Personal Finance

PERSONAL TAX: Rental income could be business income



A taxpayer was carrying on a manufacturing business since 1963 in an industrial shed, which was taken on rent. In 2004, the taxpayer discontinued the business and sublet the business premises to another company.
In the return for assessment year 2012-13 (relevant year), the taxpayer had shown rental income of Rs 29.05 lakh received from the said premises as business income. The tax officer observed that the rental income for AY 2010-11 was assessed as income from house property. During the course of assessment for the relevant year, the tax officer formed the view that as per the lease agreement, the taxpayer was the absolute owner and in possession of the premises, and hence the rental income received from letting out the property has to be assessed as income from house property. Accordingly, the tax officer allowed the statutory deductions permissible for income under house property and added back an income of Rs 20.16 lakh under the head house property.
The taxpayer preferred an appeal against the said order at the first level of appellate authority, who agreed with the tax officer’s decision.
At the second level, the taxpayer argued that the basic premise on which the rental income has been assessed as house property by the tax officer is completely wrong, as the taxpayer is not the owner of the property. In support of his argument, the taxpayer submitted a copy of the leave and license agreement, where it was clearly mentioned that the taxpayer is not the owner of the property but only a monthly tenant.
Though the taxpayer is a tenant of the said property since 1963, he cannot be held be as an owner, as neither the taxpayer is appearing as owner in government records nor any other authority. The tax officer argued that the taxpayer is a deemed owner of the said property and hence the addition to income was correct.
The tax tribunal summarised the core issue in this case as whether the taxpayer can be treated as owner or deemed owner of the property to consider the rental income received from subletting as income from house property. The tribunal was of the view that for treating the income derived from subletting of the property as house property income, the tax officer must establish the fact whether the taxpayer is owner or deemed owner of the property. While the tenant agreement papers demonstrate that the taxpayer is in possession/occupation of the property as a monthly tenant; it was incumbent upon the tax officer to prove that the taxpayer is enjoying ownership rights in the said property. For this purpose, it was also necessary to examine whether provisions of the Income Tax Act for deemed ownership in case of long leases (for a term greater than 12 years) would be applicable. The tribunal observed that none of these factual aspects have been properly examined before treating the rental income as income from house property by the tax officer.
In view of the same, the tribunal remanded the case back to the tax officer for verification and a fresh assessment.

Nisha Shiwani has worked in many companies in various capacities and in her free time loves to express herself through her articles. She is based out of the pink city Jaipur.

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Personal Finance

FINANCIAL PLANNING: Who will win the fight – EMI or SIP?



Behaviourally, spending money makes us happy and saving is boring. Easy access to credit feed our craving for instant gratification, thereby making us live on future earnings.

Should I buy the car on Equated Monthly Installments (EMI) or invest in monthly Systematic Investment Plan (SIP) and buy it outright without the loan burden? What’s right for you?

EMI (Buying the car on loan) – Assume that you plan to buy a car of Rs 11 lakh by availing a loan of Rs 10 lakh, at an inter of 9.5% per annum for a period of seven years (that is, 84 months). The EMI for the Rs 10 lakh loan would be Rs 16,265. The effective payment over the life of loan of seven years would be Rs 14.66 lakh an additional interest pay-out of Rs 3.66 lakh.

SIP (Investing to achieve the goal) – On the other hand, instead of EMI of Rs 16,265, if you invest the same amount (Rs 16,265) in Mutual Fund via SIP generating a return of 10% per annum to accumulate the car value of Rs 11 lakh (please note I haven’t factored inflation on the car value because the technology advancement hasn’t increased car prices much; on the contrary there is a much wider choice with more advance features in the same price range. SIP of Rs 16,625 over the next 4.5 years (that is, 54 months) adds to a principal investment of Rs 8.98 lakh. In reality an investment of Rs 8.98 lakh buys the car worth Rs 11 lakh.

The actual saving, which is actual payment made by EMI route minus actual principal investment via SIP, works out to Rs 5.68 lakh (that is, Rs 14.66 lakh minus Rs 8.98 lakh). The car effectively comes at a cost of 60% of the total payment made via the EMI route.

Now, the choice is bewteen buying the car now and paying almost 60% more or delaying the buy for 4.5 years and saving almost 40%. It is a choice between instant gratification v/s delayed gratification…choice is yours.

For whom car loan make sense?

Businessmen can actually buy the car on the company name; debit all the car related expenses such as (EMI, annual insurance costs, driver expenses, fuel expenses and any other car maintenance expense) and also avail depreciation benefit to reduce their tax liability.

Are all EMIs are bad?

Let us understand what are good loans and what are bad loans?

Good loans – Home loans and education loans are good loans. The former is taken for an appreciating asset while the latter is for upgrading our skill set enabling us to earn better. Secondly, both provide tax relief and are generally available at a competitive interest rate.

Bad loans – Loans such as credit card loans, personal loans, pay-day loans from online portals and consumer loans are all bad loans. They are taken for either depreciating assets or consumption; do not carry any tax benefits and are mostly expensive loans; for example, a credit card would charge a monthly interest rate of 3% thereabout, some pay-day loans quote 0.1% per day interest rate, effectively charging at 36% per annum.

Logically speaking EMI is good provided it is for good loans. However, whenever it comes to depreciating assets or consumption loan, it would be prudent to save via SIP and then buy it upfront. Instant gratification may delight but patience has its own virtue.

Having said that let me throw some light on why we are rationally irrational. Our brain has three layers: The Top-layer (Neo-Cortex); the middle-layer (Limbic Brain); The inner-brain (Brain Stem & Cerebellum). The Neo-Cortex is the logical brain, the Limbic is the emotional brain, whereas the Brain-stem & Cerebellum is the instinctive brain.

Whether it is an impulsive buying decision or a well thought out buying decision both get initiated at the Limbic brain and have emotions attached with it.

The fight is actually more intense than just EMI v/s SIP; it is a fight between instant gratification v/s delayed gratification; it is a fight between your emotional v/s logical part of the brain.

Well, I will not be surprised if you read this article and yet opt for a car loan!

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Personal Finance

Discipline in financial planning can help battle economic instability



A goal without an action plan is a wish. We all have goals and aspirations for various aspects of our life. While the possibility of us achieving our goals is a function of many factors, the likelihood of getting closer to it increases with planning. And planning is an intricate process. The effectiveness of these plans depends on our deep-rooted beliefs that tie back into our experiences in life.
The makers of the famed ship, Titanic, had never accounted for the ship to ever hit a big iceberg – as such an instance had never taken place at that scale. Often, the quest for a good future, makes us overlook certain risks which the process and the discipline of “planning” will assist us in.
Insuring an aspirational class
Globalisation’s impact has transformed not only our economy, but also our lifestyles. Today propelling the consumer-driven economy, millennials are the economy’s chief earners and spenders, allocating as high as 65% of incremental income on entertainment, eating out, apparel, accessories and electronics.
In such a scenario, to battle the possibility of economic instability, life insurance is the one of the viable ways of building financial certainty. It can protect households from the possibility of the passing away of the primary breadwinner and, enabling millennials and next-generation earners to transition to adulthood without disruption in their lifestyles.
Diverse offerings
Like all financial products today, insurance also can be purchased in diverse forms tailor-made for customer requirements, instead of a one-size-fits-all. These can operate simultaneously and offer a spectrum of benefits designed to meet various needs of the nominees.
i. Term insurance plans – Essential to every household to continue functioning and replace the primary breadwinner’s income, the term plan is a fundamental tool of financial protection. It promises to pay the nominee a fixed lump sum assistance as chosen at its inception, in the case of the death of the primary breadwinner. Modern term plans also include the option of riders that offer additional benefits to the policyholder (on payment of additional premium), room for customisation and modernisation. Riders enable insurance coverage at an additional cost covering specific and unique needs of an individual. Some riders are death benefit, critical illness, waiver of premium, family income benefit, etc.
ii. Health insurance and critical illness plans – An important element of any financial plan is health; that is, to account for the cost of the insured’s medical and surgical expenses and offer cover against life threatening diseases. Health insurance plans purchased from a life insurer come with benefits of affordable premium amounts, simple documentation and claims process and the absence of a co-payment criteria.
iii. Child insurance plans – Child plans are specially customised to address a child’s future financial needs, for their higher educational aspirations and ambitions even in the absence of the primary breadwinner. It combines insurance and disciplined savings to ensure that parents are able to give their children a bright future. It can be customised to offer a lump sum payment at the end of policy term. A child plan can provision to meet financial needs of important educational milestones with flexible payouts.
iv. Retirement plans – Culturally we are attuned to putting our needs last in order of priority. However, in the changing social scenario, where nuclear families are almost becoming a norm, it is important to create a financial plan for our own retirement years. We need to create a corpus that will make those lonely retirement years the truly golden years. The best way to start saving for a nest egg is to begin early by starting to save strategically from a young age. Retirement plans provide protection against the breadwinner’s death, during the years when he is saving for the retirement corpus. Thus they ensure that death in no way negatively impacts retirement planning for the spouse.

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Personal Finance

Women entrepreneurs can get special loans



An entrepreneurial journey for a woman is full of many decisions and challenges, almost a new one every day. It is important that we keep our knowledge enriched, for it will help us gain the required know-how to become an expert in our domain. With such expertise we would ultimately be able to grow our start-up into a full-fledged business. However, it is not necessary that we may know what to do always. While starting out, we must not be afraid to ask for help and seek guidance from our mentors and friends or acquaintances as and when we require. Here are a few things aspiring woman entrepreneurs must know to lead a business successfully:
Set long-term and short-term goals: Entrepreneurship is a path to continually challenge ourselves to set newer targets and goals and work to achieve them in due time. It is important that we establish relevant specified goals that can be attained in a suitable timeframe and measured to keep our focus on actual growth of the business. Women entrepreneurs must set short-term business goals such that they ultimately help reach long-term goals in an effective manner. Realising these goals will serve as an impetus for long-term results that we aim to achieve. Once we are clear and have set out all our targets, we must share those with our team and give them a unified direction to work in to win with their support.
Prioritise organisation and its finances: When starting our business on limited resources, we may initially be engaged in managing finances ourselves. However, once we set our business plan in place it is imperative that we reach out to utilise professional accounting services and hire a capable resource to record all financial information and manage that for the company on our behalf. This would not only help women run the business better but also allow the opportunity to maintain focus on growing the business at the front-end. While preparing the financial plan we must ensure not to put all our savings into it and devise the financial strategy in detail, such that we are able to not only earn money but also make the money work for us in future.
Establish sources for funding: Another question in the minds of every women looking to start a business is where the money for funding the business would come from? There are several avenues that can be utilised to meet funding requirements to initiate a business. There are angel investors who are looking for credible businesses and to put in seed funding for returns. In addition to these one could also consider crowd funding, tie-ups with corporates or taking loans from government banks offering schemes like Mahila Vikas Yojna, Stree Shakti and many more.
Ensure transparency: Often overlooked, although it is important for women business owners to ensure that when starting a new venture they maintain transparency through the accounting books and organisational processes to govern the firm effectively. Being transparent implies ensuring that we are making the required declarations in terms of filing our taxes, how much money is being spent and where and what returns is the company actually making. Building a transparent culture is vital and is best established at the onset of the business to ensure a healthy growth. Nevertheless, a successful woman entrepreneur must be passionate about her idea to grow it into a successful venture. It is important that to engage in networking, public relation activities, obtain feedback from time to time and build a team of like-minded individuals to support us in realizing our dreams.

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Personal Finance

INVESTMENT: Don’t view tax saving as an isolated goal




With the New Year comes the hustle of filing taxes and scrambling to invest in ‘tax-saving instruments’. For most people tax-saving is more of a burden they are forcefully bearing rather than being a delightful way of saving and investing. This results in ad hoc investments in various products that cost too much, yield little and are a drain on the overall portfolio.

Public Provident Fund, insurance policies and fixed deposits are some of the first things that come to an investor’s mind as the deadline approaches. In recent times, ELSS (Equity Linked Savings Scheme) has been gaining investors’ attention. ELSS is equity mutual funds with tax benefits. However, the important step while planning your taxes is to not view tax-saving as an isolated goal while selecting your investments. With a little thought and planning, the investments you make for tax saving can become an asset, which can help you create wealth in the long run.

For any long-term goal (five or more years away), inflation becomes a serious consideration. Unless your investments outgrow the pace of inflation, you might not be able to create a substantial corpus to meet your goal. Equities as an asset class has displayed the potential to outgrow inflation in the long run, making it an ideal for long term goals.

A financially secure and comfortable retirement is a long-term goal for most people and must ideally be linked to tax saving. To understand how, let’s take the example of Arjun (35 years). He wants to retire at the age of 60.

Let us look at scenarios of investing this amount across various tax-saving instruments. In a five-year FD, offering 5.25% post-tax returns the corpus will be Rs 31 lakh. In PPF offering 7.6% (this changes every quarter), after 15 years the corpus will be Rs 44 lakh. In Ulips, offering 10% returns, the corpus after five years will be Rs 65 lakh. (*Average returns from a Ulip Policy pre-expense is 14% p.a. & as per Irdai guidelines maximum expenses of 4% hence, we have considered returns on 10% per annum). In ELSS, assuming post-tax returns of 12.9% the corpus will be Rs 1.03 crore. But remember that Ulips and ELSS are subject to market risks, which means the investment value fluctuates.

While, PPF, EPF, life insurance policies, etc, are all effective instruments of saving tax, they are not great wealth building tools. To build wealth for a long-term purpose, a more beneficial option is investing in ELSS.

That said, the minimum lock in period of three-years is not the ideal period to stay invested in equities. With equities, a longer time horizon (more than seven years) is desirable. Due to the compounding effect of returns, longer the time horizon, more the growth. Additionally, the earlier you start investing towards a goal, smaller the contributions required, as compared to starting later.

In conclusion, by making wise decisions with your tax saving investments, over time you can build a sizeable corpus which could supplement your retirement corpus. Take the Systematic Investment Plan (SIP) route, where your contributions happen automatically month after month, for as many years as you like. There is no last-minute scrambling, no time or energy wasted in identifying ideal products year after year. And, at the end of each financial year, the contributions would qualify for the 80C tax deduction.

Slowly and steadily you have reached the destination of your goals while clearing the check post of tax savings every year.

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Residential status can be different under Income Tax, FEMA laws



An Indian citizen can be considered a non-resident under both Income Tax (I-T) Laws as well as under Foreign Exchange laws or FEMA. But the connotation is different as the purpose of both the laws is different.

The definition under I-T laws is important for determining how much tax you pay on your assets/ investments, while the residential status under FEMA is important to determine as to what type of investments you can make in India or how you can remit money outside India. Residential status under I-T law affects past transaction, while FEMA affect future transactions. Let us understand this in detail.

Definition of non-resident under tax laws

Tax laws only consider physical presence. Your residential status can normally be determined after the end of financial year based on your aggregate stay in India. You would be an Indian resident for the financial year 2017-2018 if either you were present in India for 182 days or more between April 1, 2017 and March 31, 2018, or if you were in India for 60 days or more during the previous year ended March 31, 2018 and were also present in India for 365 days or more during the four years, that is, April 1, 2013 to March 31, 2017.

There is relaxation in respect of the second condition of stay requirement. It is 182 days instead of 60 days for Indian citizen who leaves India during the previous year either as crew member of an Indian ship or for taking up employment outside, or an Indian citizen or a person of Indian origin who comes to India for visit. So in case you do not satisfy any of these two basic conditions, you straightway become a non-resident.

There is one more category of “Resident but not ordinary resident” (RNOR) under tax laws. Once you satisfy any of the above two basic conditions, you would still qualify as a RNOR if you were a non-resident for nine out of 10 ten years period ended on March 31, 2017 or were not in India for more than 729 days during seven years ending on March 31, 2017.

Implications of becoming a non-resident

For a resident, global income becomes taxable in India even if such foreign income might have been taxed in other country. This is, however, subject to availability of tax credit for taxes paid on such income and double tax avoidance agreement benefits.

In contrast, for a non-resident only the income which is received first in India or accrues from assets held in India or for services rendered in India become taxable here. So your salary will become taxable in India if it is directly credited in India, while you are working abroad, even if you are a non-resident. Moreover there are certain tax benefits which are available to a resident but not to a non-resident.

Non-resident under FEMA

Unlike under the tax law where stay in India is considered, the foreign exchange regulations go by intention of an individual in addition to your physical stay in India. Though under FEMA a person becomes a non-resident if he has been in India for less than 182 days during the year, he still becomes a non-resident immediately on leaving India under certain circumstances. So you become a non-resident as soon as you leave India to take up employment outside India or to start any business or profession outside India or leave the country with an intention to stay outside for an indefinite period.

In the circumstances given above you will become a non-resident as soon as your flight takes off or your ship sails on water irrespective of your stay in India and that too, without having to wait for the year to end. However if you leave India for medical treatment or on a business trip or on holidays, you would still not become a non-resident under FEMA as the intention to stay outside India is for a definite period and is not for an indefinite period, though you may become a non-resident under tax laws due to physical stay outside India.

Likewise, one will become a resident under FEMA if he comes to India for taking up an employment or for carrying on any business or profession or comes back to India to spend retirement years here in India. He will become resident under FEMA immediately on arrival in India under these circumstances.

Unlike tax laws where residential status is determined at the end of the year based on the physical stay in India, the status under FEMA changes instantly when a person either leaves the country with an intention to stay out of India for uncertain period of time or comes to India with an intention to stay here for indefinite period of time.

So you would become a non-resident immediately if you leave India today, to spend your retired life with your children, but you would still be a resident if you leave the country to take care of your daughter-in-law during her pregnancy in US. So you will be a resident under I-T laws for the year ended March 31, 2019 under both the above circumstances as your stay in India would in be more than 182 days for the financial year ended on 31st March 2019. Please note that residential status under FEMA as well as under tax law has nothing to do with your citizenship. You can be non-resident under FEMA and tax laws even if you are a citizen of India and vice versa.

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Paying income tax does not grant relief from Goods and Service Tax



I have recently started a dance class in the premises of a club for which I will be paying a portion of the fees I get as rent. Do I have to pay Income tax or GST? – Krishna Mohandas

The Income Tax Act, 1961 (Act) and the Goods and Services Tax Act (GST Act) are not mutually exclusive. Paying one does not grant relief from the other. Income Tax is required to be paid on the income earned by a person during a financial year. The proceeds that is received from the customers gets treated as income from profession and the total income, after claiming eligible deductions of expenses incurred, is chargeable to tax. However, no income-tax is required to be paid if the amount of the said total income is below the basic exemption limit of Rs 2,50,000 (Rs 5,00,000 in case of a senior citizens). GST is an indirect tax levied on supply of goods/ services which is required to be charged from the customers and deposited with the government. Similar to the income-tax, the basic exemption limit has also been specified for the payment of GST. Accordingly, liability to collect and pay GST arises when gross receipts exceeds Rs 20,00,000. Thus, if your total income and total receipts are below the respective threshold limits you shall neither be required to pay Income-tax or GST.

I changed jobs last year and joined the current in September. I will be submitting proof of my investments in the current office. Other than that do I have to submit any other document from the previous employer for tax purposes – Shweta Nayak

The employers compute the total income and taxes after giving deductions and allowances based on the documentary evidence submitted. Therefore, you shall have to submit documentary evidence for every deduction/ allowance that you wish to claim from your income. Deduction will be given only on the basis of the actuals submitted and not proposed declaration. You may also furnish the computation sheet prepared by your previous employer indicating the total TDS deducted by him.

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PERSONAL TAX: Under-construction property can get capital gains benefit



A taxpayer had sold a property in South Mumbai for a Rs 1.42 crore. After deducting the indexed cost of acquisition, etc, the taxable long-term capital gains were worked out at Rs 1.53 crore. The taxpayer claimed exemption u/s 54F for an amount of Rs 67 lakh on account of investment of part of the money from the above gains in another house property. During assessment, the tax officer allowed the claim for exemption and the order was duly passed.

However, the senior tax officer on a review of the order, initiated rectification proceedings on the grounds that the claim u/s 54F was erroneous. He issued instructions to the tax officer to make a fresh assessment after re-verifying whether the asset sold during the relevant year was a capital asset other than a residential house. Section 54F stipulates for an exemption from long-term capital gains earned by selling any asset other than a residential house by investing the sale proceeds in a residential house.

During the course of this re-assessment proceedings, it was observed that the taxpayer had booked a residential flat on January 15, 1981. The said building remained under construction for many years and finally through the intervention of the Bombay High Court, a separate committee was appointed to complete the construction. Amidst all this uncertainty, the taxpayer sold the under-construction unit on October 31, 2005 resulting in long-term capital gains in her hands.

The tax officer was of the view that the asset transferred by the taxpayer was a residential house and hence claim u/s 54F was not admissible. Against this, the taxpayer argued that as the transferred property was not a habitable house, it could not be defined as a residential house.

At the first appellate level, the authority observed that for the purpose of Section 54, the term ‘residential house’ has not been defined in the section or anywhere else in the I-T Act. The authority reasoned that a residential house cannot be equated with a house which cannot be used for residence. An incomplete flat is a property under construction and not residential house. For the purpose of section 54F of the Act, the term ‘residential house’ has to be interpreted to mean a completely built structure with roof, dwelling place, walls, doors, windows, electric and sanitary fittings, etc. If one or more such components are lacking, then it cannot possibly be said that the residential house is a complete structure for the purpose of section 54F of the Act.

The intent of the law is clear that the term residential house means a flat or unit which can be actually occupied for residence or being capable of put to use for residence, as on the date of transfer of the asset. On such date, if the property is fit, though not actually used as such, it can be a residential house and if not, then it shall be deemed to be a right with respect to a property and not a house. In view of the above, the appellate authority ruled in favor of the taxpayer.

The tax officer preferred an appeal before the tax tribunal. Based on the facts of the case, the tribunal agreed with the first appellate authority’s view and ruled that the provisions of section 54F are beneficial provisions enacted for the purpose of promoting the construction/ purchase of residential houses. It held that the claim made by the taxpayer has rightly been allowed under section 54F of the Act.

The tax officer filed a further appeal before the Bombay High Court to ascertain whether property transferred could be held as residential house. Again, based on the facts, the court ruled in favor of the taxpayer.

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Request in writing for adding a member to family floater policy



My husband and me have a family floater policy for the last two years. If we have a child will the policy automatically include the baby also? Will it cover thaleasemia? We have a history in our family. – Rujuta Pednekar Shetty

You need to request your insurance company in writing and fill a proposal form for any addition in the family floater policy, automatic addition cannot be done. Thalassemia Minor is usually covered in health insurance policies. I would recommend you to make appropriate declaration to your insurance company along with relevant reports, which will enable them analyse your proposal in a better manner and accept accordingly. It is also advisable to understand and check with your insurance company on the extent of the coverage so that you are not caught unaware at the time of claim.

Do I need to have a health insurance for buying a top-up health insurance? Is it possible to buy only top-up health insurance? – Bhusan Krishnani

Top-up health insurance typically pays for claims beyond certain specified amount which is termed as ‘deductible amount’. Which means that, this insurance would trigger only after the deductible amount has been exhausted. Although, the deductible amount can be claimed from a base plan if you have one, in case you don’t have a base plan you may have to pay for the deductible amount out of your pocket. Hence, it is not mandatory to have a base plan to opt for a top-up cover. However, I would strongly recommend you to have a basic health insurance policy which will come handy in case of any medical exigency by paying a small amount of premium, rather than digging into your savings.

I am paying for my father’s health insurance in my office group policy. He has an individual health policy for which he is paying premium. Can we both claim tax deduction? – Noel Lobo

Yes, both you and your father can claim for tax exemption as you both are paying premium for separate policies. Since you already have a group policy, I would also advise you to have a health insurance policy of your own. In addition, to get a holistic coverage, you can also opt for a super top-up cover for yourself and your father, which shall offer additional coverage over and above the individual and group policy sum insured and is quite inexpensive.

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These investments can help you save tax under Section 80C



As you start planning your tax-saving investments for financial year ending March 31, 2019, you must remember that there are various deductions to choose from. A taxpayer can claim these deductions from total income, thus bringing down taxable income and reducing tax out-go.

Even if you have paid excess taxes and missed claiming a deduction done before March 31, do note that during filing of income tax return you can still claim these deductions and get a refund of excess taxes paid. DNA Money brings to you some important investment deductions for a taxpayer to save taxes.

Under Section 80C, a maximum deduction of Rs 1,50,000 can be claimed from your total income. This means you can reduce up to Rs 1,50,000 from your total taxable income through the smart use of Section 80C. Those in the highest tax bracket can save as much as Rs 46,800 in income taxes by investing Rs 1.5 lakh a year. This deduction is allowed to an individual taxpayer or one following a Hindu Undivided Family (HUF) structure. Let us have a look at the investments deductions one by one.

1. Life insurance premium (for self, spouse, children) – Premiums paid up to Rs 1,50,000 are deductible as per provisions of Section 80C. “Life insurance premium paid by you for your wife/husband/child’s policy qualifies for a deduction under Section 80C of the Income Tax Act, 1961,” said Rushabh Gandhi, deputy CEO, IndiaFirst Life Insurance.

You can avail tax exemption on your premiums paid for all life insurance policies including term insurance, unit-linked insurance plans, etc. One can claim tax benefits on a life insurance policy bought from any life insurer – private or public – if they are approved by Insurance Regulatory and Development Authority of India.

While single premium policies offer life insurance coverage, they have certain limitations if you want to claim deductions under Section 80C. “You are eligible to claim deductions only if the sum assured is at least 10 times the single premium paid,” added Gandhi.

For instance, a life insurance with sum assured of Rs 15 lakh and single premium of Rs 1.5 lakh can help you claim the entire premium as deduction. But, if your sum assured is Rs 10 lakh for a single premium of Rs 1.5 lakh, then you could claim a deduction of only Rs 1 lakh only.

2. Employees’ Provident Fund (EPF), Public Provident Fund (PPF) – Contribution made in the provident fund for the employee’s welfare by the employee and the employer enjoys tax benefits. The employee’s contribution towards EPF will be eligible for deduction under Section 80C. Salaried individuals, with large basic salary, often end up with Rs 1.5 lakh in EPF, thus taking the full benefit from just one avenue under Section 80C. The interest rate on EPF is 8.55%

PPF, which has a 15-year lock-in period, is a popular tax-saving investment avenue with most taxpayers. You can do a maximum of 12 PPF deposits in a financial year. The interest rate is 8%.

In case of EPF and PPF, the amount invested, interest earned and amount at maturity are all tax-free.

3. Medical insurance premium (for self, spouse, children and parents) – The Income Tax Act 1961 regards health insurance as an important investment. Hence, you can enjoy tax deductions under Section 80D of the Act. According to this section, deductions are offered towards policies on self, spouse and children and also towards non-senior/senior citizen parents.

“Under the section 80D, an individual can claim tax deduction of up to Rs 25,000 on policy taken for self, spouse and children. If the policy holders’ parents are covered then he/she is eligible for a deduction of up to Rs 50,000 and up to Rs 1,00,000 if both the individual as well as his/her parents are senior citizens,” said Prasun Sikdar, MD & CEO, Cigna TTK Health Insurance.

However, you cannot claim premiums paid for your in-laws, brothers, or sisters.

Do note in a case where premium for health insurance for multiple years has been paid in one year, the deduction will be allowed (from the assessment year 2019-20) on proportionate basis for the number for years for which the benefit of health insurance is provided.

4. Equity Linked Saving Scheme (ELSS) – An Equity Linked Savings Scheme (ELSS) is an open-ended equity mutual fund which qualifies for tax exemptions under section (u/s) 80C of the Indian Income Tax Act. It has a three-year lock-in period.

“ELSS funds form part of larger asset allocation strategy and investors should consider ELSS funds accordingly,” advises Devang Kakkad, head research, Equirus Wealth Management.

Returns earned in ELSS funds are taxable over Rs 1 lakh per year.

5. National Pension System (NPS) – Any individual who is subscriber of NPS can claim tax deduction up to 10% of gross income under Sec 80 CCD (1) with in the overall ceiling of Rs 1.5 lakh under Sec 80 CCE. But, there is an exclusive tax benefit to all NPS Subscribers u/s 80CCD (1B). An additional deduction for investment up to Rs 50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under subsection 80CCD (1B). This is over and above the deduction of Rs 1.5 lakh available under section 80C of Income Tax Act. 1961.

For corporate subscribers, additional tax Benefit is available u/s 80CCD (2) of Income Tax Act. The employer’s NPS contribution (for the benefit of employee) up to 10% of salary (Basic + DA), is deductible from taxable income, without any monetary limit.

On maturity, 40% of the corpus has to be used for buying an annuity. Of the remaining 60%, till recently, 40% was allowed to be withdrawn as tax free, and subscribers had to pay tax on the remaining 20%. But now it has been proposed to extend tax-free withdrawal to the entire 60%.

NSC, SSY, Post Office Time Deposit, SCSS – Investments in the National Savings Certificate (NSC) are eligible for tax rebate under Section 80C. Each year’s interest is considered reinvested in the NSC and so it qualifies for a fresh tax deduction. Only in the final year, or the fifth year, interest is not reinvested, and so it cannot be claimed as a deduction. The interest is 8%.

The Sukanya Samriddhi Yojana (SSY) is a small deposit scheme for the girl child. It matures 21 years after the account is opened. Though partial withdrawal is allowed when the girl child reaches 18 years for education purposes. The interest rate is 8.5%.

Sum deposited in the five-year post office deposit scheme qualifies for tax deduction. 7.8%. This is similar to the tax-saving bank deposits that have a five- year maturity. State Bank of India offers 6.85% on five-year FDs. An individual of the age of 60 years or more is eligible Senior Citizen Savings Scheme or SCSS. The interest rate is 8.7%. The maturity period is five years.

The interest earned on all these investments is subject to tax.

By investing up to Rs 1.5 lakh in the instruments under Section 80C, one can reduce their total tax outgo. Those in the highest tax bracket can save as much as as Rs 48,500 in a year
Check the lock-in period, interest rate and whether tax applies at investment, interest accrual or maturity stage before deciding on the investment option

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A low credit score can impair a business’s growth



Most of you would be aware that low credit score has the potential to make credit expensive and even lead to non-availability of loans and other credit facilities. You are probably also aware, of a personal bureau report being different from commercial bureau reports. However, as against this factual difference, personal reports do impact the outcome of business loans as well. Especially when loans are sought by small and medium enterprises. The truth remains that the impaired personal credit history or a low credit score can become a stumbling block in the growth of business.
The business will need funding at all stages. Credit is required right from the start-up stage to growth phases of different magnitude. When people set out on entrepreneurial journey, they may be under the assumption that the business and they are two different entities. But for the lending institution actually both are unanimous. If either of them shows a sign of stress on repayment, the outcome of business can swing in the wrong direction. Truth remains that a financial stress on personal front will affect the enterprise’s finances and vice-versa. That is why personal credit score will have a bearing on business loan applications as well.
Now that we understand the reasons as to why the personal credit score will impact the underwriting decision of a business loan, let us dwell further into the details.
Impact on margins and profits
A low personal credit score score can lead to unfavorable terms on the loan. A higher rate of interest would mean the cost of funds will increase and thus will have a negative impact on margins.
But why should a lower credit score result in getting a higher interest rate or a higher fee being charged. One may ask if the entity and the owner are worthwhile, why should the terms be different from others. Let us understand this from a lending institution’s point of view. The rate of interest is directly proportionate to the risk that is associated with the loan. To clarify even simpler terms: different loan products attract different rates of interest. A home loan and a gold loan come at a much cheaper rate than a personal loan. Both home and gold loan are secured with a collateral, while the personal loan is pure cash with no collateral to fall back upon in the eventuality of a default, hence the rates of interest varies.
Losing out on opportunities
Business is about opportunities. One single deal has the potential to make or break the business. Suppose one is into trading and to be able to materialise a deal that can add to lot of value both in terms of scale and profits, he is needed to invest an amount that requires fund raise. However, on account of the poor personal credit profile, the loan application of business gets declined. The business suffers loss due to losing out on the opportunity.
There are scores of people who want to embark on the entrepreneurial path. The dream of becoming a job creator rather than being in one may just not flag off on account of impaired credit history, in case there is a requirement of funds right at the outset of business.
Hence it becomes highly important to maintaining a good credit score. Unavailability of credit can severely impair the growth prospects of the business.

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