cost of the loan to 7% per annum.

Proof required: Loan statement from lender. 

6. Disabilities can be tax savers

There are other signs to suggest that the taxman is not the heartless Scrooge he is often made out to be. If a taxpayer suffers from a disability, he can claim deduction of Rs 75,000 under Sec 80U. If he has a disabled dependent, he can claim the deduction under Sec 80DD.

Disability includes blindness, low vision, leprosy, hearing impairment, loco-motor disability, mental retardation and mental illness and deduction is available only if the impairment is at least 40%. If the disability is severe (80% or above), the deduction is Rs 1 lakh a year. The dependant could include the taxpayer’s spouse, children, parents and even siblings.

Incidentally, the deduction is offered as a lump sum and does not depend on the actual amount that the taxpayer may spend on himself or on the disabled dependent. However, the disabled person should be wholly or mainly dependent on the taxpayer for maintenance, and should not have claimed deduction for the disability under Section 80U separately.

How much tax can you save: A deduction of Rs 75,000 can cut tax by Rs 23,175 in the highest tax bracket. In case of severe disability, the tax is lower by Rs 30,900.

Proof required: A certificate of disability from a civil surgeon or the chief medical officer of a government hospital

7. Take unlimited deduction for your second home loan:  When it comes to buying a second house, the taxman can be very encouraging. Under Section 24b, one can claim deduction of up to Rs 1.5 lakh a lakh for interest paid on a home loan. But if the taxpayer buys a second house through another home loan and gives it on rent, the entire interest paid on the home loan during a given year can be claimed as a deduction. As Savla says, “If you have more than one house, any one is deemed to be rented out. So the interest income on the home loan for that house can be claimed entirely for deduction, provided the rental income or a deemed income is charged to tax.” How much tax can you save: If you have taken a home loan of Rs 50 lakh at 9.5% for 20 years, your interest payment in the first year will be Rs 4.7 lakh and you can save tax up to Rs 1.09 lakh. Proof required: Loan account statement from your lender 8. Claim HRA as well as home loan benefits: But you can claim both house rent allowance (HRA) exemption as well as the tax benefits on the interest paid on a home loan. Many organizations do not allow employees to claim both benefits. Their logic is that HRA is exempt if you are paying rent and home loan benefits apply only for a self-occupied house. You can’t be doing both at the same time. But this is a gray area in the Income Tax Act. “In legal terms, silence signifies approval. In other words, the Act need not expressly allow something. The lack of express disallowance also signifies intention of approval,” says Shanbhag. So given this, HRA and interest on home loan are two separate provisions and claiming one of them as a deduction does not influence the other. As Shanbhag puts it, “The taxpayer may own any number of flats, either in the same city that he works in or anywhere else in the whole of India or for that matter abroad, but that in no way influences the HRA deduction that he is entitled to. There are many such examples in the tax laws. Let’s take for instance, Section 80C (PPF, NSC, ELSS etc.) and Section 80D (medical insurance premium). “Everyone will agree that both Section 80C and Section 80D can be separately claimed. But does it expressly say so anywhere?” asks Shanbhag. How much tax can you save: In the highest tax bracket, a deduction for Rs 1.5 lakh will bring down your tax by Rs 46,350. Proof required: Loan account statement from your lender ~ Source: ET

The Direct Taxes Code, 2010....By PWC

The Indian Finance Minister of India tabled The Direct Taxes Code, 2010 ("DTC") today in Parliament for debate and discussion.  The DTC will be effective from 1 April, 2012 and not from 1 April, 2011, as had been intended earlier. This gives time to companies to understand the provisions, engage in a dialogue with the Government and, more importantly, restructure their operations as they switch over to taxation under the DTC.  Also, this gives time to the Government to gear up its systems to accept and audit additional new compliance requirements imposed on the tax payers. A number of stringent proposals were brought in the original DTC introduced for debate in 2009. There were several areas of concern. Most of them such as asset based Minimum Alternative Tax ("MAT"), treaty override, etc. were addressed by the Finance Minister through the release of a Revised Discussion paper earlier this year. In substance, the new set of proposals are, by and large, in line with the provisions of current law with major changes on account of anti avoidance provisions and phasing out of profit linked exemptions. A number of areas are subject to detailed guidelines to be framed by Central Board of Direct Taxes ("CBDT") of the Government. We feel that for the critical areas such as GAAR etc, detailed guidelines should be framed upfront as a part of consultative process on DTC with the business community and not left to the CBDT (an administrative body of the Government) to be introduced after the DTC become the law.

Our team of experts are analysing various aspects of the Bill introduced today and we shall share our insights with you through alerts, webcasts and conferences. Outlined below is a snapshot of the major proposals of the Bill that was tabled before for the Parliament today.

General

• The DTC, 2010 will come into effect from the Indian financial year 2012-13, i.e. from April 1, 2012

Tax Rates
 


In the case of senior citizens Rs 200,000 may be read as Rs 250,000 and Rs 200,001 as Rs 250,001

Corporates



International Tax

• The DTC or Treaty provision, whichever is more beneficial to tax payers will be applicable; except where General Anti-Avoidance Rules or Controlled Foreign Company Rules are invoked or Branch Profits Tax is levied
• Transportation charges paid to a non-resident by a resident or by the Government are taxable
• Transportation charges paid by non-residents to non-residents are taxable if they are in respect of carriage to or from a place in India
• Income arising from transfer of shares of a foreign company sought to be taxed in India if assets in India (held directly or indirectly by the company) represent atleast 50% of the fair market value of all the assets owned by the foreign company. The 50% test is to be applied at any time during the 12 months prior to transfer
• Branch profits tax to be levied on income attributable directly or indirectly to a Permanent Establishment or immovable property situated in India . Permanent Establishment is defined in the same way as in Treaties and includes one day Service PE , (substantial) equipment PE and insurance agent PE
• Presumptive taxation scheme continued with no change in the rates except in the case of non- residents engaged (a) in the business of providing services / supplying plant and machinery in connection with prospecting for, or extraction or production of, mineral oil or natural gas which has been increased from 10% to 14%, (b) in the case of business of operation of ships, the rate has been increased from 7.5% to 10% and (c) in case of business of operation of aircrafts, the rate has been increased from 5% to 7%
• Definition of royalty is expanded and withholding tax rate is increased from 10% to 20%, both for royalty and fees for technical services
• Head Office Expense - Head office expenditure of a branch of a foreign bank would be allowable to the extent of 0.5% of total turnover or gross receipts of business in India

Residential Status

Companies having a place of effective management in India at any time in the year will be considered as resident in India

Income from Business

• MAT continues to be levied on book profit
• MAT credit reinstated and allowed to be carried forward up to 15 years
• SEZ Developers to pay MAT and DDT
• SEZ units also now brought in the ambit of MAT
• Tax holiday for infrastructure companies grandfathered for projects eligible till 31 March, 2012
• Tax holiday for SEZ developers grandfathered for projects notified till 31 March, 2012
• Tax benefits allowed to SEZ units starting operations before 31 March, 2014
• Tax deductible expenditure to be allowed as deduction on depositing tax with the tax authorities. The two year limit for payment of tax withheld as a condition for claiming deduction of the underlying expenditure is removed
• In-house R&D expenditure qualifies for 200% of weighted deduction
• Amount remaining in block of assets even after transfer of all assets in that block eligible for depreciation
• Cascading effect of dividend distribution tax on multilayered corporate structure is mitigated. The provision requires more clarity
• Liberal loss offset rules prescribed with indefinite carry forward
• Deduction allowed for certain specified expenses such as non compete payments, premium paid for obtaining any asset on lease, etc. over a period of 6 years on straight line basis
• In case of finance lease, the lessee would be the deemed owner of business capital asset and would be allowed to claim depreciation on the same.
• Advance received under long-term lease will be considered as gross earnings. Similarly deduction will be available at the time of refund of such advance.

Capital gains
 

• Securities Transaction Tax ("STT") to continue
• No capital gains tax on sale of equity shares of a company or unit of an equity oriented fund held for more than one year if STT is paid on the transfer
• Capital gains tax payable only on 50% of the gains in case equity shares of a company or unit of an equity oriented fund is held upto one year if STT is paid on the transfer
• Fair market value of the asset as on 1 April, 2000 to be substituted for purchase price of the asset at the option of the tax payer
• Cost of acquisition of asset to be treated as Nil if it cannot be determined or ascertained
• Cost of acquisition of assets acquired on retirement from unincorporated body prescribed
• Capital gains on transfer of original asset exempt if residential house is acquired; provided not more than one residential house is owned on the date of transfer of original asset
• The roll over provisions has been trimmed to limit reinvestment in residential property on transfer of any investment asset except agricultural land. The capital gains exemption available on reinvestment shall stand withdrawn if, besides other conditions, the residential house so purchased is transferred within a period of one year, as against three years as specified in the Income-tax Act, 1961 (“Current Act”).

Merger and acquisitions/business restructuring

• The base date for the purpose of substitution of cost by fair market value ("FMV") has been shifted from April 1, 1981 to April 1, 2000
• The event of taxability in case of conversion of an investment asset into a business trading asset has been preponed to the year of conversion instead of the year of sale under the current Act.
• Full value of consideration in case of transfer of land and building has been specified to be the stamp duty value in all cases, as against the current Act where a revenue officer could refer the matter to a Valuation Officer to determine the value of the land and building
• Under the current Act, it is provided that exemption on holding – subsidiary transfers shall be withdrawn and exempted gain taxed in the year of transfer of original asset if the conditions of exemption were violated. The DTC seeks to tax such exempted gain in the year in which the conditions are violated. Hence, the rigors of revising past years returns has been done away with
• The DTC narrows the definition of amalgamation and demerger to include only reorganisation between “residents”, thereby not facilitating tax neutral cross border transactions
• Pursuant to the demerger, the DTC specifically provides for issue of equity shares to shareholders of the demerged company, as against the current Act where the nature of shares was not provided
• The DTC provides for a liberalized regime for carry forward of loss, as compared to the current law and conditions for carry forward such as nature of business, continuation of business for a period of three years, etc. have now been done away with  
• The DTC provides for carry forward of losses of the demerged unit upon satisfaction of the business continuity test. The current Act does not contain such a condition
• In case of succession of a sole proprietorship, or a partnership firm, by a company, the DTC provides for carry forward of losses, subject to fulfillment of prescribed conditions. This was not facilitated under the current law
• New provisions have been introduced in the DTC which expressly provide for taxation of income for payments recieved in case of death or retirement of a participant, being a member of an unincorporated body

Employment Income

• Exempt Exempt Exempt ("EEE") method of taxation restored for
  • Provident Fund under Provident Funds Act, 1925
  • Any other provident fund set up by the Central Government and notified in this behalf
  • Approved Superannuation Fund
  • Payment of life insurance premium, health insurance premium, tuition fees qualify for deduction to the extent of Rs. 50,000.
  • Deduction for contribution to approved funds to the extent of Rs 100,000.
  • Medical reimbursement exemption limit increased from Rs 15,000 to Rs 50,000.
  • The scope of taxation has been widened for the policyholders. The amount received from the life insurance policy would be subject to tax as ‘Income from Residuary Sources’ unless:
    • distribution tax of 5% has been paid by the insurance company; or
    • it is received on maturity; and
    • received on maturity subject to satisfaction of certain conditions such as premium paid for any of  the years not exceeding 5% of the capital sum assured.

Income from House Property

• Two or more persons owning a house property to be considered as an Association of Persons if their shares are not definite and ascertainable
• Income from house property to be computed only if the property is let out
• Even if letting out of house property is in the nature of trade, commerce or business, the rental income therefrom will be taxable as Income from House Property (certain exceptions provided)
• Interest on loan against self occupied house property is deductible to the extent of Rs. 150,000

General Anti-Avoidance Rule ('GAAR')

• No substantial changes in GAAR provisions as introduced in DTC 2009
• The DTC continues with the provisions of GAAR wherein Commissioner of Income-tax ("CIT") has been empowered to declare an arrangement as impermissible if it has been entered into with the objective of obtaining a tax benefit and lacks commercial substance. The arrangement would be presumed to be for the purpose of availing tax benefits even if the main purpose of a part or step of the arrangement was to avail tax benefits.
• Any arrangement would be presumed to be for availing tax benefits unless the tax payer demonstrates that availing tax benefits was not the main objective of the arrangement
• CIT to determine the tax consequences on invoking GAAR.  Order of CIT will be forwarded to the tax payer and to the CIT of the other party to the arrangement; such CIT to proceed against other party to apply GAAR
• The provisions of GAAR to apply subject to such conditions and manner as may be prescribed
• The forum of Dispute Resolution Panel available in cases wherein GAAR provisions are invoked
• GAAR to override provisions of Double Taxation Avoidance Agreements

Controlled  Foreign  Company ("CFC")

• Provisions related to CFC introduced
• CFC provisions attracted when a foreign company is controlled by resident tax payers. Control has been defined where one or more persons resident in India , individually or collectively, directly or indirectly, hold shares carrying not less than 50% of the voting power or capital of the company. An additional condition is that the entity is a resident of a country with lower level of taxation, i.e. the amount of tax payable in foreign country is less than 50% of the corresponding tax payable under the DTC
• The net profit earned by the CFC will be attributed (and not only the passive income) to the resident tax payer based on the percentage holding and for the period such percentages are held
• CFC provisions not triggered in case the foreign company is listed on a stock exchange or is engaged in "active trade or business" (subject to certain conditions) or specified income does not exceed Rs 2.5 mn
• Strict definition of concept of "active trade or business". Where 50% or more income of an offshore entity is derived from sale of goods/services to controlled corporations, it will not be considered as having engaged in active trade or business
• Value of shares in CFC to be included in taxable wealth
• Underlying foreign tax credit mechanism not provided

Wealth Tax

• Only non profit organizations exempted from levy of Wealth Tax
• New categories of assets introduced for levying wealth tax such as
  • Archaeological collections, drawings, paintings, sculptures or any other work of art
  • Watch having value in excess of Rs 50,000
  • Equity or preference shares held in CFC

Transfer Pricing

• Introduction of Advance Pricing Arrangements to provide certainty of tax liability with regard to international transactions
• Safe Harbour provisions introduced. However, detailed rules yet to be prescribed
• Definition of Associated Enterprise broadened to include enterprises based on any specific or distinct location

Return and Assessment

• Tax payer to file a consolidated return of its tax bases, which includes return of income, net wealth and dividend/income distributed in specified categories of taxpayers
• The forum of Dispute Resolution Panel to be available to any class of persons as may be prescribed
• The scope of reassessment by tax authorities has been significantly broadened.
• The scope for revising an order prejudicial to the interest of revenue is significantly enlarged by introducing deeming situations like cases where proper verification is not done or claim is not probed by the assessing officer
• Rectification applications to be disposed off within six months from the end of the month in which such application is received. Appeal can be filed if rectification application is not disposed off

Appeals

• Tribunal / Commissioner (Appeals) cannot condone delay in filing appeal if the delay exceeds one year
• Power of Commissioner (Appeals) increased to consider any matter which was not considered by the Assessing Officer
• Appeals against order of Commissioner (Appeals) lies before Authority for Advance Rulings in case of public sector companies
• Instances wherein CIT can exercise the powers to revise orders prejudicial to revenue significantly broadened
• Powers of CIT to revise orders in favor of tax payers restored by the DTC

Tax Deduction at Source

• The rates for deduction of tax at source on payments to residents range from 2% to 30%
• The rates for deduction of tax at source on payments to non residents range from 10% to 30%
• Failure to furnish Permanent Account Number continues to result in deduction of tax at a higher rate of 20%
• Tax Officers authorized to issue certificates for deduction of tax at Nil/lower rate
• Central Government to notify instances wherein payer is required to report payments made without deduction of tax

Financial Services

Foreign Institutional Investors ("FII")

• Income earned by FIIs to be taxed as capital gains
• Payments made to FIIs as a consideration for sale of listed securities shall not be subject to withholding tax

Mutual Funds

• Distribution Tax of 5% to be levied on distribution of income by an Equity Oriented Mutual Fund. Such income shall be exempt in the hands of the investors.
• Income distributed by funds other than Equity Oriented Mutual Fund will be taxable in the hands of the investors and not subject to levy of distribution tax

Venture Capital Funds ("VCF") / Venture Capital Company ("VCC")

• Code retains the existing tax regime applicable to VCF / VCC i.e. only in respect of investments of VCF / VCC in the nine specified sectors
• Income of VCF / VCC would be exempt and taxable in the hands of the investor in the VCF / VCC in the same manner on receipt basis

Trust taxation

• Provisions have been simplified
• Differential tax regime  for determinate and in-determinate trusts removed
• Provisions relating to taxation of business income of trust at maximum marginal rate dropped

Insurance Companies

• Profits of life insurance business shall be the profits determined in shareholders’ account (subject to certain specified adjustments) and taxable at 30% (as against 12.5% earlier)
• Profits of other insurance business shall be the profits disclosed in annual accounts, subject to certain prescribed adjustments
• Insurance/reinsurance premium received by a non-resident entity for covering risk in India shall be taxable at the rate of 20%
• 5% tax rate has been proposed on the amount of income distributed by life insurance company to the policyholders of an ‘approved equity oriented life insurance scheme’.  This tax seems to be targetted towards ULIP products

Banking Companies

• The deduction for amounts credited to provision for bad and doubtful debts account shall be restricted to 1% of aggregate average advances computed in the prescribed manner, subject to fulfilment of prescribed conditions