Money, Tax, Life Insurace, Loans, Mutual Funds, Stock Market, phew!

[Srikanth Raghavan]

[Some of my questions may be relevant only in India]

Why is it so complicated? I hate these tax returns and stuff, I don't understand a thing. My employer doesn't give my complete salary because part of it goes as tax. I understand that but I have the following questions:

1. What are these tax returns (or tax return)? What if I don't do this?

2. I haven't done my tax return so far, I have been working for 2.5 years now. Will I be facing any problems in future? I do have a PAN card. And what the hell is this Form 16, Form 12(B)?

3. How do I save taxes? I have taken life insurance with "Max New York" but till today I don't understand how it can save my tax.

4. They say for a salary of upto rupees 1 Lakh/annum I don't have to pay any tax and after that it differs on how much I earn. Where are these figures officially published?

5. Is there any site specific to India where all these things are discussed? A forum wherein I can ask my stupid questions? Like how we have Javaranch and Sun Java forums for Java & other technologies?

And any other suggestions are thankfully appreciated.

-- Srikanth

[Arjun Shastry]

Here you will find some helpful information.
Also search on Rediff.com.
yes its confusing.
Just try to remember the following-
1)You have the income.If your yearly income exceeds Rs 100000,then you have to pay tax.
2)The amount which you invest in Life Insurance/pension/and all those schemes remains in country.Goernment does not put tax on it(upto certain limit)
3)Same is case for house loan.
3)Now you have done the investment,but while declaring you said that you will invest X to your employer.so employer will cut the tax accordingly but you actually inveseted X/2 only.Now on remaining X/2 you have to pay the tax to government.Thats tax return filing.If you declared X but invested 1.2X, then Government has to return the tax(on 0.2X amount) to you.
[ January 27, 2008: Message edited by: Arjun Shastry ]

[marc weber]

Financial products can be challenging to understand on their own, but when tax implications enter the mix, it becomes an impossible enigma.

First, don't fall behind in taxes. And second, don't hesitate to get professional advice (from someone who sells only advice -- not products).

[Nitin Nigam]

Hi Raghavan,
I was also in a similar situation 2 years back. Typically employers should conduct a training session for new hires(freshers) about the tax thing. Because it is a very important issue. It looks like conquering Everest if you dont know about it. But dont worry!!! When going gets tough, tough get going. Talk about it as much as you can. Talk to your colleague, talk to your elders at home. They are the best people to guide you because they have been doing this for years(saving their hard earned money).

Your salary will typically have following components
Basic This part is completely Taxable !!!*
HRA If you provide the rent recipt, then part of it is exempted from tax#
PF(Employer) This part is Taxable
PF(Employee) This counts in the investment ^
Medical If you provide medical bill, then its exempted(max 15000 per year) else this is taxable.
LTA Same as above, but LTA can be claimed twice in 4 years span.


*If your salary is above 1Lakh year then whatever is excess of 1 Lakh is taxable.
#There are 3 criterias to determine exempted HRA amount

90% of amont mentioned in rent recipt

50% of Basic(if you live in Metro) else 40% of basic

There is one more criteria i dont remember

Least of above 3 is exempted from tax, rest if taxable

Now based upon above, you can calculate your taxable income.
This income determines in which tax bracket you fall(they vary from 10%-30%)
So if you have 4 Lakh as taxable income, you will(i guess) fall in 30% tax bracket and 30% of 4L (i.e 1.2L)you need to pay as tax.

To save your tax, you can do some investment

Take some LIC policy or some other with ICICI, Aviva.. and many more players are there in market)

Also some Mutual Funds that are tax savers

^PF(Employee) Contribution also counts towards investment

NSC

PPF

And some others

Whatever amount you invest in above mentioned list of items further gets deducted from your taxable income. But there is a limit to it. 1 Lakh. Maximum of 1L can be deducted. If you invest more than 1 Lakh, doest matter. Only 1 Lakh will be deducted from taxable income.

So if you invest 1 L then your taxable income comes down to 4-1=3Lakh
And the tax you are liable to pay is now 90 thousand(assuming 30% tax bracket)
So you saved 30 thousand rupees per year + the amount you invested also keeps growing.
Amount went in PF will grow at 8.5%
Amount went for LIC/Insurance will give you life cover(and there is some sum assured attached with each policy that you get at the end of policy termination)
Amount in mutual fund grows typically at 20-25%(It can come down also because it is subjected to market risk)

There can be further tax exemption if you have taken home loan. I am not clear about its rules. So wait till any other kind ranchers posts about it.
And yes please try to get hold of your form 16. This will be required when you apply for any home loan/car loan ets.
For 16 is an yearly statement of your income and the tax you have paid. Befor giving huge HOme loan or car loan to you, banks want to analyse your income profile. And want to make sure that you havnt defaulted by stealing tax from Government.

[ January 27, 2008: Message edited by: Nitin Nigam ]

[ January 27, 2008: Message edited by: Nitin Nigam ]
[ January 27, 2008: Message edited by: Nitin Nigam ]

[Srikanth Raghavan]

Thanks a lot Arjun, Nitin and Marc for the time and patience. Some light but still I have to go and search the sun light on these topics on my own

Thanks,
Srikanth