Diwali Greetings

WISHING ALL OF YOU A VERY HAPPY AND PROSPEROUS DIWALI. MAY THE GODESS LAXMI EMPOWER YOU AND YOUR FAMILY WITH HER NINE BLESSINGS* NAME* FAME* WEALTH* HAPPINESS* HUMANITY* GYAN* BHAKTI* SHAKTI*

HAPPY DIWALI

Tax saving Instruments

As per the Indian Income Tax Law in computing the total income of an assessee being an individual or HUF benefit of deduction to the aggregate of Rs. One lakh rupees is given.  The deduction is available provided the amount is invested /deposited or paid by the assessee in any of the items listed in section 80C of the Act. The most common type of investments/payments for which deduction is available are:

1.  
   1. Payment of Life Insurance Premium for himself, spouse and children and in case of an HUF payment of Life insurance Premium for any of member thereof.
   2. Contribution to Public Provident Fund. (max. upto Rs. 70,000/-)
   3. Contribution by employee to Recognised Provident Fund.
   4. Contribution by employee to Appproved Superannuation Fund.
   5. Any security specified by Central Government for this purpose.
   6. Contribution to Unit Linked Insurance Plan.
   7. Payment of tution fees for children for full time education in India (available for two children only)
   8. Repayment of Housing Loan taken from Central Govt, State Govt or Bank and other specified institutions.
   9. Term Deposit for not less than 5 yrs from scheduled bank and which is in accordance of scheme.
   10. Five year deposit in Post Office Time Deposit Scheme.
   11. Subscription of Units of Mutual Fund Specified for this purpose.
   12. Subscription for National Saving Certificate VIII issue.

 

 

Full Text of this section on available on the below mentioned link.

http://law.incometaxindia.gov.in/TaxmannDit/Displaypage/dpage1.aspx?md=2&typ=cn&yr=2008&chp=194

Other Profits

Some special points to remember:

 

1. If an individual makes a gift in cash or by cheque to his spouse and that money is utilized by the spouse for purchase of an asset . The income earned by the spouse from that asset will not be clubbed in the income of the individual.
2. In order to invoke clubbing provisions there must be relation of  husband and wife. That means if a person transfers asset to his would be spouse before marriage income arising from such asset will not be included in the income of  transferor.
3. Negative income is also income. Under the Income Tax Act income does not means positive income only. The term income includes negative income or loss also.
4. Income from accretion to asset is not taxable in the hands of the transferor.
5. Income from saving out of pin money  is not included in the income of husband.
6. Income of minor child is clubbed with the income of the parent whose income after excluding the share of minor’s income is greater.
7. If trust is created for the benefit of minor child and income during minority of child is being accumulated and added to corpus of trust and income from increased corpus is given to the child after attaining majority, clubbing provisions are not applicable.
8. A loan is not transfer for the purpose of this chapter.

Clubbing of Income

In the Indian Income Tax Act there are provisions of Clubbing of Income.

 

But , the question is What is Clubbing of Income and why it is so?

 

Clubbing of income means Income of other person included in assessee’s total income, for example: Income of husband which is shown to be the income of his wife is clubbed in the income of Husband and is taxable in the hands of the husband.

     Income of a minor child is taxable in the hands of his parents.

 

Why it is so?

Under the Income Tax Act a person has to pay taxes on his income. A person cannot transfer his income or an asset which is his one of source of his income to some other person or in other words we can say that a person cannot divert his income to any other person and says that it is not his income. If he do so the income shown to be earned by any other person is included in the assessee’s total income and the assessee has to pay tax on it.

For example: A purchased a house property in the name of his wife B. A let out this house property . The rental income earned by A in name of his wife B is taxable in the hands of A.

 

Clubbing of Income takes place in the following cases:

1. Transfer of income without transfer of Asset:  If any person transfers income without transferring the ownership of  the asset , such income will be taxable in the hands of the transferor. Ex. X owns 4000, 14% debentures of A ltd. of Rs. 100 each , he transfers interest income to his friend Y without transferring the ownership of Debentures . In this case although interst will be received by Y but it is taxable in the hands of X.

 

2.Revocable transfer of Asset: If any person transfers any asset to any other person in such form and condition that such transfer is revocable at any time during the lifetime of the transferee , the income earned through such asset is chargeable to tax as the income of the transferor. For ex. X transfers a house property to A. However , X has right to revoke the transfer during the life time of A . It is a revocable transfer and income arising from the house property is taxable in the hands of X.

 

3. Remuneration to Spouse: An individual is chargeable to tax in respect of any remuneration received by the spouse from a concern in which the individual has *substantial interest. This provision has an exception. If the remuneration is received by spouse by the application of technical or professional knowledge or experience clubbing provisions will not take place. For ex. X  has substantial interest in A ltd. and Mrs. X is employed by A ltd. without any technical or professional qualification. In this case salary income of Mrs. X shall be taxable in the hands of X.

 

4. Income from assets transferred to spouse: Where an asset is transferred by an individual to his spouse directly or indirectly, otherwise than for adequate consideration or in connection with an agreement to live apart, any income from such asset is deemed to be the income of the transferor. For ex.  Mrs. A transfer’s 100 debentures of IFCI to her husband without adequate consideration. Interest income on these debentures will be included in the income of Mrs. A.

 

5. Income from asset transferred to son’s wife: If an individual , directly or indirectly transfers asset , without adequate consideration to son’s wife , income arising from such asset is included in the income of the transferor. For ex.  Mrs. A transfer’s 100 debentures of IFCI to her son’s wife without adequate consideration. Interest income on these debentures will be included in the income of Mrs. A.

 

6. Income from asset transfer to a person for the benefit of spouse/ son’s wife: If an individual , directly or indirectly transfers asset , without adequate consideration to a person or an association of persons for the benefit of his/her spouse /son’s wife , income arising from such asset directly or indirectly is included in the income of the transferor. For Ex. X transfers Government bonds without consideration to an association of persons, subject to the condition that , the interest income from these bonds will be utilized for the benefit of Mrs. X or Mrs. X son’s wife . Interest from bonds will be included in the income of X

 

7. Income of a minor child: All income which arises to the minor shall be clubbed in the income of his parents. Income will be included in the income of that parent whose total income is greater.  This case has two exceptions.(1) Income of minor child suffering from specified disability . (2) Income of minor child on account of manual work or involving application of his skill/talent etc.

 

 

*Substantial Interest: An individual is deemed to have substantial interest if he beneficially holds equity shares carrying not less than 20% voting powering case of a company or is entitled to not less than 20% of the profits in case of a concern other tan a company , at any time during the previous year.