[subscribe]
leave travel Allowance

Leave Travel Allowance (LTA) Tax Exemption, Eligibility, Rules & Claims

  LTA or leave travel concession is the allowance paid by your employer to cover your travel expenses, while you go on leave with or without your family. LTA forms a part of your cost to company (CTC) and is given as a yearly benefit but can be availed of monthly. In this article, we will discuss about Leave Travel Allowance (LTA) Tax Exemption, Eligibility, Rules & Claims.   The Income Tax Act, 1961 provides various exemptions to salaried class. Exemption means exclusion from total taxable income. Such exemptions enable the employers to structure Cost to Company (CTC) of employees in a tax efficient manner. One of such exemptions available to salaried class under the law and also widely used by employers is Leave Travel Allowance (LTA) /Leave Travel Concession (LTC). LTA exemption is also available for LTA received from former employer w.r.t travel after the retirement of service or termination of service. LTA is a type of allowance which is provided by the employer to his employee who is travelling on leave from work to cover his travel expenses LTA is an important component of the salary of the employee as it is eligible for income tax exemption as per section 10(5) of the IT Act, 1961 LTA received by the employer will not be a part of his net income of the year Value of LTA provided to High Court (HC) or Supreme Court (SC) Judge & members of his family are completely exempt from tax without any conditions.   The eligible criteria/condition for claiming LTA   1.  LTA can only be claimed on actual travel cost. Actual journey is a must to claim the exemption. All the mediums of the travel i.e. road, rail or air are claimable under LTA. However, employee must submit a valid proof of cost to claim the LTA.   2.  LTA can be claimed only on travel expense. Food or stay or any such expenses excluding travel cannot be part of it. LTA is exempt from tax   3.  LTA can only be claimed on domestic travel expenses. You cannot claim LTA on the expenses incurred during the international trip (if any) of the employee   4.  Employee cannot claim LTA in every financial year. LTA can be claimed only for two journeys in a block of 4 calendar years. The block years for LTA purposes are decided by government. The current running block for claiming LTA is calendar years 2018-2021. The last running block for LTA was 2014-2017   5.  LTA can only be claimed when the employee has been on leave from work for travelling purpose, the employee should mark the period as “leave”. For example – Sanju went on a holiday to Manali with his family and friends. He received Rs 50,000 as LTA from his employer. However, he spent Rs 30,000 for the air tickets of his family. The total LTA exemption he can claim is Rs 30,000, an amount he spent. The balance amount of Rs 20,000 received as LTA will be added in his taxable income.   Expenses that can be included in LTA   Tax benefits are available only on actual travel expenses incurred on rail, road or air fares only subject to the following condition:- Travel by Air – The air fare of the economy class of the national carrier (Air India) by the shortest route or the actual expenditure incurred, whichever is less, can be claimed as tax exemption.   Travel by Train – If the place of origin & destination is connected by rail & journey is performed by any mode of transport other than air, then the first class AC rail fare by the shortest route or the actual expenditure incurred, whichever is less, can be claimed as tax exemption.   Travel by Other Modes a)If the place of origin & destination of the journey are not connected by rail but a recognized mode of transport exists for the route then the first class or deluxe class fare for the shortest route for the recognized mode of transport or the actual expenditure incurred, whichever is less, can be claimed as tax exemption. b) However, if there is no recognized mode of transport for the route, then the amount equivalent to the first class A.C. rail fare of the distance covered assuming that the journey has been performed by rail can be claimed as tax exemption.   Procedure of claiming LTA   It is generally employer specific. Every employer announces the due date within which LTA can be claimed by the employees & may require employees to submit proof of travel such as tickets, boarding pass, invoice provided by travel agent etc along with the mandatory declaration. It is not mandatory for employers to collect proof of travel, it is always advisable for employees to keep copies for his/her records & also to submit to employer based on LTA policy of the company/to tax authorities on demand.   Carry Forward of the unclaimed LTA of a block year to the next block year   If the employee has not claimed LTA in the last running block or just claimed it once, he can still claim one additional LTA in the next block of calendar years under the carry over concession rules under which an employee can claim LTA tax break on 3 journeys made in current block of years. However, in order to utilize the carry over concession facility, one LTA exemption with respect to journey must be claimed in first calendar year of next block. For example – If an employee had just claimed one tax exemption under LTA in last block of year i.e. between 2014-2017. Now, he is  eligible to make LTA claims up to 3 journeys in current block i.e. between 2018-2021. However, his first claim must be made in first calendar year of current block i.e. 2018.   Who are included in the travel cost claimed for tax benefit under LTA?   LTA tax exemption claim can

Share It . .
Read More »
Life Insurance Policy rules

Life Insurance Policy Taxation Rules

In this article, we will discuss about Life Insurance Policy Taxation Rules. Important points that need to be considered in case of taxability of Life Insurance Policy   1.. Deduction under Section 80C 2. Exemption under Section 10(10D) on maturity of policy 3. TDS on the life insurance policy 4. Tax implication of single premium life insurance policies   Buying a life insurance plan is very important for people who have dependent family members. The policy will help you protect the financial future of your parents, spouse & children. Payment of premium on life insurance policy not only gives insurance cover to a taxpayer but also offers tax deduction u/s 80C of Income Tax Act.   Deduction under Section 80C   Any premium paid towards a Life Insurance Policy is allowed as deduction. A taxpayer, being an individual or a Hindu Undivided Family (HUF), can claim deduction u/s 80C in respect of premium on life insurance policy paid by him during the year. However, the LIC Premium is allowed on ACTUAL PAYMENT BASIS only (not on due basis). It will be allowed even if the premium payment is made in cash. In case of an individual, deduction is available in respect of policy taken in the name of taxpayer or his/her spouse or his/her children. No deduction is available in respect of premium paid in respect of policy taken in the name of any other person, other than as mentioned. In case of a HUF, deduction is available in respect of policy taken in the name of any of the members of the HUF. Limit of Deduction u/s 80C – Overall deduction u/s 80C (along with deduction u/s 80CCC & 80CCD) allowed is up to Rs. 1,50,000.   Minimum holding period   Minimum holding period in case of Life Insurance Policy is 3 years. In case policy is terminated/surrender before the minimum holding period then the deduction allowed in earlier years would be deemed as income of the previous year of termination. Further, no deduction will be allowed in respect of payment made towards such policy which is terminated during the year of termination.   Exemption under Section 10(10D) on the maturity benefit   Section 10(10D) of the Income Tax Act allows any amount received such as maturity proceeds, bonus amount, survival benefits or surrender value on life insurance policy as exempt if premium paid on the policy must not be more than 20% of sum assured for policies issued before April 1, 2012 & 10% of sum assured for policies issued after April 1, 2012.   In case of policy taken on or after 1-4-2013 in the name of any person suffering from disability or severe disability u/s 80U or suffering from disease or ailment given u/s 80DDB, limit will be 15% of sum assured.   Benefits of section 10(10D) also apply to any gains arising out of ULIPs & Single Premium Life Insurance Policies (if the conditions mentioned in section 10(10D) are met).   Deductions are applicable to both foreign as well as Indian life insurance companies.   TDS on the life insurance policy   In case life insurance policy is taxable, TDS u/s 194DA will be applicable if the amount received is more than ₹1 lakh. TDS rate will be 5% on the income component (amount received – total premium paid in the tenure of the policy). Any amount received under life insurance policy is taxable under the head “Income from other sources” as per the applicable income tax slab rate, if not exempt u/s 10(10D).   When will be the amount received as maturity proceeds, bonus amount, survival benefits or surrender value on life insurance policy is taxable ?   There are certain situations when Section 10(10D) does not apply, If the premium paid towards the life insurance policy is more than 10% of the sum assured for policies issued after April 1, 2012 & for policies taken before April 1, 2012, if premium paid more than 20% of sum assured, then tax benefit is not available.   Also, as per Finance Budget 2023, any sum received from life insurance policy having premium annually in a financial year is more than Rs 5 lakh would be taxable from 1st April 2023. If a policyholder already has a life insurance policy with premium exceeding Rs 5 lakhs in a financial year, then it will be exempt from tax, if all the other conditions u/s 10 (10D) are satisfied. The new tax law is applicable only to the policies purchased on or after 1st April, 2023.   This Income tax rule will NOT be applicable on ULIP policy. Any amount received on the death of the person insured will still be exempt from tax.   For ULIP plans, the tax exemption limit is limited to Rs 2.5 lakhs annual premium payment in a financial year.   Tax implication of single premium life insurance policies   For a single premium payment life insurance policy, the premium paid is often more than 10% of the sum assured. Hence, the maturity benefit of the policy will be taxable under the head “Income from other sources” as per the applicable income tax slab rate. TDS u/s 194DA @ 5% will apply on the income component (amount received – total premium paid in the tenure of the policy) if the amount received is > ₹1 lakh. For example, if a policy is taken on 12 July, 2013 with a maturity value of ₹3.5 lakh, the single premium amount will be approximately ₹95,000, which is over 10% of the sum assured. Suppose, if assessee surrendered the policy on 16 July, 2019 & he/she received Rs 1,50,000 then the insurance company would deduct TDS @ 5% on Rs 45,000 (income component). Rs 1,50,000 received as surrender value will be taxable under the head “Income from other sources” as per the applicable income tax slab rate.   Comparison of Old Regime & New Regime tax (under section 115BAD) for investing in life insurance policies  

Share It . .
Read More »
Investment Strategy

Investment Strategy for Beginners – how to plan, save & invest in different segment

In this article, we will discuss about Investment Strategy for Beginners.   Investment Strategy for Beginners   As an investor, you need to follow the below steps before starting your investment journey which are as follows:   First of all, you have to prepare your per month income & expense sheet to have a better understanding. For example –  If your per month income is Rs 40,000 per month & household & other expenses is Rs 25,000 per month then your saving is Rs 15,000 per month.   a) There is a General Thumb Rule which says – An Individual needs to save & invest at least 15-20% of their salary. So, for example – If your salary is Rs 30,000 per month then you should save & invest at least Rs 4,500 to 6,000.   b) The Second Thumb Rule says – An individual need to invest (100 – their current age) in equity investments such as equity oriented mutual fund, shares etc. & the balance amount in debt fund or secured investment fund. So, for example – If your age is 30 then 100-30 = 70% of your investment should be part of your equity investment & balance 30% should be part of your debt & fixed investment.   c) It is a general tendency in India that after getting their salary credited to their account, the individual first pays their essential expenses as required & then they spend the balance amount on their own luxuries & after that any amount left with them, they will save & invest (Income – Expense – Personal spend = Savings). This is the wrong approach to save money, the ideal scenario will be Income – Savings (which should be equal to 15-20% of their income) = Expenses & Personal Spend.   d) Remember, there is no point having a large sum of money to be sitting idle in your saving bank account because the rate of interest in saving account is largely 2-3 % which will depreciate your money & also decrease your purchasing power. India Inflation rate is around 5-6% annually, so if you put your money idle in saving bank account it will depreciate your money & also will reduce your purchasing power because the things which can afford at present will become expensive in the future years to come due to inflation rate. Since your savings which barely gets a interest rate of 2-3% will reduce your money & purchasing power considerably.   e) Always remember you just don’t have to save the money but have to invest accordingly to get the desired return to build your wealth.   Investment Procedure   1. Set Your Objectives – Set your objective before starting your investment. Whether you want to invest for short time period (say < 3 years) or you want to invest for long time period (say > 3 years). Setting long tern horizon can be a great benefit when investing in Mutual Fund & Share Market. Your investment portfolio will grow based on factors such as the amount of capital invested, the tenure of investment & the net annual earning on capital. Hence, it is advisable to begin investing as early as possible as it helps you to save a significant amount of money & enjoy the power of compounding on your investment.   2. Find what is your risk tolerance (risk appetite) capacity? The types of investments you choose will depend greatly on your risk tolerance (risk appetite). The best way to identify the risk is to conduct a comprehensive comparison between the different schemes of Investment. Doing so will enable you to figure out what levels of risk each product holds & you can invest money accordingly. Generally, there are 3 types of investors having risk taking capacity are classified: a) Low risk-taking investors b) Moderate risk-taking investors c) High risk-taking investors   3. Whether adequate amount of emergency fund has been kept in place if required by the investors? Generally emergency fund needs to be kept of around 6-8 months of individual earning of one month salary. Emergency fund has to be highly liquid assets, so that int can be withdrawn anytime 24*7. It is preferable to keep Emergency fund in Fixed Deposits as it is highly liquid assets.   4. Whether proper cover has been taken by the investor by securing his life through any Life Insurance Policy or a Term Plan & proper Health Insurance Policy? It is preferable for any investor that before starting your investment journey, you should have an ideally 1 or 2 Life Insurance policy or 1 Term Plan (in case of dependency level on earning member of the family is more). It is also advisable to have a adequate health insurance policy to be taken in the name of main earning member of the family & health insurance should cover his spouse & children also, If any.   5. Based on the risk appetite & also considering investment diversification in mind, Investor should first invest their money in safe investment mode having fixed Rate of Return (RR) generating capacity which will give them a fixed RR & also the compounding effect on their return in the long run. Always remember its the inflation adjusting return that you actually earn, hence you should invest in that investment instrument that give you inflation adjusted return.   Tips for smart Investment   a) It is preferable to first invest in fixed investment returns such as Public Provident Fund (PPF), National Pension Scheme (NPS) & Post Office Deposit Scheme.   b) Investment in fixed investment return gives you security of fixed earning even in dynamic & adverse situation which is guaranteed. Investment in PPF & NPS not only gives you the guaranteed returns but you can also claim deduction under section 80C & 80CCD (1B) of the Income Tax Act, 1961 amount to Rs 1,50,000 & Rs 50,000 at the time of filing of your Income Tax Return in the

Share It . .
Read More »
TDS

All about TDS- Meaning, Applicability, Rates, Due dates & Amendments (AY 2023-24)

In this article, we will discuss about the Tax Deducted at Source (TDS) all sections & amendments in detail. Tax Deducted at Source (TDS)   TDS is income tax reduced from the money paid at the time of making specified payments such as rent, commission, professional fees, salary, interest etc. by the persons  making such payments.  Any person making specified payments mentioned under the Income Tax Act are required to deduct TDS at the time of making such specified payments.   Due date for depositing the TDS   TDS must be deposited to the government by 7th of the subsequent month.  For example, TDS deducted in the month of June must be paid to the government by 7th July.   Due date of filing TDS returns   Filing TDS returns is mandatory for all the persons who have deducted TDS. TDS return is to be submitted quarterly. Different forms are prescribed for filing returns depending upon the purpose of the deduction of TDS. Various types of return forms are as follows: Form 26Q – TDS on all payments except salary Form 24Q – TDS on Salary Form 27Q – TDS on all payments made to non‐residents except salaries Due dates – Q1 (April to June) – 31st July, Q2 (July to September) – 31st October, Q3 (October to December) – 31st January & Q4 (January to March)  – 31st May Rates of TDS applicable for Financial Year 2022‐23 or Assessment Year 2023‐24:   Section – 192 – Salaries   Deductor – Any Resident Person Deductee – Any person Threshold Limit – If Total Income of the Employee is upto Basic Exemption Limit, then no TDS Tax Rate – Individual Slab Rate Other Conditions – a) Tax will include Surcharge (if any) & Cess (always) b) Employer shall consider other income & deduction of employee & not consider any loss other than House Property loss if provided by employee. c) Employee can take credit of Tax on Non-monetary perquisite paid by the employer. d) In case of Arrears of salary, TDS is deducted after considering relief under section 89. e) If employee opts for Section 115BAC (New Tax Regime) – He will intimate to the employer & Form 10BA need to be filed before due date of filing of ITR return. Section -192A‐ Premature withdrawal from Employee Provident Fund Deductor – Any Resident Person Deductee – Any person Threshold Limit – Rs 50,000 Tax Rate – 10% Other Conditions – a) TDS only if amount is taxable in the hands of employee – if employee renders < 5 years of service & amount received is more than Rs 50,000 b) If PAN is not furnished, TDS is deducted as Maximum Marginal Rate (MMR) i.e. 30% tax rate + 37% maximum surcharge rate + 4% cess = 42.744%. Section -193‐ Interest on securities   Deductor – Any Resident Payer Deductee – Any Payee Threshold Limit – Rs 2,500 Tax Rate – 10% Other Conditions – No TDS if: a) Interest is payable on CG or SG Securities b) Interest is paid to LIC, GIC or any other insurer c) Interest is payable on DMAT Securities d) Interest is payable on debenture of public company to Individual/HUF (If amount not exceed Rs 5,000 p.a.) Section -194‐ Dividend   other than the dividend as referred to in Section 115‐O (Deemed dividend) – Deductor – Any Resident Payer Deductee – Any Payee Threshold Limit – Rs 5,000 Tax Rate – 10% Other Conditions – No TDS if: a) Dividend is paid to LIC, GIC or any other insurer b) Paid to Individual other than Cash (If amount not exceed Rs 5,000 p.a.)   Section -194A – Interest other than interest on securities   Banks Time deposits, Recurring deposit and Deposit in Co‐op Banks Deductor – Any Resident Payer Deductee – Any Payee Threshold Limit – Rs 40,000 (for individual), Rs 50,000 (for Senior Citizens) & Rs 5000 (for others) Tax Rate – 10% Other Conditions – If bank opting for Core Banking Solution (CBS), then limit will be checked per bank wise not per branch wise. No TDS if: a) Interest on Saving Bank account b) Interest paid by Firms to Partners c) Interest on Income Tax Refund. However, Interest on IT refund of NRI will be liable for TDS deduction at applicable rate. d) Interest is paid to any other bank, LIC, UTI or any other insurer e) Interest is paid by co-operative society to its member or any other co-operative society f) Interest on compensation awarded by Motor Accident Claim Tribunal, if amount not exceeds Rs 50,000 p.a g) If interest is credited by bank to provisioning account on daily/monthly basis for macro monitoring only by use of CBS Software    Section -194B – Winning from Lotteries, Crossword Puzzle, Card games etc   Deductor – Any Person Deductee – Any Person Threshold Limit – Rs 10,000 Tax Rate – 30% Other Conditions – If winning in kind, then the organizer will release winning only after ensuring that TDS on winning is paid to the Govt.  Section -194BB – Winning from Horse Race   Deductor – Any Person Deductee – Any Person Threshold Limit – Rs 10,000 Tax Rate – 30% Other Conditions – TDS will be deducted without set off of loss   Section -194C – Payment to Contractor   Deductor – Any Resident Payer Deductee – Any Resident Person Threshold Limit – Rs 30,000 (Single Bill/Invoice)/ Rs 1,00,000 (Aggregate Payment for whole financial year) Tax Rate – Individual/HUF – 1% / Others – 2%. Other Conditions – a) Work Contracts includes Advertisement, Broadcasting, Telecasting, Catering, Transportation of goods/passenger (other than railway) & Manufacturing/Supplying product as per customer specification out of the material supplied by such customer or its associate (Job Work). b) Payment made for personal purpose by Individual/HUF – No TDS c) Contract also includes Sub-Contracting d) TDS is not applicable on payment to Contractor engaged in plying, hiring or leasing of goods carriages u/s 44AE, where such contractor owns 10 or less goods carriages during the financial year & furnishes PAN. e) No TDS if Single Transaction is < Rs 30,000 & aggregate payment during the financial year is < Rs 1,00,000.    Section -194D – Insurance Commission   Deductor – Any Insurance Company Deductee – Any Resident Person Threshold Limit – Rs 15,000 Tax

Share It . .
Read More »
Gifts tax

Taxability of Monetary Gifts, Immovable Property & Prescribed Movable Property received for adequate or inadequate consideration

Taxability of Gifts received by an Individual or Hindu Undivided Family (HUF)   Any sum of money or property received by an individual or a HUF without consideration or a case in which the property is acquired for inadequate consideration. As per the Income Tax Act, 1961 which was amended in 2017, any gifts received by any person or persons are taxed in the hands of the recipient under the head ‘Income from other sources’ at normal tax rates under section 56(2)(x). From the taxation point of view, gifts can be classified as follows: Any sum of money received without consideration, is termed as ‘monetary gifts’.   Specified movable properties received without consideration, is termed as ‘gift of movable property’.   Specified movable properties received at a reduced price (i.e., for inadequate consideration), is termed as ‘movable property received for less than its fair market value’.   Immovable properties received without consideration; is termed as ‘gift of immovable property’.   Immovable properties acquired at a reduced price (i.e., for inadequate consideration), is termed as ‘immovable property received for less than its stamp duty value’.   Tax treatment of monetary gifts received by an Individual or Hindu Undivided Family (HUF)   Any sum of money received without consideration (i.e., monetary gift may be received in cash, cheque, draft, etc.) by an individual/ HUF will be charged to tax if following conditions are satisfied –   Sum of money received without consideration. The aggregate value of such sum of money received during the financial year exceeds Rs. 50,000.   Provisions relating to gift applies in case of every person, but gifts by a resident person to a non-resident are claimed to be non-taxable in India as the income does not accrue or arise in India to ensure that such gifts made by residents to a non-resident person are subjected to tax in India, the Finance Act, 2019 has inserted a new clause (viii) under Section 9 of the Income-tax Act to provide that any income arising outside India, being money paid without consideration on or after 05-07-2019, by a person resident in India to a non-resident or a foreign company shall be deemed to accrue or arise in India.   Cases in which sum of money received without consideration, i.e., monetary gift received by an individual or HUF is not charged to tax –    Money received from relatives. Relative for this purpose means: i) In case of an Individual      a) Spouse of the individual b) Brother or Sister of the individual c) Brother or Sister of the spouse of the individual d) Brother or Sister of either of the parents of the individual e) Any lineal ascendant or descendent of the individual f) Any lineal ascendant or descendent of the spouse of the individual g) Spouse of the persons referred to in (b) to (f)ii) In case of HUF, any member thereof   Money received on the occasion of the marriage of the individual.   Any distribution of capital assets on total or partial partition of a HUF   Money received under will/ by way of inheritance.   Money received in contemplation of death of the payer or donor.   Money received from a local authority.   Money received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C). [w.e.f. AY 2023-24, this exemption is not available if a sum of money is received by a specified person referred to in section 13(3)]   Money received from or by a trust or institution registered under section 12A, 12AA or section 12AB [w.e.f. AY 2023-24, this exemption is not available if a sum of money is received by a specified person referred to in section 13(3)].   Money received by any fund or trust or institution any university or other educational institution or any hospital or other medical institution referred to in section 10(23C) (iv)/(v)/(vi)/(via).   Money received as a consequence of demerger or amalgamation of a company or business reorganization of a co-operative bank under section 47.Note –   i) Gifts received on the occasion of marriage of the individual is not charged to tax. Apart from marriage there is no other occasion when monetary gift received by an individual is not charged to tax. Hence, monetary gift received on occasions like birthday, anniversary, etc. will be charged to tax.   ii) Gifts received from relatives are not charged to tax (meaning of ‘relative’ has been discussed above). Friend is not a ‘relative’ as defined in the above list & hence, gifts received from friends will be charged to tax (if other criteria of taxing gift are satisfied). For example – Mr. X received monetary consideration as gifts from his 5 friends in a financial year which is as follows: Mr. A – Rs 8,000, Mr. B – Rs 16,000, Mr. C – Rs 9,000, Mr. D – Rs 14,000 & Mr. E – Rs 13,000.Although the total amount received by Mr. X from his all 5 friends does not exceeds Rs 50,000 individually, but since the aggregate value of amount received from all the 5 friends exceeds Rs 50,000 in a financial year. The whole amount of Rs 60,000 will be added to his income & tax as per his income tax slab rates.   iii) Once the aggregate value of gifts received during the year exceeds Rs. 50,000 then all gifts are charged to tax – The important point to be noted in this regard is the “aggregate value of such sum received during the year”. The taxability of the gift is determined on the basis of the aggregate value of gift received during the year and not on the basis of individual gift. Hence, if the aggregate value of gifts received during the year exceeds Rs. 50,000, then total value of all such gifts received during the year will be charged to tax (i.e., the total amount of gift & not the amount in

Share It . .
Read More »
Rules of investments

Thumb Rule of Investing that every investor should consider before starting their investment journey

In this article, we will discuss the Thumb Rule of Investing. Thumb Rules of Investing     In terms of investing, there are certain thumb rules that help us ascertain how fast our money grows or how fast it loses its value. Then, there are rules to make our investment process easier. Like how should we do our asset allocation, how much to save for retirement & for emergencies etc. Various points to be considered before starting investing are:   1 . The Emergency Fund Rule    As the name suggests, the money kept aside for emergency use is called an emergency fund. It is a good practice to keep at least 6 months to 1 year’s expenses as an emergency fund. While calculating your expenses you should include expenses for food, utility bills, rent, EMIs etc. & instead of keeping it idle in savings bank accounts invest these funds in liquid funds or in FD. These funds provide a little more returns than savings bank accounts. At the same time, like saving banks accounts, liquid funds & FD are highly liquid, i.e. the money is available in very short notice.   2. 100 minus age rule   The 100 minus age rule is a great way to determine one’s asset allocation i.e., how much you should allocate in equities investment & how much in debt investment. For this, subtract your age from 100, and the number that you arrive at is the percentage at which you should invest in equities. The rest should be invested in debt. For example, if you are 30 years old and you want to invest Rs 8,000 every month. Here if you use the 100 minus age rule, the percentage of your equity allocation would be 100 – 30 = 70%.  So Rs 5,600 should go to equities and Rs 2,400 in debt. Similarly, if you are 20 years old and want to invest Rs 8,000 every month, then according to the 100 minus age rule the equity allocation would be 100 – 20 = 80%. i.e., Rs 6,400 should go in equities and Rs 1,600 in debt. 3. The 10,5,3 Rule   When you invest or even think of investing money, the first thing that you usually look for is the rate of returns that you will get from your investments. The 10,5,3 rule helps you to determine the average rate of return on your investment. Though there are no guaranteed returns for investments, but as per this rule, one should expect 10% returns from long term equity investment, 5% returns from debt instruments & 3% average rate of return that one usually gets from savings bank accounts.   4. Not considering the impact of inflation on returns   One of the common mistakes that most investors tend to make is to ignore the effect of inflation on returns. We all know that the value of the rupee is not the same as what it was 10 years ago. It’s worth was way more than what it is today. And after a few years, it will decrease even further. It’s almost inevitable. In other words, inflation bites into the value of the rupee and decreases its purchasing power. So, while making any investment, your main aim should be to fetch returns that beat inflation.   5. 10% for Retirement Rule   When you start earning in your early or mid twenties, saving for retirement is the last thing in your mind. But starting to save from your first salary, no matter how little the amount is, you will be able to create a huge corpus for retirement. Ideally it should be 10% of your current salary which you should increase by another 10% every year. For example, If you are 25-year-old & earn Rs 30,000 a month. You have decided to invest 10% of your salary, i.e. Rs 3000, every month & increase it by another 10% every year. The retirement corpus you will be able create by investing in an instrument that provides 10% returns will be approx. to Rs 3.3 crores. A great way to build your retirement corpus is by investing in NPS following the 10% rule. Current Age 25 Investment amount every month Rs 3,000 % of increase in investment amount every month 10% Average rate of return 10% Retirement age 60 Tenure of investment 35 Total retirement corpus Rs 3.3 Crores approx. 6. Rule of 72   We all want our money to double & look for the ways it can be done in the shortest amount of time. Well, calculating the number of years in which your money doubles is very easy with the Rule of 72. Take the number 72 & divide it with the rate of return of the investment product. The number at which you will arrive is the number of years in which your money will double. For example, If you have invested Rs 1 lakh in an investment product that provides you a rate of return of 6%. Now, if you divide the number 72 with 6, you arrive at 12. That means, your Rs 1 lakh will become Rs 2 lakh in 12 years.   7. Rule of 114   Like the ‘rule of 72’ tells you in how many years your money can be doubled, this rule tells you how many years it will take to triple your money. Rule of 114 is similar to Rule of 72. For this, take the number 114 and divide it with the rate of return of the investment product. The remainder is the number of years when your investment will triple. So, if you invest Rs 1 lakh in a product that gives you an interest rate of 6%, then as per the rule of 114, it will become Rs 3 lakh in 19 years.   8. Rule of 144   Two multiplied by 72 is 144. Hence, you can simply understand that ‘rule of 144’ helps you calculate in how many years

Share It . .
Read More »

All About HUF – A Clear Approach

I believe you must have heard of Hindu Undivided Family (HUF). Most of the people think that this is a person which are created by some kind of Agreements etc. Well, if you are also one of them then it’s time to bust your myth about that. Because the fact is something far different from that. So, Let’s understand the concept in a bit detail: 1. What is HUF? A Hindu Undivided Family (HUF), as its name suggests is Joint Family which is taken as a separate entity from that of the Individual Members consisting in HUF. The Head of the Family (i.e. Father/ any elected person in case of the death of Father) is called Karta which operates the business of the HUF. 2. How HUF is created? HUF does not arise from a contract. But, it is a Creation of Law. After marriage as soon as a Child is Born, HUF comes into existence. Hindu, Buddhists, Jains, and Sikhs can form HUF. HUF usually has assets which come from a Gift, a will, or ancestral property, or property acquired from the sale of joint family property or property contributed to the common pool by members of HUF. 3. Which Individuals are part of HUF? HUF consist of Co-Parceners (who are Family Members) and the distant relatives i.e. called as Members of HUF. 4. Who are Co-Parceners and Members? Co-Parceners: Co-Parceners are the Family Members and it is consist of 4 levels of Lineal descendants including the first male ancestor. It is only a Co-Parcener who can demand the Partition of HUF. It will include the following: 1. Mr. X (Karta) 2. Son/ Daughter of Mr. X 3. Grandson/Granddaughter of Mr. X 4. Great Grandson/ Great Granddaughter of Mr. X [Note: HUF can’t be expanded over the above 4 lineal descendant lines]   Members of HUF: Any other distant Relatives who are not the Family Member (e.g. Brother-in-law, Sister-in-law etc.) would be deemed as the Member of HUF. Although they are Members of HUF, they are not the Co-Parceners. A member can not demand the Partition of HUF. [Imp. Note: Wife is not considered as the direct part of HUF i.e. Co-Parcener. She will be a Member in Husband’s family HUF. Although, She will be a Co-Parcener in her Father’s Property. ALL CO-PARCENERS ARE MEMBERS, BUT ALL MEMBERS ARE NOT CO-PARCENER.] 5. Partition of HUF? Under Hindu Law, Partition of HUF can be of 2 types: Total Partition & Partial Partition;   Total Partition: It is a type of Partition in which entire family property is being divided among the Co-Parceners. After the total partition HUF ceases to Exist. Partial Partition: It is a type of Partition in which some of the willing co-parceners get out of the HUF and rest of them continue the HUF. The Partial Partition may be property specific also when some of the properties are divided among the co-parceners and balance continue to be the property of the HUF.   [Imp. Note: Under the Income tax Act, ONLY TOTAL PARTITION IS RECOGNISED, a partial partition is not considered as the partition.] 6. Assessment after Total Partition: When a claim of total partition has been made by any Co-Parcener on behalf of HUF, the Assessing Officer shall enquire about it. For this, he shall serve a notice to all the Co-Parceners of the HUF and enquire whether the total partition has taken place and if yes, then on which date it is affected. If the Partition of the has been affected in the previous year, the total income of the HUF of the previous year up to the date of partition shall be the Total Income of HUF. EVERY MEMBER SHALL BE JOINTLY AND SEVERALLY LIABLE for the tax on such assessed income of HUF. The Several liability of a Co-Parcener would be proportionate to the share of joint family property allotted to him on such partition. 7. Some Important Points: Is there any minimum no. of co-parceners required for an entity to be taxed as HUF? A HUF can be formed with just two members one of whom is a co-parcener. But for an entity to be taxed as a HUF, it should have at least two co-parceners. For example; When any HUF consist of only Husband and Wife, then there is only one co-parcener (because the wife is a member but not a co-parcener) and therefore, in such case income can’t be taxed in hands of HUF. It will be taxed in the hands of Individual Co-Parceners. Can HUF pay remuneration to Karta or Any Member of HUF? Yes. As per Supreme Court decision in Jugal Kishor Baldeo Sahai Vs. CIT, such remuneration would be deductible if it is paid: – Under a valid and Bonafide Agreement; and – In the interest of and expedient for the business of family; and – Reasonable and not Excessive. What is the position of a Married daughter? Unmarried daughters would always be a Co-Parcener and have the equal right over the property just like a Son. Although, the Status of Married Daughters would be as follows: – In Her Father’s Property: She will remain a Co-Parcener even after the marriage. – In her In-Laws House: She will always be a Member but Not the Co-Parcener. Although, Husband can give his co-parcenary right to her wife. Can HUF run a Sole Proprietorship Business? Since HUF is one person as per Income Tax Act, a Proprietor of a business can be an Individual or a HUF. A Proprietorship concern is not governed by any specific law as such, and therefore there is no bar on HUF becoming a Proprietor of any concern. In case of any Ideas, Suggestions or Any other information, please do comment below. You can subscribe for our blogs @taxeffects.com and providing us your email in the “Follow” section. You can also reach us at taxeffectsofficial@gmail.com. Share It . .

Share It . .
Read More »

Recent Post