Surviving Taxes

Indian income taxes are very complex; even savvy people like IIT faculty often seek the services of a professional accountant or auditor - to just do their tax forms or even to completely manage the finances (like make investment decisions etc). These days, with the government increasingly talking of e-governance and stuff, there is enough information available on-line for one to do income tax oneself. The Delhi Income Tax office carries most of the forms and instructions at their website (unfortunately, the url seems to change). Every June or so, the finance and accounts sections sends out a one page form for you to fill and return, that they will use to figure out how much income tax to deduct every month. You get a one page instruction sheet to help you fill out the form - the following basically expands on that form. The following are current as of 2002, but things change every year. Check out the excel spread sheet (contributed by PS) in this directory. There are two main avenues through which the income tax burden can be reduced - by using deductions/exemptions that reduce the taxable income and by using rebates that reduce the tax. Taxable income includes salary (including DA, HRA and CCA but excluding Transport Allowance) and also interest earned in your bank account, dividends from shares or mutual funds etc, any payments for JEE/GATE work, earnings from consultancy etc. However, under section 80(L), interest from bank accounts upto Rs. 12000 is exempt from tax and only the balance is taxable. The exemption limit is raised by Rs. 3000 for income from Government securities and UTI mutual funds. HRA may be partly or wholly exempt if you live in rented accommodation (not IIT quarters). The exemption is the minimum of (rent paid in excess of 10% of gross salary, HRA, 50% of gross salary). The Rs. 100 per month professional tax is exempt from income for income tax purposes. One is entitled to a standard deduction which is

• for income upto Rs.1,50,000 - 1/3 of income subject to a maximum of Rs.30,000
• for income of Rs. 1,50,001 to 3.0 lakhs - Rs. 25,000
• for income of 3,00,001 to 5.0 lakhs - Rs. 20,000
• for income over Rs. 5.0 lakhs - nil

A tax payer who is physically handicapped, blind or mentally retarded can claim Rs. 40,000 exemption under section 80U. Under section 80DD, up to Rs. 40,000 can be claimed as exemption for expenditure incurred in treatment, maintenance or rehabilitationif of a physically handicapped, blind or mentally retarded dependant. Another Rs. 40,000 can be exempted against expenditure incurred for the treatment of some specified diseseas or ailments (eg. cancer) of the tax payer or dependant under section 80DDB. The more useful ones are a Rs. 10,000 deduction under section 80D for premium paid for a mediclaim policy and another Rs. 10,000 under section 80CCC for contribution to recognized pension funds. LIC offers a program called Jeevan Suraksha which falls under this category. The returns are not so great, but since the contribution is from pre-tax income, the effective return is about one and a half times what LIC gives. Many people find this worthwhile. To participate in this or other LIC schemes, ask around in your department. There are LIC agents who drop by various departments, looking to service such clients. Once set up, IIT will make a payroll deduction making the LIC schemes quite convenient. One other major deduction is interest paid on a housing loan taken from recognized sources; all banks and IIT are recognized sources. The ceiling is Rs. 1.5 lakhs for loans taken after 1/4/1999 if the purchase or construction is completed by 1/4/2003; else, the ceiling is Rs. 30,000. This can be availed only if the property is self-occupied. If the property is let out on rent, it will be considered an income source and a separate income/expenditure accounting for the property will be required to work out net profit/loss. Charitable contributions and such similar donations (for example, to Prime Minister's Relief Fund) are eligible for deduction under section 80G, with a ceiling of 10% of gross taxable income. Charitable organizations (like CRY) have special programs to help people avail this deduction. Once you take these deductions out of your gross income, you arrive at taxable income. We will generally fall in the highest bracked - taxable income more the Rs. 1.5 lakhs. In this slab, the tax is Rs. 19,000 plus 30% of the amount by which the income exceeds Rs. 1.5 lakhs. It is time now to apply the rebates that reduce this tax liability. The major rebate source is Section 88. Contributions to PF (GPF or CPFG or whatever), principal portion of housing loan repayment, the Rs. 400 per month mandatory group insurance, any LIC policy premia paid and investments in specified instruments aimed at the infrasturcutre segment all qualify under section 88. There is a cap of Rs. 70,000 on the qualifying amount, but the cap can be raised by another Rs. 30,000 for infrastructure investments. 15% of the total qualifying amount is applied as a rebate against tax due (so the tax can be reduced by Rs.15,000 by investing the full 70K + 30K). IDBI, ICICI and a few other agencies offer instruments under the infrastructure clause; once again, ask around in your department; there is likely an agent (maybe, the same LIC agent) who deals in such instruments and he/she will come by your office with the forms and pick up your cheque. There are also investment agencies in Adayar who will do this for you. Women tax payers are entitled to an additional rebate of Rs. 5,000 under section 88C. Applying these rebates (maximum of Rs. 15,000 or 20,000) on the tax due, you arrive at net tax due. For the year 2002-2003 (which the income tax folks call as assessment year 2003-2004), there is a 5% surcharge on this net tax; adding on this 5% yields the final figure for tax due for the year. If you do this right (and provide the relavant information to the finance and accounts section), your monthly tax deduction will be appropriately worked out. Bear in mind that salary for the month of March will be disbursed only in April, which is part of the next fiscal year. Though your tax may be deducted correctly you will still need to file a tax return which shows that you have paid all your taxes. There are agencies which will fill and file your return and there are also people who will file your filled return form. You can download the forms and instructions from the website of the Delhi Income Tax office. The simplest form is called Saral (form ITS 2 or ITS 2D). You can also take the filled up form to the office in Nungambakkam and file it yourself.