Saturday 18 June 2016

Tax Planning.

As the new financial year starts it’s high time for all taxpayers to restructure investments and expenditures in order to take the maximum benefit out of new income tax provision as per budget 2016.

Budget 2016 : Major changes

1. Tax rates: Tax slabs are same. However rate of surcharge increased from 12% to 15%. This applicable on individual with taxable income more than rupees 1 crore p.a.

2. Tax rebate to small taxpayer under section 87A has increased from rupees 2,000 to rupees 5,000 where income not exceeding rupees 5 lacs p.a.

3. The maximum limit of house rent allowance deduction increased from rupees 2,000 per month to rupees 5,000 per month under section 80GG.

4. Provident Fund contribution:

Earlier the withdrawal from recognised provident fund for specified purpose or final withdrawal is exempt from tax.
Now only 40% of accumulated balance of recognised provident fund and superannuation fund of all contribution made on or after 1st April 2016 by employees are exempt on withdrawal.

Earlier there is no monetary limit on employer contribution to the recognised provident fund of employee i.e. whole of the employer contribution in the recognised provident fund of employee is exempt from tax.
Now the monetary limit introduced. Employer contribution in the recognised provident fund of employee is exempt only up to rupees 1,50,000.

5. National Pension Scheme (Section 80CCD):

Before budget any payment from national pension system trust to an employee on account of closure or his opting out of pension scheme is chargeable to tax.
Now the 40% of the amount payable to assesse on account of closure or his opting out of National pension scheme is exempt from tax. However, the whole of the amount received by the nominee, on death of the assesse shall be exempt from tax.

6. Home loan:

Additional deduction of rupees 50,000 introduced for first time home buyers where value of the house property is less than rupees 50 lacs and the amount of loan not exceed rupees 35 lacs has been sanctioned during the period from 1st April 2016 to 31st March 2017. The benefit of deduction will extended till the loan continues.

Earlier rupees 2 lacs deduction on interest payable on borrowed capital is allowed where acquisition or construction of house property is completed within three years. Now the three years substituted by Five years.

For more details on each provision of tax planning, watch our series of presentation on “How to save tax?”

Further in the beginning of the Financial year all salaried employed required to submit Form No. 12BB along with the evidence of investment or expenditure, for the purpose of estimating his income or computing the tax deduction at source.

The income tax department has inserted new rule 26C regarding "furnishing of evidence of claims by employee for deduction of tax under section 192.

Nature of  claims
Evidence of particulars required to be submitted
House Rent Allowance.
Name, address and permanent account number of the landlord/landlords where the aggregate rent paid during the previous year exceeds rupees one lakh.
Leave travel concession or assistance.
Evidence of expenditure.
Deduction of interest under the head “Income from house property”.
Name, address and permanent account number of the lender.
Deduction under Chapter VI-A.
Evidence of investment or expenditure.”.

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