Effect of Union Budget 2021 on High-Income Individuals

The Budget 2021 did not make any changes to personal tax income tax rates. This is certainly a relief and benefit to high income earners and taxpayers, who were so far worried whether they will have to deal with even more cess and surcharges related to the Covid-19.

Interest of PF or Provident Fund has been so far thought to be a reliable and tax-free way of income for those who are salaried. From 1st April 2021, the exemption on Provident Fund interest on contributions of employees towards the PF shall be limited as far as the said contributions are noted to be more than Rs, 250000 in average in a year.

Last year’s budget already gave a cap on non-taxable PF contributions from employers till Rs. 7.5 lakhs, and even gave the provision that interest from such contributions if exceed that amount shall be taxable. The current proposal says that interest on contributions made by employees beyond the annual average of Rs. 2.5 lakhs shall be taxable too. Thus, employees shall have to pay attention to the tax implications of PF contributions.

Another area in which taxation implications can come up is when investments to ULIPs, or Unit Linked Insurance Policies. Right now, there is an exemption for amounts received from a life insurance policy as long as the annual premium is not more than 10% of the actual sum assured.

However, one won’t get this exemption for ULIPs issued on or later than 1st February, 2021 if the average premium amount for any year is more than Rs. 2,50,000. In these cases, the ULIPs shall be seen or treated on par of equity funds, which means their maturity proceeds shall be taxable.

However, taxpayers shall be relieved to know that there are benefits when buying a residential property in those cases in which the agreement value depends on stamp duty value. To boost demand for properties, the safe harbor threshold is now 20% from the previous 10%.

Thus, if you buy a residential property, you will not have to worry about tax as long as the stamp duty value is not more than 120% of the value of agreement.

One should remember that:

• The agreement should not be more than Rs. 2 crores
• The transfer takes place between 12th November 2020 and 30th June 2021
• This transfer is from the first allotment of the residential property

Income Tax - Why Do We Pay Income Tax?

Have you been contemplating why you need to pay income tax even though you are already contributing by paying service taxes, excise duty, VAT, toll, entertainment tax, and other forms of tax whenever you buy goods, fuel, food or even use public facilities such as transport and roads? Do you feel frustrated with the amount of money that you pay as an income tax? Your frustrations might be unjustified.

Taxes, especially income tax, are essential tools of revenue generation for the country. mymoneykarma explains in detail the intricacies of income tax and its importance.

What are Taxes?

Any tax is a financial obligation for individuals or property owners in order to support a government or legislative authority. In simple words, a tax is the money that people have to pay to the government, which, in turn, is used to provide public services.

There are two broad categories of taxes.

• Direct Taxes
• Indirect taxes
  

What are Direct Taxes?

A direct tax is a kind of fee that is imposed directly on the taxpayer and paid directly to the government. A direct tax is a tax that cannot be passed on by the taxpayer to someone else, i.e., each person must pay whatever tax he/she owes. A significant direct tax imposed in India is income tax. Wealth tax and property tax also fall in the purview of this category.

What are Indirect Taxes?

These taxes are transferable from one person to another. The entire burden of the tax is on the ultimate consumer, but the immediate liability to pay tax is on the supplier of goods or services.

Indirect taxes are levied on goods or services but not on income or property. Service tax and GST are indirect taxes.

What Is Income Tax?

An income tax is a tax imposed by the governments on income generated by businesses and individuals within the government’s jurisdiction. Taxpayers are legally mandated to file an income tax return annually to determine their tax obligations. Income taxes are sources of revenue generation for governments across the world. The government uses income taxes to generate revenue for public services, finance government obligations, and provide for the country’s citizens.

Why Do We Pay Income Taxes?

1. To avoid a penalty: Paying your taxes is considered a civic duty, although doing so is also a requirement of the law. The income tax department requires you to pay your taxes. If you do not pay your taxes, you would have to face penalties such as fines or even imprisonment.
   
   
2. To avoid paying back taxes: The governments keep track of your income tax submissions each year. The amount of unpaid taxes accumulate over the years into a substantial sum that can get very difficult to pay at once. Hence, it's better to avoid any due tax.
   
   
3. Social welfare packages: The income tax collected from you is to fund social welfare packages that are essential for the needy. The government has used proceeds from income taxes to build health services and other institutions over the years. Social welfare packages are a must for the social development of a country, and without taxes, it wouldn’t be possible to render such services.
   

Importance of Tax-Filing

File your income tax returns is as crucial as it is to pay your income tax. Income tax returns are necessary documentation that you need in every walk of life. They are proof of the fact that you pay your income tax regularly.  Apart from this, it is also essential for the following purposes:

• Income proof: You can use your income tax return receipts as your income proof if you don't have your salary slips handy. For self-employed people, it is the only form of income proof available.
• Loans: Most loans such as home loans and two-wheeler loans require Form 16 receipts as a part of their documentation.
• Visa processing: Most embassies require copies of income-tax returns as your income proof when you apply for a visa to go abroad for various reasons.
• Insurance cover: Many high-end medical and life insurance covers need a copy of your Form 16 for processing your request.

How to Save Income Tax - Ways To Reduce Income Tax India

As July knocks on your door every year, so does the need to file your tax returns. Pull up your sleeves and file your ITR asap! The stress doesn't end with filing for tax returns but extensively involves you to find means to reduce income tax. So while you’re at it, why don’t you figure out some better ways to save income tax?

mymoneykarma is here for you. Whether you’re a veteran taxpayer or a newbie - you need to plan your investments correctly to reduce income tax. The income tax laws may appear intimidating but behold and read more to unveil 25 amazing ways to save more.

Little efforts and voila! Let's look at the ways to reduce income tax that can help you save a chunk of your salary to tick off the next thing from your checklist.

1. Tuition Fees

Income Tax laws provide the opportunity to compensate for the expenses you incur on your kid's tuition fees by including them while filing ITR. You can claim this deduction through section 80C of the Income Tax Act and reduce income tax.

2. Deduction on Rent Paid (apart from HRA)

As per the provisions mentioned in section 80GG of the IT Act, you can still get a tax benefit and need not be flustered if you don’t get HRA in your salary. You can claim a deduction of up to Rs.5000 a month under this clause.

3. Repayment of Home Loan

Did you know that your home loan can help you save income tax?

Fascinating, right? You can get tax benefits on both principal and interest components of your home loan installments. You can claim these deductions under section 80C, section 24, and section 80EE of the IT Act.

4. Repayment of Education Loan

Most youngsters resort to education loan to curb the rising costs of educational courses. Such deductions are also available on your education loan EMIs and can help you save a lot. All these deductions are available under section 80E to provide you a tax benefit for interest paid on education loan.

5. Pension Funds

Did you know that your retirement plan can also save you from the burden of income tax?

One of the best ways to secure your life after retirement is to start investing in pension funds. And investing in pension funds helps you to reduce income taxes. You can enjoy such tax benefits under section 80C / 80CCC / 80CCD(1) / 80CCD(1B) / 80CCD(2).

6. Health Check-up & Medical Insurance

Health is wealth!

It is genuinely applicable when you are hunting for means to save income tax. Jokes apart - according to the income tax laws, these expenses can help you get a deduction of up to Rs 60,000 under section 80D of the Income Tax Act if the necessary documents are provided.

Now let’s move on to some lesser known tax -saving hacks.

7. Medical Expenses of Disabled Dependent

If you have a dependent person in your family who is suffering from a disability, then the IT laws let you avail tax benefit under section 80DD. This deduction is meant to help you take care of your disabled family member who is dependent on you, and it can also help you save up to Rs 1,25,000 from your taxable income.

8. Medical Expenses of a Disabled Individual

Similar to deductions under section 80DD, individuals who are suffering from a disability also get to avail tax benefit under section 80U. These provisions help you save up to Rs 1,25,000 from your taxable income and reduce income tax.

9. Treatment for Specified Diseases

Specific diseases or ailments, like HIV-AIDS or cancer, also let you avail tax benefit under section 80DDB based on expenses incurred.

10. Charitable Donations

If you willingly want to help the people in need, then there is another reason to rejoice. While donating, you not only get to achieve your inner peace but also get to save income tax. Several types of donations are entirely exempted under Sec 80G of the Income Tax Act. However, there is an upper limit on cash donations and capped at 10% of the gross total income.

11. Donations for Scientific Research or Rural Development

Any contribution that you make for any scientific research or rural development is also eligible for deduction under section 80GGA.

Now, let's delve into some of the best and most popular tax-saving investments under 80C.

12. EPF

Most employers open an EPF account for you, which means that you are already contributing to your provident fund. Hence, the contribution that you make to your EPF can be claimed as a deduction under section 80C to save income tax.

Those who do not have EPF deductions or those who wish to invest more than the customary EPF deductions may choose to open a voluntary provident fund account (VPF). You can voluntarily invest more (up to 100% of your basic salary + DA). VPF earns you a tax-free interest at 8.4%, and this can help you save a significant amount.

13. PPF

Other than PF, another option is to invest in public provident fund or PPF. Just like PF, you can get a tax deduction on your contributions while the resulting interest income & maturity amount stay exempted from tax.

14. Sukanya Samriddhi Scheme

This scheme is only available for parents or guardians of a girl child and is one of the best tax saving investment options and that help you to save considerably.

15. NPS

NPS or National Pension Scheme is a saving scheme offered by the postal department. It is considered to be a saving scheme with zero risks and is also eligible for 80C deduction.

16. FDs and ELSS

Bank FDs that have a lock-in period of 5 years and certain Mutual Fund SIPs that have a 3-years lock-in period are eligible for income tax deduction under section 80C.

17. Post Office Deposit Account

You can also open five years fixed deposits with any branch of Indian Post Office, and it would work like any other fixed deposit account. But, there's a catch - this deposit account will have a lock-in period of five years, and it offers double the benefit of return on investment. A sure shot way to save income tax and grow your money.

Salaried individuals get access to these additional tax benefits:

18. HRA Deduction for Rent Paid

You can claim the HRA allowance in your salary as a tax deduction if you live in a rented apartment.

19. LTA Deduction for Travel Expenses

LTA can fetch you additional tax benefits. The LTA concession can be claimed for two journeys in a tenure of 4 years, and this can be claimed as a deduction.

20. Tax Benefit on Gratuity

Gratuity received on retirement or termination or on becoming incapacitated or any amount received by the widow of the deceased employee, children or dependents is tax-exempt up to Rs 10,00,000. But, this is subject to various clauses.

21. Meal Coupons

Various employers provide meal coupons like Sodexo or Food cards to their employees.  These aren’t taxable up to Rs 2,600 a month, which helps you save income tax.

22. Medical Bills and Daily Travel Allowance

A Standard Deduction of Rs 40,000 has replaced the erstwhile conveyance allowance & medical reimbursement, and the change in the law has been applicable since FY 2018-19.

23. Car Leased by Employer

Several employers offer car purchase or services to their employees, which can help them save tax and money on several fronts.  However, those who avail of this facility cannot take the benefit of daily travel allowance.

24. Internet or Phone Expenses

Expenses incurred in using the phone and internet devices provided by the employer can be included while filing ITR and can be claimed to reduce income tax.

25. Salary Restructuring

While switching jobs, it is always a great idea to restructure your salary to maximize the take-home pay and minimize the tax outgo. 

5 Reasons to File ITR - How to e-file ITR?

An income tax return is a form through which taxpayers declare their income, deductions, and tax payments. The total income tax that you have to pay to the government is calculated during the ITR filing. If you have paid more income tax than required in a particular financial year, the IT department will refund the extra amount to your bank account. In case you have paid a lesser amount of tax, then you should pay the remaining amount before filing your income tax returns for that year. The income tax return form ranges from ITR 1 to ITR 7 for different slabs of income.

How to e-file ITR?

• Filing an income tax return is mandatory for Indians if one’s total income exceeds Rs 2.5 lakh. Even if you don't fall under the taxable income range, it's beneficial to file an income tax return. Wondering why? We will discuss that in the next section.
• You can submit your income tax returns online, either through the income tax portal or through our mmk e-filing tool. E-filing has made the ITR process exceptionally fast and immensely convenient.
• After filing your tax return online, a 15-digit acknowledgment number will be displayed on the portal's screen, confirming your submission. At this stage, you must verify your tax return, which you can do through your net banking account.
• Please note that the due date to e-file your income tax returns is on or before July 31 every year, until the government decides otherwise.
• Benefits of Filing ITR

Filing ITR entails a plethora of benefits. Here are a few of them:

Processing of Visa – If you are planning to travel abroad in the future, then take this heads-up – the issuing authorities will ask you to submit your income tax filing proof for at least two to three years to the embassy/consulate of the respective country.

Processing of Loan – Irrespective of the loan type, the bank will ask you to provide records of tax returns for the past few years to determine your financial stance. Submitting of your tax returns can get you quick loan approval.

Carry Forward Your Losses – According to the laws of the income tax department, you can carry forward previous losses (depreciation in house property, loss in the share market, etc.) to offset any future revenue for up to eight years consecutively. So, even if the revenue that you have earned in the next financial year has fallen into the taxable income bracket, you can adjust your previous losses against that income by filing an ITR on time.

Refund of Taxes – Employers deduct TDS on the income of employees. If you, as an employee, has made investments that are tax-deductible, it inevitably reduces your tax liability. If your employer has deducted more TDS than you owe, you can file an income tax return and easily retrieve the amount deducted in excess. This refund can also be claimed for TDS deducted through any other sources. In case you don’t come under the income tax bracket, filing ITR will lead you to pay zero tax. However, it will help you in generating an ITR record that is instrumental in availing loans, certain insurances, and a few types of visas.

Save Penalties – Being in the tax bracket, if you fail to file your returns on time, then you might be penalized with a massive amount and also pay interest on the pending dues under section 234A.

Ways To Reduce Income Tax India - How to Reduce Income Tax

 mymoneykarma is here for you. Whether you’re a veteran taxpayer or a newbie - you need to plan your investments correctly to reduce income tax. The income tax laws may appear intimidating but behold and read more to unveil 25 amazing ways to save more.

Little efforts and voila! Let's look at the ways to reduce income tax that can help you save a chunk of your salary to tick off the next thing from your checklist.

1. Tuition Fees

Income Tax laws provide the opportunity to compensate for the expenses you incur on your kid's tuition fees by including them while filing ITR. You can claim this deduction through section 80C of the Income Tax Act and reduce income tax.

2. Deduction on Rent Paid (apart from HRA)

As per the provisions mentioned in section 80GG of the IT Act, you can still get a tax benefit and need not be flustered if you don’t get HRA in your salary. You can claim a deduction of up to Rs.5000 a month under this clause.

3. Repayment of Home Loan

Did you know that your home loan can help you save income tax?

Fascinating, right? You can get tax benefits on both principal and interest components of your home loan installments. You can claim these deductions under section 80C, section 24, and section 80EE of the IT Act.

4. Repayment of Education Loan

Most youngsters resort to education loan to curb the rising costs of educational courses. Such deductions are also available on your education loan EMIs and can help you save a lot. All these deductions are available under section 80E to provide you a tax benefit for interest paid on education loan.

5. Pension Funds

Did you know that your retirement plan can also save you from the burden of income tax?

One of the best ways to secure your life after retirement is to start investing in pension funds. And investing in pension funds helps you to reduce income taxes. You can enjoy such tax benefits under section 80C / 80CCC / 80CCD(1) / 80CCD(1B) / 80CCD(2).

6. Health Check-up & Medical Insurance

Health is wealth!

It is genuinely applicable when you are hunting for means to save income tax. Jokes apart - according to the income tax laws, these expenses can help you get a deduction of up to Rs 60,000 under section 80D of the Income Tax Act if the necessary documents are provided.

Now let’s move on to some lesser known tax -saving hacks.

7. Medical Expenses of Disabled Dependent

If you have a dependent person in your family who is suffering from a disability, then the IT laws let you avail tax benefit under section 80DD. This deduction is meant to help you take care of your disabled family member who is dependent on you, and it can also help you save up to Rs 1,25,000 from your taxable income.

8. Medical Expenses of a Disabled Individual

Similar to deductions under section 80DD, individuals who are suffering from a disability also get to avail tax benefit under section 80U. These provisions help you save up to Rs 1,25,000 from your taxable income and reduce income tax.

9. Treatment for Specified Diseases

Specific diseases or ailments, like HIV-AIDS or cancer, also let you avail tax benefit under section 80DDB based on expenses incurred.

10. Charitable Donations

If you willingly want to help the people in need, then there is another reason to rejoice. While donating, you not only get to achieve your inner peace but also get to save income tax. Several types of donations are entirely exempted under Sec 80G of the Income Tax Act. However, there is an upper limit on cash donations and capped at 10% of the gross total income.

11. Donations for Scientific Research or Rural Development

Any contribution that you make for any scientific research or rural development is also eligible for deduction under section 80GGA.

Now, let's delve into some of the best and most popular tax-saving investments under 80C.

12. EPF

Most employers open an EPF account for you, which means that you are already contributing to your provident fund. Hence, the contribution that you make to your EPF can be claimed as a deduction under section 80C to save income tax.

Those who do not have EPF deductions or those who wish to invest more than the customary EPF deductions may choose to open a voluntary provident fund account (VPF). You can voluntarily invest more (up to 100% of your basic salary + DA). VPF earns you a tax-free interest at 8.4%, and this can help you save a significant amount.

13. PPF

Other than PF, another option is to invest in public provident fund or PPF. Just like PF, you can get a tax deduction on your contributions while the resulting interest income & maturity amount stay exempted from tax.

14. Sukanya Samriddhi Scheme

This scheme is only available for parents or guardians of a girl child and is one of the best tax saving investment options and that help you to save considerably.

15. NPS

NPS or National Pension Scheme is a saving scheme offered by the postal department. It is considered to be a saving scheme with zero risks and is also eligible for 80C deduction.

16. FDs and ELSS

Bank FDs that have a lock-in period of 5 years and certain Mutual Fund SIPs that have a 3-years lock-in period are eligible for income tax deduction under section 80C.

17. Post Office Deposit Account

You can also open five years fixed deposits with any branch of Indian Post Office, and it would work like any other fixed deposit account. But, there's a catch - this deposit account will have a lock-in period of five years, and it offers double the benefit of return on investment. A sure shot way to save income tax and grow your money.

Salaried individuals get access to these additional tax benefits:

18. HRA Deduction for Rent Paid

You can claim the HRA allowance in your salary as a tax deduction if you live in a rented apartment.

19. LTA Deduction for Travel Expenses

LTA can fetch you additional tax benefits. The LTA concession can be claimed for two journeys in a tenure of 4 years, and this can be claimed as a deduction.

20. Tax Benefit on Gratuity

Gratuity received on retirement or termination or on becoming incapacitated or any amount received by the widow of the deceased employee, children or dependents is tax-exempt up to Rs 10,00,000. But, this is subject to various clauses.

21. Meal Coupons

Various employers provide meal coupons like Sodexo or Food cards to their employees.  These aren’t taxable up to Rs 2,600 a month, which helps you save income tax.

22. Medical Bills and Daily Travel Allowance

A Standard Deduction of Rs 40,000 has replaced the erstwhile conveyance allowance & medical reimbursement, and the change in the law has been applicable since FY 2018-19.

23. Car Leased by Employer

Several employers offer car purchase or services to their employees, which can help them save tax and money on several fronts.  However, those who avail of this facility cannot take the benefit of daily travel allowance.

24. Internet or Phone Expenses

Expenses incurred in using the phone and internet devices provided by the employer can be included while filing ITR and can be claimed to reduce income tax.

25. Salary Restructuring

While switching jobs, it is always a great idea to restructure your salary to maximize the take-home pay and minimize the tax outgo.