01/03/2016

Budget2016:6waystopaylesstax,legallyTheEconomicTimes

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PostBudget,manysalariedIndiansareleft
wonderingwhethertheFMhasleftthemricher
orpoorer.Buthiddeninthetangleofprovisions
aremanywaysandmeansthatcanhelpyou
saveachunkoftax.Didyouknowthatrenting
outyoursecondhomeissmarterthankeeping
itempty,orthatsometimesHRAgivesyoua
biggerbreakthanacompanyflat?ThisTimes
ofIndiaEYGuideisdesignedtohelpyouunderstandthekeytaxproposalsof
theBudgetandminimizethepinch
1.WHYYOURTAXABLEINCOMEISNOTTHESAMEASYOURINCOME
Atypicalsalariedemployeeisunlikelytoearnanyincomewhichwouldfall
underthehead:'Profits&gainsfrombusinessorprofession'.
Whileyouremployerknowsofyoursalaryincomeanddeductstax(TDS)
againstthat,itiseasiertodisclosedetailsofallyourothertaxableincome(such
asbankinterest)atthebeginningofthefinancialyearsothatthiscanbe
factoredinwhilecalculatingTDS.Itwillsaveyouthetroubleofhavingtopay
advancetax.
However,eveniftheentiretaxpayablebyyouhasbeendeductedatsource,
youstillneedtofileyourownincometaxreturn.
Thetaxlawdetailshowtodeterminethetaxableamountundereachheadof
income.Youcouldgettaxbenefitsundersomeheads,eitherbywayofan
exemption(eg:HRA)oradeduction(eg:interestonsavingsbankaccountsup
toRs10,000inaggregateperyear).Asasalariedemployee,theonly
possibilityofyourincurringalossiswhenyousellyourinvestmentsor
propertiesorpayinterestonyourhousemortgage.Thelawalsoprovidesfor
intraheadandorinterheadsetoffofsuchlosses.
Theincomefromallthevariousheadsadjustedforlosssetoffisyour'gross
totalincome'.Fromyourgrosstotalincome,yougetadeductionforvarious
eligibleinvestmentsorpaymentsmade(Allthisandmoreisdealtwithin
sectionsofourarticledealingwithsalaryandsavings).Theresultantfigureis
yournettaxableincomeonwhichyoupaytaxattheapplicabletaxrates.
ThetaxprovisionsannouncedinBudget2016applytoincomeearnedfrom
April1,2016toMarch31,2017(FinancialYear201617).

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2.USETHESEBENEFITST0BOOSTYOURTAKEHOMESALARY
Irrespectiveofwhetheritisyourfirstjoborwhetheryouhaveconqueredthe
corneroffice,incometaxdulydeductedfromyourmonthlysalarypinches.
Further,taxisleviednotjustonyourbasicpayandcashallowancesthatfigure
prominentlyonyoursalaryslip,eventaxableperquisites(suchascar,or
housingprovidedbyyouremployer)aresubjecttotax.Thesumtotalofyour
salary,allowancesandbenefitsisreferredtoasCosttoCompany(CTC)the
costwhichyouremployerincurstohaveyouonthepayroll.
ThekeyCTCcomponentswhichcouldhelpreduceyourtaxliabilityandboost
yourtakehomepayareoutlinedbelow.Theseapplytoallnongovernment
employees.
YourCTCcomponentsandvarioustaxbreaks
Housing:Torentorliveinanemployerprovidedflat?
Itmaybeeasiertoliveinaflatprovidedbyyouremployer(ifyouareluckyto
begiventhisoption)ratherthangohousehunting.
Butdobearinmindthatrentalpaymenttoyourlandlordcouldhelpyoureaptax
benefitsagainsttheHouseRentAllowance(HRA)whichtypicallyisastandard
partofCTC.Ontheotherhand,theemployerprovidedflatwouldleaveyou
withataxableperquisite.
Firstaninsightintoboth:
Houserentallowance(HRA)
HRAisthemostcommonCTCcomponent.Thosestayinginrented
accommodationcanavailofanexemptionagainsttheHRAreceivedandonly
thebalancewouldbetaxable.Theexemptionislimitedto(a)rentpaidless
10%ofbasicsalaryor(b)50%ofbasicsalarywherethehouseissituatedin
anyofthefourcitiesofDelhi,Mumbai,KolkataorChennai,and40%ofbasic
salaryinothercitiesor(c)actualHRAreceived,whicheveristhelowest.Ifyour
CTCdoesn'tcontainanHRAcomponent,deductionforrentpaidisavailable
fromgrosstaxableincome,subjecttovariouslimits(maximumdeductionRs
5,000permonthorRs60,000perannum).
Cautionpoint:
ForclaimingHRAexemption,ifyourannualrentexceedsRs1lakh,youshould
obtainnotjusttherentalreceiptsbutacopyofyourlandlord'sPANcardfor
submissiontoyouraccountsdepartment.
Flatprovidedbyemployer
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Theperquisitevaluevariesdependingonwhethertheflatisownedbythe
employer,takenonrentforyouorhotelaccommodationhasbeenmade
availableforyou.
Thevaluewillnotexceed24%ofyoursalarywhensuchaccommodationis
providedinahoteland15%ofsalaryinothercases.Thiswillbereducedby
theamountrecoveredfromyou,ifany.Wheretheemployerprovidesfurnished
accommodationtoyou,another10%ofthecostoffurnishing(ifownedby
employer)oractualhirechargespayable(ifleasedbyemployer)isaddedto
theperkvalueeachyear.
Hottip:
Hotelaccommodationprovidedbyyouremployerforthefirst15dayswhenyou
movetoanewtownisnotataxableperquisite.

It'smorethanavacation,it'sataxbreak
Leavetravelconcession(LTC):
YourannualholidaywithinIndiacangetyouataxbreak.Thetaxexemptionon
anyreimbursementofyourtravelexpensewhileonleaveislimitedtothe
economyclassairfarefortheshortestrouteavailabletoyourvacation
destination.Noexemptionisavailableforexpensessuchashotel,local
conveyance,etc.Keepthetravelbillhandytosubmittoyouraccounts
departmenttoclaimtheexemption.
Hottip:
LTCisallowedtoyouasasalariedemployeeinrespectoftwojourneys
performedinablockoffourcalendaryears.Thecurrentblockoffouryears
commencedonJanuary1,2014.Soifyouhaven'ttakenthatmuchneeded
breaklastyear,dosonow.Keeppropertabs,retainrelevanttravelbillsand
claimyourLTC.
Cautionpoint:
Yourtravelexpensesforaholidayabroadarenoteligibleforataxbreak.Ifyou
areplanningalongvacationcoveringdestinationsinIndiaaswellasaforeign
countrywithoneairticket,thetaxmanmaynotallowataxbreakevenforyour
costofjourneywithinIndia.

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Leaveencashment:
Incaseyouhaven'tavailedofyourentitledleave,youmayhaveanoptionto
getitencashed.Withanincreasingrealisationthatemployeeswhoavailof
annualleavearemoreproductive,mostemployerspermitsuchencashment
onlyonretirementorresignation.
Whiletherearedetailedrulestocalculatetaxexemptiononsuchencashment,
themaximumexemptionavailableisRs3lakhs.
Cautionpoint:
Anyleaveencashedwhileonemploymentistaxable.Onlytheleaveencashed
onresignationorretirementistaxfree.Further,theRs3lakhlimitisalifetime
exemptionlimit,ifyouhavejobhoppedandavailedofexemption,itwillbe
reducedbytheexemptionclaimedbyyouearlierunderanyprevious
employment.
Otherallowancesandtaxbenefits
Carperquisites:
Thetaxtreatmentofanemployerprovidedflathasbeenillustratedearlier.
Therecanbeotherperquisitesalsothatareavailabletoyou.Forinstance,the
perquisitevalueofacarprovidedtoyoudependsonthecubiccapacityofthe
carengine,whetheryouortheemployerpaysforitsmaintenance,runningcost
(includingfuel),provisionofadriver,andwhetheruseisofficialorpersonal.
Transportallowance:
Anysuchallowancepaidbyyouremployertomeetyourdailyconveyance
needsistaxexemptuptoRs1,600permonth.
Hottip:
Forclaimingtheexemption,youdon'tneedtosubmitanyexpenseproof.
However,ifyouareincurringexpensesonofficialtravel,youremployercan
reimburseonthebasisoftheclaimsub

mittedbyyou(backedbybills)andsuchreimbursementisnottaxable.
Children'seducationallowance:
ThiscomponentgetsyoualimitedtaxbreakofRs100permonthperchildand
Rs300permonthperchildforhostelexpenses(bothrestrictedtotwochildren).
Certainreimbursements:
Certainreimbursementsareexempt,suchasmedicalexpensesofuptoRs
15,000peryearorreimbursementofyourtelephoneexpensesincludingdata
charges.Thereisnocapprescribedunderthetaxlawsregardingthemaximum
amountthatcanbeclaimed.However,youremployermayposeaninternalcap
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amountthatcanbeclaimed.However,youremployermayposeaninternalcap
forthisreimbursement.Inaddition,ifyougetmealvouchers,suchasSodexo
coupons,theseareexemptfromtaxtotheextentofRs50permeal.
Makethemostofyourretirementbenefits
EmployeeProvidentFund(PF):
FromApril1,2016,employer'scontributiontoPFistaxableifitexceedsRs
1,50,000ayear.Employee'sshareiseligiblefordeductionunderoverallcapof
Rs1.5lakh.
FromFebruary10,2016,anemployeemaywithdrawthefullbalanceonlyat
thetimeofretirementafter58years.However,employeecanwithdrawhis/her
owncontributionandinterestthereonstandingtothecreditofhisherPF
accountatthetimeofterminationofemploymentsubjecttocertainconditions.

WithdrawalfromPFtotheextentof40%ofaccumulatedbalanceonwithdrawal
shallbetaxfree.Thebalance60%shallbetaxableforcontributionsmadeafter
April1,2016.
PFauthoritieshaveintroducedanewschemewherea12digitUniversal
AccountNumberisallottedtomembers.Onceyournewemployerverifiesthe
UAN,fundsfromthepreviousaccountwillbetransferredtoyouraccountwith
thenewemployer.Anysuchtransferoffundsisnottaxable.
Gratuity:
Ifyoujobhopafteracontinuoustenureof5yearsorretireafteracontinuous
serviceof5years,youareentitledtoagratuitypayment.Whilethereare
detailedrulestocalculateexemption,themaximumamountofgratuitythatis
taxexemptisRs10lakhs.
Cautionpoint:
Rs10lakhceilingisalifetimeexemptionlimit.Itwillbereducedbythetaxfree
exemptionclaimedfromanypreviousemployment.
GetanownershiprightinthecompanythroughESOPs
ESOPsarecommonlyusedbycompanies,especiallystartupstoretaintalent.
Theschemetypicallyenablesanemployeetopurchasesharesofthecompany
inthefuture,atadiscountedprice.ThelifecycleofanESOPhasthreekey
stagesgrant,vestingandexercise.
Grant:Thisisthefirststage,whereanoptionisgrantedtotheemployeewhich
willvestoverapredefinedperiodoftimeandorissubjecttomeetingcertain
conditions
Vesting:Heretheemployeegetstheunconditionalrighttoacquireshares.The
employeedoesnotreceiveactualsharesatthisstage.
Exercise:Here,theemployeecanusehisrighttoacquiresharesfromthe
companyonpaymentofapredeterminedprice.Postallotment,theemployee
canholdthesesharesorsellthembasedontheexitmechanismprovidedin
theESOPscheme.
Taxabilityinyourhands
ESOPsaretaxedattwostages:
Stage1
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Stage1

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Atthetimeofallotmentofsharespostavalidexercise,thedifferencebetween
FairMarketValue(FMV)ofthesharesandexercisepriceistaxedassalary
income.
Stage2
Atthetimeofsaleofshares,thedifferencebetweensalepriceandFairMarket
ValueondateofexerciseistaxedasCapitalGains.Thegainscanbeeither
longtermorshorttermdependingonhowlongthesharesarehel

d.

SameCTC,differenttakehome
YourCTCstructureshowsitemsofsalarycomponents(reflectedinyour
monthlypayslip)andotherperksandreimbursements,thatyouareentitledto
receivefromyouremployer.AwellstructuredCTCcanreduceyourtaxable
salaryincomeandhelpyoutakehomeafatterpaycheque,eachmonth.

Savethedates:CompliancecalendarforincomeearnedduringFY2016
17
DuedatesforadvanceITpayments:
Ifyouhaven'tdisclosedallyourincome(saybankinterestincome,rental
incomeetc)toyouremployer,theemployerwillonlydeducttaxatsource
againstyoursalaryincome.Thismeansyouneedtokeeptrackandpay
advancetaxifyourtaxliabilityismorethanRs10,000peryear.Advancetaxes
andanyfinalpaymentoftaxareacceptedatauthorisedbankbranches.
Filingoftaxreturns:
Forsalariedindividuals,duedatefortaxreturnsis:July31,2017
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Returnsaretobefiledintheappropriateform.Efilingisamustifyournet
taxableincomeisaboveRs5lakhs.Ifadigitalsignatureeverificationoptionis
notusedintheereturn,ahardcopyoftheelectronicacknowledgement(ITR
V)obtainedonefilinghastobesenttothetaxdepartment'scentralized
processingofficeinBengaluru.Alternatively,youcanelectronicallyverifyyour
returns,via:ElectronicVerificationCode(EVC)senttoyourregisteredmobile
numberandemail,whichisvalidfor72hoursAadhaarOTPsenttoyour
mobilenumberregisteredwithAadhaarLogintoefilingportalvianetbanking
Note:Form16furnishedbyyouremployer,providingdetailsofyourtaxable
salaryandTDS(taxdeductedatsource),andForm26AS,availablefor
downloadonthetaxdepartmentwebsite,isthebasisforyoutofileyour
mandatorytaxreturn.
Ifyouhavejustreturnedromyouroverseasassignment,youmayalsoneedto
reportyourforeignassets(suchaspeakbalance,atanytimeduringtheyear,
ofoverseasbankaccountscostofoverseasproperty,sharesanddebentures).
SuchrequirementappliestoyouifyouareaResidentandOrdinarilyResident
(ROR)fortaxpurposes.Ifyouhavespentmorethan729daysinIndiainlast7
years,youarelikelytoqualifyasROR.Inaddition,certainotherconditionsare
alsoprescribedtodetermineRORstatus.
Cautionpoint:
ThetaxofficercanimposeapenaltyofRs10lakhfornondisclosureor
inaccuratereportingofforeignassets.
Ifthetaxmancalls
Keepthesedocumentshandyincaseyougetacallfromtaxdepartment:
CopyofacknowledgementoffiledtaxreturnForm16andForm12BA(annual
withholdingtaxcertificate)issuedbytheemployer
Yourmonthlysalaryslipsandproofofallexpensesreimbursedbyyour
employer
Proofofalldeductionsexemptionsclaimedinyourtaxreturn
Copyofstatementofbankaccountswithexplanationtoallmajordebitand
credititems
Copyofcreditcardstatements.Pleaseestablishalinkwiththesourceof
incomeusedforpaymentofyourcreditcardbills.Thetaxmanismore
interestedtoknowwhetheryouhaveofferedthatincomeinyourtaxreturn
Detailsofyourforeigntrips
Supportingdocumentsrelatingtotheassetsandinvestmentsincluding
purchaseofimmovableproperty
Copiesofrentagreementleasedeedandreceiptofmunicipaltaxpaidincase
youhaveanyrentalincome
Interestcertificateissuedbythelendinginstitutionforhomeloan
Detailsofloansgiftstakenorreceived
Copyofdemataccountstatements
3.80SEE:MAKINGYOURSAVINGSWORKFORYOU
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Withgallopinginflationandtheneedtokeepupwiththeneighboursnextdoor,
itmaynotbeeasytosave.But,taxbreaksonsavingscanactasanincentive.
Dobearinmind,theoverallcapofRs1.5lakhforinvestmentsunderthewell
knownsection80C.

NewPensionScheme(NPS):
Thepopularityofthisschemehasincreasedmanifold.Currently,NPShasmore
than1.15croresubscriberswithtotalAssetunderManagement(AUM)ofmore
thanRs.1.09lakhcrorecomparedtoamere67.11lakhsubscribersin2014.
NPSisaflexibleretirementsavingsschemewhichoffersbothalumpsum
amountandmonthlypensionieafixedincometoanemployeeafterretirement.
TheemployeehasvariousinvestmentoptionsavailableinNPSsuchasthe
percentagehewishestoinvestinequityordebt.Onresigningtheemployee
cancarrythisaccountwithhimtothenextplaceofemployment.Employee's
contributiontoNPSwillbedeductibleupto10%ofsalarysubjecttooverallcap
ofRs1.5lakh(whichincludesinvestmentsunderSection80C).Anadditional
deductionofRs50,000isalsoavailableforanycontributionmadebyemployee
toNPS.Employer'scontributionwillalsobeavailablefordeductionupto10%
ofsalary(withoutanycap).AccrualsfromyourNPSaccountaretaxableonly
whenyouoptoutwithdrawfromtheschemeoronmaturity(attheageof60).
FromApril1,2016,anypaymentfromNPSTrustonclosureofaccountoron
optingoutisnottaxabletotheextentitdoesnotexceed40%oftotalamount
payable.However,thewholeamountreceivedbythenomineeondeathofthe
accountholdershallbeexemptfromtax.Similarly,anytransferfroman
approvedsuperannuationfundtoNPSaccountisalsoexemptfromtax.
ThegovernmenthasrecentlymadeitmucheasiertoinvestinNPSby
introducingtheeNPSonlinesubscriberregistrationandcontributionfacility.You
cannowcontributeonlinevianetbankingorbyusingyourcreditordebitcard.
Hottip:
ThisadditionalamountofRs50,000isoverandabovetheoverallcapofRs1.5
lakhundersection80CCE.
Otherinvestmentscoveredundersection80C
PublicProvidentFund(PPF):
ContributiontoPPFwillgetyouataxfreeinterestof8.7%.Plusthematurity
proceedsarefullyexemptfromtax.YoucaninvestRs500toRs1.5lakhevery
yearinaPPFaccountopenedwithapostofficeoranyauthorisedbankand

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yearinaPPFaccountopenedwithapostofficeoranyauthorisedbankand
claimdeductionfortheamountinvested.PPFaccountscanalsobeopenedin
thenameofyourspouseorchild.
Hottip:
Thereisablockinperiodof5yearsforwithdrawals.Butaloanonthe
accumulatedbalancemaybeobtained(afterexpiryofoneyearfromtheendof
thefinancialyearinwhichinitialdepositwasmade)forcertainpurposessuch
asmarriageorbuyingproperty,subjecttovariouslimits.PPFaccountmatures
after15yearsfromdateofopening.However,fromApril1,2016,premature
closureofPPFaccountsispossibleingenuinecaseslikeseriousailment,
highereducationofkidsetcbypayingapenaltyof1%reductionininterest
payableonwholedeposit.Thisispossibleonlyafter5yearsfromthedateof
openingofPPFaccount.
NationalSavingsCertificates(NSC):
TheamountinvestedinNSCschemes(managedthroughpostofficesinIndia)
iseligiblefordeduction.TheinterestaccruedannuallyonNSCistaxableas
otherincomebutifyoureinvesttheinteresteachyear,itwillqualifyfor
deduction.FromApril1,2016,compoundingofinterestwillgofrombiannualto
annual.
Lifeinsurance:Youcanclaimdeductionforpremiumpaidtowardslife
insurancepoliciesforself,spouseandkids.Proceedsfromthepolicieswillbe
taxfreesubjecttocertainconditions.
Smallsavings:A5yeartermdepositwithabankunderanotifiedschemeora
postofficequalifiesfordeduction.However,theinterestthataccruesonitis
entirelytaxable.
SukanyaSamriddhiAccount:UnderPrimeMinister's'BetiBachaoBeti
Padhao'campaign,openingaSukanyaSamriddhiAccountadepositscheme
framedforencouragingeducationofyourgirlchildgetsyouataxbreak.
Youcanopenanaccountinthenameofyourgirlchild(limitedtotwo,unless
youhavetwinstriplets)eitherinapostofficeorauthorizedbank,anytimeupto
herattainingtheageof10years.AninitialdepositofRs1,000isrequiredand
themaximumdepositinagivenfinancialyearisRs1.50lakh.Additional
depositscanbemadeforthenext14years.Thedepositscurrentlyyieldan
annualinterestof9.2%whichistaxfree.Theaccountmaturesoncompletionof
21yearsfromthedateitwasopenedorthedateofmarriageofthegirlchild,
whicheverisearlier.However,theschemealsoallowswithdrawal(upto50%of
thebalance)beforematurityforthepurposeofhighereducationandmarriage
(providedshehasattained18yearsofage).Withdrawalsarealsoexemptfrom
tax.
Otherpaymentsthatgetyouadeductionundersection80C
Deductionswithintheoverallcapofsection80Carealsoavailableforvarious
payments,suchasrepaymentofyourbankhousingloan.Tuitionfeespaidfor
fulltimeeducationofyourchildren(anytwo)inauniversity,college,schoolor
educationalinstitutioninIndiaisalsoeligibleforadeduction.Thisdoesnot
includeanydevelopmentfeesordonationsthathavebeenpaid.
Cautionpoint:FromApril1,2016,interestratesofvarioussmallsaving
schemessuchasSukanyaSamriddhi,5yeartermdeposit,PPF,willbe
determinedonaquarterlybasis.
Othertaxbreaks:Apartfrominvestmentsorpaymentseligiblefordeduction
undersection80C,thereareafewotherinstances,whereyoucanavailofa

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undersection80C,thereareafewotherinstances,whereyoucanavailofa
taxbenefit.Theentireinterestpaidbyyouinayearoneducationalloanfor
highereducationofself,spouse,childrenqualifiesforadeductionfromyour
grosstotalincome.Suchdeductiononinterestpaymentisavailableforeight
yearsstartingfromthefinancialyearinwhichyoufirstpaidtheinterest.
Interestearnedonsavingsbankaccount(notyourfixeddeposits)withabank
orpostofficeofuptoRs.10,000canbeclaimedasadeductionfromyour
grosstotalincome.
Otherinvestmentoptions
Goldmonetizationscheme:
Ifyouhavegoldstashedawayinyourbanklocker(beitjewellery,coinsor
bars),youcanutilizeittoearnaninterestincome.UndertheGoldMonetization
Scheme(GMS),agoldsavingsaccounthastobeopenedandgoldinphysical
formdeposited.Theinterestincomereceivableisdeterminedonthebasisof
goldweightandalsoontheappreciationinyourgoldvalue.Thedepositperiod
withthedesignatedbankscanbeshortterm(13years),mediumterm(57
years)orlongterm(1215years).Authorizedcollectionandpuritytesting
centresandlicensedrefinershelpyouincheckingyourgold'spurityand
provideyouwithacertificateonpurityandgoldcontentonceyoudecideto
deposit.
Redemptionispossibleinbothieinformofphysicalgoldorinrupees.The
depositcertificatesissuedunderGoldMonetisationScheme,2015hasbeen
excludedfromthescopeofcapitalasset.Undersection10(15),exemptionfrom
taxisprovidedoninterestearnedfromsuchcertificates.Thus,thereisnotax
onthegoldappreciationvalueoroninterestincomeearnedbyyou.
Anymediumtermdepositisallowedtobewithdrawnafter3yearsandanylong
termdepositafter5years.Thesewillbesubjecttoareductionintheinterest
payable.
Cautionpoint:
Fordepositinggoldunderthisscheme,youneedtobearesidentIndianand
alsoprovideidentificationdocuments.Golddepositedwillnotbereturnedinthe
sameformbutyouhavetheoptiontoreceiveyourgoldbackintheequivalent
of995finenessgoldorinIndianrupees.Youneedtochoosethisoptionatthe
timeofdeposit.Thus,ifyouloveafavouritepieceofjewellery,don'tdepositit
underthisscheme.
Sovereigngoldbondsscheme:
SovereignGoldBonds(SGBs)aregovernmentsecurities,whicharea
substituteforholdinggoldinphysicalform.Yourinvestmentwouldbe
denominatedintermsofgramsofgold(eachindividualcaninvestbetween2
gramsto500gramsperfinancialyear).Youcanmakethisinvestmentthrough
cash,cheques,demanddraftorevenviaanelectronicfundtransfer.Thetenure
ofthebondsis8years,howeveryoucanredeemthebondsearlyafterthefifth
yearofyourinvestment.SGBscanbeheldinpaperordematform.
Youwouldgetinterestatthefixedrateof2.75%perannumontheamountof
initialinvestment.Atthetimeofredemption,youwillreceiveboththeinterest
andprevailingmarketvalueofgramsofgoldoriginallyinvested.Asper
governmentstatistics,whenthebondsfirstopenedfromNovember6to
November30,2015approximatelyRs250croresworthweresubscribed.
Cautionpoint:
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ForinvestinginSGBs,youneedtoqualifyasaresidentofIndiaasper
exchangecontrolnorms.Further,interestincomewillbetaxableinyourhands.
Also,atthetimeofredemptionofbonds,capitalgainstaxwillnotbelevied.
However,longtermcapitalgainsarisingontransferofthebondsissubjectto
taxandeligibleforindexationbenefit.
4.HOMEADVANTAGE:BUYING,LETTINGOUT&SELLINGEXPLAINED
It'salwaysexcitingtobuyyourownhome.Andwhystopatoneifyoucan
affordtwoasaninvestmentoraweekendgetaway.What'smore,ahome
loangetsyouataxbreak.
Buyinganewhouse:
Ifyouhaveseveralyearsofemploymentaheadofyou,homeloanisanideal
option.Infact,itworksbetterthandippingintoyoursavings,asthetaxlaw
providesforbenefitsbothforthepaymentofinterestandrepaymentofthe
principalamount.Typically,thelongertheloantenure,theloweristhemonthly
EMIbuthigheristheinterestoutgo.Forinstance,onebankchargesanEMIof
Rs42,889foraloanamountofRs20lakhforadurationof5years.Foraloan
tenureof10years,theEMIchargedisRs26,875.Butshoparoundforahome
loansincebanksofferdifferentratesandterms.
Interestpayableonhomeloansandthetaxbenefit:
Irrespectiveofwhetheryouarepayinginteresttoabankortoyouremployeror
friend,interestpayableonhomeloansfor'selfoccupied'propertyissubjecttoa
maximumdeductionofRs2lakhsunderthehead'Incomefromhouse
property'.
Forfirsttimehomebuyers,witheffectfromApril1,2016,anadditional
deductionofRs50,000perannumonaccountofinterestpaidonhousingloan
isavailableunderSection80EE.Thedeductionwouldbeavailableifloanis
sanctionedbyabankduringApril1,201631March,2017,thevalueofloan
sanctionedisuptoRs35lakhandthevalueofthishousedoesnotexceedRs
50lakhs.
Itmaybecheapertobookanapartmentunderconstruction.Inthiscase,you
canclaimthetotalinterestpaidduringthepredeliveryperiodasadeductionin
fiveequalinstalmentsstartingfromthefinancialyearinwhichtheconstruction
wascompletedoryouacquiredyourapartment(generallythisdenotesthedate
ofpossession).Ofcourse,themaximumyoucanclaimasdeductionperyear
continuestobeRs2lakhsiftheloanistakenbeforeApril1,2016orRs2.5
lakhsiftheloanistakenonorafterApril1,2016byafirsttimehomebuyer.
Whatis'selfoccupied'property:
It'sbesttobeclearonwhatconstitutes'selfoccupied'property.Hereissome
guidance:Ifyouaresuddenlytransferredtoanothercity(whereyouliveina
rentedapartment),yourownpropertywillbeconsideredas'selfoccupied'.
Also,ifyouhaveoptedtopurchaseanewapartmentinatier2townwhere
propertyischeaper,andcontinuetostayinarentedpremise,thisnew
apartmentwillberegardedas'selfoccupied'entitlingyoutodeductionof
housingloaninterest.
Cautionpoint:
Acertificatefromthelenderisrequiredtoclaimdeductionforinterestevenif
thelenderisanemployerorafriend.Toclaimdeduction,itisessentialthatthe
acquisitionorconstructioniscompletedwithin5yearsfromtheendofthe
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financialyearinwhichtheloanwastakenelsethedeductionallowedwillbe
limitedtoRs30,000.
Setoffyourinterestpayment:
Asincomefroma'selfoccupiedproperty'isnil,deductionofinterest,in
technicalparlance,willmeanalossunderthehead'Incomefromhouse
property'.This"loss"canbesetoff,inthesameyear,againstyourincome
underotherheads(includingsalaryincome).Suchsetoffwillreduceyourtotal
taxliability.Anylossnotsetoffwithinthesameyearcanbecarriedforwardand
setoffinthenext8years.However,inthesubsequentyears,suchsetoffis
possibleonlyagainst'IncomefromHouseProperty'.Soevenifyouletoutyour
propertynextyear,thiscarryforwardoflosscanbringamarginaldiptoyour
taxliability.
Hottip:
Ifyouhavepurchasedanewapartmentjointlysay,withyourspouseandare
alsopayingthehomeloanjointly,theneachofyouisentitledtodeductionupto
Rs2lakh2.5lakh.Incaseyouhaveaworkingson/daughterandthebankis
willingtosplittheloanthreeways,allthreecanavaildeduction,subjecttogiven
conditions.
Repaymentofhousingloan:
Theprincipalrepaymentofthehousingloanisallowedasadeductionfrom
yourgrosstotalincome,subjecttoanoverallcapwithothereligibleinvestments
ofRs1.5lakh.
Cautionpoint:
Unlikedeductionofinterest,deductionofprincipalrepaymentwillbeallowed
onlyiftheloanistakenfromspecifiedinstitutionslikebanksorLIC.
YourTDSobligations:
IfthevalueofyourproposedflatismorethanRs50lakhs,youarerequiredto
deductwithholdingtaxattherateof1%fromthepaymentmade.Incaseyou
arepayingthebuilderininstalments,asthepropertyisstillunderconstruction,
butthetotalvalueofthepropertyexceedsRs50lakhs,thesamerulesfor
withholdingtaxapply.Taxhastobedeductedagainsteachinstalmentpaidby
you.Taxwithheldhastobedepositedbythe7thofeachsubsequentmonth
(exceptMarchwhereduedateisApril30).
Inaddition,youwillberequiredtofurnishinformationaboutthetaxdeducted
anddepositedonlineontheTaxInformationNetwork(TIN)websiteinForm
26QB(URLishttps://onlineservices.tin.egovnsdl.com/etaxnew/tdsnontds.jsp).
Further,youwillalsohavetodownloadForm16B,whichistheTDScertificate
fromthewebsite(URLishttps://www.tdscpc.gov.in/app/login.xhtml)andissueit
totheseller.Incaseoffailuretocomply,youwillhavetopayinterestand
penalties.
Besttoletoutyour2ndhouse:
Makesurenottokeepyoursecondhouse(whichisnotaselfoccupied
property)unoccupied.Yoursecondhouseiflockedandemptywillstillattract
taxonits'deemedrentalvalue'.Inotherwords,taxiscalculatedatexpected
marketrent.
Interestingly,ifyouletoutthesecondhouse,youcandeducttheentireinterest
youarepayingonitfromtherentreceived.Ifthereisaloss,youcandeductthe
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youarepayingonitfromtherentreceived.Ifthereisaloss,youcandeductthe
lossfromyourtaxableincome.
Forexample,ifyourinterestoutgoisRs15lakhsandtherentisRs10lakhs,
youcangetataxbenefitonRs8lakhs(RentRs10lakhless:(a)Standard
deductionof30%ofrentwhichisRs3lakhsand(b)InterestRs15lakhs).This
isapplicableforanynumberofhousesandthereisnocapontheamountof
deductionyoucanclaim.

Sellingyourapartment:
Ifyousellyourhouse,whetheritisselfoccupiedoryoursecondapartment,
youwillincurcapitalgains(giventhattherehasbeenappreciationinproperty
prices,itisunlikelythatyouwillbemakingaloss).Capitalgainsisthe
differencebetweenthesaleproceedsandthecostofacquisitionofthe
apartmentyouareselling.Ifthehouseisheldfornotmorethan36months,you
willincurashorttermcapitalgain,whichissubjecttotaxbasedonyourap
plicableslabrate.Ifyoufallinthelowertaxbracketwithataxrateof10.3%,
shorttermcapitalgainswillnotpinchyou.Elseyoucouldendupwithataxrate
ofnearly35%.
Ifthepropertyisheldformorethan36months,LTCGarise.Thecostof
acquisitionusedforcomputingLTCGistheindexedcostofacquisition(inother
words,anadjustmentismadeforinflation).TaxisleviedonLTCGsat20%
(plussurchargeandcessasapplicable).SaveonLTCGs:Reinvestmentof
capitalgainscouldgetyoutaxbreaks.
Reinvestinginresidentialpropertyorsecurities:
Tobeabletosavetaxoncapitalgains,youmustinvesttheentireLTCGfrom

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Tobeabletosavetaxoncapitalgains,youmustinvesttheentireLTCGfrom
thesaleofresidentialpropertyinanother(i.e.onlyone)residentialpropertyin
India(oneyearbeforeortwoyearsafterthedateofsale).Youcouldalso
constructanotherresidentialhousepropertyinIndiawithinthreeyearsofsale.
Also,youmayputtheamountofcapitalgainsincapitalgainsaccountscheme
withabankwhereinvestmentinnewpropertyisnotmadebeforefilingoftax
return.Iftheentireamountisnotreinvestedornotdepositedincapitalgains
accountscheme,theremainingportionofthegainwillbetaxable.
Cautionpoint:
ExemptionfromLTCGwillnotbeavailableincasethereinvestmentismadein
morethanoneflat(evenifthesameareadjoiningflats)orincommercial
property.Norcanyoureinvestinoverseasproperty.
Hottip:
Exemptionisalsoavailableforinvestmentsmadeincertainbondsornotified
fundbycentralgovernmentwithin6monthsofsaleofacapitalasset.Thereis
acapofRs50lakhsonsuchinvestment.
5.MEDICAL:CASHLESSCOVERPLUSCASHINYOURPOCKET
Increasingcostsofhospitalizationmakeitimperativeforyoutohaveamedical
insurancepolicythatwouldcoveryouandyourfamilyneeds.Moreso,incase
youremployerdoesn'tprovideagroupmedicalinsurancecover.
Groupmedicalinsuranceprovidedbyyouremployer:
Itmaybelikelythatyouremployerhascoveredyouunderagroupmedical
insurancepolicy.Atthetimeofjoiningemployment,youdoneedtocheck
whichmembersofyourfamilycanbecoveredandnominatethemaccordingly.
Insubsequentyears,updatesofnomineedetailsarecalledfor.
Typically,companiesprovideamedicalinsurancecoverfortheemployee,
spouseanddependentchildren.Someextendittoemployee'sparentsandin
laws.Itisalsoworthcheckingwhichailmentsarenotcovered(saydental
related)orwhichhaveacapbeyondwhichexpenseswillnotbereimbursed.
Manygroupinsurancepolicieshaveacaponvariouscommonailments,such
asforcataractsurgeryhospitalexpensesbeyondthiscaparenotreimbursed
andhavetobebornebyyou.
Boththepremiumpaidbyyouremployerforyouandyourfamilymembersis
taxfreeinyourhands.Ifduringayear,underthispolicycover,youmakea
claim,themoneyreceivedfromtheinsurancecompanyisalsotaxfree.
Buyingamedicalinsurancepolicy:
Incaseyouaren'tcoveredunderagroupmedicalinsurancepolicyorwishto
haveaddedcoverage,youcanbuyamedicalpolicyandreapcertaintax
benefits.Searchingforthemostsuitablemedicalpolicymaybeagoodidea
forinstance,aparticularinsurancecompanymaycoverambulanceorpost
hospitalizationexpensestothefullextent,anothercouldcapitornotcoveritat
all.Asinthecaseofagroupinsurancepolicy,anyclaimamountthatyou
receivefromtheinsurancecompany,whetheritisforyourownillnessorthatof
otherfamilymemberscoveredbyyouistaxexemptinyourhands.Premium
paidisavailableasPremiumpaidisavailableasataxdeductionfromyour
grosstotalincome,grosstotalincosubjecttocertainlimits.
Incaseyouareunabletogetyourparents,whoareveryseniorcitizens(above
80years)insured,ortheyarenolongercoveredbyaninsurancepolicy,fret
not.AdeductionofuptoRs30,000isavailableonexpendituretowardstheir

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not.AdeductionofuptoRs30,000isavailableonexpendituretowardstheir
medicalexpenses.
Othermedicalrelatedtaxbenefits:
OverandabovetheRs15,000ofmedicalexpenditurewhichyoucanavailof
asataxfreereimbursementinayear,certainothermedicalrelatedexpenses
alsoentitleyoutoataxdeductionfromyourgrosstotalincome.Theserange
fromexpenditureincurredforpreventivehealthcheckupstothoseforspecific
diseasessuchasmalignantcancers.Taxdeductionformedicalexpensesifyou
oryourlovedoneisdifferentlyabledisalsoavailable.

6.MARKETINVESTMENTS:CUTTHEPAINFROMTHEGAIN
Taxfreedividend:
Asaninvestoryouenjoytaxfreedividend,beitfromsharesorunitsofmutual
funds,ifitislessthanRs10lakhayear.Taxfreelongtermcapitalgains:Long
termcapitalgainsonsaleoflistedsharesandequityorientedmutualfundsare
alsoexempt.Toqualifyforlongtermcapitalgainsexemption,thesesecurities
needtobeheldforaperiodofatleast12monthsbytheinvestor.
Onlyaminimalsecuritiestransactiontax(from0.001%to0.1%ofsaleprice)is
payablebytheseller(thistaxcostispayablebothbybuyerandsellerincase
ofasharedealonastockexchange).Insomecases,youevengetatax
benefitatthetimeofmakingtheinvestment.
Cautionpoint:
Debtorientedmutualfundsneedtobeheldforatleast36monthstoqualifyas
alongtermcapitalasset(asopposedtolistedsharesandequityoriented
mutualfundswhichrequireaholdingperiodofjust12months).However,even
onsaleafterthisperiod,thelongtermcapitalgainsthatarisesissubjecttoa
taxof20%(surchargeandcessasapplicable)withindexation(Refertotable
showingtaximpactonyour'listed'investments).
Taxfreebonds:
Amongthevariousmarketrelatedinvestmentsdetailedinthetable'Tax
ImpactonYourListedInvestments'TaxFreeBonds,whichmadeare
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ImpactonYourListedInvestments'TaxFreeBonds,whichmadeare

appearanceafterBudget2015,aretheflavouroftheseason.Investmentin
suchbondsprovidesyouwithanopportunitytoobtainhigherinterestrates.Tax
FreeBondsaresimilartoothercouponbearingbondswhichprovideafixed
incomebutunlikeotherbonds,theinterestincomefromtaxfreebondsis
exempt.However,theredemptionofbondswillattracttax.

Setoffprovisionsforcapitallosses:
Thesetoffprovisionsforcapitallossesareratherrestrictive.Lossfromtransfer
ofashorttermcapitalasset(forexample,listedsharesorequityunitsheldfor
lessthan12months)canbesetoffagainstgainfromtransferofanyother
capitalassetinthesameyear.Lossfromtransferofalongtermcapitalasset
canbesetoffagainstgainfromtransferofanyotherlongtermcapitalassetin
thesameyear.But,longtermcapitallosscannotbesetoffagainstshortterm
capitalgains.Anyunutilisedcapitallossafterabsorptioninthesameyearcan
befurthercarriedforwardtonexteightyearsandbeutilisedunderthesame
conditionsasabove.

Cautionpoint:
YoushouldfileyourITreturnbeforeJuly31tocarryforwardanylosses.

READMORE: UnionBudget2016|Taxsavingsguide|taxsavings|savings|propertyprices|mutual
funds|lifeinsurance

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