Month: March 2018

Components of Salary and their Tax Benefits

Components of Salary and their Tax Benefits

1) Basic Salary

Basic Salary is usually 40-50%of the total CTC. Basic Salary is entirely taxable.

2) House Rent Allowance

House Rent Allowance is offered to salaried individuals to cover their rented accommodation expenses. HRA is exempted from Income Tax (the lowest amount of the following)
a) Actual rent paid minus 10% of basic salary.
b) 50% of the basic salary if the house is in metro cities or 40% of basic salary if the house is in any other city
c) Actual HRA received.

HRA exemption is NOT applicable for those living in a rent-free accommodation or their own house.

3) Conveyance or transport allowance

Conveyance or transport allowance is applicable for the commute between home and office. You can get a tax exemption of up to Rs. 1,600 per month on conveyance expenses. This is application for FY 2017-18.

4) Fuel reimbursement

Fuel reimbursement can be claimed on petrol/diesel expenses by producing actual bills. To claim fuel reimbursement, it is compulsory to have the vehicle in your own name.

5) Children Education Allowance

Children’s education allowance provides a tax break of Rs 100 per month per child towards educational expenses and Rs 300 per month per child towards children’s hostel expenses.

6) Medical reimbursement

Medical reimbursement is the amount paid to an employee upon submission of medical bills. You can get an income tax exemption of up to Rs 15,000 per year for medical reimbursements. This is application for FY 2017-18.

7) Telephone/mobile expenses

Telephone/mobile expenses are fully exempted from income tax, based on actual bills submitted to the employer.

8) Food Coupons

Food coupons or meal vouchers provided by the employer are tax exempt up to the limit of Rs 50 per meal.

9) Leave Travel Concession

Leave Travel Concession (LTC) is a tax exemption provided on the actual travel costs of the employee as well as their dependents. LTC is applicable only on travel within India.

10) Employees Provident Fund

Employees Provident Fund (EPF) is a compulsory saving component EPF contributions are made both by the employer and the employee.
The employer’s share of contribution is an employee’s Provident Fund is entirely tax-free.

11) Tax Deduction

Tax deducted at source or TDS is the income tax deducted by your employer, a compulsory requirement of the government. TDS is calculated on the basis of average income tax rates for the financial year.

12) Education cess

is a tax levied by the government to fund primary and secondary education initiatives. Education cess is 3% of the tax payable over and above the income tax liability.

13) Professional Tax

Professional Tax is a tax levied by the state government. The amount varies by income with a maximum deductible limit of Rs 2,500.

Note that for FY 2018-19, Standard deduction for Salaried individuals to Rs 40,000 in place of transport allowance and Medical reimbursement.

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Tax Deduction for Health Insurance Premium

Tax Deduction for Health Insurance Premium

  1. Investments made towards payment of health insurance premiums qualify for a tax deduction under Section 80D of the Income Tax Act. These limits are for FY 2017-18.
  2. Individual assessees can claim deduction for premiums paid towards health insurance of self, spouse, parents and children. HUF can claim deduction for insuring the health of any member of the HUF.
  3. The deduction that can be claimed by an assessee is up to Rs 25,000 for health insurance premium paid for self, spouse and dependent children if under the age of 65 and Rs 30,000 if above the age of 65 years.
  4. A further deduction of Rs 25,000 could be claimed, for buying health insurance policy for parents of the assessee. It is Rs 30,000 if either of the parents is a senior citizen.
  5. The service tax paid on the medical insurance premium is not allowed as a deduction.
Deduction available under section 80D For FY 17-18
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Tax deduction on house rent allowance (HRA)

Tax deduction on house rent allowance (HRA)

  • A tax exemption on house rent allowance (HRA) received is available under Section 10 (13A) of the Income Tax Act to individuals.
  • It is a deduction available to a salaried person who has an HRA component as part of his salary package and is staying in a rented accommodation.
  • The exemption for HRA deduction is the minimum of
  1. Actual HRA received,
  2. 50% of salary if living in metro else 40% and
  3. Excess of rent paid over 10% of salary.
  • HRA exemptions are only available on submission of rent receipts or the rent agreement with the house owner by the tenant.
  • The rented premises must not be owned by the person claiming the tax exemption. If you stay with your parents and pay rent to them then you can claim that for tax deductions.
  • If monthly rent is above Rs.8,333, landlord’s PAN is a must. Income Tax (I-T) Department now wants tenants to produce their landlord’s PAN for HRA exemptions of Rs 1 lakh or more annually or Rs 8,333 monthly.

What should you do if your landlord doesn’t have PAN?
If your landlord doesn’t have a PAN, you have to make a declaration. According to the Central Board of Direct Taxes (CBDT) circular, in case the landlord does not have a PAN, a declaration to this effect from the landlord along with the name and address of the landlord should be filed by the employee.

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Joint Home Loan – Tax benefits and other advantages

Joint Home Loan – Tax benefits and other advantages

Purchasing a house is a major financial decision. It requires large investment due to high property rates across leading cities in India. Higher property rates would mean higher loans but sometimes, single income is not enough to make one eligible for a higher amount that one requires. Under such conditions, a joint home loan is a suitable option which helps you to get higher credit/loan. In simple terms, it just means 2 applicants applying for a home loan to purchase a house. With additional income of the co- applicant being considered for eligibility, the affordability towards availing a home loan shoots up

Most lenders consider the following parties as eligible co-applicant of a joint home loan:

What parties can be co-applicant?

  • Married couples
  • Father and son (son being the primary owner in case of multiple heirs)
  • Father and unmarried daughter (daughter being the primary owner of the property)
  • Mother and unmarried daughter
  • Brothers (in case of co-owned property)

What parties cannot be co-applicants?

Sisters, brother-sister, cousins, friends and unmarried partners may not be considered as eligible co-applicants.

What are the main benefits of a Joint home loan?

  • Ability to get higher loan: A joint home loan – sanctioned on the basis of the combined earning capacity of the co-applicant – lets you borrow a significantly higher amount. You can thus purchase that larger or a more expensive house that you longed for, by taking a joint home loan.
  • Higher tax saving (on combined basis)All the co-owners can avail tax benefits on a joint home loan. Each co-owner, who is also a co-applicant, can claim the following benefits:

Tax ceiling

  • Exemption of up to Rs.1.5 lakh on repayment of principal amount of home loan (Section 80C of the Income Tax Act) for each co-applicant
  • Exemption of up to Rs.2 lakh on interest paid on home loan (Section 24 of the Income Tax Act) for each co-applicant

Explaining the tax benefit with an example

The tax benefits are computed on the basis of the proportion of home loan taken by the co-applicants. For example, if there are two co-applicants who have taken a joint home loan of Rs.20 lakh (where the first applicant is sanctioned Rs.12 lakh based on his borrowing ability and the second applicant is sanctioned the balance Rs.8 lakh), the proportion of borrowing is 60% (first applicant) and 40% (second applicant). In this case, 60% of the loan repayment and interest paid is considered as the tax benefit available for the first applicant, while the balance 40% is the tax benefit available for the second applicant.

By taking a joint home loan, the co-applicants can claim higher tax benefits than the benefits that can be taken by a single applicant. Here is an example to explain this:

Individual vs Joint home loan – Tax benefit scenario

Type of Home Loan Annual Interest Payment Maximum Tax Benefit (under Section 24 of the Income Tax Act)
Home Loan taken by individual applicant Rs.4.0 lakh Rs.1.5 lakh
Joint Home Loan taken by two co-applicants (in equal proportion) Rs.4.0 lakh Rs.1.5 lakh each or Rs.3 lakh on combined basis

As seen above, in case of joint borrowing, higher tax savings are possible. To avail the tax benefits, you need to furnish a home sharing agreement indicating the ownership proportion on a stamp paper.

Important things to consider before you take a joint home loan:

  • The co-applicant may not be the co-owners of the property; however, most lenders insist that all the co-owners should be the co-applicant of a joint home loan.
  • All co-applicant are jointly and severally liable to repay the loan. Default in payment by one applicant may adversely affect the credit score of all the applicant.
  • It is advisable for co-applicant to take separate life insurance to reduce the financial burden in case of death of any applicant.

Using Loan EMI Calculator, calculate total interest paid & total principal amount paid at the end of every financial year.  Download Mobile app from

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View your tax deducted in Form 26AS

View your tax deducted in Form 26AS

View your tax deducted in Form 26AS

A taxpayer can view the tax credit or the tax that has been deducted on his behalf in the form of TDS. This information is available in Form 26AS and can be downloaded from the Income Tax website. It provides information about the tax deducted by various entities on behalf of the taxpayer.

Form 26AS contains details of tax deducted at source on salary, interest income, real estate or other investments, advance tax, refund received during the year and other related information.

The various ways to view one’s tax credit:
1. Income tax e-filing website
2. The TRACES website
3. The taxpayer’s Internet banking access

Through income tax e-filing website

The site can be accessed on http://incometaxindiaefiling.gov.in. One must have a login id and password, or register on the website. On logging in, one can click on “My Accout/View Form 26AS”. On clicking the same, the user will be redirected to the TRACES website. The user will have to select the assessment year for which he wishes to view Form 26AS. The form will be displayed and can be downloaded.

Through the TRACES website

Visit http://contents.tdscpc.gov.in/en/home.html and click on the “Tax Payer” tab. Next, click on “register as new user” page and carry out registration process. On successful registration, an activation link and codes will be sent to the registered email id and mobile number. After clicking on the activation link and entering the code, one can login to the TRACES website and access Form 26AS.

Tax payer’s Internet banking access

A taxpayer who has Internet banking access with a bank authorized by the Income Tax Department to show tax credit, can use this facility. Log in to Internet banking and click on View Form 26AS. To know if a bank is authorized, one can visit http://contents.tdscpc.gov.in/en/netbanking.html.

Points to note

  1. View of Form 26AS through Internet banking is available only if the PAN is mapped to that particular account.
  2. Only a PAN holder whose TDS has been deducted or who has deposited tax (self assessment tax, advance tax, TDS on property) can register on TRACES

Using Income Tax Calculator, To calculate your net taxable income and ways to save on taxes. Download Mobile app from

 

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Tax benefit on Home Loan

Tax benefit on Home Loan

Principal repayment of home loan

  1. The principal repayment component in the home loan EMI is allowed as deduction under Section 80C of the Income Tax Act.
  2. The maximum tax deduction allowed under Section 80C is 1.5 lakh, which includes investments in other instruments also.
  3. This deduction is allowed only after the construction is complete and completion certificate is awarded to the buyer.
  4. Payment made towards stamp duty and registration charges are also allowed to be claimed under Section 80C in year in which paid.
  5. In case the assesse transfers property on which he has claimed tax deduction under Sec 80C before 5 years, deduction claimed shall be deemed as income in year that the property was sold and taxed accordingly.

Tax benefit on home loan interest

  1. The interest component in the EMI can be claimed as deduction from “income from house and property“ under Section 24 of the Income Tax Act.
  2. The maximum tax deduction allowed under Section 24 is 2 lakh for self-occupied property and if the property is not self-occupied, there is no maximum limit.
  3. The interest payments for the year shall result in a loss under the head “income from house property“ which can be adjusted in the same year against other heads of income including salary.
  4. If the property is not completed within three years from when the loan was taken, then the interest benefit drops to 30,000.
  5. The pre-construction interest can be claimed from the year when the construction is complete in five equal installments.

Using Loan EMI Calculator, calculate total interest paid & total principal amount paid at the end of every financial year. Download Mobile app from

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Home Loan Charges

Home Loan Charges

What are charges you may have to pay while taking a Home Loan?

Processing Fee :
Processing Fee is a fee charged by the lender to service the cost of the credit appraisal. This fee can be ranging from 10,000/- upto as high as 1% of the loan amount depending upon (i) Profile of the borrower, (ii) Product that you choose, (iii) Income sufficiency in available documents, (iv) Profession of the borrower, etc.

Legal Fee:
Most lenders engage external law-firms to scrutinize the legal documents of the borrowers. Generally lenders absorb this cost in the processing fee itself. But some PSU lenders take the fee separately from the borrowers.

Franking Fee on the loan agreement:
Some States in India do not have it at all, some have 0.1%-0.2% of the loan amount being payable. For example, if you are taking a 1.50 crores loan, then the stamp charges payable is 30,000/- in Maharashtra & Karnataka.

Application Fee:
Banks take a minimal fee to cover their preliminary expenses towards home, office verification etc. This can range between 1000/- to 5000/- depending upon the lender.

Administrative Fee:
Some lenders split the processing fee into two parts. The one charged after the loan is sanctioned is called administration fee.

Technical evaluation Fee:
For properties which are of high value(depends on lender to lender as to which value they consider as high), there are two valuations done for higher caution. The lower of the two valuations is considered for the lending. Fees if not absorbed by the lender, is collected from the borrower by some PSU lenders.

Franking Fee on the sale agreement:
In some states of India, there is a stamp duty payable on the property agreement with the builder or seller. This used to be a flat fee of 200/- earlier but now been revised to 0.1% of the property cost subject to a maximum of 20,000/-. The good news is, in those states which follow this, allow adjusting the amounts with the final property registration deed upon submission of the agreement in which the fee was paid to the Sub-registrar’s office.

Intimation of Registration:
Intimation to the Sub-registrar’s office is a new introduction of process in Maharashtra. Generally not done by any other States as of now. Though the cost is very low, only 1300/-, but to visit the SRO and doing it is tedious.

Notary: 
If you are an NRI, then all your KYC and the POA(power of attorney) you are executing, depending on the bank’s requirement, needs to be notarized by the Indian Embassy or a local Notary available abroad.

Adjudication Fee: 
To start the process for a home loan application, if you are the POA-holder of an NRI, the notarized POA needs to be adjudicated here in India before submission to the lender.

Indemnity:
This is the way you safe-keep the interest of the lender. the documents reads that if there is any issue because of unavailability of the said document, the sole responsibility is on the borrower and that the borrower indemnifies that the cost of such risk will be completely bourne by the borrower and not the lender. There could be indemnification required for many aspects in your borrowing. For example, if the builder is yet to receive some minor approval from authority or the property tax is yet to be paid completely by the seller or the ‘Khata'(in Karnataka) is not yet transferred in the seller’s name though the deed is registered in his name or the OC(occupancy certificate) is yet to be received by the builder, then the borrower needs to indemnify the lender. There is stamp fee of a few hundred rupees(depending upon the State) and a notarization may also be required.

Mandatory Fire Insurance:
Most lenders who are having a wing of bank assurance insist on this. This is just a list of expenses a borrower might incur.

Documentation Fee: 
For getting the loan agreement signed, getting the ECS mandate activated or a few other formalities, few lenders still do charge this fee. This is generally nominal, 500/- to 2000/- approximately.

Using Loan EMI Calculator, Check your loan eligibility and prepare loan repayment schedule.
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Income Tax Slab Rates for FY 2017-18 (AY 2018-19)

Income Tax Slab Rates for FY 2017-18 (AY 2018-19)

Part I: Income tax slab for individual tax payers & HUF (less than 60 years old) (both men & women)

Income Slab Tax Rate
Income up to Rs. 2,50,000* No Tax
Income from Rs. 2,50,000 – Rs. 5,00,000 5%
Income from Rs. 5,00,000 – 10,00,000 20%
Income more than Rs. 10,00,000 30%
Surcharge:
10% of income tax, where total income is between Rs. 50 lakhs and Rs.1 crore.
15% of income tax, where total income exceeds Rs. 1 crore.
Cess: 3% on total of income tax + surcharge.
* Income upto Rs. 2,50,000 is exempt from tax if you are less than 60 years old.
Rebate under Section 87A: Rs 2,500 or 100% of income tax (whichever is lower) for individuals with income below Rs 3.5 Lakhs

Part II: Income tax slab for individual tax payers & HUF (60 years old or more but less than 80 years old) (both men & women)

Income Slab Tax Rate
Income up to Rs. 3,00,000* No Tax
Income from Rs. 3,00,000 – Rs. 5,00,000 5%
Income from Rs. 5,00,000 – 10,00,000 20%
Income more than Rs. 10,00,000 30%
Surcharge:
10% of income tax, where total income is between Rs. 50 lakhs and Rs.1 crore.
15% of income tax, where total income exceeds Rs. 1 crore.
Cess: 3% on total of income tax + surcharge.
* Income up to Rs. 3,00,000 is exempt from tax if you are more than 60 years but less than 80 years of age.
Rebate under Section 87A: Rs 2,500 or 100% of income tax (whichever is lower) for individuals with income below Rs 3.5 Lakhs

Part III: Income tax slab for super senior citizens (80 years old or more) (both men & women)

Income Slab Tax Rate
Income up to Rs. 5,00,000* No Tax
Income from Rs. 5,00,000 – 10,00,000 20%
Income more than Rs. 10,00,000 30%
Surcharge:
10% of income tax, where total income is between Rs. 50 lakhs and Rs.1 crore.
15% of income tax, where total income exceeds Rs. 1 crore.
Cess: 3% on total of income tax + surcharge.
*Income up to Rs. 5,00,000 is exempt from tax if you are more than 80 years old.

Using Income Tax Calculator, To calculate your net taxable income and ways to save on taxes. Download Mobile app from

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Top-up Loans

Top-up Loans

All About Top-up Loans

A top-up loan, true to its name, is a facility of availing further funds on an existing home loan. When you have a loan that has already been disbursed and under repayment and if you need more funds, why go about the loan formalities all over again? You can simply avail additional funding on the same loan thereby minimizing time, effort and cost. Your existing basic documentation and collateral is sufficient to provide you more funds. You just need to provide minimal papers to avail the top-up loan.

Who can apply?

You can avail a top-up loan from a lender if you already have an ongoing loan facility (home loan, home improvement loan or home extension loan) with them and have taken possession of the financed property. This simplifies their procedural formalities and makes further funding quick and easy. Top-up loan can also be availed when you opt for balance transfer (shifting your loan from one lender to another). In either case, you can apply after a repayment track record of minimum 1 year of your existing home loan and upon possession or completion of the financed property.

Loan term

You can repay the top-up loan in monthly instalments (EMI) over a maximum term of 15 years. The actual loan term depends on factors such as your profile, age at maturity of loan, age of the property at loan maturity, etc. The term would also depend on the specific repayment scheme opted by you.

Maximum loan amount:

The maximum amount of top-up loan that you can avail depends on factors such as your present income levels, other loan obligations, etc. and is subject to your outstanding home loan plus the top-up loan being offered, not exceeding 75 to 80% of the market value of the property. However, on an absolute basis, the maximum amount of top-up loan on home loan possible is Rs. 35 lakh.

Interest rate:

Generally, the interest rate applicable to top-loans is the same as that applicable to home loan or slightly higher. You may however be reasonably confident that the interest rate on the top-up loan would be less than that on other consumer or commercial loans.

What are the different purposes for which a top-up loan can be availed?

This loan may be availed for a variety of reasons such as meeting costs of a wedding in the family, medical expenses, education expenses, etc. The funds from this loan can also be utilized for professional and business needs. However, this loan cannot be utilized for any speculative activity.

Advantages of Top-up Loans:

Top-up loans have a number of advantages over other sources of funding. Some of them are:

  • Availability of loan for a variety of personal or professional needs.
  • Minimal documentation and quick loan processing as you already have an ongoing relationship and a repayment track record with the lender. You are in an advantageous position if you are in urgent need of funds.
  • Lower rate of interest compared to consumer/commercial loans.
  • Longer loan tenure of 15 years compared to consumer/commercial loans.
  • Simple and easy repayment option in the form of EMI.

Using Loan EMI Calculator, calculate total interest paid & total principal amount paid at the end of every financial year.  Download Mobile app from

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Fixed vs Floating rate of interest – What suits you the best

Fixed vs Floating rate of interest – What suits you the best

A home purchase is probably the biggest financial decision and transaction in a person’s financial life. It is a decision that has an impact for many years to come. It is also a transaction that requires planning around your income outflow for many years to come.

A home loan is a prolonged financial commitment that typically stretches for 20 to 30 years during which time, interest rates can change, depending on the economic environment of our country. Considering this, home loan providers give you two options with regard to interest rates. One is the fixed rate and the other is the floating rate.

As evident from their names, the fixed rate loan comes at a per-specified interest rate for a certain period, after which it is repayable at a floating rate; in the case of a floating rate loan, the rate can vary throughout the loan tenure as it is tied to a reference interest rate which changes based on economic compulsions. Each has its own attributes and either can be chosen based on your requirement.

Here’s a look:

Fixed rate home loan

  • Safety from Fluctuations for a predetermined period of time: There could be instances when economic conditions result in an increase in interest rates in general. Opting for a fixed rate gives you a shield against such fluctuations initially and you will be paying a fixed amount of EMI each month during the fixed term. However, after the fixed term is over, your rate of interest will move to a floating plan, e.g., if you have opted for a 5-year fixed term plan, then from the 6th year onwards, your home loan will be subject to the current floating rate of interest. So during the time your interest is fixed, you do not have to keep watching over your shoulders to see where the interest rates are headed

Floating Rate Home Loan

  • Marginally cheaper: Floating rate loans generally carry a slightly lower rate of interest since there is a fluctuation dependency on economic conditions like inflation or growth factor etc. The lender hikes or reduces the rate based on the market conditions. So a floating rate can turn out to be most beneficial during low inflation period.
  • Lower EMI when rates fall: If interest rates remain static or are on a downward trend, you could save money in a floating rate loan as you benefit from the fall in interest rates.

In a nutshell:

The type of loan you should go in for depends on your needs. It’s up to the borrower to decide what to opt for based on what suits him/her the best. If your foremost concern is safety and certainty, you may opt for a fixed rate of interest at the cost of some interest rate premium or otherwise.

Using Loan EMI Calculator, calculate total interest paid & total principal amount paid at the end of every financial year. Download Mobile app from

 

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