Do not go chasing ads, listen to the your needs (Part-1)

Often we come across well drafted advertisements and commercials at the most innocuous of all places. Many of us end up falling prey to some smart ad-men’s near perfect product or advertisement placement.I came across one such advertisement as well. The Ad read ” Save Tax of Rs 42,990 on investments of Rs 1 lacs** “.  The Mutual fund advertisement further explained the benefits of investing in that fund which read as below:

Tax savings: Tax benefits up to Rs 33,990/-* on investment of Rs 1 lac u/s 80c of the Income tax Act, 1961.

Free Life Insurance Cover: 5 times your investment, subject to a minimum cover of Rs 10,000 and a maximum of Rs 5,00,000. Premium on Rs 1 lac cover for 3 yrs would be approximately Rs 9,000 which investors might save.

Capital Growth: ELSS as a medium to long term investment vehicle provides scope for capital growth.

Potential savings on Rs 1 lac investment in ELSS scheme is Rs 42,990.

**Tax saving of Rs 33,990 + Rs 9,000 Life Insurance Premium

*Assuming the investor falls into highest tax bracket and surcharge is applicable.

The advertisement is right in its claims and makes no false promises, mis-selling or overt statements.

Investors would definitely benefit from investments made in such ELSS Tax Saving schemes, however, an investor needs to understand that one of the major highlights of this scheme which is displayed in bold letters above is the charm of saving Rs 42,990.

Do all investors end up saving Rs 42,990?

Simple answer is NO.

Not all investors fall in the highest tax bracket, so savings, for investors in different tax brackets would differ. So it becomes imperative for investors not to chase smart ads and inquire about tax or savings benefits to which accrue to him.

Investors who invest in ELSS schemes are traditionally retail investors who park their money in such scheme as they offer reasonable returns with the shortest possible lock-in period.The government has made a host of individual savings ‘tax-deductible’ under one umbrella called Section 80C and a simple new rule has emerged – if you invest up to Rs. 1 lac in a tax saving instrument or even a combination of them, you effectively reduce your taxable income by up to Rs. 1 lac to save up to Rs. 33,990 in taxes (including applicable surcharge and education cess).

But, you don’t have to invest an entire lac. For example, if your taxable income is Rs. 1,70,000, you would need to invest just Rs. 20,000 in a tax saver to reduce your taxable income to Rs. 1,50,000 and drop your tax to zero!

Below is an indicative table provided for better understanding of tax brackets and applicable effective saving on ELSS schemes for individuals within respective income slabs.

Your annual taxable income (Rs) Your applicable tax before investment (Rs) Optimal amount to invest (Rs) Your ‘new’ taxable income (Rs) Your applicable tax after investment (Rs) Your savings (Rs)
1,70,000 2,000 20,000 1,50,000 0 2,000
1,90,000 4,000 40,000 1,50,000 0 4,000
2,50,000 10,000 1,00,000 1,50,000 0 10,000
3,00,000 15,000 1,00,000 2,00,000 5,000 10,000
4,00,000 35,000 1,00,000 3,00,000 15,000 20,000
5,00,000 55,000 1,00,000 4,00,000 35,000 20,000
7,00,000 1,15,000 1,00,000 6,00,000 85,000 30,000
9,00,000 1,75,000 1,00,000 8,00,000 1,45,000 30,000
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Income Tax – Who, When & How to Pay your income tax.

Income Tax – Who, When & How to pay your income tax.

An individual having salary income and no business income must file his return not later than 30th June of the assessment year. The due date of filing the return by an individual having business income and whose accounts are not required to be audited under the Act is 31st August. The return should be in the prescribed form (Saral Form). It is also necessary to file a return to claim a refund of any excess tax paid.

You need to attach documentery support for tax deducted at source, investments/payments made that allow you to claim deductions and tax rebates and employer’s certificate in Form 16-A.

The income tax year or assessment year is the year in which income of the previous year is to be assessed. The financial year following a previous year is called the assessment year in relation to that previous year. Thus the assessment year for the previous year 1999-2000 is 2000-2001.

An assessment, therefore, comprises of two stages Computation of total income, and Determination of the tax payable thereon. When both these stages are completed, an assessment is said to have been made.

Dates with Income Tax
Date Obligation Form No. November 30, of the relevant assessment year Submission of annual return of income/wealth for the relevant assessment year, if the assessee is a corporate assessee Income: Form No.1Wealth: Form BA

November 30, of the relevant assessment year Furnish audit report under section 44AB for the relevant assessment year in the case of a corporate assessee. Form Nos. 3CA & 3CD

December 15, of each year Payment of second installment (in the case of an assessee other than a company) or third installment (in the case of a company) of advance tax for that financial year. No statement/ estimate is required to be submitted

March 15, of each year Payment of third installment (in the case of an assessee other than a company) or fourth installment (in the case of a company) of advance income-tax for that financial year No estimate/ statement is required to be submitted

April 30, of each year Certificate of tax deducted at source to be given to employees in respect of salary paid and tax deducted during for the preceding financial year ended 31 March Form No.16

April 30, of each year Certificate of tax deducted at source from insurance commission during the preceding financial year ended 31 March to be given. Form No.16A

April 20, of each year Consolidated certificate of tax deduction (other than salary) during the preceding financial year ended 31 March. Form No.16A

April 30, of each year Submission of annual return of dividend and income in respect of units under section 206 of the I.T. Act 1961 for the preceding financial year ended 31 March Form No.26

May 31, of each year Return of tax deduction from contributions paid by the trustees of an approved superannuation fund Form No.22

May 31, of each year Submission of annual return of winning from lottery, crossword puzzle for the preceding financial year ended 31 March. Form No.26B

May 31, of each year Submission of annual return of winning from horse races for the preceding financial year ended 31 March Form No.26BB

May 31, of each year Submission of annual return of salary income in respect of salary paid during the preceding financial year ended 31 March Form No.24

June 15, of each year Payment of first installment of advance tax in the case of a company for that financial year No statement/ estimate is required to be submitted

June* 30, of each year Submission of annual return of income/wealth for the relevant assessment year in case the following conditions are satisfied:a. the assessee is not a corporate assessee or ab. cooperative society;c. his total income does not include any income from a business or profession Income: Form No.3/2A Wealth: Form BA

June 30, of each year Submission of annual return of insurance commission for the preceding financial year ended 31 March Form No.26D

June 30, of each year Submission of annual return of insurance commission paid/ credited without tax deduction during preceding financial year ended 31 March Form No.26E June 30, of each year Submission of annual return of interest on securities for the preceding financial year ended 31 March Form No.25

June 30, of each year Submission of annual return of interest (not being on securities) for the preceding financial year ended 31 March Form No.26A

June 30, of each year Submission of annual return of payment to contractors / sub-contractors for the preceding financial year ended 31 March Form No.26C

June 30, of each year Submission of annual return of payments in respect of deposits under National Savings Scheme, 1987 for the preceding financial year ended 31 March Form No.26F June 30, of each year Submission of annual return of payments on account of repurchase of units by Mutual Fund or UTI for the preceding financial year ended 31 March Form No.26G June 30, of each year Submission of annual return of payment of commission on sale of lottery tickets for the preceding financial year ended 31 March Form No.26H June 30, of each year Submission of annual return of rent for the preceding financial year ended 31 March Form No.26 J July 14, of each year Submission of statement of tax deduction from interest or any other sum payable to non-residents during the period April 1 to June 30 immediately preceding Form No.27 August 31, of each year Submission of annual return of income/wealth for the relevant assessment year, if the following conditions are satisfied:a. The assessee is neither a corporate assessee nor a co-operative society;b. he is not required to get his accounts audited under any law; andc. His total income includes income from a business/ profession. Income:Form No.2Wealth: Form BA September 15, of each year Payment of first installment (in the case of a non-corporate assessee) or second installment (in the case of a corporate assessee) of advance income-tax for that financial year No statement/ estimate is required to be submitted October 14, of each year Submit statement of deduction of tax from interest, dividend or any other sum payable to non-resident during July 1 to September 30 immediately preceding Form No.27 October* 31, of each year Submission of annual return of income/wealth for the relevant assessment year if the following conditions are satisfied:a. the assessee is a cooperative society or a non-corporate assessee; b. he is required to get his accounts audited under the income-tax Act or under any other law. Income:Form No.2Wealth: form BA October 31, of each year Furnish audit report under Section 44AB for the relevant assessment year, in the case of a non-corporate assessee Form Nos.3CA, 3CB/3CC and 3CD/3CE October 31, of each year Submission of half-yearly return in respect of tax collected at source during April 1 and September 30 immediately preceding. Form Nos.27EA, 27EB, 27EC and 27ED October 31, of each year Submission of annual audited accounts for each approved programmes under section 35 (2AA)
Form No.2D for non-corporate assessee other than those claiming exemption under Section 11 also, can be filled up.
Where the last day for filing return of income/loss or any other return under direct taxes is a day on which the office is closed, the assessee can file the return on the next day afterwards on which the office is open and, in such cases, the return will be considered to have been filed within the specified time limit-Circular No.639, dated November 13, 1992.