Wednesday, June 15, 2016

Income tax: Know your taxes and exemptions

CHENNAI: The hardest thing in the world to understand is the income tax, is what Albert Einstein had famously said. Amid the long list of taxation categories, to assimilate what is taxable and what is exempted is hard. Even harder is to pay them, of course. As the June 15 deadline to pay the first tranche of advance I-T for 2017-18 nears, here’s a ready reckoner on all income that’s tax-free.

Investments

Dividend income from a company’s profits, or MFs and stocks is tax free for individuals. However, in the recent budget, the Finance Ministry slapped a 10% tax of gross amount of dividend exceeds Rs 10 lakh per annum. Interest earned on savings bank accounts, which pay 4-6% interest, up to Rs 10,000 is exempt from gross total income. So is maturity amount received from a life insurance policy, including bonus payment. Likewise, any payment received from a statutory provident fund and pension provident fund is completely exempted from tax.

Other income

If you have a partnership firm, any income from this is not taxable, provided the firm has been assessed. This is to avoid double taxation. Gifts from specified relatives is tax-free and has no upper limit, but if they aren’t related, the exemption limit cannot exceed Rs 50,000. All farm income including rent from or sale of farm land is tax-free.

From government

Income arising out of interest, premium on redemption or other payment on securities, bonds, annuity certificates, savings certificates and other instruments issued by the Central government is free of tax, awards, cash or kind, by the Central and state government aren’t taxable under the Indian laws. Also, money received as part of the Prime Minister’s National Relief Fund, students fund or foundation for communal harmony all are exempted from being taxed.

From employer

House rental allowance is tax-free if you are renting the property. However, if you own it, you have to cough up taxes. Leave travel allowance is also exempted, but the limit varies from person to person based on the income range. Besides, several other provisions like conveyance allowance, daily allowance, helper/assistance allowance, uniform allowance, and research allowance are all tax-free. Cash received as ‘leave encashment,’ during retirement is tax-free. For government staff there’s no limit, for private staff, the limit is Rs 3 lakh towards leave encashment. In case the company is winded down, compensation received by such staff comes under the tax-free income category.

Retirement income

Gratuity is tax-free subject to certain limitations depending on the income level and of course based on type of entity i.e, government or private. As for pension, it is exempted for all government employees. But for private salaried individuals, it is part exempted depending on the amount of gratuity that has been given tax-free. Also, if a company follows a government-prescribed VRS framework, payment received during the voluntary retirement up to Rs 5 lakh is exempted.

Source : http://www.newindianexpress.com

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