Know About Your Form 16

By now most salaried employees must have received their Form 16 from their employers. Now it’s time to file the return. Though we know that Form 16 is for tax filing but many of us still find it hard to understand the components of Form 16 while filing the return. Understanding Form 16 is the key to a better tax planning.

What is Form 16?

It is certificate issued by the employer to employee stating the details of income earned and the tax deducted on your behalf and paid to the government. Every employee who is subjected to TDS is supposed to receive their Form 16 by April 30 every year. However many employers issue it post this deadline.

  

Point to be remembered

• No Form 16 is required if TDS is not deducted from salary
• If TDS is deducted by banks to the pension holder, banks should also issue Form 16. For interest income the bank issues form 16A

  

Components of Form 16

PAN

PAN stands for a Permanent Account Number which is a 10 digit alpha-numeric code generated by the Income Tax Department of India.The tax department has made it mandatory for everyone (including NRIs, PIOs & Companies) who wishes to conduct any type of investments and financial transactions in India. Carrying business, filing or paying taxes, investing in India, buying a property, opening a bank or demat account, etc. now require a PAN number. Read more about understanding PAN Cards.

  

TAN

TAN or Tax Deduction and Collection Account Number is a 10 digit alpha numeric number required to be obtained by all persons/companies who are responsible for deducting or collecting tax. TAN nos. are also unique to companies.

Gross Salary

It refers to total of an employee’s regular remuneration including allowances, overtime pay, Commissions, and bonuses, and any other amounts before any deductions are made.

Perquisites

Perquisite is an additional benefit provided by the employer to the employee in addition to the salary or wages. It is also called Perks in short.

For example, Rent Free accommodation, Loans at a subsidized rates to employees etc.

Profits in lieu of Salary

Profit in Lieu of Salary is a part of the salary income, thus it is taxable under the head income from salary. It is any payment made to employees in lieu of salary. Which means any payment due to or received by employee from his employer or former employer at or in connection with the termination of employment or due to modification in terms and conditions relating thereto.

For example, Gratuity, Commuted value of pension, Retrenchment Compensation etc. received or due to be received to the extent which is not exempt, and which it does not consist of contribution made by the employee, or interest thereon will be taxable as profit in lieu of salary.

Allowance

Allowance is a payment made by employer to an employee to enable the employee to meet certain cost of expenditure incurred on behalf of the employer. This generally forms the part of the employee’s taxable income.

Example: - Medical Allowance, Travel Allowance etc.

The following are most important allowance which we will come across in most Form 16.

  

House Rent Allowance

HRA is a special allowance given to an employee to meet his rent expenses. It is exempt from tax to the extent of least of the following:

   

1. HRA received from employer
2. Rent Paid in excess of 10% of the salary
3. 40% or 50% of the Salary (50 % in case of an individual belongs to metropolitan cities like Mumbai, Delhi, Chennai, Kolkata for all others it is 40%)

   

Note:

• Salary for HRA calculations: Basic+ DA+ Commission (Paid as a fixed percentage of sales)
• Above exemption is only available on actual payment of rent

For example, Let us understand this with an example. Say, you live in Hyderabad and your salary structure for a month is as follows:

Basic - Rs 12,000

HRA - Rs 5,000

Other taxable allowances - Rs 2,000

Monthly rental expenses – Rs. 7,000

Now, HRA will be exempt to the extent of the least of:

• Rs 4,800 (40% of salary for non-metro); or
• Rs 5,000 (HRA received); or
• Rs 5,800 (excess of rent paid over 10 per cent of salary, i.e. (7000-(10% of 12,000)

HRA exemption will be the least of the above i.e. 4,800

  

Conveyance allowance

It is an allowance granted to the employee by his employer to meet the expenses incurred on commuting from home to the place of his residence. Conveyance allowance is exempt to the extent of Rs. 800. An orthopedically handicapped employee enjoys a higher exemption of Rs. 1,600

Medical Allowance

Medical allowance is an allowance paid to the employee to cater the amount spends by employee on medical treatment and medicines. Medical allowance can be paid out monthly or yearly. Medical allowance is a fully taxable component of the salary. However, if you receive reimbursement of medical expenses against submission of bills, such reimbursement is tax free up to Rs. 15000 per year

  

Entertainment Allowance

It is the amount paid by employer for availing entertainment services. Deduction on entertainment allowance is only is allowed to government employees. The amount of deduction allowed is to the extent of least of the following

· Actual Allowance received

· 1/5^th or 20% of the salary (excluding all other allowances benefit or any other perquisites)

· Rs.5000

  

Deductions

Government encourages certain type of savings –mostly long term savings for your retirement – and therefore offers you tax breaks on such savings. These tax breaks are nothing but deductions allowed from the gross total income (Chapter VI A). To know more about deductions click here

  

Surcharge

Surcharge has been abolished for Personal income tax in the financial year 2009-10.

  

Education Cess

Education cess is a contribution made towards the Secondary and Higher Education development in the economy. All taxes in India are subject to an education cess, which is 3% of the total tax payable.

  

Relief u/s 89

Relief is granted to individuals when salary is paid in arrears in a lump sum.

For example, Salary (received in arrears/advance, family pension received in arrears, retirement benefits such as gratuity, commuted pension, VRS and retrenchment compensation)

Reality of Life – A Story Worth A Share!

Reality of Life – A Story Worth A Share!

Once a man saw in his dream, that a lion was chasing him. The man ran to a tree, climbed on to it and sat on a branch. He looked down and saw that the lion was still there waiting for him.

Motivation Advice - 4 Tips to Increase Your Motivation

Motivation can be increased whenever you need it. 

Here are 4 tips for gaining motivation.

1-Get inspiration. Motivation is easy to gain and maintain when you have inspiration. You need to have something that inspires you to do things that you would not normally do. Not only that you need to have a reason which drives you even when you feel tired or nervous. You need to be clear on what it is that you expect to get in return for the effort that you are going to expend. This will keep you motivated on an ongoing basis.

How to create success in your career

Success is very personal. No single formula fits everyone. Please read the following with the idea of looking for one tip that you may be able to apply to your life, rather than expecting to find a ready-made formula for success in your career.

How to Stay Positive

Do you sometimes have trouble staying positive in the face of life's challenges? You can learn how to think positive, be positive, and stay positive with these tips for thinking positively...

5 Tips From Warren Buffett

Want to make investment decisions that lead to wealth in the long term? That’s just what billionaire Warren Buffett has been doing for years. Whether you have Rs. 5 or Rs.50 million, Buffett’s wisdom will ring true as you work to make the best choices for your situation.
From the master himself, five tips you can take to the bank....

1. Fear in others is an opportunity for you 
It’s been an ideal period for investors: A climate of fear is their best friend. Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance.
Keep your head about you when others decide with fear and you’ll find value at every turn.
From the common market thrashing over quarterly earnings to the small business owner who just wants to get out, learn to smell fear and welcome it as an opportunity.
The irrational fear of the herd is a dear friend to the value-minded investor. When everybody else stampedes, quickly work through your own fear and get back to business.
2. Invest in what you understand 
It doesn’t matter how good a deal you’ve found or how cool an investment opportunity seems. If you don’t understand how it works, steer clear.You probably have at least one friend who is always rushing from one “perfect investment opportunity” to the next. Unless you can afford to burn money in a barrel (which you shouldn’t), steer clear of investments that you don’t fully understand.
3. Maintain a healthy margin 
We pay a steep price to maintain our premier financial strength. The $20 billion-plus of cash equivalent assets that we customarily hold is earning a pittance at present. But we sleep well.
For most individuals, the idea of even $5,000 in the bank seems like a far-fetched dream. Keeping 6 months worth of living expenses in a separate account is good personal finance sense. Holding enough cash to get you through times of uncertainty in your business has the same result of keeping you free of fear-based blunders.
Figure out the number you need to keep safe in order to sleep well at night. Buffett needs his $20 billion, I need enough to pay for my friends’ drinks for a few months. What do you need?
4. Concentrate on long term results 
In the end, what counts in investing is what you pay for a business – through the purchase of a small piece of it in the stock market – and what that business earns in the succeeding decade or two.
Once you’ve put the first 3 tips into practice it’s important to remember that tremendous value is most often gained over the long term. Look at what might happen over the next 15-20 years and invest accordingly.
You’ve got your cushion so you’re not afraid of dips in the market. You’re working within the bounds of what you understand well. You also have the ability to operate calmly when the rest of the world has gone nuts. Putting some focus on 4 tips should be no big deal for you!
5. Take full responsibility for your investment decisions 
If Berkshire ever gets in trouble, it will be my fault. It will not be because of misjudgments made by a Risk Committee or Chief Risk Officer.
Make the success or failure of your investments personal and take responsibility for all your decisions. You might have the smartest consultant of all time but that’s no excuse to shirk your responsibilities. If something goes wrong at Berkshire Hathaway, Warren Buffett takes responsibility for the mishap and works to fix the problem as quickly as possible.
He’s famous for treating the latest recession like a mother of 20 stocking up on groceries for 50% off. You probably won’t be in a position to purchase entire companies any time soon though. In the meantime, Get more of Buffett’s advice by perusing his annual letters to Berkshire Hathaway shareholders (quotes excerpted from 2009 letter).

Thanks to CNN Money for the tip!

Lessons From Warren Buffet

CNBC held a one hour interview with Warren Buffet, the richest man in the world today who has donated up to $31 billions to social activities. Let’s look into some interesting aspects of his way of life revealed in that interview

1. He bought his first investment share at the age of eleven, but he said it was actually too late for he should have done that at earlier age.

TEACH YOUR CHILDREN TO MAKE INVESTMENT AT THE EARLIEST AGE POSSIBLE.

2. He bought a small field at the age of fourteen using the money he earned from delivering newspapers.
SMALL SAVINGS CAN ALWAYS BUY SOMETHING.

TEACH YOUR CHILDREN TO START UP SOME BUSINESS HOWEVER SMALL IT IS.

3. He still lives in his small house of three rooms where he has been living since his marriage fifty years ago. He said : “I have everything I need in that house.”
DON’T BUY ANYTHING YOU DON’T REALLY NEED, TEACH THIS TO YOUR CHILDREN.

4. He always drives his car himself wherever he hoes. He manages with no driver nor bodyguard.

BE YOUR OWN SELF, BE INDEPENDENT.

5. He never travels in his private jet although he owns the world’s biggest jet airliner company.

ALWAYS THINK THAT WHAT YOU HAVE IS ENOUGH.

6. His company, Berkshire Hathaway, has 63 affiliated companies. Every year he sends only one written message to each of his CEO, informing them the annual target of the year. He never holds any meeting nor summons them.

PUT THE RIGHT MAN IN THE RIGHT PLACE.

7. He only sets two rules for his CEOs :

1. Don’t waste the shareholder’s money
2. Don’t forget rule number 1

SET UP A TARGET AND MAKE THEM FOCUS ON THAT.

8. He doesn’t attach himself to any high society. He spends his time at home eating popcorns and watching TV.

DON’T TRY TO SHOWOFF, BE YOUR SIMPLE SELF.

9. Warren Buffet carries no cellular phone and has no computer on his table.

10. Five years ago Bill Gates who ranks first among the richest, made appointment to see Warren Buffet. Instead of thirty minutes he allocated for the meeting, Bill Gates ended up spending ten hours to learn how to become someone like Warren Buffet.

He has this advice for young men :
Keep yourself away from bank credits or credit cards, and invest only what you have. And bear this in mind :

A. Money doesn’t make people, it is people that makes money.
B. Live a simple life of your ownself.
C. Don’t do whatever people tell you. Listen to them but do only what is good.
D. Don’t wear trade marks, wear what makes you really comfortable.
E. Don’t waste your money on something that’s not really important.
F. If it works successfully in your life, share and teach other people.

A Happy person is not someone who is great in all things, but someone who can find simplicity in life.

Choose wisely your way of life!