The 5th Season

Some Manickam, who I barely remember, is very much concerned about my life style, my savings, my future and my family. He sent me a mail to think about the adversaries in life and plan properly considering what will happen to my family when I am not around – to be precise, dead.

Later that day, got a call from my bank’s wealth manager, whom I was not aware till that moment, said he will advise me free on financial products considering my net worth. The hoarding near Tambaram, that used to hold Chennai Silks, is now showing Sundaram Tax Saver.

Well, Tax Season has arrived!

It’s time to find various avenues, ways and methods to cut down on tax - the inevitable evil, unavoidable expense, a worthless charity. In my previous blog, I was talking to you on why we need to pay tax. Considering that, is it not good to pay as much tax as warranted, as that is good for the country? Well, yes and no.

This article will talk about legal ways to cut down on tax, as per the government prescription and not any means of tax avoidance. Tax benefits or rebates are for a purpose, like the one on insurance which I described in another blog. Moreover, in a country where there is no accountability or transparency on the book keeping of tax payer’s money, which often finds way into the pockets of politicians or government authorities and their kith and kin, let us at least try to reduce the resulting frustration. Yes, I am talking about tax and methods to reduce it in my homeland – India.

Income

Income Tax is slashed on income – obvious. What is considered as income? Any money that finds you

• as a wage for your services – salary
• as a profit you made on your investments – sale of equity/property
• as interest earned on your bank accounts/deposits/bonds
• as rent/lease amount for your property
• as wins in lottery, gambling or lucky draw
• as monetary gifts and any other unclassified income.
• as a profit from business or profession
• as a Pension

So a sum of all the above, applicable to you, are taxable. I am restricting this article to the savings on income tax for a salaried professional as that is what I know better. :-)

Exemptions

When it comes to business, only the profit is taxed. So, what about salaried tax payers? To be fair with the salaried class, the government makes sure that some of the income is exempted from tax as this would be used against certain mandatory expenses. The net taxable income is arrived at by subtracting the exemptions from the total gross income.

Let’s list down some of the expenses that we incur and see whether they are exempted

First, the very basic - food, shelter and clothing

Food Yes, exempted up to Rs. 100 per day with a ceiling of Rs.2500 per month. Proof of bills necessary, if not paid through food coupons or food cards.

Clothing Unfortunately, no exemptions

Housing Yes, minimum of the following, if staying in a rental house. · Actual HRA received · 50% of Basic (if you live in a metro city, else 40%) · Rent paid over and above 10% of Basic

Besides these basics, there are other mandatory expenses that are exempted as given below.

Office commute	Exempted up to Rs. 9600 p.a.
Educating kids	Up to a maximum of Rs. 100 per kid per month. Proof of bills necessary.
Medical expenses	Up to a maximum of Rs. 15000 per year. Proof of bills necessary.
Tour expenses	The rules are a bit tricky. Only travel cost is exempted and applicable for 2 travel/tours performed in a block of 4 years.

For all of the above, there should be an appropriate allowance towards them for those expenses become eligible for tax exemption.

Besides the above expenses, amount paid as professional tax is also exempted as taxing that amount would be a ‘tax on tax.’

There is also a specific benefit for people who had bought a house with the help of a housing loan. The interest payment towards the loan is exempted to specific limits depending upon the use of the house purchased as given below.

• If the house is purchased for own use, then up to a maximum of 1.5 lakhs out of the interest paid is exempted from tax.
• If the house is purchased for letting out on rent, then the interest is treated much like a business expense – the whole interest amount is exempted as rental income would have been considered as income and added to other incomes to arrive at the gross total income.

Tips Always keep all the receipts/bills for expenses incurred. You may find that the expense is exempted at a later date! Understand your company allowance structure and align it to your expense pattern so that maximum exemptions can be availed Interest on housing loan is treated similar to a business income – you bought a property on loan and the property yields revenue, say rental income, against which the housing loan interest is set off as an expense. If you are occupying the house and there is no rental income, then the interest is a loss for you and hence the income from property is considered negative, which is set off against your gross total income. If you are not occupying the house, as you work from a different place, then for tax purposes, it is treated as a self-occupied house. In all other cases, it will be considered as a property that has a notional yield, which is the annual letable value as fixed by the local body and that will be taxed. However in this case, the interest on housing loan is completely exempted without the Rs. 1.5 lakh ceiling!

Deductions

Once the exemptions are applied to arrive at the total taxable income, further deductions are provided to reduce the tax burden. Most of the time, income tax deductions are synonymous with section 80C. However there are other sections as well. We will start with 80C.

ELSS

The best avenue to invest, avail tax benefits and reap profits as well, is Equity Linked Tax Saving Scheme (ELSS). This provides returns from the markets which normally are higher enough to beat the inflation, if timed appropriately and also provides tax benefits on amount invested and the profits made on its sale. However there is always a lock-in period of a minimum of 3 years on this scheme, which is actually good as equities normally need hibernate longer to produce significant benefits.

State sponsored schemes

National Pension Scheme (NPS) is a recent addition but a worthy investment avenue for those golden years. The significance of PPF cannot be stressed much. NSC is a known and long trusted investment vehicle sold by the humble post office that provides steady and guaranteed returns.

Insurance

Insurance premium that is paid towards life and pension insurance schemes – pure risk, endowment, money back, ULIPs etc. is another eligible deduction, though one has to bear in mind that this is only an additional benefit on insurance and insurance as such, is neither an investment vehicle nor a tax saving avenue. ULIP is my least favorable financial instrument; leave alone the tax saving part. They just charge heavily and the benefits can be reaped only after a decade!

Housing Loan Repayment and other benefits

If you have a housing loan on the house you bought, then the interest component is exempted from tax as detailed in the exemptions section. The principal amount repaid is a deductible under section 80C. Besides the loan related deduction, the stamp duty and registration charges are also eligible for deductions.

Besides the above investments and insurance costs, expenses such as tuition fees for your kids are also eligible deductions. Below is the list of all the eligible deductions under Section 80C.

· Life Insurance premium	· Senior Citizens savings plans
· National Pension scheme contributions	· Principal repayment towards Housing Loan
· ULIPs	· House purchase/repair charges - stamp duty, registration fee and other expenses for the purpose of transfer of such house property
· Mutual Find ELSS
· PPF
· NSC	· Post office Time deposit
· Tax Saving Fixed deposits from any nationalized bank	· Superannuation schemes
	· Tuition fees

Tips The maximum deductible amount is Rs. 100,000 under 80C, which means the total of all the above even if it exceeds Rs. 1 lakh, the allowed deduction is only for Rs. 1 lakh. This is an important limitation as PF amount deducted from your salary is considered under 80C already. If there are any superannuation schemes provided by the employer then that too would be considered under this. Hence first do your math before nodding yes to that insurance agent who claims you can save up to Rs. 1 lakh by insuring through his scheme.

Apart from 80C, there are still more deductions available under other sections pertaining to various other investments and expenses. They are explained below.

Recently added is 80CCF which exempts investments in Infrastructure bonds up until Rs. 20,000. Medical Insurance premium is another obvious one. To be more kind to its population, expenses towards managing disability of a disabled tax payer and his dependents are also exempted from tax. Literate population aid to economy growth and hence repayment of loans towards higher education is exempted. To encourage philanthropy, any contribution towards notified charitable institutions is classified as a deductible. Finally, a funny one, but may aid heart burn of serious tax payers. Contribution towards political parties is exempted from tax without any ceiling on the maximum amount. Besides looting the tax payer money, this helps politicians to evade tax as well.

The below table summarizes the deductions under various sections apart from 80C.

Money Outgo	Ceiling	Income Tax section
Infrastructure bonds	Rs. 20,000	80CCF
Premium paid towards Medical Insurance	Rs. 15,000	80D
Expenses incurred towards maintaining and medical treatment of a disabled dependent	Rs. 50,000. For a disability of more than 80%, Rs. 75,000	80DD
Expenses incurred towards medical treatment for you or your dependent for specific diseases quoted here	Rs. 40,000. For senior citizens, Rs. 60,000	80DDB
Repayment of Loan towards higher education	Interest amount for a period of 8 years	80E
Donations towards charity	50% or 100% as per the charity institution	80G
Contribution made to any political party	100% (no surprises J)	80GGC
Disabled person	Rs. 50,000. For a disability of more than 80%, Rs. 1,00,000	80U

Finally

Is that all? Besides all of these, the government is kind enough to make sure that a minimum amount is parked towards essential expenses. This is the lower limit beyond which taxation kicks in. Currently, this is Rs. 160,000 for a male tax payer. So the government thinks an Indian citizen can make a decent living with around Rs. 13K per month!

Well, now we have seen where we can cut tax and how. Now what are you waiting for? Go ahead, plan for your tax cuts at least for the next year, if it is too late for the current.

Wanna glance thru all the newspaper headlines in the morning?
Wanna check for new mails from all your mail ids? But hardly have any time left before you leave for work !
Why not configure your igoogle home page?
It is simple and easy.. Here are the steps..

• Login to http://www.google.co.uk/ig and sign in with your Gmail id.
• In the top right corner, you will find "Add Stuff". Click on it and there are cool iGoogle gadgets readily available for you to add. Some useful ones are Date and Time, World Clocks, Weather etc..

• Apart from these, you can add websites using their RSS feeds. To do it, 

• Go to "Add Stuff"
• In the left corner, you will find "Add feed or gadget", If you click that, it will ask for the URL
• You have to provide the RSS feed link here and not the website address. 
• RSS feed will be available for all standard websites. For example, in Dinamalar, the RSS feed is available in the top right corner. For the first page, the below is the RSS feed
  http://feeds.feedburner.com/dinamalar/Front_page_news
• Once you add this , the front page will have your dinamalar headlines for you to glance thru..
  
• Similarly you can add feeds for other websites.

Start your day with iGoogle and be up to date.. !!

For working mums ...

The words "Problems" and "Parenting" always go hand in hand. The problems get doubled if the mother happens to be a "working  mum". Parenting poses a great challenge to women in managing work life balance.

The primary striking issue is to have someone at home to take care of the child until the child grows up to a certain age. Women in joint family is somewhat relieved of this tension.Somehow, this has to be handled and this article is not intended for that. We would be discussing about other issues that come along as added bonus as the child starts growing.

• Time spent with the child
  All children yearn for their parents', especially mother's caring and special attention. But based on the type of work/job, mothers are hardly able to spend time with the child. The by product of this is that they develop so called "guilty feeling" , which impacts their work and personal life. They should understand that it is not the quantity of time spent but the "quality time" that matters for a child. 
• What is quality time? The time that you are completely with the child , both mentally and physically. How?
• Forget about your work when you remove your footwear while entering the house. 
• Spend your first 15 minutes only with the child. Depending on their age, either play with them or talk about their school day . By this , you send a clear message of caring to your child.
• Involve your child in your household work, wherever possible. All you need is to motivate them for all the little things that they do.
• Plan your weekends and holidays properly. Do not end up in only cleaning and doing other household chores. Plan the work such that you spare at least half a day with the child.. play with them , go for an outing or anything that interests your child. 
• Disciplinary issues : Learn to say "no" to your child
• Generally, if both parents work, their financial status is expected to be at a high level. How does it impact your child's behavior?
• Do not allow your child to exploit this and buy them whatever they ask for. Children should learn to accept "no". 
• If you are going home late due to work pressure, do not cover up by buying them something. Instead, explain them and make them understand your work situation. 
• Do not accept any mis behaviors just because you have to be nice with them in the less time that you are with the child. I have seen this with many parents.. This is again due to the "guilty feeling". 
• Inculcate Responsibility
• Make your child responsible for their things like their toys, their books etc at a very early stage. How?
• If possible, provide a separate room for the child. He/she should be taking care of whatever is there in the room. 
• Do not hunt for their things. Children should know to keep their things in place. If not, they should end up searching on their own. They will gradually develop the discipline of keeping things in place..
• Tidying up their toys/craft work. Ask your child to tidy up the toys as soon as they complete playing or completing any craft work.
• Getting ready for school : Let the children pack their school bags and check for their uniforms. If they fail to do, allow them to face the consequences for a day /two , which will automatically  correct them.

Practice these small tips , which can work wonders in your child's behavior. Best of luck ! 

On Taxation and Tax Payer Responsibilities

A country is similar to a home or a family when it comes to money.

Family and Money

Any family has an income and there are expenses to meet. Expenses could be against the 3 very basic needs of every human being - food, clothing and shelter, besides other needs like entertainment, consumables, health, hygiene etc. A family has to spend mandatorily on these essential needs to survive and lead a decent life. Cutting out the expenses from income results in surplus/debt, depending upon which one is higher.

Country and Money

Any country has its own needs to satisfy, like creating and maintaining public infrastructure, taking care of its subject's health and hygiene, providing education, managing natural resources, regulating energy creation and distribution, maintaining law and order, regulating financial instruments to prevent fraud, ensuring safety, security and sovereignty of the nation and finally to nurture the governance engine that manages all these. A country has to mandatorily spend on these essential needs to stay as a respectable country in the face of the world. Cutting out the expenses from income results in surplus/debt, depending upon which one is higher.

Income of a country

Income for a family is earned through either manual work that creates a product or provides a service. Where does the income for the country come from? Is it by taxing its subjects? Predominantly, yes. But a country's economy cannot grow just by just taxing its subjects. There are other means to do it, similar to the way a family earns, by providing products/services to other countries, which can be done by private corporations or state owned enterprises. Products could be the export of industrial/agricultural produce or natural resources like minerals, fossil fuel, coal etc. Services could vary from building an oil well in the gulf to help setting up an academic institution in Korea. Though I am tempted to write all I know on this, I am refraining to do so, in the interest of the reader. ;-)

Tax as an income for a country

So why a country has to earn through taxing its people? Consider, a small group of people living without any government, like ancient civilizations. This community will have some common needs like security, drainage, canals for irrigation etc. These needs cannot be met for and by each and every individual on his own. So they need to get this done by the community as a whole by equally sharing the cost/work. The needs of the country stated above are services that citizens provide to themselves much like this community. However the community can set up a body which will use the surplus of the common money to grow in various ways. Also the community can sell the resources of their land to another community and make money. When a country has very low income from sources other than tax, then the tax rate is higher or the services are of low quality. Hence if the non-tax income tends to zero, then all the services provided by a country to its citizens are taxed, which is actually eating into one's own wealth - a state of decline. In the colonial era, colonies were used to extract wealth for a colonial power and hence the dependence on tax for such countries were less - e.g., the UK. But in the current world, such a country has to find various other avenues and means to develop income outside the tax to keep its subjects happy, by charging them less tax. But tax is inevitable.

What are the various taxes on a citizen?

Do you know the various ways a citizen is taxed? The obvious and the major one is income tax. Apart from that, each and every product or service we buy, from soap to a computer or eating in a restaurant to using the internet, is taxed. Not only this, there is also a road tax, a wealth tax, a property tax, a water tax and so on. This is as per the conditions in India, though it may not vary much across the world. Also, most of the countries siphon out a large piece of the cost of fossil fuels as tax.

Use of Tax payer's money and Tax payer's responsibility

Where do all these money go? It seems to be a hefty sum. So it is. All this money is spent against the above mentioned services a country provides, besides developmental projects and helping the poor and downtrodden. A country that efficiently uses tax payers money certainly prospers, like Singapore. It's also each and every tax payer's responsibility to make sure that the money is spent in the right way. You have the right to question an expenditure by the government through appropriate legal procedures. Right to Information (RTI) act is a catalyst in that process. In most of the democratic countries, besides the legal procedures other peaceful means to stop waste of tax payers money is allowed. So, what are you waiting for? Go ahead and question the authorities for your rights. If there are no proper roads or lighting in your area and if you pay all your taxes promptly go ahead and question the authorities.