Guidance on Tax Saving

1. Making long term commitments without considering all factors

Last year, Mr. Sunil had made a contribution of Rs. 36,000 towards PF deducted by his employer. So he bought a 15 year policy with an annual premium of Rs. 64,000 so that his Rs. 1 Lakh limit is achieved. However, this year, due to increase in his salary, his PF contribution has increased to Rs. 48,000 p.a. But still he has to pay Rs. 64,000 premium towards his policy. So, in effect, he is paying Rs. 1,12,000 this year towards 80C, however, he would be entitled for deduction of only Rs. 1 Lakh. This problem could continue further, as his salary is expected to increase every year and so would his PF contribution.

Similar story has occurred with Mr. Pramod. He had availed a home loan and was paying an EMI of Rs. 25,000 p.m. As per the repayment schedule, out of the total Rs. 3 Lakhs paid, only Rs. 71,000 was the principle and balance was interest. Thus, he purchased a ULIP with an annual premium of Rs. 29,000 and 5 years payment commitment. As we know, that every year, the principle component increases and interest component decreases, next year, he will have the principle component increased to Rs. 96,000 and will still have to pay Rs. 29,000 towards the ULIP premium.

If they had invested the balance amount of Rs. 64,000 and Rs. 29,000 in an avenue which does not compulsorily requires annual investment (Example ELSS, PPF, NSC etc) then this problem would not arise.

So its better to be careful while choosing long term commitment amount. You might be required to pay them for long, but wont be able to avail tax benefit on the same.

2. Thinking that all life insurance policies qualify for tax deduction

It is a general myth (mostly propagated by insurance agents) that a life insurance policy is the best thing for saving tax. Before agreeing or disagreeing to the same, I would like to draw your attention to something more important.

Not all life insurance policies would qualify for tax benefit u/s 80C. If you want to avail this benefit, you will have to ensure that the life risk cover is at least 5 times the premium paid by you. (This is as per the current tax laws. It could increase to 10-20 times the premium in DTC). Thus, if you think of following the first point and your agent starts pushing you for a single premium plan, first check if the plan is giving you a life risk cover of 5 times the premium or not. In most cases, single premium plans do not have this feature and would, therefore, not qualify u/s 80C.

There is another breed of products (of course insurance-cum-investment plan), which requires annual payments, gives 5 times life risk cover in the first year, but the cover drops to 1.25 times the premium paid from the second year. You need to be cautious while buying these plans, because, they will give you tax benefit in the current year. But the next year premium will not be eligible for tax deduction, but you still will have to pay the premium.

3. Not considering the other items that qualify for tax deduction

Before arriving at the amount you need to invest for tax saving, make sure you have accounted for few other less-known items which qualify u/s 80C. One of the most important amongst them is the tuition fees paid towards your children’s education. Also, if you are salaried, don’t forget to deduct the HRA, Conveyance Allowance (within the prescribed limits) before you arrive at your amount required to be invested to save tax. Seeking professional help for the same could be of great help.

4. Investing Blindly for just Tax saving

This tax saving season, many fly-by-night organisations (claiming themselves as NGOs) call and request you to donate them to save tax u/s 80G. While it is always good to do charity, it is also important that it is done for the right purpose and it is being used for the right purpose. Remember that out of the amount donated to such NGOs, only 50% would qualify for tax saving. Just to give an example, if you still have a taxable income of Rs. 10,000 on which you want to save tax. Suppose You are in a 20% tax slab. If you donate this amount to the NGO, Rs. 5000 will qualify for tax saving. So in effect, you will pay tax on the balance Rs. 5,000 i.e. Rs. 1000. Which means your tax saving is Rs. 1000 and total money going from your pocket is Rs. 11,000 (Rs.10000 Donation + Rs. 1000 tax)

As against this, if you do not donate, you just require to pay Rs. 2000 as tax. There is no tax saving, but the total money going from your pocket is only Rs. 2000. We are nowhere suggesting that you should not donate. But while donating, 

[A] Don’t do it just to save tax.

[B] Check the credibility of the organisation if they are putting your money to the right purpose.

i acknowledge that aforesaid article was originally posted by saurabh@nidhiinvestments.

About Deduction under section 80 D

You are probably aware that the premium you pay on health insurance policy is tax deductible under Section 80 (D) of the Income Tax Act 1961. Until budget 08 came around there was a Rs. 15000 cap on health insurance deductibles for individuals. This cap integrated the premium paid on health insurance for the individual, his/her spouse, dependent children, and the individual's parents. In effect you could claim Rs. 15000 as deductible on health insurance under Section 80 (D). Budget '08 has come up with a very good distinction that increases your tax exemption while giving better coverage for your family and parents. Here is the relevant revised section of the Income Tax Act, 1961:

While computing the total income of an assessee being an individual there shall be a deduction of sum specified in sub-section (2), clause (a) and (b) of Section 80 (D).

Sub-section (2): Where the assessee is an individual the sum deducted from his/her taxable income shall be the aggregate of the following:

• The whole amount paid to effect or to keep in force an insurance on the health of the assessee or his family (here family means wife and dependent children of the assessee) but not exceeding Rs. 15000.
• The full amount paid to effect or to keep in force insurance on the health of parent or parents of the assessee but not exceeding Rs. 15000 in aggregate.

This means is you can now get spend a tax exempt Rs. 15000 towards your family's health Plus another Rs. 15000 towards the health insurance of just your parents. Therefore effectively you are eligible for Rs. 30000 - double the deduction from previous years. 

Here is another piece of information that you probably not aware of: You can also deduct premium paid towards a critical illness rider on your life insurance policy under Section 80 (D).

So it is not just that you are providing adequate health cover for your family as well as your elderly parents, you are saving on tax paid too.  

U/s 80D up to Rs 15,000 health insurance premium paid of self/spouse/children is eligible for deduction in addition Rs 20,000 is also eligible for deduction for health insurance premium paid for Sr. Citizen.

The premium is to be paid to effect or keep in force insurance policy, there is no condition that assesse should be the proposer of the policy .

Part payment of premium is allowed. For example, suppose your parents contribute 50% of their health insurance premium and you pay the balance 50% of their premium. In such a case, you could avail the deduction for the amount contributed by you and your parents too could avail deduction for their contribution.

Also the deduction u/s 80 D is allowed on payment basis i.e if you have paid premium in arrear or advance, the deduction will be allowed in the year when such premium was paid irrespective of the year to which such premium pertains.

Analysis of India first's Money Back Health Insurance Plan

Under single premium plan if you pay a premium of Rs 30,000, they appropriate Rs 10,500 towards health insurance and 19,500 towards ULIP.

So you can claim deduction under both 80 C for 19,500 and 80 D for 10,500. 

At the end of the 5 years they project you to return you 20 thousand in worst case scenario which implies that there is no money back in actual as asserted in its name.

All About ROC Charge

CHARGES

Sections 124 to 145 of the Companies Act, 1956 deal with registration of charges by companies. The subject can be conveniently divided in five topics :-

Ø  Filing of particulars of charge created.

Ø  Filing of particulars of modification of charge.

Ø  Filing of particulars of series of debentures.

Ø  Filing of particulars of satisfaction of charge.

Ø  Condonation of delay in filing of particulars of charges created / modified / satisfied.

SECTION 124:
This section does not define the term ‘charge’ but states that a charge includes ‘mortgage’. For the applicability of section 124 – 145, charge would include a mortgage but shall exclude a pledge.
Charge has been defined in the Transfer of Property Act, 1882 under section 100 as “where immovable property of one person is by act of parties or operation of law made security for payment of money to another and the transaction does not amount to a mortgage, the later person is said to have a charge on the property”.
Charges include lien as well as an equitable charge whether created or evidenced by an instrument in writing or by deposit of title deeds or by an agreement to deposit. Deposit of title deeds results in creation of charges on the land even where the depositor is not a debtor. This section would apply to both Indian and Foreign companies. The ‘charge’ is no where defined in the Company Act 1956.

KINDS OF CHARGES
1.     Fixed Charges: In a fixed charge a company creating a charge can only deal with the property subject to charge. The identification of the company does not change during the period for which the charge is created.
2.     Floating Charge: In floating charge, Identification of the charge goes on changing and the final identification is at the time when the charge gets crystallized.

CREATION OF CHARGE (Section 125)

If a charge created by the company falls within any of the classes as specified in section 125 (4), its particulars shall be filed with the Registrar of Companies Act, 1956 within 30 days of creation of charge. If particulars of charge could not be filed within 30 days, the ROC has power to extend the said period by 30 more days subject to payment of additional filing fee by the Company.

Particulars of creation of charge shall be filed in Form No. 8 & 13, in 3 sets, alongwith all the papers / instruments relating to creation of charge.  Form No. 8 includes the following details :

·           Description of instrument creating the charge

·           Amount secured

·           Property charged

·           Terms & conditions of charge

·           Name & address of person entitled to charge

Registrar of Companies (ROC) will verify the particulars filed under Form No. 8 & 13 and thereafter shall register charge which is conclusive evidence of compliance with the requirements as to registration of the charge. ROC shall deliver 2 sets duly registered under seal and signature, one for lender and second for borrower.

If a registerable charge is not registered, the transaction does not become void or debt does not become irrecoverable but the security created by the charge or mortgage becomes void against liquidator and creditors.

It is mandatory for a company to file the particulars of charge and failure to do so or contravene the provisions of section 125 are punishable under section 142 with  fine extending up to rupees Five Hundred  for every day of default. 

Offences punishable under section 142 are compoundable under section 621A.

Charges were held to be void against the liquidator or creditor unless registered. Court observed that filing of copy of document of charge with Registrar is not the formality but a definite legal requirement and that non-filing creates a certain legal impediments. ANTIFRICTION BEARING CORPORATION LTD V. STATE OF MAHARASTRA (1999) 20 SCL, 373 (Bom)

SECTION 126:
This section provides that any person acquiring the property or any share therein which is subject to charge shall be deemed to have notice from the date of registration. From the date of registration, doctrine of deemed notice (constructive notice) shall apply. This constructive notice is general and to all concerned about registration of charge and not about terms and condition or contents of the charge.
It must be noted that registration charges is an important requirement to alert public (Investors) about the existence of the charge.

SECTION 127:
This section contains the provisions relating to registration of charges on property acquired subject to charge. This section deals where a company acquires a property which is already charged and such charge is not registered. In such a case, charge can be got registered by the acquiring company within a period of thirty days. This section require a company to file the particulars of property, if any, acquired by its, subject to charge. Such filing is required to be done within 30 days from which acquisition was completed.

In case of properties situated outside India, period of thirty days are counted from the date on which copy of instrument dispatched by the post with due diligence, have been received in India.

SERIES OF DEBENTURES (Section 128)

Particulars of series of debentures, containing or giving by reference to any other instrument any charge giving pari passu (equal) benefit to the debentureholders shall be filed with ROC within 30 days of execution of the deed containing the charge in Form No. 10 & 13 together with the supporting documents of such charge.

Registration of charge by ROC as in the case of creation of charge on being satisfied of the contents.

 

SECTION 130:
It prescribes register of charges to be kept by Registrar of Company in the prescribed manner. Every company is required to forward to the Registrar pf Company the particular of charges in Form 13 along with a fee of Rs. 10/- for being entered in the register of charge. Form 13 is to be filed with Form nos. 8, 10 or 17 as the case may be.

SECTION 132:
This section provides that the Registrar should issue a Certificate of Registration for registering the charge. This certificate should be given under his hand and shall state the amount of security. Issue of such certificate is the conclusive evidence of compliance of provisions of part V of the Act.

MODIFICATION OF CHARGE (Section 135)

Any change in terms / conditions / extent of operation of any charge already registered tantamount to modification under Companies Act, 1956, such as : -

·           Change in rate of interest (other than bank rate), repayment period or any other material term of loan.

·           Further charge for the same loan by way of additional security.

·           Increase in limit.

·           Change in nature of security in respect of charge already created.

Again Form No. 8 & 13, in 3 sets, are required to be filed with ROC within 30 days ( within 60 days with additional fee ). The said forms will include the instrument modifying the original charge.

ROC will register the same under seal and signature and will deliver 2 sets of modifications, one for lender and second for borrower.

SATISFACTION OF CHARGE (Section 138)

On satisfaction of charge in full an intimation thereof shall be given to ROC within 30 days of satisfaction of the charge by filing Form No. 17 & 13 together with a letter or certificate given by the charge holder confirming that the charge has been satisfied in full.

ROC will register Form No. 17 & 13 regarding satisfaction of charge and will deliver 2 sets of satisfaction, one for lender and second for borrower. Please note that in this case no grace period is allowed under the Companies Act, 1956 unlike creation and modification.

PETITION TO CLB FOR CONDONATION OF DELAY / RECTIFICATION OF CHARGE  (Sec. 141)

If for any reason charge ( creation or modification ) could not be filed with ROC within 60 days ( 30 days under law + 30 days with additional fee under ROC power ) and in case of satisfaction 30 days, then the Company have to take the condonation of delay in filing such particulars with Company Law Board.

In case of rectification / corrections required in a registered charge, the same can be done only with the order of Company Law Board under this section.

The condonation petition under section 141 include the following :

·           Petition containing details about company, charge delayed and reason thereof.

·           Affidavit verifying the petition.

·           Board Resolution authorising director to make affidavit.

·           Memorandum of Appearance by professional appearing on behalf of the company.

The Company Law Board on hearing of the case or otherwise decide about the genuinity of the case on the ground of just and equitable will levy cost for such delay and condone the delay / rectification by issuing order in this behalf.

The Company will file the copy of order alongwith Form No. 21 with ROC and get the registration in this behalf.

PENALTY FOR CONTRAVENTION (Section 142)

If default is made in filing of any charge created by the company or of the payment or satisfaction of a debt in respect of which a charge has been registered or of the issues of debentures of a series, requiring registration then, unless the registration has been effected on the application of some other person, the company, and every officer of the company or other person who is in default shall be punishable with fine which may extend to Rs.5000/- for every day during which the default continues.

In case of default in compliance of any of the other requirements of this act, the company, and every officer of the company who is in default, shall, without prejudice to any other liability, be punishable with fine which may extend to Rs.10000/-.

ENTRIES IN THE REGISTER OF CHARGES (Section 143)

Every company shall keep register of charges and enter therein all charges specifically affecting property of the company, giving the details of :

Ø  Date of charge

Ø  Property charged

Ø  Amount of charge

Ø  Charge holder

In case of default in compliance with the said section, any officer who knowingly omits or wilfully authorises or permits the omission, shall be punishable with fine which may extend to Rs.5000/-.

Land Measurements used in Punjab

Land Measurements used by Patwari's of Punjab State.