Income Tax: Check before 31st Mar’2017!

Savings for Income Tax

All tax-saving investments and expenses have to be made before March 31 2017.

  • 80(C) : Ensure  savings  of  Rs 1,50,000/- atleast  (EPF, PPF, NPS, Life Insurance premium, Home loan principal repayments etc)
  • 80(D): Health Insurance premium of Rs 25,000/- for self and family and Rs 30,000 for parents who are senior citizens. You can claim of Rs 5,000/- for health check up under section 80 (D).
  • Get reimbursements  from your employer  by submitting medical bills maximum of Rs 15,000/-
  • LTA: Keep the journey tickets as evidence for tax exemption. 
  • Calculate your tax liability by taking(a) Interest on housing loan(b) Exemption from HRA  factoring the house rent paid and (c) Conveyance allowance(Rs1,600pm)
  • Advise the salary section to stop Income Tax deduction for February and March 2017, if the tax deducted has exceeded your tax liability. Alternatively you have to apply for refund of excess tax paid by you.

There is a debate on segregating sales from investment advice.SEBI has proposed that mutual fund distributors cannot give investment advice to buyers and proposed to make it compulsory for mutual fund distributors  who give advice to register as investment advisers. We reproduce the view of Prof Pattabiraman at  IIT-Madras as published in ET wealth on 16th January 2017.


Steve Jobs said, "People don't know what they want until you show it to them". This applies to conflict of interest. In a recent consultation paper, Sebi proposed that mutual fund distributors should not provide incidental or basic investment advice in respect of mutual fund products and should not call themselves advisers.

How to open NPS account online?

NPS has emerged as a popular tax saving tool at par with EPF. but the issue on taxation of 60% of the proceeds on maturity or buying annuity is a moot point and hoped to be resolved soon. Opening of NPS account was a herculean task till now but have been made easier through online NPS account.

Types of NPS accounts: There are Two types of account i.e TIER I and TIER II

  • Tier I is the mandatory account for long-term savings. Additional Tax benefit upto Rs.50,000 is available u/s 80CCD (1B) over and above the 80C limit of Rs1,50,000/-
  • Tier II is an add-on account which provides you the flexibility to invest and withdraw from various schemes available in NPS without any exit load.
  • To open Tier II account you need to have Tier I account first.

A subscriber is required to open a Tier 1 account with the Central Recordkeeping Agency (CRA). Each account is identified by a unique Permanent Retirement Account Number (PRAN). It is now possible to open this account online using the e-NPS system by accessing the following link:

Who can open a NPS account?

Both Resident and Non-Residents can open NPS account. NRIs need to give their Passport number along with PAN or Aadhar. Age limit: 18 to 60 years.

Steps for opening the Tier I account:

Facing uncertainties in 2017...

These are times of uncertainties! Who could have predicted the address to the nation by the Prime Minister on the evening of 8th November 2016. Remonitisation have become painful for many for standing in long queues. More uncertainties are in store in the coming days! GST will overhaul the indirect taxation system in the country. Short term pains but long term gains? Now coming to personal finance; there is a need to question our core beliefs and think differently. Let us take income, assets, liabilities, expenses and retirement!

Income: Where does your income come from? Is it salary from your employer? This is an   external source. It is like water flow in a river. But looking it from a bigger picture, the real source of river water is the spring. Similarly the source of income is not the monthly salary but your skill, time, intelligence and experience. If you focus on up gradation of your skills that generates your income streams, you are more likely to preserve a steady income in the long run. Conversely if do not upgrade your skills in tune with the demand of the times, you are more likely to miss out on generating income. Think for a moment about the prospect of losing your job, look at your skill sets. They may be more valuable if you have kept them honed. Do not ignore skill building and networking even after you have settled in a job.

Assets: Assets produce income. There are three general sources of income; Land, Labour and capital. Land has potential to generate income from rent and appreciation in value over time. Labour creates income when one trade   with his/her time, energy and talent. Capital can be physical, financial or social. Physical capital represents potential income since it can be sold. Financial capital is money in the form of savings, investments gold etc .Money can create more money by earning interest on it. Social capital has great potential to generate income. Networking can create social capital.”It is not what you know but who you know” is true. Assets are not assets unless it earns more than it costs e.g flats bought with loan at 9.5% borrowing cost generating rental yield of 3% and capital appreciation of less than 5% are not assets but liabilities.

 Resources: The source of your income is collection of your resources put together in such a way that they create something that is valuable to others. Trace your income to the resources .Income comes from assets and assets come from resources. When your expenses increase, try to increase your income by looking at your resources other than CTC i.e artistic skill, rental, investments etc.

Liabilities: Liabilities are opposite of assets and it cost more than it earns. Liabilities are not inherently bad or useless. Some liabilities like education loans are good. Many of our expenses are traced to liabilities e.g EMI for home loans and responsibilities for family.

The Govt of India has announced demonetisation scheme for Rs 500 and Rs 1000 rupee notes from the mid night of 8th Nov 2016.There are long queues before the bank branches and ATMs. We have addressed apprehensions about the taxation issues in an earlier blog. Recently the Parliament has amended Income Tax Rules pertaining to deposit of cash in the accounts. The tax treatment will be as follows:

Deposited with disclosures in Tax return

1. Tax @30% plus surcharge @33% and penalty of @10% of the deposit amount which makes it almost 50% of the deposit(In the earlier voluntary disclosure which ended on 30th September 2016,the      total amount was 45%)

2. 25% of the deposit will be kept with the bank for a period of 4 years at nil rate of interest.

3. The balance 25% can be withdrawn by the depositor

Deposited without disclosures in Tax return

 If the amount is not declared in Tax return then the tax rate will be 60% with surcharge of 25% and penalty of 7.5% which makes it a total of 82.5%

Withdrawal in Jan Dhan accounts

The maximum withdrawal per month is Rs10,000/- in case of KYC compliant accounts and Rs. 5,000/- in case of non KYC compliant accounts.

The maximum withdrawal per month is Rs10,000/- in case of KYC compliant accounts and Rs. 5,000/- in case of non KYC compliant accounts.

Can you become cashless?

Yesterday we went to buy vegetables from Vishnu, our local vendor. With limited cash in hand we were wondering how to pay him? We were surprised to see a board with paytm sign in front of the shop. After completing our shopping, I took out my Smartphone and made the payment through Paytm. The transaction was successful and the vendor got an SMS alert. It was so smooth and a big relief!!

If you want relief from the queues in front of the ATMs and Bank branches, it is not difficult. You can become less dependent on cash by making online payments. As may be observed below, if a family has a monthly expenses of Rs 50,000/-, they need not keep more than Rs 2,500/- of cash with them. A big relief from the long queues!!

Frauds in Online transactions

Today our office cleaning lady was very worried .On enquiry we were told that her son got his first salary which was credited to his Bank of India account. But when he went to withdraw the amount, there was no balance; it has already been withdrawn. On further enquiry he revealed that someone asked him his debit card number for reissuing a new card and after some time also asked to share the  OTP which was just sent. Ignorant of the risk, he shared the details.

The long queues before ATMs and Bank branches for exchange, deposit and withdrawal of cash has made everyone realize that electronic transactions are much convenient. But it has its own risks of frauds . We describe herewith the various frauds in online transactions and precautions to be taken. Card frauds basically involve theft of identity or information on your card.

The Govt of India has announced demonetisation scheme for Rs 500 and Rs 1000 rupee notes from the mid night of 8th Nov 2016.There are long queues before the bank branches and ATMs. We try to address apprehensions about the taxation issues.

Some people are posting the unverified computation chart of tax and penalty on cash deposit. It is a perception by some that the penalty of 200% is on the amount deposited. It is not correct.The facts are as follows:

1. You have time   till 30th December 2016 to deposit the same in banks (extended till 31 March 2017 with additional documentation)

2. As soon as one deposits, one needs to have an explanation ready for the source of this cash. Note here the explanation needs to be ready, neither the banks nor the Income Tax will ask for it as of now.The explanation will be on case to case basis;

3. (a) The cash may be  entirely “white”, on which one has already paid tax i.e. this is cash which has been declared in his books of accounts or he has withdrawn this from the bank. or (b)The cash may be entirely “black”, so to speak, which means he has never paid any taxes on the same. or (C) it may be combination of both.

4. So when one deposits such “white” cash, he has no problems what so ever since he has already paid taxes on the same. He just has to collect evidence of the source and keep it ready.

5. If the cash is “black” though, it becomes “white” as soon as he deposits it into the bank. Thus, now one will have to include this in his annual income, and think of a source for it. Since one has added it to his annual taxable income, he has to pay taxes on that (assumed to be 30% for simplicity).

e -Term insurance policy

e-Term insurance plan is a form of term life cover, it provides coverage for defined period of time. If the insured expires during the term of the policy then sum assured is payable to nominee. Term plans are specifically designed to secure the financial needs of the family or liquidation of liability in case of death of the bread earner of the family.

Low Premiums 

The premiums for Term insurance policies are the lowest among all the types of life insurance policies. The premiums are low since there is no investment component and the entire premium goes for covering the risk. eTerm insurance is cheaper by 25-35% to the regular term insurance since there is no element of commission in e term insurance.The comparative chart of some eTerm Insurance Policies are provided at the end.

Factors to be considered are;

  •  How good is the claim settlement ratio? ( Click here)
  •  Compare the premium!  
  •  Decide the cover you need (At least 10 times the annual salary)

What to do if you get an income tax notice?

If you get an Income Tax notice don’t panic. Read the notice carefully. If you don’t know what to do, go through the following;

Notice Under section 143(1)

Mostly a good news! The most common form of intimation is under section 143(1). But at this stage it may be just an intimation, and you don’t need to take any action. Sometimes it states that your return has been successfully processed. The income tax department validates each tax return with its own record and this notice usually only points out apparent mistakes found out by the system. This intimation has two columns ‘As provided by taxpayer in the Return of Income’ and ‘As computed under section 143(1)’. You can run through each of these amounts and find out where the discrepancy is. It could be that a certain TDS has been disallowed or there is a mismatch in self-assessment tax payments, a rounding off error. A final tax due or refundable is computed.

Notice Under section 143(2)

A notice can also be issued if you fail to file your return within the prescribed time.

General notice for verification

A general notice for verification is issued to check transactions. For example, a taxpayer may receive a notice of cash deposit or initial public offer (IPO) subscription. Such notices typically require you to only confirm whether you have filed your return and if this transaction was included. This notice should not be construed as a scrutiny notice.

Notice is about assessment or reassessment

If the notice is about assessment or reassessment, it indicates that the taxpayer’s case has been selected for detailed scrutiny. It will generally be accompanied by a questionnaire seeking information.

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