6 Infuriating Tax Queries Answered

Posted on October 6, 2015

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We are all usually surrounded by lot of questions related to investments, taxation, finance etc. In this article, we have handpicked 6 questions which are important and applicable to most of us.

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1. How are tax rebates calculated for payment and prepayment of a home loan?

Those who have availed a home loan usually have this typical problem in the initial years. The rebate under Section 80C is not available to the extent of amount repaid as principle repayment. Mr. Suresh (name changed) has started paying an EMI of Rs. 25,000 p.m. and thinks that his 80C is taken care because he is paying Rs. 3 Lakhs towards home loan. However, his principle repayment could be in the range of Rs. 30,000-40,000. Thus, balance 80C needs to be taken care.

Another example, out of the total 80C limit of Rs. 1.5 Lakhs, lets say your PF deduction already takes care of Rs. 48,000 and your insurance payments are around Rs. 30,000, then you are already good for Rs. 78,000 as far as tax saving is concerned. So from the rebate point of view, you may pay a lumpsum of Rs. 72,000 towards home loan prepayment. But if you are paying more than that you may not get tax benefits for the additional amount.

So, before you prepay your home loan, calculate whether the additional amount you intend to pay will fetch any tax benefits.

2. When do I need the help of a CA?

This query could be in everyone’s mind. A CA is someone perceived to be performing audits for corporates. However, there are CA firms who undertake tax consulting for individual tax payers too. Are his services necessary for individuals? Well, this depends from person to person. If you have decent knowledge about taxation matters and can take care of your ITR filing without requiring a second opinion, you can do without a CA.

However, those who are either less knowledgeable about taxation matters or less confident without a second opinion should avail the services of a CA for routine ITR filings and for other taxation queries.

Also, if you have a business which needs to be audited, then you would definitely require help of a CA.

3. What are the big tax breaks apart from 80C?

Apart from 80C, there are a few more tax breaks which might be worth taking a look at:

Section 80D: This section deals with premium paid towards health insurance. The limit has been enhanced from Rs. 15,000 to Rs. 25,000 and Rs. 30,000 p.a. for someone paying premium for senior citizen parents.

Section 80E: This section deals with the interest paid for educational loan. However, the loan has to be availed by the individual himself. For example, you cannot avail this benefit for payment of interest for loan availed by your children.

Section 80CCG: This section is mostly unknown to many because of its restrictions. This section allows you to invest up to Rs.50,000 in products eligible for RGESS (Rajiv Gandhi Equity Savings Scheme). When you invest Rs. 50,000 you get a deduction for Rs. 25,000 subject to fulfilment of 3 conditions:

1: Your annual income is less than Rs. 12 Lakhs

2: You have a demat account

3: You have not traded in equity markets before investing in RGESS.

Section 80DDB: This is towards the expenses made for a dependent’s treatment fo

r specified diseases. The maximum deduction available is Rs. 40,000 (and Rs. 60,000 if the patient is a senior citizen). If some amount of the expenses is reimbursed by medical insurance, it needs to be reduced.

Section 54EC: This is available if you have sold a property and have some capital gains. You can invest upto Rs. 50 Lakhs in one financial year to save tax on capital gains.

4. When I will be audited?

If you are a business person then you will be audited u/s 44AD if you meet any one of below conditions:

A] Your turnover for the FY is more than Rs. 1 crore

B] Your turnover is less than Rs. 1 crore but your profit is less than 8% of turnover.

If you are a professional (CA / Doctor / Lawyer) and your receipts are more than Rs. 25 Lakhs, then you will be audited.

5. When will I get previous years’ refund?

This is again a question that most people are worried about. Income tax department is in the process of streamlining the systems so that refunds are processed in not more than 120 days. However, there are few precautions that we need to take:

A] File your ITR on time. Delayed filing results in delayed refunds.

B] If you are not using digital signature, don’t forget to send the signed copy of ITR V within 120 days of filing.

C] Fill up your bank details with utmost care.

6. What’s the main difference between new ITR forms as compared to older ones?

  • Introduction of EVC (Electronic Verification Code) prevents sending hard copy ITRV
  • Super Senior citizen can file ITR in paper form
  • Detailed listing of all bank accounts held during the FY, details about your foreign travel, foreign assets, domestic assets etc. (ITR 2A for those having foreign assets).

P.S : The above article is written by Prof. Saurabh Bajaj and was first published on https://blog.bankbazaar.com/6-infuriating-tax-queries-answered/

Author: Prof. Saurabh Bajaj is CEO with Nidhi Investments, Mumbai. He has been actively involved in writing for investor awareness since last 5 years. His articles have a readership from 64 countries across the globe. He may be reached at saurabh@nidhiinvestments.com for any queries.

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