Deductions under IT Act 1961 for Salaried Persons - Allowances

Salaried people formulate a huge amount of tax paying community in India. Thus, it is necessary to make every possible to save their taxes. To make this alternative workable we need to understand the various components that constitute the salary. The following list of allowances and perquisites will help you to take maximum benefit of your existing salary structure. The allowances under Section 10 and perquisites under Section 17 of IT Act,1961. 

In this write up, we would cover up the different allowances allowable under Sec 10 and the various benefits, the salaried can avail to reduce their tax burden. Although, one does not avail all the benefits, it is useful in case you have a choice to design your own CTC structure. The perquisites benefits we would study in the coming week.

Sub Section under section 10 in IT Act	Details of Allowances	Benefit available
13A	House Rent Allowance	Least of the following is exempt : a)   Actual HRA Received from the company b) 40% of Salary (i.e. Basic + Dearness Allowance+ Commission on Sales (50%, if house situated in Mumbai, Calcutta, Delhi or Madras) c)   Actual Rent paid minus 10% of salary
14	Children Education Allowance	Rs. 100 maximum per month per child up to a maximum of 2 children
14	Hostel Expenditure Allowance	Rs. 300 maximum per month per child up to a maximum of 2 children
14	Transport Allowance	a)Given only in case of travel from place of residence to place of  work b)Rs 1600 per month is exempt
14	Transport Allowance	a)  Only for people in transport business during the working for his personal expenditure while travelling from one place to another, in case if he does not receive daily allowance b)  The benefit would be lower of ·         70% of actual allowance or ·         Rs 10000 pm
14	Conveyance Allowance or any expenses incurred in tour or on transfer	a)   Given to meet the expenditure on conveyance in performance of duties of an office b)   The amount actually spent is exempted
14	Daily allowance	a)  Expense incurred due to absence from his work. b)  The entire expenditure spent is exempted.
14	Helper allowance	a)  Any duties performed by any helper in course of duties at work. b)  The entire expenditure spent is exempted.
14	Research Allowance	a)  Any research allowed in academics or other professional pursuits. b)  The entire expenditure spent is exempted.
14	Uniform Allowance	a)  Expenditure incurred to purchase or maintain office uniform during the performance of duties b)  The entire expenditure spent is exempted.

Beyond the above regular allowances, there are certain allowances which are specific to certain locations and roles of employees.

Sub Section under section 10 in IT Act	Details of Allowances	Benefit available
14	Special compensatory Allowance (Hilly Areas)	a)  The exempt amount varies from Rs. 300 pm to Rs. 3000 pm.
14	Border area allowances, Remote Locality allowance	a)  The exempt amount varies from Rs. 200 pm to Rs. 1300 pm.
14	Tribal area allowance given in (a) Madhya Pradesh (b) Tamil Nadu (c) Uttar Pradesh (d) Karnataka (e) Tripura (f) Assam (g) West Bengal (h) Bihar (i) Orissa	a)  The exempt amount is Rs 200 per month
14	·     Compensatory Field Area Allowance – can be claimed only if border area allowance not availed ·     Compensatory Modified Area Allowance.	Rs 2600 pm Rs 1000 pm
14	Counter Insurgency Allowance  for members of armed forces in case working away from their permanent locations	Rs 3900 pm
14	Underground allowance made available to mine workers working in unnatural conditions	Up to Rs 800 pm
14	High altitude allowance for Armed forces	a) Up to Rs. 1,060 per month (for altitude of 9,000 to 15,000 feet) b) Up to Rs. 1,600 per month(for altitude above 15,000 feet)
14	Highly active  field area allowance	Rs 4200 pm
14	Special allowance for armed forces working in Andaman & Nicobar Islands	Rs.3250 pm

Beyond the above, some of special allowances are exempted for government employees,Judges or members of UPSC services.

Human v/s Robo Advisor

Google has become an integral part of our daily life. Any question which we don’t have an answer to – we search it on Google. Due to time constraint, we at times, even make our grocery purchases online. We can’t just spend a day depositing cheque, paying utility bills or visiting our local baniya. Technology has made us dependent on gadgets. We rely on them even for our smallest jobs. We prefer traveling in an online booked cab talking with our old friend over online media site working on our office presentation. 

The glossy online world has made us lazy to walk out in hot sun. Our financial lives are also not left untouched from this growing influence of internet. From transferring funds to making payments through online wallets, we prefer to do all online. With multiple applications and customized software designed to help us we can now sell, purchase and view our holdings together at one place. Gone are the days when we scanned the business newspaper to search the market price of our stocks and mutual funds. Financial entities now send regular updates to their clients informing them about even any smallest amendment or announcement in the company. We read online reviews by analyst about the market expectations, RBI announcements or even how the global markets would perform. We have become experts in our own terms and to supplement our knowledge, we subscribe to various paid advice. 

Welcome to the world of “Online Advisors” or shall we say “Robo-Advisors”. These Robo–advisors are all round us giving us an easy access to manage our investments. They filter our search requirements on a global basis and the solutions given are customized to suit our queries. So, should this new age advisor replace the traditional financial planner,agent and brokers, who visited us to suggest the latest product info or collect our premium cheques? Lets’ decide with a simple list of pros-cons to make the decision.

Robo –Advisors	Human Advisors
Benefits
a) Large chunk of information can be stored online and advice is made available in best possible manner. E.g. mutual funds recommendation  b) Increase in speed and reduction in time wastage. E.g. stock price quotes with algorithm trading c) Reduction in mathematical errors. The software design is capable of handling complex calculation with pre fed formulas. d) Multiple reports can be generated easily on click of button. E.g. Profit & Loss, Stock Valuation etc. e) Unbiased recommendation of products and advice. f) Easy change in recommendations and regularly updated consolidated view of holding with goal earmarking.	a) Easy to express thoughts to make him understand your needs and wants. b) A plan advised by human being is flexible to personalized needs. c) Every client has his own different story. The advisor can empathize with him to suggest a proper plan. d) Not limiting his interactions to financial dealings, an advisor can even help the client with life planning. e) Any customized report specific to client needs can be made available o demand. f) There is no over dependency on technology making it a simpler process. g) Practical solutions rather than outputs on formulas and ratios.
Disadvantages
a) Data input is necessary and most crucial step, since any mistake at this level could lead to dubious output. b) Constant need for technical support. c) Rigidity in data formats and output. All the information given has pre-defined results and hence, one has to follow it. E.g. Client might want to invest in equity but his risk profile shows that he is a conservative investor and hence, it might not allow him. d) No scope for flexible two – three solutions to let the client select one as per his convenience. e) Generalized recommendation on pre-decided variables.	a) Limited access to advisor unlike 24x7 support online. b) Chance of biased recommendations is high over here. c) Limited number of reports referred to give solutions to client. d) High chances of mathematical errors. e) Sometimes, over empathy with clients’ situation can give rise to biased advice seeking positivity for client.

   

Thus the choice might be simple for some who have already plunged in to technology based advice. It is a basic understanding although, machines can aid human beings it cannot replace them. It has always been a helping hand and should remain the same. It would never replace the human impact.  

For your human advisor requirement, feel free to contact us at saarthifp@gmail.com

Pre EMi V/s Full EMI

Lower prices of under construction homes over ready to move in houses have always been an attractive selling point if there is no burning need to find oneself a shelter. Another common feature of any under construction property is buying on an home loan. The lender disburses the loan amount in trances as demanded by builder on different stages of construction. Here ,most of lenders give a choice to the borrower if whether he wants to start repayment in a Pre–EMI mode or pay the entire EMI before the possession of property is received. Although, many borrowers are aware of these terminologies , most of them consider that it a facility provided as a discount by their lender to them.

What is Pre – EMI?

Pre-EMI is simply repayment of interest payable on the amount disbursed by lender, as per the number of days of usage, payable to the lender regularly on a specific day of every month. The interest amount keeps on increasing with the additional amount disbursed and till he receives the possession of the property. The borrower then has to repay as per the EMI schedule. i.e. Repayment of Principal plus interest.

Let us consider an example, if you have taken a loan of Rs. 50 lakhs @ 11% for next 20 years for an under construction property and the lender disburses loan in 4 trances as following:

Month	Stage	Amount disbursed	Pre – EMI – (Rs./pm)
January 1st	On agreement	10 lakhs	9167
June 1st	On completion of foundation work and ground level	10 lakhs	18333
Oct 1st	On completion of next three floors	20 lakhs	36667
Dec 31st	On possession	10 lakhs	51609(actual EMI)

This means you pay (9167 * 5)+(18333*4)+(36667*3) = Rs. 2,29,167 of Pre – EMI towards the disbursed loan amount. After that you would pay an EMI of Rs.51,609 for next 20 years towards your loan.

Who should opt for Pre – EMI mode ?

Pre – EMI is useful for people who due to constraint of funds cannot afford to pay the principal amount of the loan. In case, if the project gets delayed or stalled , you don't have principal to be repaid. It has no other additional benefit.

What are the drawbacks of Pre – EMI?

a) No repayment of principal in the construction period. Thus, the loan tenure is not reduced.

b) In case of delay of project, the interest paid on loan disbursed, where the amount is almost 90%, the borrower ends up paying interest on entire loan amount.

c) If you are paying the EMI from the under construction stage;you can claim all the interest paid in a spread of 5 years, after getting the possession. You can not do so for payment of Pre-EMI in under-construction stage.

d) Sometimes the lender include the under construction phase of Pre – EMI in the loan years. Thus, the amortized value of your EMI increases. For example, if you have a 3 year under construction phase and you have a 15 year loan period, the loan amount is amortized over 12 years. (i.e. 12 loan tenure +3 years of under construction).

Hence, we would like to summarize that don't opt for Pre – EMI in under construction property, unless you are looking to sell off the property on possession or are cash strapped to pay the full EMI.

Financial Planning for Women

It is surprising that in a country like ours, where we have women leading some of the big names in banking and financial industry, the financial literacy among women is as low as 16%. (survey by National Centre for Financial Education). Women who manage their home expenses and emergencies so well, feel intimidated by the investment jargon and strategies.As a financial planner, we might treat both gender on parity but the truth remains that women need more emotional connection and simplicity on planning over men.

Why this difference?

Women in addition to planning for her family goals has to shoulder responsibilities for her own individual identity. In India, we have a lower women working force between mid 20's to mid 30's. In this period, women tend to take a back seat on her career front to manage her home, start family and above all be a dutiful mother to up bring a well mannered child. Women have always remained in shadows of their male counterpart- initially the father, later her husband and lastly her son. This has made women so financially dependent that they are never able to take decision for themselves.

So, what if any catastrophe was to remove any of our sheltered provisions? What if you have to shoulder the responsibility of your widowed mother or up bring your children alone due to your spouse death, disability or divorce? Are you ready to balance the dual roles of a money earner and investor? Do you know the basic plan to be kept ready if you have to start from zero?Today,we shall be focusing on some of these pointers to be kept in mind for any women fending for herself and her family.

a) Identify the working hands and mouths – It is necessary to list out in case if you have any additional source of income from previously made investments. Ask all sort of questions to your insurance agents regarding the policies of deceased person to confirm the same. There could be any pension amount to be made available over the death of Provident fund member. In case of divorce, are you expecting any alimony? Is it one time or regular over time? 
 

Once, you have answer to these questions, add what is your monthly income going to be. List out all the essential expenses and other ad hoc expenses. The best way to identify them are to read previous cheques book descriptions, bank account narration or study credit card bills. This simple exercise would help you prepare monthly cash flow requirement.

b)Put aside emergency funds – Out of the lump sum funds received on happening of any of the above incidents, keep out 3-6 months expenditure funds aside to act as contingency for some emergency requirement. It can be parked in a Bank FD, Liquid Funds or in separate savings account.

c) Revise your life cover- Previously, as a women you might not be the primary income provider. Hence, it is now necessary to raise/avail your life cover to support your entire family needs.

d) Re work on your goals- It is possible that you had previously planned different goals towards family and for yourself. However, now with different situation, it is reshuffle the goals – in terms of priority, allocation of surplus and lump sum amounts. Also, include the new lump sum made available. It is necessary to note that unlike men, women prefer to prioritize family over rest. So if you plan to take a break for your sibling or children's education landmark years remember to save for these years.

e) Plan your estate distribution – List down all your assets, personal valuable belongings , pieces of jewellery or even expensive designer wear and make a plan to give out to your next generation. Don't leave any loose ends, which can cause uproar after you in your family.

Thus, we wold like to say that although men or women are equally capable of making good decisions, women mostly don't exercise their right. It is necessary for women to now be prepared for any catastrophe.