Top 5 Smart Tax Saving Options

As the end of financial year draws near, many of my friends who were least bothered about tax saving investments throughout the year, have started hunting down options to park their surplus funds and consequently save up on taxes. Being the Good Samaritan, I chalked out some of the most advisable alternatives available under section 80C to save tax. These options help in not only saving taxes, but also let your money grow.

1. Equity Linked Saving Scheme (ELSS):

ELSS falls under the category of E-E-E i.e.

• The amount invested in ELSS Scheme is EXEMPT,
• The amount accumulated in the ELSS Scheme is EXEMPT, and
• The amount received at the time of maturity is also EXEMPT.

At no point of time a person is required to pay taxes on such investments. ELSS is an attractive tax saving option offered by the mutual fund houses. The amount invested in ELSS by you is used by mutual funds to invest in equity shares market. Not only is the return on investments high, but the income generated is tax free and the investor is also free to decide the tenure and amount of investment.

ELSS carries a compulsory lock-in period of 3 years, the least of all tax saving options. Investors are free to exit the funds after the initial lock-in period or they can continue investing if they find the investment beneficial to them. Similar to a mutual fund advertisement, ELSS is subject to market risks and it is essential that you invest in the right fund.

2. Public Provident Fund (PPF):

PPF is one of the most preferred choices for investments under section 80C, since it carries zero or nominal risk i.e. there is full capital safety plus it also provides decent returns if not very attractive. The prevailing interest rate on PPF is 8.70%.

PPF Scheme also falls under the EEE category of investment. The minimum amount of investment under PPF is RS.500/- whereas the maximum amount that can be invested is Rs. 1,50,000. It carries a lock in period of 15 years which can be further extended in blocks of 5 years.

Investors can avail loan facility against PPF deposits from the 3^rd financial year up to the 6^th financial year. The investor can also make one withdrawal every year, beginning from the 7^th financial year, of an amount that does not exceed 50% of the PPF account balance:

a. At the end of the fourth year immediately preceding the year of withdrawal, or

b. At the end of the preceding year, whichever is lower.

3. Tax Free Infra Bonds:

Infrastructure bonds are recommended for people who fall under the higher tax bracket. They offer attractive returns as compared to investments made in Bank FDs. These bonds carry a coupon rate of approximately 8.50% to 9 % with tenure ranging from 10-20 years. They do not carry any lock-in period of investment.

4. Senior Citizen Saving Scheme (SCSS):

SCSS is considered to be the best investment option for a senior citizen as the return offered in SCSS is 9.20%. The advantage of investing in a SCSS is that the investor receives interest on a quarterly basis, thereby allowing senior citizens to overcome their financial crunches. It also offers liquidity to senior citizens in the form of premature withdrawals. However the interest earned in SCSS is taxable.

5. Insurance Plans:

Many investors misinterpret insurance to be an investment option rather than an insurance scheme. They invest their surplus funds in insurance scheme in order to avail the benefit of insurance as well as investment. But at the end of the day, the return from an insurance policy is merely 5% to 6% Investors should understand that both investment and insurance are absolutely necessary but the two should never be clubbed together.

The most suitable and pure form of insurance is the term plan, wherein the investor covers up his crisis by choosing a suitable insurance policy and paying a small amount as his premium. The amount thus saved by him by not investing in a traditional plan can be invested by him in any of the above mentioned options in order to gain better return on his investments.

Though section 80C gives multiple options, I have personally chosen only the above 5 for investing so as to not only save tax, but to also earn a better rate of return while making flexible investments. One should note that for tax purposes, the maximum benefit that can be claimed by investing in the above is Rs. 1,50,000.

- See more at: http://taxguru.in/income-tax/top-5-smart-tax-saving-options.html#sthash.GbyPCzik.dpuf

Change in Penalty Rate under section 271AAB

Budget 2016: Existing provision of clause (c) of sub-section (1) of section 271AAB provides that in a case not covered under the provisions of clauses (a) and (b) of the said sub-section of section 271 AAB, a penalty of a sum which shall not be less than thirty per cent but which shall not exceed ninety per cent of the undisclosed income of the specified previous year shall be levied in case where search has been initiated under section 132 on or after the 1^stday of July, 2012.

In order to rationalise the rate of penalty and to reduce discretion it is proposed to amend that clause (c) of sub-section (1) of section 271AAB to provide for levy of penalty on such undisclosed income at a flat rate of sixty per cent of such income.

Clause 101 of Finance Bill 2016

Clause 101 of the Bill seeks to amend section 271AAB of the Income-tax Act relating to penalty where search has been initiated.

Clause (c) of sub-section (1) of the aforesaid section provides that a penalty of a sum which shall not be less than thirty per cent. but which shall not exceed ninety per cent. of the undisclosed income of the specified previous year shall be levied in case where search has been initiated under section 132 on or after the 1st day of July, 2012, and such case is not covered under the provisions of clauses (a) and (b) of sub-section (1) of section 271AAB.

It is proposed to amend the said clause (c) so as to provide for levy of penalty on such undisclosed income at a flat rate of sixty per cent.

Sub-section (2) of the aforesaid section provides for non-levy of penalty under clause (c) of sub-section (1) of section 271, in respect of undisclosed income referred to in sub-section (1) of section 271AAB.

It is proposed to amend the said sub-section (2) so as to provide that no penalty shall be levied under section 270A also in respect of the undisclosed income referred to in sub-section (1) of section 271AAB.

These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017- 2018 and subsequent years.

[Clause 101]

- See more at: http://taxguru.in/income-tax/amendment-section-271-aab.html#sthash.EFhxYvrw.dpuf

3% p.a. Additional interest on delayed income tax Refund

Budget 2016: Section 244A inter alia provides that an assessee is entitled to interest on refund arising out of excess payment of advance tax, tax deducted or collected at source. It also provides that the period for which the interest is paid on such excess payment of tax begins from the 1st April of the assessment year and ends on the date on which refund is granted.

In order to ensure filing of return within the due date it is proposed to amend section 244A to provide that in cases where the return is filed after the due date, the period for grant of interest on refund may begin from the date of filing of return.

In the interest of fairness and equity, it is further proposed to provide that an assessee shall be eligible to interest on refund of self-assessment tax for the period beginning from the date of payment of tax or filing of return, whichever is later, to the date on which the refund is granted. For the purpose of determining the order of adjustment of payments received against the taxes due, the prepaid taxes i.e. the TDS, TCS and advance tax shall be adjusted first.

It is also proposed to provide that where a refund arises out of appeal effect being delayed beyond the time prescribed under sub-section (5) of section 153, the assessee shall be entitled to receive, in addition to the interest payable under sub-section (1) of section 244A, an additional interest on such refund amount calculated at the rate of three per cent per annum, for the period beginning from the date following the date of expiry of the time allowed under sub-section (5) of section 153 to the date on which the refund is granted. It is clarified that in cases where extension is granted by the Principal Commissioner or Commissioner by invoking proviso to sub-section (5) of section 153, the period of additional interest, if any, shall begin from the expiry of such extended period.

These amendments will take effect from 1^st day of June, 2016.

Clause 90 of Finance Bill 2016

Clause 90 of the Bill seeks to amend section 244A of the Income-tax Act relating to interest on refunds.

Sub-clause (A) of the said clause seeks to amend clause (a) of sub-section (1) of the said section.

The aforesaid section provides that an assessee is entitled to interest on refund arising out of excess payment of advance tax, tax deducted or collected at source, etc.

Further, it is provided that the period for which the interest is paid on excess payment of tax begins from the 1st April of the assessment year and ends on the date on which refund is granted.

It is proposed to amend the said section to provide that in cases where the return is filed after the due date, the period for grant of interest on refund shall begin from the date of filing of return.

It is further proposed to provide that an assessee shall be eligible to interest on refund of self-assessment tax for the period beginning from the date of payment of tax or filing of return, whichever is later, to the date on which the refund is granted.

Sub-clause (B) of the said clause seeks to insert a new sub­section (1A) so as to provide that that where a refund arising out of appeal effect is delayed beyond the time prescribed under sub­section (5) of section 153, the assessee shall be entitled to receive, in addition to the interest payable under sub-section (1) of section 244A, an additional interest on such refund amount calculated at the rate of three per cent. per annum, for the period beginning from the date following the date of expiry of the time allowed under sub-section (5) of section 153 to the date on which the refund is granted.

Sub-clause (C) of said clause seeks to amend sub-section (2) of the said section so as to give the reference of sub-section (1A) in the said sub-section which is consequential in nature.

These amendments will take effect from 1st June, 2016.

[Clause 90]

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Advance tax on Presumptive income & Non-Corporate also to Pay in June

Rationalisation of advance tax payment schedule under section 211 and charging of interest under section 234C

Budget 2016: As per the existing provisions of sub-section (1) of section 211, the advance tax payment schedule for a company is fifteen per cent, forty-five per cent, seventy-five per cent and hundred per cent of tax payable on the current income to be paid by 15th June, 15th September, 15th December and 15th March respectively. For other assessees, the advance tax payment schedule is thirty per cent, sixty per cent and hundred per cent of tax payable on current income to be paid by 15th September, 15th December and 15th March respectively.

Based on the recommendations of Expenditure Management Commission clubbed with the fact that most of the advance tax is now paid electronically it is proposed to rationalise schedule for advance tax payment and prescribe the same advance tax schedule for all assessees other than an eligible assessee in respect of eligible business as referred to in section 44AD. The modification in payment schedule will facilitate forecasting of revenue collections during a financial year with greater accuracy.

It is further proposed that an eligible assessee in respect of eligible business referred to in section 44AD opting for computation of profits or gains of business on presumptive basis, shall be required to pay advance tax of the whole amount in one instalment on or before the 15th March of the financial year.

Consequential amendments are also proposed to be made to section 234C which provides for chargeability of interest for deferment of advance tax to bring it in sync with the amendments proposed in section 211.

It is also proposed that interest under section 234C shall not be chargeable in case of an assessee having income under the head “Profits and gains of business or profession” for the first time, subject to fulfillment of conditions specified therein.

These amendments will take effect from 1^st day of June, 2016.

TABLE SHOWING CHANGES IN ADVANCE TAX

Changes in Advance Tax Payment Due dates for All assesse **

Instalment	Due Date	Rate
1st	15th June	15%
2nd	15th September	45%
3rd	15th December	75%
4th	15th March	100%

** Except for Individuals opted Sec.44AD (Presumptive Income) – Due Date is 15^th March.

Clause 87 of Finance Bill 2016

Clause 87 of the Bill seeks to amend section 211 of the Income-tax Act relating to instalments of advance tax and due dates.

As per the existing provisions of sub-section (1) of the aforesaid section, the advance tax payment schedule for a company is fifteen per cent., forty-five per cent., seventy-five per cent. and hundred per cent. of tax payable on the current income by 15^th June, 15^th September, 15^th December and 15^th March, respectively. For assessees (other than companies), the advance tax payment schedule is thirty per cent., sixty per cent. and hundred per cent. of tax payable on current income by 15^th September, 15^th December and 15^th March, respectively.

It is proposed to amend the advance tax payment schedule for assessees (other than companies) and bring it in consonance with the existing advance tax payment schedule applicable for a company.

It is further proposed that an eligible assessee in respect of eligible business referred to in section 44AD opting for computation of profits or gains of business on presumptive basis, shall be required to pay advance tax of the whole amount in one instalment on or before the 15^th March of the financial year.

These amendments will take effect from 1st June, 2016.

Clause 89 of Finance Bill 2016

Clause 89 seeks to amend section 234C of the Income-tax Act relating to interest for deferment of advance tax.

It is proposed to make consequential amendments in sub-section (1) of section 234C, in view of the amendments made in section 211, so as to levy interest on deferment of advance tax, in the same manner as applicable to the company, to an assessee (other

than company) also. Further, with regard to an eligible assessee referred to in section 44AD, it is proposed to provide that interest shall be levied, if the advance tax paid on or before the 15th day of March is less than the tax due on the returned income.

It is also proposed to amend the said section so as to provide that nothing contained in the said sub-section (1) shall apply to any shortfall in the payment of the tax due on the returned income where such shortfall is on account of under-estimate or failure to estimate income under the head “Profits and gains of business or profession” in cases where the income accrues or arises under the said head for the first time.

These amendments will take effect from 1st June, 2016.