Prajna Capital |
| Leave Travel Allowance In India or LTA Posted: 27 Dec 2013 05:34 AM PST Invest In Tax Saving Mutual Funds Online Call 0 94 8300 8300 (India)
Oh What A Sigh Of Relief. Finally It Is The Weekend Aren't these the words you say on every Friday of the week? Now after a tiring six months you take that holiday which you feel is very necessary to recharge your batteries. Most of us Indian's head to the beaches of Goa , Taj Mahal at Agra and Kerala known as " God's Own Country " for its unique ayurvedic treatment, Munnar a hill station, and a trip on the houseboats. In Tamil Nadu we have Kanyakumari famous for its scenic sunset and its majestic sea view. Maybe you plan to go on a visit to the famous temples of India in Mumbai, Bangalore, Orissa or Tirupati. This reminds me of the famous saying " You Get Educated By Travelling ". You know that nowadays all things are expensive and so is travel. The expenses incurred in addition to travel such as food, sightseeing and shopping are best not spoken of .Don't you think that such high spending on these trips requires us to have a thorough knowledge of Leave Travel Allowance.
For further information on the topic you can CONTACT Prajna Capital on 94 8300 8300 by leaving a missed call.
What Is Leave Travel Allowance?
· Leave travel allowance is obtained by the Employee from the Employer for vacation travel. In order to obtain leave travel allowance the employee needs to actually travel. A businessman or a self employed person cannot pay himself leave travel allowance. This covers only travel expenses and not boarding, lodging, food and shopping. Some companies give Leave Travel Allowance even to ex-employees after they have quit the organization. Tax deductions are available for leave travel allowance.
· Section 10(5) of the Income Tax Act 1961:
(a) On leave to any place in India.
What Do I Need To Know About Leave Travel Allowance?
· When an employee travels in India with his family he is provided leave travel allowance which is a part of his salary. This helps to cover the expenses incurred during the course of his travel with his family. This is available for travel only within India .The definition of family includes Spouse, Two Children, Parents, and Dependent Siblings.
· Leave Travel Allowance is available for travel only within India.
· Travel expenses include mainly travel by road, railway or air .Under rail travel we get reimbursed for AC First class travel by the shortest route or the amount spent whichever is lesser. Economy class airfare of the National Carrier of India by the shortest route. You can obtain leave travel allowance if you travel by car and the car is owned by the central government, state government, or a local body. You can rent a car and show rental receipts from the rental agencies. You can use these receipts to claim tax deductions. You can also claim travel allowances on your bus routes. You get reimbursed only for your travel expenses and not boarding, lodging food, shopping and so on. In case of travel to multiple destinations the furthest distance is taken up for tax exemptions. You might ask what If I use my own personal car ?. You are eligible for tax deductions but only on the fuel and toll charges.
· If your children were born before 1st October 1998 you can claim an exemption for any number of children. Even twins, triplets and so on are accepted .Even adult children who may be 18 years of age are included as age limits are not specified. However he must not be a tax assessee.
· In order to make use of the leave travel allowance you need to actually travel and show proof of travel. The employee needs to present documents of travel such as tickets, boarding passes, invoice of a travel agent in case we book tickets through a travel agency. These documents are necessary for the audit of income tax returns of the employee.
· You have to travel with your family in order to avail of these exemptions.
· The Government Of India has fixed a block of 4 years during which leave travel allowance can be claimed twice. The current block is the year 2010-2013.This is not the fiscal year but the calendar year of 1st January to 31st December. You can claim Leave Travel Allowance twice in the block of 4 years but not in the same year.
· If you don't claim the Leave Travel Allowance in the block of 4 years it gets carried over to the first year of the next block. In this case it would be 2014-2017 block. However this LTA needs to be utilized in the first year of the block itself mainly within 1st January up to 31st December 2014.
· If your spouse is also working both of you can claim LTA individually but not for the same journey. You are eligible for two Leave Travel Allowances in a block of 4 years and so is your spouse. This translates to 4 LTA's claimed in a block of 4 years. The travel allowance can be claimed alternately between you and your spouse and you can holiday in Goa each year.
· If you do not travel at all you will get your LTA amounts but you will have to pay tax on this amount. You can get tax exemptions only on the amount you are eligible for and the actual amount you spend on travelling. Let us consider that you are eligible for an LTA of INR 20000.Then you get deductions only if you spend the entire amount on your travel. If you spend more than INR 20000 then you are eligible for tax deductions up to INR 20000.Consequently if you spend only INR 15000 on your travel you have to pay tax on INR 5000.
· The exemption is available only for two journey's performed in a block of four calendar years .Let us consider you have a four year block from the year 2006-2009.You are eligible for two tax exemptions in this four year block. However you undertake only a single journey in this block. Then you need to take a holiday in the first year of the block 2010-2013 in order to avail your tax deductions and in the block of 2010-2013 you still have your two leave travel allowances left which you can take utilize in the subsequent years.
I Can't Understand How Leave Travel Allowance Works
Let us consider Mr Suresh and his wife make a trip from Bangalore to Mumbai. Instead of going directly to Mumbai they go from Bangalore to Chennai then they move from Chennai to Mumbai. Similarly they return from Mumbai to Chennai and then from Chennai to Bangalore. The cost of an AC 3 Tier ticket from Bangalore to Chennai is INR 575 and from Mumbai to Chennai is INR 1300.Similarly the ticket fare from Chennai to Mumbai is INR 1300 and Chennai to Bangalore is INR 575.Mr and Mrs Suresh use 3 Tier AC Train travel throughout their journey. Their net fare comes to INR (575+1300+1300+575) which adds up to INR 3750.When we consider the total fare inclusive of his wife it comes to INR 7500.The cost of an AC First Class ticket from Bangalore To Mumbai is INR 2900 .Here we have the round trip as well as the fare of Mr Suresh wife the rate comes to INR 11600 Here even though Mr Suresh did not travel through the shortest route he can still claim a full tax exemption even on the longer route as his entire cost of travel was through 3 Tier AC train travel which is still cheaper than the First Class AC fare from Bangalore To Mumbai as shown in the calculations. Here a round trip from Bangalore to Mumbai for Mr Suresh and his wife translates to INR 11600 on first call AC Train travel by the shortest route. However even though Mr Suresh took a longer route he and his wife spent INR 7500 as they travelled by AC 3 Tier Train. Now Mr Suresh gets a Leave Travel Allowance of INR 15000.Will he be fully tax exempt? No Definitely Not .He will get an exemption of the difference between INR 15000 and INR 7500 which translates to be INR 7500.So he gets a deduction on only INR 7500 and is taxed on INR 7500.We calculate tax based on the actual travel and since Mr Suresh did not use the AC First Class Train Travel Option available to him he cannot deduct INR 11600 as tax deductibles. He is eligible only for a tax deduction of INR 7500.The remaining amount of INR 7500 is added to his total taxable Income.
I would like to end this article with the famous saying "Difficulties Mastered Are Opportunities Won".Always look out for opportunities to save on those Income taxes and grab them when they come your way.
Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
--------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.
Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)
Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications
These Application Forms can be used for buying regular mutual funds also
Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )
------------------ Best Performing Mutual Funds
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| How To Save Tax Using Life Insurance? Posted: 27 Dec 2013 05:14 AM PST Invest In Tax Saving Mutual Funds Online Call 0 94 8300 8300 (India)
You must have heard the phrase "Life Is Short Do Not Waste It". This short life is even shorter due to the uncertainties of life .Do you know what would happen to you tomorrow? Certainly Not. In order to safeguard your family's financial health you must take life insurance. Fortunately this need has been recognized by the Government Of India. The Government has given us tax deductions on our premium and death benefits in a life insurance policy are tax free. Unfortunately these benefits are exploited by certain greedy Politicians and Businessmen for money laundering. The government is taking strict action against these unscrupulous Politicians and Insurance agents in order to prevent these unsavory practices from corrupting the insurance sector as a whole .Don't you think it is our moral obligation to prevent such practices from occurring in our society?
It would be wise to remember the saying ".Don't Kill The Goose That Lays The Golden Egg".
Tax Benefits For Life Insurance Policies In India:
· Under Section 80 C of the Income Tax Act the premium for a Whole Life Insurance and a Term Life Insurance policy is tax deductible up to an amount of 1 Lakh.
· Under Section 10(10d) maturity benefits are tax free in the hands of the policyholder only if the premium amount does not exceed 10% of the basic sum assured.
· Death Benefits of Term Life and Whole Life Insurance are tax free .in the hands of the nominee or receiver under Section 10(10d)
· Under Section 80 C premium for ULIP's will be tax deductible provided the premium should not exceed 1 Lakh.
· Under Section 10(10d) the death benefits on ULIP's will be tax free in the hands of the nominee and any proceeds received from ULIP's on its maturity will be tax free in the hands of the receiver.
· Let us consider if we pay the premium of 10% or less of the assured amount of the ULIP then the maturity benefit is tax free under Section 10(10d).
· Let us consider that the ULIP Policyholder dies, then the death benefits depend upon the type of plan he had taken. Under some plans the policy gives us the sum assured or fund value whichever is higher. In other plans the policy holder gets both the sum assured and the fund value. In first case the mortality charges are lesser as the fund value goes up because it focuses on the returns of the fund and lesser importance is focused on mortality. But in the second case even though we get both the fund value and sum assured the mortality charges are higher.
· Let us consider that you have commenced a ULIP Policy on January 2007 but due to certain unavoidable circumstances you discontinue this policy before paying the premium for 5 years. Then you will not get any tax benefits for the previous year in which you terminate your ULIP policy.
· You must be wondering why the Government has reduced the premium limits on the sum assured from 20% to 10% from April 1st 2012 onwards. The reason for this is to prevent money laundering done by politicians and businessmen.
· Insurance Companies are trying to come up with innovative methods to bypass Government rules by addition of bonus to the basic cover in order to raise the premium limits. But the Government states that the rule of 10% premium on sum assured considers only basic cover and not the bonus. If the insurance plan reduces the basic cover from the next year of your policy or for any of the subsequent years then your premium rate exceeds 10% of the basic cover and you will not be eligible for tax deductions under Section 10(10d).
How Is Money Laundering Done In Life Insurance?
· Mr. Sahil a cricket bookie wants to launder the funds that he obtains from gambling. He wants to launder a sum of INR 10 Lakhs .He wants to purchase an insurance policy that has a maturity and death benefit sum of 1 Crore on which the premium is 10 Lakhs .He knows that insurance policies have a free 15 day grace period. He approaches an insurance Manager of a highly reputed Private Life Insurance Company for the same. He convinces him that he will pay 4 Lakhs by cash and 6 Lakhs by Cheque. The insurance Manager knows that there is a rule that one cannot pay more than INR 50000 in cash for premiums without a PAN card . But he agrees on Mr Sahil's conditions in order not to lose a high value customer. After 10 days Mr Sahil says that I want to discontinue my policy so that he gets back 9.6 Lakhs by cheque from the insurance company. He is deducted INR 40000 as administrative charges. So he manages to convert 3.6 Lakhs of black money into white money. Similarly he opens multiple policies in different life insurance companies and manages to convert huge sums of black money into white money. Here he uses the free look in period as a tool for money laundering. This is a common tactic used by money launders to throw regulators off track.
· Mr Vijay a businessman is having cash in hand of 15 Lakhs and he wants to buy a single premium ULIP plan that gives maturity and death benefits worth 2 Crores. This sum of 15 Lakhs are his business profits on which he doesn't pay tax.He approaches an insurance agent of a reputed company with a preposition that he will give the agent a cut of INR 1 Lakh if the agent makes a high value demand draft of 15 Lakhs from his own bank account. The insurance agent agrees for this preposition because he gets a cut of INR 1 Lakh as well as commissions from his insurance company. Mr Vijay hands him a briefcase of 16 Lakhs in order to purchase the policy.. In this way Mr Vijay manages to buy a ULIP policy through his black money. This is a win win situation for insurance companies, agents and the money launderers.
The Art Of Money Laundering:
· You must have read recently in the newspapers or seen on television the sting operation conducted by the magazine "Cobrapost" under the codename "Operation Red Spider 1" and "Operation Red Spider 2".The Cobrapost associate editor posed as a relative of a fictitious politician. He made a series of cold calls to a number of different branches of banks and insurance companies in different cities in India with a preposition that a reputed politician wants to convert his black money into white money. Could these bank executives help him out ?. The bank executives readily agreed to help out using Benami accounts, bypassing KYC norms and so on and in many cases recommended highly reputed Insurance Companies and insurance divisions of their own banks for the purpose.
So How Was This Done?
· The cobrapost sting operator approaches the assistant manager of a reputed Life Insurance Company with a preposition that we wants to convert black money into white money for a sum of 25 Lakhs .He asks the manager if he can take a policy of 25 Lakh premium and can pay in cash. As per Government rules any cash payments above INR 50000 need documentation such as a Pan Card. The Assistant manager readily accepts the cash of 25 Lakhs and tells him not to worry about this above mentioned rule and any other KYC rules and says that he will bypass these rules .He also states that he would send agents to collect the money from his home. The assistant manager tells him that there are different types of life insurances to launder these kinds of funds.The manager says that there is no limit on cash acceptance. There are people who have used this kind of modus operandi to deposit Crores of Rupees. He also tells him that no regulator looks into this issue. The assistant manager asks him to take policies in the name of his family members for small amounts such as 12 Lakhs. The maturity benefits will be given by cheque from the Insurance Company thereby converting his black money to white money. These maturity benefits will be tax free in the hands of the receiver under Section 10(10d).This is a general modus operandi used by insurance agents and managers. The assistant manager also told the sting operator that they can take loans against the cash value of these kinds of life insurance policies. In this way the funds you obtain from loans is white money.
· Conclusion: We come to know through this sting operation that Banks and Insurance agencies indulge in unethical money laundering practices .Evidence shows that just not lower down agents but also their assistant branch managers, Development officers and other higher up's are involved in this process..Since Bank officials colluded with Insurance agencies to launder funds enquiries of senior heads of Insurance and Banks took place by RBI and IRDA. Both RBI and IRDA visited the headquarters of major Banks and Insurance agencies to audit their systems and to detect flaws in Management Control Systems to weed out rogue elements from the system.
Steps Taken By IRDA To Prevent Money Laundering:
· Know Your Customer: All the insurance companies should have Know Your Customer processes in place for all insurance policies. This means they should have a copy of identity proof, address proof and a recent photograph of the insured for all policies above INR 10000.
· Cash Limits: Even though the premium cash limits have been raised above INR 50000 documentation such as a PAN card needs to be provided. Any cash transaction above 10 Lakhs taken through a single or a multiple policy needs to be reported by the insurance company with the Financial Intelligent Unit of India.
· Auditing The Money Trail: In case of suspicious transactions like frequent surrender of policies within the free look in period, unusual termination of policies, regular change in address and so on need to be reported by the insurance agencies. In case of large premium policies and single premium polices mainly in Annuity, Whole Life and ULIP's insurance companies must ask the policyholder for an Income proof. Insurers are expected to maintain these kinds of records for at least 10 years.
· Monitoring of High Risk Individuals: IRDA Guidelines focuses more on politically well connected people, senior public figures and people capable of breaking FEMA and IRDA rules.
· Verification At The Time Of Redemption: No payments should be allowed to a third party for life insurance except in case of death.
We notice from this article that "End Justifies The Means" .Cobrapost may have done all the hard work in detecting flaws and loopholes in the system. It is now up to the regulatory agencies to find out what is going on and implement corrective measures in the banking and insurance sectors.
Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
--------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.
Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)
Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications
These Application Forms can be used for buying regular mutual funds also
Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )
------------------ Best Performing Mutual Funds
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Posted: 27 Dec 2013 03:18 AM PST Invest In Tax Saving Mutual Funds Online Call 0 94 8300 8300 (India)
Here we have the famous saying "Everything We Have Is Taxed Including Our Patience".Oh why do we all have to pay taxes? Isn't there a way we can save on these Taxes? ,Here we have the famous saying "Where There Is A Will There Is A Way". Here in India the Government has provided us a way to save on our Income Tax by making use of the tax deductions available to us.
Let us consider the case of Mr Naveen a 65 year old Elderly citizen. He earns 14 Lakhs per annum working as a manager in a retail firm. Mr Naveen is very frugal and not only pays his taxes on time but also studies all available tax deductions which apply to him. The Income Tax Slab Shown below is the one which concerns him. In order to solve our Taxation queries you can leave a missed call for Prajna Capital on 94 8300 8300.
Income Tax Slab Rates for Male/Females Between 60-80 Years FY-2012-2013:
Here Had Mr Naveen Not Been Using His Income Tax Deductions These Would Have Been The Rates Which Would Have Applied To Him:
TABLE 1:
Here this would be the Income Tax Rate payable by Mr Naveen had he not used his Income Tax Deductions.
Here Mr Naveen invests a sum of INR 100000 towards Senior Citizens Saving Schemes. This is tax deductible under Section 80C.
Senior Citizens Saving Scheme Under Section 80C:
· Senior Citizens Saving Scheme is the most lucrative scheme among all small saving schemes and is meant only for senior citizens. Interest income is tax chargeable.
· Current rate of interest is 9% per annum payable quarterly.
Here Mr Naveen undergoes treatment for a disease and claims INR 60000 as tax deductions under Section 80DDB.
Tax Deductions Under Section 80DDB:
· Here we have deductions of INR 40000 or the amount actually paid, whichever is lesser for the treatment of a disease or an ailment of the tax payer or a dependent relative .Here the deductions will be reduced by an amount received under insurance of an insurer or if he is reimbursed by the employer. If he is a senior citizen then INR 60000 or the actual expenditure whichever is less.
Here Mr Naveen suffers from a minor physical disability and avails tax deductions of INR 50000.
Tax Deductions Under Section 80 U:
· Deductions of INR 50000 to an individual who suffers from a physical disability including blindness or mental retardation. If an individual has severe disability deductions of INR 1 Lakh are available.
TABLE 2 :
TABLE 3:
· Here we have Net Income Tax Payable INR 252350 (TABLE -1) where Mr Naveen has not done any tax deductions as per the various tax deduction instruments available to him.
· Here we have Net Tax Payable INR 187460 (TABLE – 3) where we calculate the amount. Mr Naveen has saved when he made use of the tax saving instruments available to him.
· Here the difference between TABLE 3 and TABLE 1 is the yearly amount Mr Naveen has saved on tax by making use of tax saving instruments available to him.This translates to a sum of INR 64890.
Here we have seen how Prudence, Financial Discipline, Frugality and other qualities have helped Mr Naveen save on his taxes. Don't you think we all need to inculcate these qualities in us so that they help us not only in saving our taxes but also in our day to day activities . I would like to end this article with the famous quote: "When There Is Income Tax The Just Will Pay More And The Unjust Less".
Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
--------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.
Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)
Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications
These Application Forms can be used for buying regular mutual funds also
Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )
------------------ Best Performing Mutual Funds
|
| You are subscribed to email updates from Prajna Capital - An Investment Guide To stop receiving these emails, you may unsubscribe now. | Email delivery powered by Google |
| Google Inc., 20 West Kinzie, Chicago IL USA 60610 | |
No comments:
Post a Comment