practical tax & investment planning online
international tax expert / columnist / author / speaker


Contributing to PPF for 6 years & reusing the fruits for next 9 years is like eating your cake & keeping it too!

   All taxpayers are keen to avail of the maximum benefit of deduction under Section 80C of the Income-tax Act. The major concern, however, for most of the taxpayers is how to raise the necessary liquidity required for the purpose of investment. We shall discuss in the present case study an imaginative and innovative strategy of ‘the PPF refinance plan’ which can go a long way to meet this objective.


Facts: Mr. Sen is in the maximum tax bracket of 30.9% with taxable income over Rs.10,00,000 and thus plans to avail of the tax saving of Rs.30,900 under Section 80C, through investment of Rs.1,00,000 in PPF. His concern, however, is the necessary liquidity of Rs.1,00,000 required for the purpose on an annual basis.

Planning: Mr. Sen can go ahead right away to open his PPF account and plan annual investments of Rs.1,00,000 out of his own resources for the first six years. From the seventh year onwards, he can plan to avail the benefit of the withdrawal facility, under which one withdrawal is permitted per year of an amount not exceeding 50% of the balance standing to his credit at the end of the fourth financial year immediately preceding the year of withdrawal. Accordingly, Mr. Sen can plan withdrawals as shown in the chart below from his PPF account up to Rs.1,00,000 every year, so as to re-finance the necessary liquidity of Rs.1,00,000 needed for his annual investment of Rs.1,00,000 in the PPF account.  (more…)


No Fringe Benefit Tax leviable on expenditure for non-employees like entertainment, sales promotion, etc.

    Taxpayers will recall the highly controversial levy of Fringe Benefit Tax (FBT) imposed by Finance Minister P. Chidambaram in 2005 and the grave protests voiced against the mischievous interpretations of the deeming provisions as contained in the circulars on the subject issued by the Central Board of Direct Taxes (CBDT). Tax professionals of Gujarat pioneered the crusade against FBT and your columnist was privileged to be at the helm and also plead the PIL against FBT filed before the Gujarat High Court. The High Court, appreciating the merits of the writ petition, granted an unprecedented interim relief directing that all taxpayers of Gujarat could in protest, instead of paying the disputed FBT to the exchequer, deposit the same in an earmarked bank account in their own name.

    Several writ petitions challenging FBT and its illogical interpretations by the CBDT came to be filed in various High Courts across the country and the Supreme Court directed that the Delhi High Court may undertake a consolidated hearing of all such petitions. The same is still pending as on date. However, soon after the changeover of FM, from PC to Pranabda in 2009, the four year old FBT came to be finally abolished and taxpayers finally heaved a sigh of relief. (more…)


Can PF, superannuation, leave salary, gratuity & pay arrears of a deceased employee be taxed?

Benjamin Franklin said that, “Only two things are certain in life, death and taxes.” In several countries including the US and UK, taxes are not only a concern for an individual during his lifetime, but also a nightmare that continue to haunt the family of the deceased. Fortunately post 1985, legal heirs in India have no taxes to pay by way of any death duties in respect of the estate received from the deceased.

However, the taxability of various payments, in the nature of gratuity, leave encashment, superannuation, arrears of salary and the like, received by the widow or legal heir of a salaried employee, who passes away while in active service, is quite an enigma, since it stands on a different footing than in the case of an employee, who receives such amounts on retirement during his own lifetime. (more…)


FAQ on liberal provisions for purchase & repatriation of sale proceeds upto 1 million USD per annum

Q.1. Is a Non Resident eligible to purchase immovable property in India? 
A.1. Under the general permission granted by the Reserve Bank of India (RBI), every NRI being a citizen of India or a Person of Indian Origin (PIO), that is an individual (not being a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan), who at any time, held Indian passport, or who or either of whose father or grandfather was a citizen of India can freely purchase immovable property in India.
The general permission, however, covers only purchase of residential and commercial property and not for purchase of agricultural land or plantation property or farm house in India.
Q.2. Are any documents required to be filed with RBI after purchase?
A.2. No.  An NRI/PIO who has purchased residential/commercial property under general permission, is not required to file any documents with RBI.  (more…)


Election funding can reap some smart tax saving with 100% tax deduction for donations to political parties!

  • Political donations entitled to 100% tax deduction in computing taxable income.
  • Effective tax saving possible from 30.9% to 32.445% of the amount of donation.
  • No monetary limit for political donations by non-corporate tax payers.
  • Corporate donations restricted to 5% of average profits under Company Law.

     M/s. Shah & Sons, a partnership firm has estimated taxable income of Rs. 1.50 crores in F.Y. 2012-13. It decides to give a contribution of Rs. 50 lakhs to a political party of its choice on the occasion of the 2012 Gujarat assembly elections. Since the firm will be eligible to write off the entire contribution for tax purposes, it will resultantly save a decent Rs.15,45,000 by way of income-tax at the rate of 30.9% of the amount of donation. If the donor in this case was a company, the tax saving at the applicable tax rate of 32.445% would work out even higher at Rs.16,22,250. (more…)

Powered by | Hosted at