Do you know about Gift Tax?

Have you gifted money in relative’s bank account?

Although I am not much expert in tax matters but I can give you fair idea on this issue. In general, many tax payer gift to their relatives like parents, spouse and children to save the tax. It is not so simple as the people understand. Many people just transfer the money into their relative or friend’s account and assume that it will help them to save tax because they have gifted away that money and because their relative come under tax exemption limit income so they don’t have to pay any tax.

So today we will understand the tax implication if you transfer some amount to your relatives account. What is the tax implication on involving each party in this transaction? Let us assume you transfer Rs 2 lakh to your wife’s bank account and your income is Rs 15 lakh per annum. Your wife invests this Rs 2 lakh in a bank fix deposit at the rate of 9% and earn Rs 18,000 interest income in a financial year. There are 3 types of tax liability arise in this case.

Tax liability on husband or donor for the amount gifted:

In this case, husband can never claim any type of tax deduction or exemption on that gifted amount (Rs 2 lakh). You have to pay tax on your entire income Rs 15 lakh after deducting eligible available exemption or deduction section 80C etc. After paying tax, he can gift any amount to any relative.

Tax liability on wife or receiver for the amount received:

In this case the wife has no tax liability because she has received the gifted amount from her husband, who comes under specified list of relatives. She can receive any amount from these types of specified list of relatives and still will not be any tax liability. If she receive gifted amount from any other individuals that amount would be taxable on her hand.

Tax liability on income earned from invested gifted money:

In this case wife has earned interest income Rs 18,000 by investing gifted amount Re 2 lakh in bank FD. Although the interest income comes in wife’s account but in this case she has no tax liability and the same interest income clubbed with husband’s income and her husband pay the tax on her interest income.

The interesting point is that if she further invests this interest income Rs 18,000 in bank FD again and earns income on invested amount then she will be liable to pay tax on the interest income earned by investing Rs 18,000 in bank FD.

If you gift the money your parents name and major child then the income earned on that gifted amount will not be clubbed in your taxable income. There are lots of ways to save income tax by restructuring investments in relative’s names. In general, people do not have much time to plan all this and for years they pay higher income tax and never optimize it. You should consult from a good CA for these types of tax saving strategy.

If you have doubt about investment product and want more information regarding investment or you need investment services, feel free to ask us. We also conduct the seminar on investment and financial planning. If you are interested for conducting seminar in your city, just drop the mail.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Bank Fix Deposit: How much safe?

Bank Fix Deposit: How much safe…?

Whenever I met my investors and friends, I have seen a lust for fix deposit in all of them almost all time. Many times I have experienced that people do the fix deposit in banks with very confidence. In our country, people have high degree faith in banks. They consider it very much safe. In the view of safety, they may be right but there are also other important aspects associated with your investment which you ignore many times. I am not saying that you should agree with my views but at least try to understand what I want to say here. In this article we will discuss all aspects associated with bank fix deposit.

Safety: Till now you know or understand that all money deposited in banks are safe. Please update and correct yourself only amount Rs 1 lakh insured by the banks regardless whatever money you have deposited in banks. It means if you deposit Rs 10 lakh fix deposit in your banks and in case of any bad events occur with bank will be liable to pay only Rs 1 lakh.

Now you will argue that the bank will never bankrupt in India. Please remember 2008 events in US, even more than 100 years old banks had got bankrupt in that year so nothing is impossible in financial world.

Return: We Indian always much concern about safety not return. When we say return then your focus should be on net return after deducting tax and inflation effect. We many times ignore inflation and taxes and blindly do the fix deposit at the published rate by banks or corporate.

Here I take example of one of my friend for much understanding about net return. My friend Ashutosh has done fix deposit of 10 lakh with bank for 1 year at 9% return offered by the banks. My friend comes in 30% tax bracket. After 1 year when his fix deposit became mature he had got Rs 10.90 lakh. Now he has to pay 30% tax (ignore other taxes for calculation) on return so after deducting tax Rs 27,000 now the amount in his hand remain 10.63 lakh. After deducting tax his return was 6.3%. If inflation in that year average remains 8% then his net return become negative -1.7%. It is the real picture of your fix deposit whether you believe or not. Inflation is real culprit which eats your significant part of your return.

Goal: Always associate your each investment with a specific goal and make plan according to your near and long term plan. If your investment does not generate net positive return then it cannot fulfill your goal. Investment without planning ultimately will not give you a satisfaction and you will always confused about investment and will do some mistake during investment.

There are many other options available to fulfill your goal in the market. Keep in mind that at least your investment should generate positive return after considering tax and inflation.

If you want more information regarding investment or you need investment services, feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

Do you know about your HRA exemption.?.

How to get benefit of HRA in Tax Planning..?

For a salaried individual, HRA (House Rent Allowance) is important part of the salary slip. In our taxation rule, there are 3 type of tax deduction. First is the amount paid as a rent, the second is amount paid as principal amount of home loan and last is interest paid on home loan. Most of time, they don’t know how to calculate the exempted amount of HRA. For this they totally depend on their office accountant or friends. I am getting many friends and client call about HRA calculation. So today, I am going to discuss in detail about the HRA.

There are many doubts in the people’s mind about home loan and home rent exemption. I am taking one by one those doubts. The most common doubt that is HRA exemption applicable for both salaried individuals and self- employed. The answer is HRA benefit is not available to self-employed professional, as they don’t earn salary but they can claim benefits of house rent expenses according under section 80GG with subject to certain conditions.

The other most asked query is can anyone take both HRA and home loan benefit. The answer is yes. If you are paying rent, you can claim HRA benefit and if you are earning rent income from in the name of your property you can also claim the interest benefit. There is no direct connection between HRA and home loan tax benefit.

Some common situation faced by salaried person:

·         If the person live in own house then he cannot claim HR exemption. If he is paying home loan and paying EMI then he can claim tax benefit on principal mount and interest paid portion.

·         If the person has bought under construction property and staying in rented home in the same city then he can avail tax benefit of HRA and principal paid but cannot get benefit of interest till construction completed. Once construction complete, he can claim all interest paid during construction in 5 equal installment in the next 5 year from complete construction year.

·         If the person has bought home in other city and stayed in rent in the other city then he can claim HRA exemption and will get benefit of paying home loan of principal amount and interest paid.

·         If the person is paying home loan for home which is ready for occupation but not residing in it due to some reason like work place far away then he can claim tax exemption on HRA and tax benefit of home loan including principal and interest. You have to still pay tax on notional rent income even if your home remains vacant during the year. If you are getting rent then the rent income will add in income from other sources and taxable according to specific rule.

How to calculate the HRA exemption amount:

Lets take an example to understand how to calculate HRA exemption amount. Mr. A gets basic salary Rs 50,000 and HRA Rs 30,000 per month. He resides in mumbai and pays rent Rs 25,000 per month. Calculate the tax exemption amount of HRA?

There are 3 conditions and the least amount of these 3 is eligible for HRA exemption:

(A)  Actual HRA received: 30,000

(B)  50% of basic salary as he resides in metro city: 25,000 (For non-metro city it is 40% of basic salary)

(C) (Actual rent paid) - (10% of basic salary) it means (25,000- 10% of      50,000) = 25000-5000 = 20,000

According to the rule the least of the above 3 figure is eligible for tax exemption so exempted tax mount of HR is Rs 20,000 and taxable HR 30,000-20,000= 10,000.

You can pay rent to your parent and can still claim HRA exemption but in case of spouse you cannot claim HRA benefit.

One more important thing to remember, you have to submit the rent slip signed by owner as rent proof to your employer.

For more detail about any other query related investment, you can contact me through my email.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com