How fringe benefits can help you save tax

Is there a way your employer can help you in saving tax on fringe benefits that you get? If yes, then how can you go about it?

How can you save tax using house rent allowance, interest and principal paid on your home loan and letting out property that you own?

In a chat with readers on April 23, Get Ahead tax expert Mahesh Padmanabhan answered these and many more queries related to tax claims on home loans, HRA benefits, capital gains tax and how to plan and invest your money in 2008-09?

For those of you who missed the chat, here is the transcript.

---

DK asked, can i take advantage on Home loan as well as Rent

Mahesh Padmanabhan answers, You can take the benefit of HRA as well as home loan if you are actually staying in a rented premises. However, you would need to note that if your owned house is in the same city then you need to have strong reason to be staying in a rented premises. Employment requirement is one such reason. If your stay in a rented premise is merely to meet your convenience then such reason would not hold good.

---

pramod sahoo asked, Sir, i m a central govt employee. This year my salary will be around 5.5 lakh. How can i be able to save tax besides the maximum limit of 1 lakh savings. Can I gift some amount to any relatives and get benefited from it. I want to make part payment of my home loan, is it the right decision taking into account i m in the 20% income tax bracket.

Mahesh Padmanabhan answers, Gifting does not entitle the donor to any tax deduction. In case you you have your section 80C investment quota of Rs. 1 Lakh covered then you may not be specifically be eligible to any additional deduction for the part payment of home loan. But considering the rising interest rates, it make sense financially to pre-pay atleast some portion of your loan.

---

ak asked, There is a article on Rediff to pay Zero Tax on Rs. 13.10 Lac income by creating an HUF. Can you please provide some details on this and if this is really workable option for salaried class?

Mahesh Padmanabhan answers, HUF can be created by any hindu family. It works as a separate taxable entity and hence if you are in the maximum tax bracket then it might make sense to push some income into the HUF. Having said this you need to note that it is not as easy as it is made out. The principal contribution has to be managed well as it might otherwise be clubbed with your own income. You would need a detailed counseling session with your tax consultant before you go about creating a HUF.

---

sanjeev asked, I WORKING IN JAIPUR [Images], i am staying with my parent alonr AND MY FAMILY STAYING IN Mumbai in the house taken by me on Rent, i am paying rent of Rs 10000 pm by cheque and agreement is there. can i take benefit of HRA exemption for this house?

Mahesh Padmanabhan answers, Though your question is unclear, based on my understanding, i am answering the query. In case you are staying in your parent's house in Jaipur and paying rent to your father then such payment qualifies for HRA deduction. However, if you are referring to the rented house in Mumbai for your family while you are staying in Jaipur on account of your employment then you would not be eligible for any deduction for the Mumbai rented house.

---

Samrat asked, Hi there ... I have 50K that I got as bonus and can invest right now. I am not too adventurous and would like to invest in a safe plan even though the returns are not very high. Lock in pd max of 5 year, what plan shud be best for me and how much return do I expect?

Mahesh Padmanabhan answers, In case you are risk averse, then you should either go for term deposits with banks or in MF FMPs. However, as your investment horizon is 5 years, you could also look at diversified equity MFs.

---

KKA asked, Hello Mahesh, Good Afternoon!! I am currently residing in a rented house and am now planning to buy a flat. I would not be moving into the new flat that i'm buying and would be renting it out. I wanted to know if i can claim tax excemption on home loan for the new flat plus claim HRA for the current residing house.

Mahesh Padmanabhan answers, If you are actually renting out the new house then you would be eligible to claim the entire amount of home loan interest as deduction in addition to the standard deduction of 30%. Moreover, if you are actually staying in a rented house then you could claim HRA deduction also.

---

PKK asked, WHILE SUBMITTING ITR2, PLEASE CLARIFY THAT SHOULD WE FILL UP THE INTEREST RECEIVED IN PPF ACCOUNT IN "SCHEDULE EI" ?

Mahesh Padmanabhan answers, The interest credited for the year as mentioned in your PPF passbook would need to be mentioned here. Please note that this is exempt from tax and appears only as a disclosure.

---

Gopi asked, Hello Mahesh,I would like to purchase a land for constructing a house.Could you please tell me whether can I get tax saving either in purchase or in construction or both

Mahesh Padmanabhan answers, You would get the home loan benefit for the construction of the house. But in case of interest on loan for purchase of land you would not get any deduction.

---

u asked, hello my income is 144000yearhow i t6ax save?

Mahesh Padmanabhan answers, Your income is below the taxable limit and hence you do not need to save from the perspective of reducing tax. However, from the perspective of general investing you could opt for any of the available investment options such as PPF, NSC, Term deposits, Mutual Funds etc.

---

avinash asked, hello sie i want the information about different types of funds or schemes useful for tax saving plz reply me?

Mahesh Padmanabhan answers, Tax saving MFs are more popularly known as Equity Linked Savings Scheme (ELSS) MFs. You would need to check for a fund which is eleigible for such tax deduction. eg. of such funds are SBI [Get Quote] Magnum Taxgain Fund, HDFC [Get Quote] Tax Saver Fund, Birla Sunlife Tax relief Fund.

---

SUNIL asked, I AM A SALARIED PERSON. I'VE JUST BOOKED A FLAT WHICH IS UNDER CONSTRUCTION AND I'VE TAKEN A HOUSING LOAN OF RS. 27,50,000/-. I WILL GET POSSESSION OF THE IN JANUARY, 2010. PRESENTLY I AM STAYING IN A RENTED FLAT. CAN I GET INCOME TAX REBATE ON BOTH RENT AND EMI AND INTEREST OF HOUSING LOAN.

Mahesh Padmanabhan answers, As you are staying in a rented premise, you can claim the benefit of HRA deduction but in case of the property that you have purchased, as the same is under construction you can claim the home loan benefit only after the construction is completed.

---

sameer asked, I want to purchase a commercial property by taking loan from my relative. I am also planning to pay my relative an interest . Will this interest paid qualify for tax deduction under interest on housing loan section?

Mahesh Padmanabhan answers, You would get the benefit of such interest paid to your relative. However, to be very clear, you would be advised to have strong documentation. Which means that you would need to execute an agreement for the loan with the terms of repayment and interest clearly mentioned therein.

---

krnmeena asked, i m goverment sarvant. My income sources are sahre trading, salary, and mutual fund divident. in finacial year, my short term gain is negative in share trading if my total income (1).from salary:160000 (2).from share:-5000 (3).divident:1000. (4).Interast:300. (5). my saving is 18000 under 80c. than what is my total taxable income? what ITR from i should fill for tax return. thanks.

Mahesh Padmanabhan answers, In case these details pertain to financial year 2007-08 then as your taxable income is in excess of Rs. 1.1 lakhs, you would be needed to file your returns in ITR-2. In case this is for the FY 2008-09, then as your taxable income is below the taxable income of Rs. 1.5 lakhs, you would not be needed to file your returns.

---

Prasad_js asked, Hello Sir, This is JS Prasad working in Mumbai. I am getting CTC of 10 lacs (I ma new to Mumbai - so I am not sure where to buy property to save tax on Home loans). Want to know details on Investments. Also I need to know about the tax advantages under section 80 G as I am planning to donate some money to a organisation which is recognized. Thanks.

Mahesh Padmanabhan answers, Though you would get tax breaks for investing in home using a loan, you would need to note that the current property rates are actually overvalued and might come down in the coming few months. Hence it would be wise not to go in for such investment option as of now. In case of deduction on account of donations, you would need to note that only some specified donations qualify for 100% deduction but for most it would be 50% of the amount donated. In some cases there is a restriction of such deduction to the extent of 10% of adjusted gross total income.

---

Ajay asked, Good Afternoon Mahesh, Hope you are doing Great!!! What is the maximum amount per annum non-taxable for LEAVE TRAVEL ASSISTANCE and MEDCIAL ALLOWANCE?

Mahesh Padmanabhan answers, There is no specific tax limitation for LTA apart from the frequency restriction of once in 2 years or twice in a block of 3 years. This would however, be subject to the salary structure defined by your employer. In case of deduction of reimbursement of medical expenses the limitation is Rs. 15,000 per annum.

---

ansar asked, Hollo Sir Pls define fringe benifit tax andt tax burden in the hands of employee.

Mahesh Padmanabhan answers, FBT (excepting on ESOPs) is theoretically the liability of the employer. However, in many cases the employer incorporates FBT liable expense reimbursement component into the salary structure of employees to facilitate lower tax to the employee. In such case, the employer might mark this amount as a cost and include it into the CTC of the employee.

---

agpandey asked, sir is there any benefit in purchasing agricultural land from tax point of view

Mahesh Padmanabhan answers, Agricultural income per se is not taxable. Otherwise there is no specific deduction available for purchase of agricultural land.

---

Brijesh asked, Hi, What is the procedure for filing e-returns?

Mahesh Padmanabhan answers, You could visit the income tax site www.incometaxindiaefiling.gov.in and download the excel utility files for completion and then uploading.

---

Rajesh asked, What would be the upper limit for considering the Interest Amount on Housing Loan when House is Let out?

Mahesh Padmanabhan answers, There is no upper limit for deduction of housing loan interest when the property is let out.

---

nd asked, sir, can the loss against one share be settled against the profit of another while calculating short term capital gain?

Mahesh Padmanabhan answers, Yes it can be adjusted against the profit on sale of other shares.

---

Mahesh Padmanabhan says, Dear friends, it is time for us to sign off. We thank you for your participation and hope to back to answer more queries next time. Team RelaxwithTax

 

6 Top Income Tax Fallacies Disproved

Death and taxes are inevitable: no wonder one tries delaying both as much as possible. But more significant are the misconceptions that people harbour about some key aspects of tax

 

Every year, Mohit Gupta promises me that the next time around, he will file his income tax returns much before the last day. Of course, when it actually comes to it, my office has to start calling Gupta from early July to remind him of his pending returns. It then gets into a last-minute rush featuring papers to be searched for, the shock of finding a higher tax to be paid and, to make matters easier, some papers missing.  Over the last 25 years that I have been in the profession, not a year has passed by when some client or the other has not rushed in at the last hour to get his tax returns filed. Gupta is not a case in isolation. They all solemnly promise that it will not happen the next year, but I am yet to witness a last day of filing when my office does not resemble a wholesale market buzzing with people with files, folders and the works waiting for their turn. The faint of heart would baulk at filing over 250 returns on the last day, as we did this year. And, though my office staff had the schoolboy-like excitement to manage it all,  I was a little uneasy till it got over. I got unnerved at the thought of “what if we are unable to file them all?” and the problems my clients would face afterwards.  While the real personal income tax action heats up in March, I face the impact of it in July. Despite discussions on salary structures, tax optimisation and efficient tax management, I still get to interact with many people with very serious doubts. The most common question I face is: why should I file any return when my employer has already deducted TDS and issued the Form 16 to me? Such innocent questions make me sympathise with people’s inability to understand the most common aspects of their personal taxation duties. For instance, technology, in the past two years, has emerged as a great leveller. Since the assessment year 2007-08, one can file the returns and taxes online. Terrifyingly long queues at special collection counters are now passe, though some still prefer the manual procedure out of sheer habit. With initiatives by the government and organisations, filing will be done more from home in the future. In the first year of e-filing, I found the system was slow with issues related to digital signatures and associated costs. But many people are now finding this system convenient to file returns at the last hour. After all, the deadline is no longer 5 pm: it’s at midnight.  But more than the tax filing process, on the last day I encounter tax payers’ doubts and misconceptions. Many of them feel cheated that their assumptions about post-tax incomes were inaccurate. Some even start doubting their negotiation skills. There are others who get disenchanted with the taxation system and start assuming that my job is to create wealth out of nowhere for them. I can only optimise tax payments for an individual. Beyond this, the individual needs to increase his or her income. I will take you through some common myths and misconceptions harboured by people I came across in July this year.  1. Valuation of perquisites.  Despite the clear guidelines and explanatory notes that I share with high-income clients, they realise rather late that their actual income and what they had fought tooth and nail for during salary negotiations, are far apart.  For instance, Rajesh Kumar, an employee with a growing consulting firm in Gurgaon, negotiated a package of Rs 24 lakh with his employers. Within the package he opted for the rent-free accommodation of Rs 3.06 lakh, which was deducted from the salary package leaving his cash annual salary at Rs 20.94 lakh. This Rs 3.06 lakh was added to his cash salary as a perquisite to calculate the taxable income. On this basis, the total tax liability of Rajesh worked out to Rs 7.24 lakh. Rajesh said he could get a better accommodation for the amount charged by his company. When I suggested he change his option to receiving of HRA and rent a house, he disagreed.  When I calculated and showed his tax liability, from the HRA plus rent route, he fell off his chair. The tax saving was close to Rs 33,000 and he could move to an accommodation of his choice closer to his workplace, thus saving on conveyance and time. The switching, however, may not make much sense if the accommodation outside was more expensive than the perk’s value. Similarly, Niranjan Jha got a cash salary of Rs 22 lakh and a perk value of Rs 3 lakh for interest-free home loan. In his case, too, it would have made more sense to take the total amount as salary and rather raise a housing loan from an institution. When we got down to calculating by exercising the second option he could have saved as much as Rs 84,975 in income tax in one year and not feel obligated to his employer. 2. Multiple employments in an assessment year.  These days job-hopping is common. Even a few extra thousand rupees are tempting. For salaried employees, invariably when they change employment during a financial year, both or all the employers allow them the basic exemptions. This leads to a higher tax liability and even penalties for not paying advance tax.  This happens because of non-disclosure of details of previous income. To avoid unnecessary interest and penalty it is very important to make proper disclosures or pay advance tax. After all, why burden payment at one go, when it can be staggered through the year. 3. Interest from bank deposits.  Regardless of the balance in the savings account in a bank, some amount of interest will always accrue in the account. Since there is no basic exemption for the interest earned, one needs to pay some amount as tax on this earning from interest.  At the last minute, most assessees have to pay some amount as tax on interest income. To avoid this, one can always estimate the income on this account and ask the employer to deduct some extra tax to cover the earning or pay advance tax. 4. Repayment of home loan.  Most taxpayers believe that the deduction related to interest and repayment of principal housing loan is applicable to only one house.  It is true as far as the interest part on a self-occupied property is concerned, but for repayment of principal amount all housing loans will qualify for deduction within of course, the overall limit of Rs 1 lakh. If the other property is rented, then, of course, the entire amount of interest on loan for that property also qualifies for deduction.  5. Capital loss.  Again, most taxpayers know that they can set off the loss under the head of capital gain against the profits under the same head. But if the net result was a capital loss, many did not make it a point to disclose and carry it forward to subsequent years. If the loss is not disclosed and carried forward, next year it will not be available for setting off.  6. Mandatory disclosures.  Hardly anyone is aware of certain mandatory disclosures required to be made by assessees while filing the return. The most common are credit card payments in excess of Rs 2 lakh in a year, purchase or sale of a property worth Rs 30 lakh or more. Its also common and unintentional for taxpayers to withhold information; something that can get anyone in trouble with the IT department. My only advice to all tax payers: do not take it as your accountant’s duty to file your returns. It is important for you to be involved with your tax filing. Make use of the accountants to make taxes work for you and understand what you are paying for and why.