Fake rent receipt won’t help you to claim tax deduction

People who are using fake rent receipt to save taxes on income tax may be in trouble now.Submitting fake rent receipt to your company’s human resources can put you in trouble with income tax department.A salaried employee receiving “house rent allowance” from the employer could escape paying tax on at least  60% of this amount by generating fake rent reciept.

The income tax department now has good reason to insist on proof from the taxpayer showing that he is indeed a genuine tenant,staying in the property in question.The income tax department may soon be asking for proof to check whether the taxpayer claiming tax deduction under HRA is staying at the rented property.

The tax deduction on HRA is the amount that that is the minimum under these three options:

• Actual HRA that you get.
• 50% per cent of your basic salary and dearness allowance if you are living in a metro(it is 40 per cent if you are living in a non-metro city).
• Actual rent paid by you is 10 percent of the salary.

Till now, to avail of the benefit, the PAN of the owner of the residence was one needed in case the rent is above Rs 1 lakh per annum.But now the official can ask for proof even if it is below Rs 1 lakh.In this year’s annual budget, the Finance Minister had proposed that those who are claiming a House Rent Allowance(HRA) of more than Rs 50,000 per month will have to deduct tax at source at the rate of five percent.

According to a recent tribunal ruling the assessing officer can now demand proof-such as leave and licence agreement,letter to the co-operative society informing about the tenancy,electricity bill,water bill etc.- in allowing a lower taxable income as computed by a salaried employee.In case of HRA exemption, the assessing officer may crosscheck the address mentioned in the ITR form is the same as property on which rent is paid.

Become cashless.As far as possible do pay rent in cash.Even if you are paying electricity and water bill,we suggest you to pay through bank.Preserve the copies of water,electricity bill and rent receipts.But if you still have to pay in cash then put a stamp of Re 1 on the rent reciept.This documentation is a must while claiming HRA.Whenever you take a house on rent,take one step furthur and sign a rent agreement with your landlord.Ensure all the details of your terms with your landlord  should be stated very clearly in the agreement.

Claim correctly in your income tax return.

The tax department is increasingly leveraging technology to keep a watch on tax-payers.In case you had claimed fake HRA,then avoid trouble at the time of filing your income tax return.So when you are filing your income tax return pay the tax that you had saved under the curtain of fake rent receipt.

Latest Income Tax rules and updates

The finance bill 2017 was approved by parliament on March 30.

The finance bill 2017 was passed with some sweeping changes to country’s existing tax system. All the provisions related to taxation and government spending Finance minister Arun Jaitley proposed in Union Budget 2017 have come into effect from April 1.

Here are few things to know when you will file your income tax returns and apply for important documents like PAN and Aadhaar Cards.

• Instead of raising income tax limit the government opted for a reduction in income tax rate. There will be only 5 percent tax on an income from Rs.2.5 lakh to Rs.5 lakh.

• The government has decided a 10 percent surcharge for an income Rs.50 lakh to Rs.1 Crore. There will be no change in present surcharge of 15 percent for individuals whose income is more than Rs.1 Crore.

• Aadhaar, a unique identity has been made compulsory for applying for a PAN card and filing for income tax returns. This has been mooted to avoid duplicity in filing of income tax.

• The government has put a limit on cash transactions to prevent occurrence and recurrence of incidents of black money.

• CBDT has come up with new seven income tax returns form.

• Under the amended rules, Tax commissioners have been enabled with sweeping powers.

• The amended tax rules grant immense powers to tax authorities retrospectively.

• An individual taxpayer will have to minus a tax deducted at source (TDS) of 5 percent on rental payment of more than 50,000.

• Under amended tax rules, there will be no tax on partial withdrawal of money from National Pension System funds. Those who put savings in NPS can withdraw 25 percent of their total savings before retirement.

• According to the new rules property will come under the purview of long-term gains only if the holding period for that property was two years. Earlier, the holding period was three years.

Latest Income Tax rules and updates

Latest Income Tax rules and updates

Important Income Tax changes which will apply from April 1:

There are some important income tax changes that will come into effect from April 1.

• There will a decrease in tax rate from 10 percent to 5 percent of Individuals having total income between 2.5 lakh and Rs.5 lakh.

• Individuals having income above Rs.1 Crore can save up to Rs.12,500 per years and 14,806 per year(including surcharge and cess).

• Surcharge at 10 percent of tax levied on rich taxpayers, with income between Rs. 50 lakh and Rs.1 Crore .The rate of surcharge for the super rich with income above Rs.1 Crore will remain 15 percent.

• Taxpayers with income up to Rs.3.5 lakh ,tax rebate is reduced to Rs.2500 and Rs.5,000 per year.Due to the combined effect of change in tax rate and rebate, an individual with taxable income of Rs.3.5 lakh will now pay tax of Rs.2,575 instead of 5,150 earlier.

• Long-term capital gains will result in a lower payout owing to beneficial amendments. The base year for indexation of cost has been shifted to April 1 ,2001 from April 1,1981.This means lower profit on sales.

• Holding period for immovable property to be considered “log term” reduced to 2 years from 3 years. This will ensure immovable property held beyond 2 years is taxed at reduced rate of 20 percent and eligible for various exemptions from reinvestment.

• Delay in filing tax return for 2017-18 will attract penalty of Rs.5,000 if filed by Dec 31,2018 and Rs.10,000 if filed later.Such fee will be restricted to Rs.10,000 for small taxpayers with income up to Rs.5 lakh.

• Furthur tax exemption will be available on reinvestment of capital gains in notified redeemable bonds.

• Deduction for first-time investors in listed equity shares or listed units of equity oriented fund under the Rajiv Gandhi Equity Savings Scheme is withdrawn from 2017-18.If an individual has already claimed deduction under this scheme before April1 ,2017, he/she shall be allowed to avail a deduction for the next two years.

• Time period for revision of tax return cut to one year from the end of relevant FY or before completion of assessment, which ever is earlier.

Save taxes on HRA (House Rent Allowance)

HRA (House Rent Allowance) is the major component of salaried structure for the employees. It is a part of the salary unlike basic salary, is not fully taxable. According to the income tax act part for the HRA gets fully exempted under section 10(13A).

The amount of HRA exemption is deductible from the total income before arriving at a taxable income. This helps the employee in saving tax. If an employee is living in his own house or does not pay any rent then the HRA received is fully taxable.

Who can avail HRA?

The tax deduction of HRA is only available to salaried employee who has a HRA component as part of his salary and is staying at a rented accommodation. Self-employed professionals cannot claim for this tax deductions.

How much is exempted?

The exemption for HRA benefit is the minimum of

• Actual HRA received
• 50% of salary if living in metro cities, 40% for non-metro cities.
• Excess of Rent paid annually over 10% of annual salary.

The tax benefit is available to the person only for the period in which the rented house is occupied.

Documents:

The documents required for HRA exemptions are rent receipts or the rent agreement with the house owner.

It is mandatory for the employee to report the pan card of the landlord to the employer if the rent paid is more than Rs.1,00,000 annually or if it exceeds more than 15,000 per month.

 

There are also some cases in claiming HRA tax benefit.

Paying rent to family members:

The rented premises must not be owned by the person claiming the tax deduction. So if you stay with your parents and pay rent to them then you can claim that for tax deductions as HRA.

Own a house but staying in a different city:

One can avail the simultaneous benefit of deduction available for home loan against the interest paid and principal repayment and HRA in case your own home is rented out or you work in other city.

Individual who don’t get HRA but pay rent?

There may be some employees who might not have HRA component in their salary structure. Also a non-salaried individual might be paying rent. For them Section 80 (GG) of the income tax act offers help.

An individual paying rent for a furnished and unfurnished accommodation can claim the tax deduction for the rent paid under section 80 (GG) of the IT act, provided he is not paid HRA as a part of his salary by furnishing Form (1B).

Under this section, the total income is calculated as gross total income minus long-term capital gains ,the short-term capital where Securities Transaction Tax (STT) has been paid and deductions available under section 80C to 80U, except Section 80G.

While claiming tax deduction for HRA one must remember that the individual himself or as a member of HUF must not own any accommodation. If individual owns any accommodation and earns rent from it then tax deduction is not allowed.

Tax Saving Investment Options

How to avoid mistakes in last minute tax saving decision?

Every investment option to save taxes has a certain role in a portfolio which every taxpayer should know. As taxpayers looking for a better option for investments in save taxes so they can avoid some mistakes by having knowledge about various tax saving options.

ELSS category of tax saving investment option helps to create a wealth in long term. Taxpayers can invest in these equity schemes through monthly SIPs not invest a huge amount at one go. This is an option where investors can get tax benefits under section 80C.For detailed information on mutual fund investment visit http://www.trutax.in/blog/best-elss-mutual-fund.

Every taxpayer should know that they choose investment options that can fill the gaps in their portfolio. Taxpayers looking for equity exposure can invest in ELSS funds. ELSS funds should also be chosen as per the taxpayers risk appetite. Holding for longer period instead of three year lock-in period should be considered by taxpayers as it can give better returns.

One the other side PPF is also a good tax saving investment option. In most cases the monthly contribution to the provident fund is more than sufficient to build up the debt portfolio of an individual’s investment portfolio.

Investment as per needs:

Public Provident Fund:

• Tenure: 15 years
• Purpose: Long-term savings.

Sukanya Samriddhi Yojana:

• Tenure: Till girl turn 18
• Purpose: Long-term wealth creation

Insurance Plans:

• Tenure: Policy term
• Purpose: Insurance Cover

Senior Citizens Saving Scheme :

• Tenure: 5 years
• Purpose: Regular income in retirement

National Pension System:

• Tenure: till retirement
• Purpose: Long-term Savings

ELSS funds:

• Tenure: 3 years
• Purpose: Long-term wealth creation

NSCs and Bank FDs

• Tenure: 5 years
• Purpose: Long-7.5-8%

Multi-year Investment:

These tax saving investment options are eligible for deduction under section 80C.

Life insurance policies requires you to pay the premium year by year for the full term of the plan so taxpayer should assess the need for life insurance cover, your ability to service the premium for the full term and your willingness to accept 5-6% returns. If these requirements are ticked then you can buy the insurance plan.

Ulips is also a multi-year investment option. The costs of new online Ulips are very low and lead to higher investor returns. Be sure you will be able to pay every year before you take this as a investment option.

ELSS funds as per needs:

Aggressive Funds:

These funds have a larger exposure to small and mid-cap stocks. This can be rewarding as well as risky.

Balanced funds:

These funds have a balanced exposure to large-cap, mid-cap and small-cap stocks.

Stable funds:

These funds have large-cap oriented portfolios. They can give stable returns.

Small saving best options:

Read in Details:

http://www.trutax.in/blog/best-tax-saving-investments

Though interest rates have come down in recent months but small saving schemes like PPF and Sukanya Samriddhi yojana still offers 8-8.5% .

For Senior Citizens taxpayers Senior Citizens’ Savings scheme is the best tax-saving option. The scheme is for 5 years and can be extended for a period of three years once it matures. It offers 8.5% returns and the interest is paid out every quarter. The account can be opened in any post office branch and designated branches of PSU banks and select private banks. In this scheme there is an investment limit of Rs.15 Lakh per individual.

NSCs offers close to 50-75 basis points more than what fixed deposits give. The interest earned on NSCs is also eligible for deduction under section 80C.

Small Savings Schemes:

• PPF Interest rate 8% ( tax-free)
• Sukanya Scheme Interest rate 8.5% (tax-free)
• NSCs interest rate 8% (Fully Taxable)
• Senior Citizens Savings Scheme Interest rate 8.5% (fully taxable)
• Best fixed deposit interest rate 7.5%(fully taxable)

NPS(National Pension System):

The Nation Pension System has generated a lot of interest among taxpayers after the introduction of the additional tax deduction of Rs.50,000 under the new section 80CCD(1b).NPS is a long term product and a locks up money for a very long term. If you are 30, the investment will mature in at least 28-30 years. According to the financial experts it is better to pay tax than invest in the NPS to claim tax benefits as it has a restrictive investment mandate and is not likely to match the return of equity funds.

Income tax returns by SMEs

                                                             

In India’s taxation structure there are two types of taxes: -Direct taxes and Indirect taxes. At present income tax is the direct tax which is levied by the central government in India whereas sales tax, service tax and excise duties are indirect taxes.

Every enterprise is required to adhere to income tax norms but many firms ignore the filing of income tax returns as they think this due to lower income, the size of company operation is not big.

This type of ignorance by firms results in notices from income tax department, interest, penalties for various non compliances like non-filing of TDS returns,non payment of advance taxes and non deduction of TDS. This ignorance only creates barriers to the growth of the company in a short or for a long term.

Compliance with income tax can be divided into two parts, compliance with TDS and other compliances.

Deduction and payment of TDS:

There are some identified payment/expenses against which government has prescribed a specific rate of deduction. After deduction of TDS, it should be deposited to the credit of government on or before 7th of next month through online banking, by cheque or cash by presenting the challans at designated banks.

 If a deductor fails in deducting TDS or deducts an amount less than the required amount, the deductor is liable to pay an interest at 1% per month or part of the month, till the date on which TDS is deducted.

Filing of TDS return and issuing TDS certificates:

Every deductor who is liable to deduct TDS should obtain TAN number to file his TDS return which is to be filed quarterly on or before 15th day on next month of the quarter.

After filing TDS return deductor has to issue TDS certificates to the parties within 15 days of due date of filing TDS return.

If a person fails to file TDS return on or before the due date then he shall be liable to pay a late fee, a sum of Rs.200 for every day during which the failure continues.

Advance Tax:-

As per section 208, every person whose estimated tax liability for the year is Rs.10, 000 or more shall pay his tax in advance in the form of Advance Tax. Advance Tax is to be paid in different installments.

Non- payment of advance tax will attract interest under section 234 A/B/C, hence enterprise should pay their advance tax on timely basis.

Filing of Income Tax Return:

As per section 139 of income Tax Act, every company and person requiring audit under section 44AB should file their income tax return on before September 30.In any other case, the return should be filed on or before July 31st.

Income tax returns is a key factor for any company to raise any funding from financial institutions.