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Tax saving is one of the important part in financial planning. In today’s time, earning is not sufficient. One has to plan their investment as well. Also, financial year is about to begun and both the salaried and non – salaried taxpayers would compare tax saving investment options.
In India there are lot of investment options are available to choose from. Some of them are traditional as well as new investments options that have become popular in recent years.
In this article, we have listed out some tax savings investments with tax exempt returns as well. And all the tax saving schemes differs in terms of features and asset – class. Hence, it is important to them before making a choice.
Equity – Linked Savings Schemes
Equity Linked Savings Schemes or ELSS is offered by Mutual Fund of India. It is also a tax benefit scheme under section 80 C of the Income Tax Act 1961. The lock in period or minimum maturity period is three years. The minimum investment is Rs 500. However, there is no upper limit on the maximum investment; tax is exempted only up to 1.5 lakhs per year.
The returns in ELSS depend on the performance of equity markets and also they are neither fixed nor assured.
There are two options for investing into ELSS; they are the Systematic Investment Plan (SIP) and the Lum Sum Investment Plan.
Public Provident Fund (PPF)
PPF or Public Provident Fund is a government backed scheme, which a tax is saving scheme floated under the PPF Act 1968 by the Central Government. This scheme is considered to be one of the safest investment product launched by the Indian Government. The main aim of Public Provident Fund or PPF is to encourage savings amongst the Indians and encourage them to create a retirement corpus.
The Reserve Bank of India specifies the rate of interest from time to time that is applicable to the PPF account. It is the Central Government who sets and announces the latest PPF Interest Rates. The current rate of interest of the PPF for the year 2017 – 18 is 7.9%.
There are various benefits of PPF such as it serves as a long – term investment option. As they offer a deposit period of 15 years and a lock – in – period of 7 years. And this scheme is quite beneficial for a retirement individual, as it provides long – term tenures, compounded and tax – free returns and capital protection make it perfect for building a retirement corpus.
Certain eligibility criteria’s has been fixed for PPF such as PPF accounts should be opened one account per person. The nationality of the individuals should be Indian. They should have attained an age of 18 years at least. There is no upper limit for opening this account.
Employees’ Provident Fund (EPF)
The Employees’ Provident Fund Scheme also known as the Employees’ Provident Fund and Miscellaneous Act 1952 is backed by the purview of the Government through the Ministry of Labour and Employment.
The main motive behind this scheme is to promote retirement savings for employees across India. The EPF is a corpus of funds that is built on a regular, monthly, contribution made by an employee and his / her employer. EPF is nothing but the balance deducted every month from your salary along with an amount that is contributed to your EPF Account by your employer. Opening an EPF account is considered to be a good idea for retirement savings.
In EPF the amount which is contributed to the fund is based on a fixed rate. An employee earns interest on their EPF balances. Both the interest earned and the total amounts withdrawn at maturity are tax – free, making this one of the most popular forms of long – term retirement savings among the working population in India.
There are various benefits of Employees’ Provident Fund (EPF) as well, which are as follows:
- The interest earned on funds held in an EPF account is tax – free
- Also in this account, savings is ensured as funds in the account are not easy to withdraw
- At the end the amount saved would provide financial security at the time of retirement. However, premature withdrawal are allowed in certain exceptional cases
- This is a sound savings option for employees with long – term investment goals
Certain eligibility criteria have been fixed for the scheme such as employees are eligible for membership on the day of joining an establishment. This includes eligibility for provident funds, insurance and pension. Establishments with 20 or more employees have to provide PF to their employees. The act does not apply to the State of Jammu and Kashmir.
Unit Linked Insurance Plan (ULIP)
ULIP or Unit Linked Insurance Plan is the market – linked products that offer the best investments schemes and programs provided by Insurance Companies. Unlike the other insurance policy programs, this insurance plan gives investors both insurance and investment under a single integrated plan. This plan is linked to the capital market and provides flexibility to invest in the equity or the debt funds. These products provide a risk cover for the policy holder along with the investment options to invest in any number of qualified investments such as stocks, bonds or mutual funds.
The aim of the Unit Linked Insurance Plan (ULIP) is to provide investment to those who are seeking to invest in an investment cum insurance product.
There are various types of ULIP such as:
- ULIP for Retirement
- ULIPs for wealth collection
- ULIPs for children education
- ULIPs for health benefits
Sukanya Samriddhi Yojana (SSY)
Sukanya Samriddhi Yojana (SSY) is backed by the government which is launched by the Prime Minister of India. SSY is a small deposit scheme which is specially meant for the “Girl Child”. It is a part of “Beti Bachao, Beti Padhao” campaign.
The aim of the SSY is to provide a better future for the girl child in India. This scheme will provide support to the girl child from the education to the marriage of a girl. This scheme focuses on the benefits in the field of education, hygiene, and security.
|Equity – Linked Savings Schemes
|Public Provident Fund (PPF)
|Employees’ Provident Fund (EPF)
|Unit Linked Insurance Plan (ULIP)
|Sukanya Samriddhi Yojana (SSY)
|Investment||ELSS is a type of mutual fund scheme where most of the fund corpus is invested in equities or equity – related products||Pension mutual funds invest 40% of the money in equity and 60% in debt instruments.||EPF is a long term investment tool by investing in it one can secure their retirement days||ULIP is basically a fund operated investment tools in which charges are deducted for operational matters and rest goes as investment in various funds||One requires to invest in the scheme before 10th of every month, as the amount deposited after the 10th will not earn any interest|
|Returns||Not fixed. It depends on the performance of equity market. However, in the past, ELSS has given average returns of 12% – 14%||The returns in pension mutual funds are not fixed as it depends on the performance of the equity and debt market. Pension mutual funds have given an average return of 8% – 10% for a5 year and 10 year period||These are secured and steady instruments of investments and they provide guaranteed returns on your savings||The average category return of small and midcap ULIP funds is 16%, which is only slightly lower compared to their mutual fund counterparts||At present, it is 8.1 per cent and provides income – tax benefit|
|Lock – in – period||3 years||Until you reach the age of 58||5 years||5 years||Sukanya Samriddhi Yojana matures when the girl child, who is the account holder of the account, turns 21 years|
|Risk – factor||Risky investment||Risk – free investment||Risky investment||Risky investment||Zero risk factor|
|Online option||Online option for starting ELSS is available||One can invest in PPF online||One can invest in EPF online||One can invest in ULIP online||You can open Sukanya Samriddhi Account either in post office or any other commercialized banks|
|Liquidity||One can withdraw money from ELSS anytime after 3 years||One cannot withdraw the funds before retirement. The standard retirement age is taken as 58 years||Withdrawals after completion of 5 years of continuous service in the EPF are tax – free. However, withdrawals made before completion of 5 years of continuous service are subject to tax||There is no fixed amount that you can withdraw. However it varies across insurers and policies||The Sukanya Samriddhi account holder can withdraw up to 50% of the total savings for fulfilling the purpose of marriage or higher education of his / her girl child. It allows partial withdrawal only after the girl reaches the age of 18 years.|
Pension is a form of income which a person gets in his retirement, which comes in every working individual’s life. It is also a stage in life where people get apprehensive about their finances due to lack of regular pay checks. And people get conscious about their lifestyle and worry about their expenses.
At such a time, pension plans ensures that you continue receiving regular income after your retirement, once the regular work pay checks cease. In India, government offers many pension schemes to inculcate savings habit in people, so that they can retire gracefully.
Income Tax Rules for Pensioners
Pension is a compensation offered by the past employer and employee for offering their service in the organization. Also note that, pension paid is based on a previous agreement of service and not on agreement for services. And as per the, Section 60 of the CPC and section 11 of the Pension Act, pension is an allowance or stipend given to a person for providing his service to the past organization which comes to an end upon the death of an employer. Hence, if a pensioner is getting their pension from a nationalised bank, a pensioner will get several deductions on salary income such as under section 89 (1). Also during tax deduction at source from the pension, adjustment will be done in terms of tax rebate under section 88 and 88 B.
Income Tax Form for Pensioners
Let us discuss the income tax form which is required for pensioners.
Form No. ITR 1 – Also known as Sahaj and is filed by the assessee. And this form is meant for the individuals whose source of income is salary and not for any business enterprises.
Also, pensioners can file their income tax returns by filling this form. This form is used by majority of salaried taxpayers who own one house and have their income which is taxable (Income from other sources) in addition to their pension.
Method of Filing Form No ITR 1
Fill in the correct details and follow the below mentioned procedure:
- Part A – In part A, the applicants are required to fill their personal details such as his name, birth date, email id and other related information.
- Part B – In part B, the applicants are required to fill their Gross Total Income i.e. the salary from income.
- Part C – In part C of the form, the applicants has to furnish his deductions as provided in Form 16 and total taxable income.
- Now applicants are required to provide details pertaining in their operational bank account along with IFSC code and the branch and bank code of the same.
- Now, verification of the details so furnished has to be done.
- Also the applicants have to furnish details related to advance tax as well as payments made towards self-assessment tax in the part mentioned as Schedule IT.
- Applicants are also required to furnish details related to TDS (Tax Deduction at Source) from salary, under the part mentioned as Schedule TDSI.
- Under the part mentioned as Schedule TDS2, the applicant has to furnish details related to TDS having income sources other than salary.
Method of Tax Calculation for Pensioners
Generally pension is calculated through one’s income earned through salary under the head of salary in one’s ITR form. Pension is either paid in a monthly or as a lump sum amount and is known as commuted pension, whereas, pensions paid on a periodical basis is known as un – commuted pension and is liable to be 100% taxed.
- Commuted pension is received by the family of the tax payer, which is a lump sum payment and may be exempted from tax under the head income from other sources.
- And un – commuted pension is received by the family of the tax payer, however, subjected to a minimum of Rs. 15,000 or 1 / 3rd of the total pension amount is exempted from tax.
- Also, in case of sudden death of the employee, family pension is given on a monthly basis to a family member of an employee by his employer.
How much tax do I pay on my Pension?
In case the income of an individual exceeds the exemption limit, that individual is required to file income tax returns. And the pension income from an employer is taxed as salary income while interest on various investments is taxed as income from other sources. However, when it comes to PPF (Public Provident Fund), the interest income will be tax exempted. In case of your taxable income is above the exemption limit, that individual is required to file their Income Tax Returns.
The process of taxation has been in a role since the country before Independence. There is various number of taxes that are levied by the Government of various countries. In India, the most significant taxes which are paid by the customers are the wealth tax, income, capital gains etc.
The Corporate Taxes be it domestic or foreign are required to pay the taxes in order to run their business. One of the taxes, that the corporates are required to pay the Indian Government is the Corporate Tax or company tax. In this article we will be talking about the Corporate Tax, its types, Tax Rebates etc.
What is a Corporate Tax?
A Corporate tax is a tax that is levied on the profit of a firm to raise taxes. The Corporate Tax in India is levied on both the domestic and foreign companies. The individuals who are earning are supposed to pay tax on their certain amount of income in business houses, income etc. Hence, this tax is called as corporate tax, corporation tax or company tax.
Definition of a Corporate Tax
A corporate tax is a tax imposed on the net income of the company. If any juristic person is having a separate and an independent body from its shareholders, then he/she is termed as a Corporate. The total income that is earned by the company is computed and assessed separately from the dividends that offer to its shareholders. These dividends do not figure out in the tax calculation of the company but also are assessed as a part of the income of the shareholder.
To make the tax calculation more sophisticated and easy, the companies in India are broadly divided into two categories:
- Domestic Corporate:Any company that is Indian from its roots or if a company is foreign but the control and management are wholly situated in India are known to be as a Domestic Company. An Indian Company means that the company must be registered under the Companies Act 1956.
- Foreign Corporate:A Foreign Company is said to be a company who does not have an Indian Origin and has some part of the control and management affairs located outside India.
Dividend Distribution Tax
A Corporate Tax is a tax that is paid by the Companies on the revenues earned minus the expenses. In a similar way, the Dividend Distribution Tax is the tax that is paid by the Corporates on the dividends that pay to their shareholders. The corporate dividend tax is the percentage of the dividend that is paid. Currently, the Dividend Distribution Tax in India is 15% according to the Union Budget 2007, India.
Let us get into the details of what does a Dividend Distribution Tax means:
In India, the domestic companies pay the Dividend Distribution Tax (DDT) which is a levy in addition to the income tax which is chargeable on their total income in an assessment year. A dividend is basically a portion of return that is given by the company to its shareholders out of profits made during a particular year. They are usually given in a proportion to the number of the shares they have owned.
The provisions of the Dividend Distribution Act was introduced by the Finance Act 1997. This tax is only liable to the domestic companies. The Domestic Company have to pay the tax even if the company is not liable to pay tax on its income.
This is applicable whether it is paid out of the current or accumulated profits. The amount of the dividend paid by the company will be reduced by the amount of the dividend that is received from the domestic subsidiaries if these subsidiaries have paid DDT. The tax is paid by the parent company on the income for the subsidiary if the subsidiary is a foreign company.
Corporate Tax Rate
Depending on the type of company, domestic or foreign and on the basis of the income earned in one financial year, the corporate tax rates vary from company to company. Currently, the Corporate Tax of India for the financial year 2015-2016 has been reduced up to a certain percentage.
Income of a Company
It is essential to know all the factors that are responsible for making the total income of any company. Doing this will ease up the process of computing the corporate tax on the income of the company.
Thus, the factors that are responsible for the income of the company are as follows:
- Profits from the business
- Income from the property
- Capital Gains
- Income from other sources such as the foreign dividends, interests etc.
Corporate Tax Rate for the Domestic Companies in India
A domestic company mainly refers to the company that has its base location in India and basically has an Indian origin. Given below are the tax rates that are applicable to the Domestic Businesses in the country.
- A flat rate of 25% corporate tax is levied on the income earned by a Domestic Corporate.
- A surcharge of 5% is levied on the company who has a turnover of more than Rs 1 Crore for the specific financial year.
- Educational Cess of 3% is levied.
- The corporate tax is also levied on the Global earnings of the Domestic Company. This takes to the account income earned by the abroad company.
Corporate Tax for the Foreign Companies in India
A foreign company means the company or the enterprise that has its origin or operations anywhere in another country except India. The taxation rules are not that simple as that of the Domestic Companies. The company depends on a lot of the taxation agreements made between India and other foreign countries. Like for an example: an Australian Based Company in India will depend upon the taxation agreement between the Governments of India and Australia.
The Tax Rebates Applicable to the Corporate Tax
Apart from the different taxes levied on the company income, there are several provisions of tax rebates available for different companies.
The list of the different rebates are as follows:
- In certain cases, the domestic companies can deduct dividend received from other domestic companies.
- Special Provisions are applicable to venture the fund and venture the capitalist enterprises.
- Deductions, in some cases, are allowed for the exports and new undertakings.
- New Infrastructure and power sources are set up subjected to certain decisions.
- Business Losses have the provision of being carried over for a maximum of 8 years.
- The interest, capital gains, and dividends can also get deducted in some cases.
Corporate Tax Planning
A corporate tax planning can be called as planning a strategy for one’s financial business so as to maximize the profit and minimize the payable tax by taking it to an account that allows the benefits of deductions, rebates, and exemptions. The tax management is quite risky as well as tricky and most of the corporate companies that have a huge turnover in the market hire financial experts to take care of their taxation process.
In India, there are different financial players that provide consultation and implementation of the corporate tax. For a healthy tax planning, a perfect guidance towards the tax laws, rules and regulations is a must.
Corporate Tax Planning is different to that of the Tax Evasion or Non-Payment. Tax planning refers to the act of planning one’s finances in such a way that the payable tax is reduced and the gains are maximized. One of an essential feature of the tax planning is that it is absolutely in line with the legal and financial rules set up by the Indian Government.
Advantages of the Corporate Taxation
- Paying corporate taxes is quite beneficial for the business owners when compared to paying an additional individual income tax.
- The corporate tax returns deduct the medical insurance as well as the fringe benefits which includes the retirement plans and tax-deferred trusts.
Corporate Tax Budget 2015
The changes which are needed to be made in the Corporate Taxes have been watched with eagerness. The new Government has announced a rate cut of 5% in the corporate tax from 30% to 25% for the next 4 years. The main objective of this budget is to encourage the foreign investment for the various infrastructure projects like the roads, railways and the energy as well as starting up the shops in India by the foreign companies and much more.
The Corporate Rate Cut will ease out the process of the tax burden, resulting in a higher level of an investment, growth as well as job creation. This action started by the Government will foster a better and a higher investment in the economy of the country.
Income Tax is a type of tax that is levied by the Government. The income tax is imposed on the individuals or the entities (taxpayers) that varies with their respective income or profits. The tax money is collected by the Government is used to improve the economy and the infrastructure of the country. The income tax s counted as the stable source of income for the Government to facilitate a wide range of services for the people of the nation. The income tax is used for paying the Government employees their salary.
How is the Income Tax Calculated
The Income tax is calculated on the basis of the income or the salary earned by every individual. It is also calculated on the basis of the age factor. To calculate the income tax from the salary, the individual has to declare the total amount of earning and the total amount of the deductions. The Government allows the individual to draw exemption on particular types of the investment. The following income tax slabs will help you to get an idea in calculating your taxable income for all types of income slabs.
Budget 2017 Highlights for the Common Man
- 5% of Tax is applicable for the income between Rs 2.5 Lakhs and 5 lakhs.
- No tax is applicable for the income up to 3 lakhs due to Rs 2500 rebate.
- Tax benefits of Rs 12,500 are applicable for the income over Rs 5 Lakhs.
- No cash transactions are applicable above Rs 3 Lakhs.
- No scrutiny for the first time taxpayers, unless special circumstances are involved.
Income Tax Slabs
Tax Applicable to the Individuals Below 60 years: (for both Men and Women)
|Secondary and Higher Education Cess|
|Up to Rs 2, 50, 000||Nil||Nil||Nil|
|Rs 2, 50, 001- Rs 5, 00,000||
2% of the income tax
1% income tax
|Rs 5, 00, 001- Rs 10,00, 000||
Rs 12, 500 + 20%
2% of the income tax
1% of the income tax
|Above Rs 10,00, 000||Rs 1, 12, 500 + 30%||2% of the income tax||1% of the income tax|
Tax Applicable to the Individuals Over 60 years and under 80 years: (for both men and women)
|Secondary and Higher Education Cess|
|Up to Rs 3, 00, 000||Nil||Nil||Nil|
|Rs 3,00, 001 –Rs 5, 00, 000||
2% of the income tax
1% of the income tax
|Rs 5, 00, 001- Rs 10, 00, 000||
Rs 10, 000 +20%
2% of the income tax
1% of the income tax
|Above Rs 10, 00, 000||Rs 1, 10, 000 + 30%||2% of the income tax||1% of the income tax|
Tax Applicable to the Individuals Over 80 years and above: (for both men and women)
|Annual Income||Tax Rates||Education Cess||Secondary and Higher Education Cess|
|Up to Rs 5, 00, 000||Nil||Nil||Nil|
|Rs 5, 00, 001- Rs 10, 00, 000||
2% of the income tax
1% of the income tax
|Above Rs 10, 00, 000||Rs 1, 00, 000+ 30%||2% of the income tax||1% of the income tax|
The TDS is deducted at applicable rates along with the surcharge and the Education Cess.
Income Tax Slabs for Domestic Companies
For the domestic companies, whose total turnover does not exceed Rs 5 Crores their income tax rate has been reduced to 29% (plus applicable surcharge and educational Cess).
- In case you have a manufacturing company, then the income tax rate of 25% for the domestic companies is applied. If the company has been set up and registered after 1st March 2016, it does not claim any tax incentives.
- In other cases, the tax rates remain unchanged at 30% (plus applicable surcharge and education Cess)
Different Tax Rates under the Domestic Companies
|Turnover/Gross receipts less than Rs 5 crores||Turnover/Gross receipts more than Rs 5 crore|
|Taxable income less than Rs 1 crore||Taxable income more than Rs 1 crore||Taxable income less than Rs 1 crore||Taxable income more than Rs 1 crore but less than Rs 10 crores||Taxable income more than Rs 10 crores|
|Corporate tax + surcharge||29%||31%||30%||32.10%||33.60%|
|Effective tax rate||29.87%||31.96%||30.90%||33.06%||34.61%|
Special Rates Taxation on some Income
Though the total income is taxable at income tax slab rates, there are some incomes that are taxed at special rates:
|Short-term capital gains from assets (Other than shares & mutual funds)||
The Income Tax Slab rates mentioned above
|Long-term capital gains from assets (Other than shares & mutual funds)||
|Short-term capital gains on shares and equity mutual funds||
|Long-term capital gains on shares and equity mutual funds||
|Short-term capital gains on debt mutual funds||Income Slab Rates mentioned above|
|Long-term capital gains on debt mutual funds||20%|
The Income Tax Slabs are proposed in the Union Budget this year. Upon the implementation, a taxpayer is expected to file their income and deductions. The taxpayer also files their Income Tax Return in order to receive the refund for the excess tax paid to the Government. Recently, the Income Tax Department has observed an increment in the number of people filling their taxes on time.
Income Tax Calculator
The Income Tax Calculator is an online tool which enables the individuals to have a quick and easy access to the basic tax calculation. The benefits of the Income Tax Calculator is that it gives you the accurate calculation of tax that should be calculated for a particular Financial Year. This tool is available on the Official website of the Income Tax Department.
How to use the Income Tax Calculator
The Step by Step procedure to calculate the Income Tax Calculator is as follows:
- Visit the official page of the Income Tax Department.
- Click on the following link provided here- https://www.incometaxindia.gov.in/Pages/tools/tax-calculator.aspx
- Now enter the assessment year for which you want to calculate.
- Mention the category of the Taxpayer.
- Select the Gender option, Residential Status.
- Then enter the net taxable income
- Enter the Income Tax after relief u/s 87A
- Enter the Surcharge and Education Cess and Secondary and Higher Education Cess
- Then at the end enter the total tax liability.
- After entering all the details now click on submit to get the output.
The Tax calculator gives the information within minutes. Thus, paying Income Tax is mandatory. It is a responsibility that every citizen should do.
A new notification came, which reads that if an employee resigns from his job, his EPF account will be “operative”, however, will earn an interest until he applies for withdrawal.
Also, the Income Tax Appellate Tribunal (ITAT) upheld the matter of a retired employee where the employees who retires after 55 years of age and then post three years from the date of retirement, his EPF account is treated as “inoperative” and does not earn any interest.
Hence, this notification is applicable for both retired employee and for those who have quit employment for various reasons.
The applicable interest for the financial year 2016 – 17 was 8.65%. For the current year the interest rate will be announced shortly.
EPF is the most important investments made by a salaried individual during his or her term of employment. This scheme is managed by the Employees’ Provident Fund Organization (EPFO) which is a statutory body formed under Employees Provident Fund and Miscellaneous Provision Act of 1952. The EPF account not only comprises of the contribution made by the employee but as a statutory rule, every organisation which employees more than 20 employees under its payroll are required to register with EPFO. This means both the employee as well as the employer makes a contribution to the EPF account. The EPF not only serves the purpose of a retirement scheme but also works as a saving scheme that can be used at the emergency.
To know more about EPF Withdrawal Rules visit https://rupeenomics.com/epf-withdrawal-rules.