CA Paresh Bhagwat

Building Software Test Plans Using AI: A Practical and Strategic Guide

2026-03-24T08:50:00.000+05:30

Building Software Test Plans Using AI: A Practical and Strategic Guide

Designing a comprehensive software test plan has always been one of the most demanding responsibilities in quality engineering. It requires balancing product understanding, technical constraints, timelines, and user expectations—all while ensuring high coverage and reliability. Today, artificial intelligence (AI) is transforming this process. While it is not yet a fully autonomous solution, AI can significantly accelerate and enhance how test plans are created when used strategically.

This article provides a structured, professional guide to building software test plans using AI—covering preparation, alpha and beta planning, practical workflows, risks, and real-world examples.

1. The Role of AI in Test Planning

AI introduces a fundamental shift: it allows testers to focus more on what to test rather than how to structure everything from scratch. Instead of manually drafting every section, AI can generate frameworks, suggest techniques, and expand test coverage rapidly.

However, AI is not a replacement for human expertise. It is a co-creator, not an owner of quality.

Key Benefits

Accelerates documentation creation
Suggests test techniques and scenarios
Helps identify gaps and edge cases
Improves consistency across plans

Key Limitation

Lacks true understanding of product context, users, and business priorities

2. Preparing to Build a Test Plan with AI

AI is only as effective as the input it receives. Preparation is critical.

Essential Inputs

1. Product Documentation

These define what needs to be tested:

Product Requirements Document (PRD)
Marketing Requirements Document (MRD)
Functional Requirements
Technical specifications

Example:
If your PRD describes a mobile banking app with features like fund transfers and biometric login, AI can generate test scenarios such as:

Validating fingerprint authentication failures
Testing transaction limits across regions
Simulating network interruptions during transfers

2. Prior Test Plans

Historical plans provide:

Proven structure and formatting
Previously used tools and techniques
Insight into what worked (and what didn’t)

Example:
If a previous release used regression automation with Selenium, AI can reuse that structure and expand it for new features instead of reinventing the plan.

3. Additional Materials

AI can process diverse inputs:

User manuals
Bug reports
Automation scripts
Even application code (for white-box insights)

Example:
Uploading past defect logs can help AI identify high-risk areas and prioritize testing accordingly.

3. Building an Alpha Test Plan with AI

What is Alpha Testing?

Alpha testing is conducted internally to ensure the product is stable and functionally complete before exposing it to real users.

Core Components of an Alpha Plan

Scope
Objectives
Test environment
Test techniques
Test cases
Success criteria

How AI Helps

AI can:

Generate initial test plan drafts
Suggest test cases based on requirements
Recommend tools and frameworks
Expand sections into detailed procedures

Example: AI-Generated Alpha Plan

Scenario: A travel app that aggregates APIs for booking hotels, checking weather, and mapping destinations.

Prompt:

“Generate an alpha test plan for a travel app integrating multiple APIs, ensuring cross-platform compatibility and performance.”

AI Output May Include:

API reliability testing scenarios
UI responsiveness across devices
Data consistency checks between services
Security validation for third-party integrations

Refinement Step:
You can then refine further:

“Expand API testing using boundary value analysis and include automation with Selenium.”

This iterative approach transforms a rough draft into a usable plan.

4. Test Techniques and AI Assistance

AI excels at recommending and combining testing techniques:

Common Techniques AI Can Suggest

Boundary Value Analysis
Equivalence Partitioning
Exploratory Testing
Regression Testing
Performance and Load Testing

Example

For a login system:

AI may suggest brute-force attack simulations
Input validation tests for username/password fields
Session timeout validation

Human Role:
Validate whether these techniques align with actual product risks and priorities.

5. Building a Beta Test Plan with AI

What Makes Beta Testing Different?

Beta testing involves real users, making it more complex:

Focus shifts from functionality to user experience
Feedback becomes subjective and behavioral

Key Considerations

Tester demographics
Usability expectations
Feedback mechanisms

Example: Beta Plan for a Fitness App

Input to AI:

Target users: Adults aged 25–45, casual fitness enthusiasts
Duration: 3 weeks
Testers: 50 participants

AI Can Generate:

Onboarding instructions for testers
Real-world scenarios (e.g., tracking workouts, syncing wearables)
Feedback surveys
Bug reporting templates

Refinement Example

Initial AI scope:

“Test app usability and performance.”

Refined prompt:

“Expand scope to include real-world usage scenarios like interrupted workouts, offline tracking, and syncing delays.”

Improved Output:

Testing intermittent connectivity
Tracking partial workout sessions
Validating delayed data sync

6. Challenges of Using AI in Test Planning

1. Inconsistency

AI may produce different outputs for the same prompt.

Solution:
Maintain a library of standardized prompts.

2. Lack of Context

AI does not understand:

Business priorities
Product history
Team constraints

Example:
AI might suggest automation tools your team doesn’t use.

3. Overgeneralization

AI often defaults to generic best practices.

Solution:
Provide constraints:

Tools to use
Techniques to exclude
Priority areas

4. Human Factors in Beta Testing

AI cannot fully model:

User frustration
Attention span
Behavioral patterns

Example:
A long survey generated by AI may lead to poor response rates.

7. Best Practices for Using AI Effectively

1. Build Incrementally

Instead of generating a full plan:

Create sections individually
Refine each part

2. Use Structured Prompts

Good prompt:

“Generate 10 edge-case test scenarios for payment processing under high latency.”

Better output = better plan.

3. Maintain a Prompt Library

Track:

What worked
What didn’t
Variations for different product types

4. Combine AI with Expertise

Always validate:

Feasibility
Relevance
Coverage

5. Define AI’s Role in Your Workflow

Example workflow:

Gather documentation
Use AI for initial draft
Refine sections manually
Validate with team
Finalize and execute

8. Risks and Governance

Key Risks

Exposure of sensitive data
Incorrect or outdated recommendations
Over-reliance on automation

Mitigation Strategies

Avoid uploading proprietary data to public tools
Validate all outputs
Use secure, enterprise AI solutions when possible

9. Real-World Workflow Example

Step-by-Step

Upload PRD to AI
Generate initial alpha test plan
Extract sections (e.g., API testing)
Refine with tool-specific prompts
Add constraints (team tools, timelines)
Convert into structured document
Review and validate manually

10. The Future of AI in Test Planning

AI is rapidly evolving. While it cannot yet fully replace human-driven planning, it already:

Reduces effort
Improves coverage
Accelerates delivery

The most successful teams will be those that:

Integrate AI into their workflows
Maintain strong human oversight
Continuously refine their approach

Conclusion

AI is not a shortcut—it is a force multiplier. It enables quality professionals to work faster and smarter, but the responsibility for delivering a reliable, effective test plan remains firmly in human hands.

The ideal approach is a hybrid one:

AI for speed and structure
Humans for judgment and context

By combining both, organizations can build test plans that are not only efficient but also deeply aligned with product goals and user expectations.

The Future of AI for Finance & Accounting: Navigating the New Frontier

2026-02-09T03:52:00.000+05:30

All you want to know about Term Insurance Policy

2013-12-31T21:18:00.003+05:30

1. What is a Term Insurance plan?

Term insurance plan is a form of life cover, it provides coverage for defined period of time, and if the insured expires during the term of the policy then death benefit is payable to nominee. Term plans are specifically designed to secure your family needs in case of death or uncertainty. It provides specific amount of coverage for specific period of time.

2. How to choose a best term plan?

To choose best term plan you should consider important factors like:
a) How good is the insurance company
b) How much cover do you need
c) Check the claim settlement ratio
d) The factors of inflation in paying the premium and coverage benefits
e) Compare the terms and conditions of various insurance companies
f) You can take two term insurance plans from two different insurance company, it will save you in case of rejection of claim from one of either two companies
g) Do not just look for the low term insurance plan as they might be an important factor but may have several conditions attached for the time of claim
h) You can also go for an online or offline term plan

3. Is there much difference in premium across term plans?

The premium in the term plan could vary from one company to another and as the tenure of your policy increases, the premium for the same sum assured increases.

4. Are there any eligibility criteria for term insurance plan?

The eligibility criterion for term insurance plan varies according to the insurers, the minimum age of entry is 18 years and the maximum age limit is 65 years.

5. Do term insurance plan have an option to convert it to other traditional plans?

The convertible option is provided to you in term insurance plan, and you can convert it to the whole life insurance policy or the endowment plan any time during policy tenure without additional charges.

6. If I missed a premium, is there a chance that my policy may lapse?

If you miss the premium then the first thing is to know the status of your policy through your agent or insurance company. According to Life Insurance Corporation of India (LIC) a grace period of 30 days is allowed where the mode of payment of premium is yearly or half yearly and 15 days in case of monthly payment.

7. Can I surrender an insurance plan?

Yes, you can surrender an insurance plan that is to exit from a plan before maturity. From this the surrender charges would be deducted which varies from policy to policy. No charges are levied if the surrender is done after five years.

8. What are the risks involved in surrendering an insurance plan?

You should only terminate the policy if you feel that it does not fulfil your requirements and if you are in need of cash with no other options left. If you surrender the policy early i.e. three years from its inception then surrender value would be at least 30% of premiums paid, and some insurance companies also eliminate the premium paid in first year.

9. What are the smokers and non-smokers criteria in the term plan?

It includes the smokers or users of any tobacco products, such as chewing tobacco etc. Some smokers who have quit smoking are also eligible for favourable premiums. However the period varies among insurers.

10. What is difference between a participating and non-participating policy?

A participating or profit policy would enable the policyholder to share in the profits of an insurance company which depends on the investment returns of the insurance company. In non-participating policy there is no profit sharing with the insurance company.

11. Will I get a tax benefit on the insurance premium?

Premiums paid for all life insurance policies are exempted from tax up to a maximum of Rs 1 lakh under Section 80C of the Income Tax Act, 1961. The claim amount received by the beneficiaries or bonus in the hands of the policyholder is tax free under Section 10 (10D) of the Income Tax Act.

Source: Web

Jeevan Saral vs Recurring Deposit/PPF: What's Good, What's Bad?

2012-02-29T17:53:00.000+05:30

"Boond boond se sagar banata hai" If one goes by this saying, small but periodic investments can grow to a large sum at maturity. This is the basic investment logic behind recurring deposit schemes. Banks and post offices have been offering such schemes in India. LIC, the largest life insurance company in the country, has now joined this club. LIC launched a special plan called Jeevan Saral a couple of years back to cater to such investor needs.

Jeevan Saral is nothing but an endowment assurance plan where the policyholder simply has to choose the amount and mode of premium payment. The plan provides protection against death throughout the plan term to the extent of 250 times of the monthly premium. For example, anyone opting to pay a monthly premium of Rs 1000 will get a risk cover of Rs 2,50,000 during the policy period.

The policy term varies according to the age of the policyholder. The death benefit includes the total risk cover and loyalty bonus, if any. LIC also promises return of premiums, excluding first-year premiums and extra/rider premiums.

This scheme also offers an accidental death benefit. In real life, it's rare for a policyholder to die during the term of the policy. Even LIC accepts that over 95% of its policyholders survive the policy period and for most policyholders, insurance becomes just another investment. However, unlike pure investment, in case of insurance policies, one would have to wait till end of the policy term to get back the amount assured. This may be as long as 20-25 years. Early policy surrender involves costs in terms of penalty. But this does not hold true for Jeevan Saral.

The policy offers high liquidity to the policyholder. After five years of active policy (premium paid without default), which corresponds to the term for which premiums have been paid under the policy, one may receive 100% of the Maturity Sum Assured (MSA). (These MSA values are given by LIC). However, one can withdraw partial or full MSA amount after the 10th year.

Moreover, this is a with-profits plan. Loyalty additions (i.e. bonus) are payable from the 10th year, along with guaranteed maturity benefits. Loyalty addition is nothing but terminal bonus, which actually depends on the profits of LIC's life insurance business. Thus, it is variable return that cannot be estimated at the beginning of the policy.

Jeevan Saral as an investment option needs to be compared with other avenues such as recurring deposit (RD) offered by banks and post offices or periodical investments in Public provident Fund (PPF). Recurring deposits enjoy liquidity but no tax benefits, while PPF carries tax benefit minus liquidity. Since Jeevan Saral offers both the benefits, it is necessary to compare its returns with other schemes.

EXAMPLE

Suppose 30-year old Mr A opts for a policy involving monthly premium payment of Rs 1000 for 20 years. The total premium paid will be Rs 2,40,000 at the end of the 20th year, which assures maturity sum of Rs 2,73,500 and loyalty addition at the rate announced for the corresponding year. (The average rate at which the bonuses were offered for the past five years was around 5-6%). So if we assume that 6% loyalty will be paid in the 20th year, the total lump-sum earnings at maturity will be around Rs 3,48,000. Thus, the net earnings will be around Rs 1,00,000 in 20 years.

Instead, Mr B opens a recurring deposit with a PSU bank for 20 years. (The maximum RD period offered is 10 years, but we have assumed RD of 20 years to make it comparable). The deposit rate offered by most banks for 10 years is 7% per annum compounded quarterly.

So, the amount receivable after 20 years will be around Rs 5,21,000. Thus, the interest earnings will be Rs 2,81,000, much higher than the guaranteed returns on Jeevan Saral. But one should not forget that the interest income on RD is taxable. Assuming Mr B is in the highest income tax bracket, the total tax paid will be Rs 87,000 and the net interest earned after tax adjustment will be Rs 1,94,000, which is still higher than the returns offered by Jeevan Saral. But not all investors need to pay the highest applicable rate of income tax as RDs don't attract TDS.

Now consider Mr C, who opts to make monthly investment of Rs 1000 in PPF account for 20 years. He enjoys tax benefit under sec 80c similar to Mr A. At the end of 20th year, he receives almost Rs 5,93,000. Thus, the net earnings for Mr C will be Rs 3,53,000, which will be absolutely tax-free. Moreover, these assured earnings may be much higher than the receivables of Mr A.

To sum up, if one is looking for a pure long-term investment with periodical payout, traditional fixed investment avenues such as RDs and PPFs score for insurance based investment plans. As for risk cover, one may go for pure-term policies which have very low premiums.

source:ET

Three Personal Finance Risks for Salaried Professionals

2012-02-29T16:01:00.002+05:30

The three major risks involved in personal financial planning for salaried professionals can be categorized under 3 broad areas:

1. Personal life

2. Loss of income

3. Inflation

Let us look at what each category means.

PERSONAL RISK

This is a broad category, which includes the risk of falling ill or any other health issues. Personal risk also includes the threats associated with the people in our life about whom we care or are responsible for. There are many kinds of safety issues associated with our personal life. The best way to protect ourselves against personal risk is insurance (health insurance, fire insurance for the house, vehicle insurance and most importantly life insurance). Nowadays there are very niche insurance policies available like wedding insurance.

INCOME LOSS RISK

Although we would always like to believe that our jobs are forever, it may not always be the story. Companies which are stable could close overnight. We may be forced to quit our job at anytime due to personal reasons. The best way to protect against income loss risk is to have at least 6-8 months' salary as cash balance in a savings bank account. At the same time keep honing your skills so that you can immediately get jobs if the need arises.

INFLATION RISK

The best way is to set goals for high cost purchases and keep a track of the prices continuously. If at a point you realize that the prices may jump and also have enough cash accumulated, buy it. Small value purchases and regularly used stuff cannot be protected against. You cannot buy 100 kg of onions and store just because someone said onion prices are going up. Stocking up is a good way to protect against inflation risk, provided the items can be stored for long time. Many families buy a year's quota of pulses, cereals etc to protect against monthly price fluctuations.

source: bankbazaar.com

Get pension from your Home

2012-02-21T18:35:00.000+05:30

Reverse mortgage can unlock the value of the property and provide tax-free pension to the owner.

Looking for a source of regular income after retirement? You don’t have to look beyond the four walls of your house. Reverse mortgaging your house can get you a regular income in your sunset years. What’s more, it is completely tax-free. “Reverse mortgage is the most tax-efficient way of earning a pension”.

Reverse mortgaging is especially useful if you have not saved enough for retirement or concentrated your wealth in real estate. Financial planners advise clients to put away at least 10% of their monthly income for retirement. This is not possible if you have a hefty home loan EMI to pay and loads of other expenses.
However, this should not mean a life of penury after retirement. Banks are willing to give loans against property to senior citizens. In return, the bank becomes a part owner of the house. In this way, cash-strapped senior citizens can unlock the value of their property without actually selling it.

Though the concept is very common in developed markets, reverse mortgage has not picked up in a country where real estate also has an emotional value. People love their homes so much that they cannot bear the thought of selling the property.

It’s time to get rid of this misconception about reverse mortgage. If an owner puts up his house for reverse mortgage, it does not mean he has sold it. He has merely taken a loan against it. After his death, his legal heirs will have the option to either repay the loan along with the interest and regain the property or let the bank sell it and give them the proceeds after deducting the borrowed amount.

How reverse mortgage works

1) Reverse mortgage is the opposite of a home loan.

2) Instead of paying EMIs, the house owner gets monthly payments from the bank.

3) The sum depends on the value of the property. The owner can borrow up to 75% of the value.

4) The money received is a loan and, therefore, tax-free.

5) With each payment, the bank’s ownership of the house increases.

6) After the owner’s death, his heirs have to repay the reverse mortgage loan to the bank.

7) Only senior citizens can avail of reverse mortgage. They should be living in the house that is being mortgaged.

source:ET Wealth

Interest on borrowed capital for self occupied property

2012-02-11T10:11:00.000+05:30

The maximum amount of interest permissible in cases of self-occupied property is ` 1,50,000 (in respect of funds borrowed on or after 01.04.1999). Interest upto ` 1,50,000 is deductible if the following conditions are satisfied:

Capital is borrowed on or after April 1, 1999 for acquiring or constructing a property;
The acquisition/construction should be completed within 3 years from the end of the financial year in which capital was borrowed; and
The person extending the loan certifies that such interest is payable in respect of the amount advanced for acquisition or construction of the house or as refinance of the principal amount outstanding under an earlier loan taken for such acquisition or construction.

In the above context the following further aspects have to be kept in view:

If capital is borrowed for any other purpose (e.g. if capital is borrowed for reconstruction, repairs or renewals of a house property), then the maximum deduction on account of interest is ` 30,000 (and not ` 1,50,000).
There is no stipulation regarding the date of commencement of construction. Consequently, the construction of the residential unit could have commenced before April 1, 1999 but, as long as its construction/acquisition is completed within 3 years, the higher deduction of ` 1,50,000 would be available. Also, there is no stipulation regarding the construction/acquisition of the residential unit being entirely financed by the loan taken on or after April 1, 1999. It may be so in part. However, the higher deduction upto ` 1,50,000 can be taken for the loan which has been taken and utilized for construction/acquisition after April 1, 1999. The loan taken prior to April 1, 1999 will carry deduction of interest upto ` 30,000 only (CBDT’s circular No. 779, dated September 14, 1999).

` 1,50,000 maximum deduction will not be available in the following situations:

If capital is borrowed before April 1, 1999 for purchase, construction, reconstruction, repairs or renewals of a house property;
If capital is borrowed on or after April 1, 1999 for reconstruction, repairs or renewals of a house property; and
If capital is borrowed on or after April 1, 1999 but construction is not completed within 3 years from the end of the year in which capital was borrowed.

In the above situations only deduction upto ` 30,000 can be claimed.

source: www.taxguru.in

Premature PF withdrawal attracts tax

2012-02-10T18:02:00.000+05:30

The provident fund (PF) is one of the most popular retirement benefit schemes in India. It is also considered as a tax-saving investment for contributions (employer up to 12% of basic salary and employee up to overall deduction of ` 1 lakh) made towards an approved/recognised PF, the year-on-year accruals and the amount received on maturity from such funds is tax exempt.

In most cases, the accumulated PF balance is withdrawn at the time of retirement, and therefore, not taxable in the hands of the individual. However, in certain cases like change in employment, an individual may even withdraw the PF balance earlier. The point one needs to remember is that the amount received from such PF is not exempt from tax in all cases. Only under the circumstances listed below will the amount withdrawn from PF be eligible for such exemption from tax.

If the employee has rendered continuous service with the employer for five years or more. Again, if the balance includes amount transferred from the individual’s PF account maintained by previous employer(s), then the years of continuous service rendered to the former employer(s) would be included for the purpose of computing the five-year period.

If the employee has not rendered continuous service of five years, but the service is terminated by reason of the employee’s ill health or discontinuance of the employer’s business or reasons beyond the control of the employee, the amount will be tax-exempt.

Another tax-exempt case is when, on the cessation of the employment, the employee finds another job and the the accumulated PF balance is transferred to his individual PF account maintained by the new employer.

In short, where the PF amount is withdrawn before five years of continuous service, it may be taxable in the hands of the individual as if the fund was not recognised from the start of the contributions. In such a case, payment received by the individual in respect of the employer’s contribution along with the interest accrual thereon is taxed as “salary”. Interest on the employee’s contribution is taxable as “other income”. Payment received in respect of the employee’s own contribution is exempt from tax (to the extent not claimed as a deduction earlier).

I-T provisions provide that the trustees of a recognised PF or any person authorised by the regulations of the fund to make the payment of the accumulated balance to the employee should deduct tax at source while paying the amount. Further, the person liable to deduct tax has to issue the certificate of tax deducted at source (Form 16) within the specified time frame to the employee depicting the details of taxes withheld from the accumulated PF balance and also comply with other salary-related compliance necessities. So the next time you think of withdrawing your PF, you must as an individual also assess whether the same is taxable or exempt.

source: www.indianexpress.com

How to repay personal loan quickly

2012-02-10T17:48:00.000+05:30

More often than not many of us consider a personal loan as the best option to meet contingencies. Opting for a personal loan without studying its terms and conditions and services could cost you more than what you intended!

If you are stuck in a personal loan debt, here are some ways to free yourself:

Asset monetization

If you have one or more of these assets such as car, home, life insurance policies, tax saving certificates, shares, bonds and debentures, or gold jewelry, bank fixed deposits, or mutual funds, you could monetise them to pay off your debt. In fact, some banks offer loan against assets that carry a lower rate of interest which could be used to settle your personal loan.

Debt consolidation

Another effective way of dealing with your debts is through what is called debt consolidation. In this method, you could pay a relatively lower installment every month over a longer tenure to the lender who will combine all the components of your debt portfolio into one. Debt consolidation is an effective option if you have too many loans to take care of and not enough monetary capacity for astute financing as this method will give you a built-in view of your credit worthiness. Though beware that when you calculate the total loan cost in the long run, it might become expensive. However, the idea is to obtain a short term relief under the current circumstances. Once your finances improve aim to close the loan earlier than planned.

Top up or convert to a secured loan

If you had taken a home loan you can move to a lower cost credit by going for a top up on your current loan. Another viable option would be to talk to your bank and if they agree convert the current loan into a secured loan against your vehicles, house, but only if the property is free from debts, liens or mortgages. This way you can restructure the loan for a lower monthly payment after taking into consideration the loan tenure and the interest rate.

Perhaps, the only drawback in converting a personal loan into other loans having collateral is that you stand to lose the collateral at risk in case of default on your loan amount, which could mean a lot when there is a contingency in the future. Hence, it is advisable to convert your current debt into a secured loan only after analyzing your capacity to repay the secured loan so that you don’t stand to lose the collateral at risk.

Remember that even a single default on your personal loan could trigger unexpected after effects in the repayment of your current loan and getting a future loan. In cases of the first default, it is ideal for you to talk to your lender and find a way out. Under normal circumstances the lender could impose a penalty of roughly around 2% on the default amount, which will only add to your current burden! So strive to discuss any problems you face with the lender to seek advice on possible solutions.

Remember, a personal loan is always a risky alternative finance with a higher rate of interest and it is better to close the loan as early as possible.

Evaluate other options before you take up a personal loan

In a case of any eventuality you could try the other time tested avenues of finding emergency funds. Monetizing your assets, or selling off your shares, bonds or debentures or premature closing of your fixed deposit could help! If you are a salaried individual the best way to get funds to meet a contingency is to approach the bank where your salary credit is done. Having known your track record and your exact income and withdrawal transactions, the banks are the best option available for you to secure a loan. The rate of interest could be relatively lower for you, as you bank with them. The same option holds good for any businessman having a current/savings account with a bank.

You should opt for a personal loan only if you do not have any assets to monetize or other options don't work for you as interest rates are the highest next to only credit cards!

source: www.indianexpress.com

Smart Investment Tips for Mothers

2012-02-10T17:43:00.000+05:30

A mother handles myriad responsibilities in a household. It not only includes running the household, but also, as with many working mothers, planning and aspiring for the future needs for their children like their education, health and marriage.

While all mothers concentrate on executing these responsibilities with utmost diligence, they may not necessarily be aware of the most optimal way of reaching their own financial goals to ensure a good education and life for their children and hence the importance of financial planning.

The foremost step to financial planning for mothers is to identify and set their financial goals. Most working mothers contribute a certain amount of money every month towards their household expenses and child care, because of which their families are used to a particular standard of living. It, therefore, becomes important for working mothers to take care that they are not underinsured. Working mothers should also take care to have sufficient health insurance to protect themselves against accidents or sudden critical illnesses.

Similarly, while stay-at-home mothers may not be contributing financially towards the household expenditure, they are the glue of the whole family in every other way. It becomes essential therefore that they are not only insured but more important also covered against any critical illnesses and accidents.

The next key financial goal for any parent including mothers is saving for child’s education and marriage. While it may not be a financial burden for mothers in the initial years, the cost of education can become serious a matter of concern once the child goes to college. To reduce the burden of the exorbitant cost of education, mothers should start saving and investing for it as early as possible. There are various investment options available in the market to address this need such as child education plans in the market offered by insurance companies and some mutual funds as well as other form of savings.

Similarly for marriages, while gold has always an attractive investment option for most women, it is not a very highly recommended one, given the rising prices. Mothers can even explore investing in fixed deposits and balanced funds offered by mutual fund companies and insurance companies for medium to long term horizon. They can even look at investing in equities if they would require money in the time frame of 5-8 years.

For women who can afford the cost of equated monthly installment (EMIs), investing in real estate is also an excellent option if you would like to leave your children with a home. Working mothers can also avail tax benefits on home loan EMIs paid. In addition to these, roughly 6 months of the family monthly expenditure should be kept in liquid cash for any emergency or sudden expenditure arising in the family.

Lastly, apart from covering their life and saving for their children’s education and marriage, it is essential for all mothers to plan for their retirement. Women, especially working mothers, need to plan their retirement so that they are able to maintain their own standard of living without being dependent on children or anyone else. Apart from the provident fund for working mothers, which will give them a lump sum of money on retirement, they should also invest in retirement plans offered by life insurers and mutual funds.

Hence, the key to a good and efficient financial planning is to start investing as early as possible. Mothers, given the many members of their family they take care of, even starting early with small amounts will help them build a big corpus with the power of compounding.

source: www.indianexpress.com

Check status of deducted tax online

2012-02-10T17:37:00.001+05:30

Gone are the days where taxpayers would have to wait till the end of the financial year to receive their withholding tax certificates/Form 16s in the physical form. Now the income tax department has put in place a facility to enable taxpayers to view their tax credits online or through the internet.

The consolidated annual tax statement in Form 26AS is now available to PAN holders. The endeavour is to streamline and synchronise the tax paid/deposited under each PAN and identify and resolve discrepancies, if any, at an early stage. Discrepancies could arise due to reasons like incorrectly quoted PAN/non-filing of TDS returns/non-deposit/lower deposit of taxes by the deductor, and can be identified and resolved at an early stage.

The form is divided into three parts: Parts A and B include details of taxes deducted/collected at source (TDS/TCS) along with the details of the date on which payment was made, tax was deducted and deposited in the bank. Part C displays details of income tax directly paid by the taxpayer like advance tax/self assessment tax/regular assessment tax, etc, deposited in the bank by the taxpayer (PAN holder).

The procedure for registration to view the form online on the National Securities Depository Limited (NSDL) website is very simple. One should log on to the website tin-nsdl.com and register to view tax credit (Form 26 AS). Fill in the PAN number and contact details and choose a user ID and password and on submission, an acknowledgment number is generated. Visit any TIN-FC (facilitation centre) along with the acknowledgment number, original PAN card and a copy of the PAN card. Alternatively, you can choose to have an TIN-FC official visit your office or residence to verify the PAN. Generally, the user ID is activated within 24 hours of PAN verification and you can then login to your ID on the website tin-nsdl.com and view all your tax credits (TDS, TCS, advance tax/self assessment/tax paid) for a financial year.

This facility is available to a taxpayer having a net banking account with any of the authorised banks. The list of authorised banks is available on the TIN website and form 26 AS can be viewed only if the PAN is mapped to the bank account. Taxpayers registered with the website of the income tax department for e-filing of their tax returns can also view form 26AS by clicking on “View Tax Credit Statement (From 26AS)” in the “My Account” section. The facility to view tax credit online should enable taxpayers to crosscheck that taxes deducted at source from their income/directly paid by him or her are correctly recorded by the income tax department.

source: www.indianexpress.com

Make your Home Loan EMIs Manageable

2012-02-10T17:31:00.000+05:30

The Reserve Bank of India’s battle against inflation seems to be aimed at reducing consumption and demand through higher interest rates. The logic here is that once demand goes down, prices would start correcting and inflation be under control. However, despite last ten hikes, the spectre of inflation remains. And the direct fall-out of the rate hikes is the increasing burden on home-loan borrowers.

The current rate hike comes at a time when borrowers are already reeling under the pressure of increasing EMIs (equated monthly installments). Moreover, it is widely expected that the RBI may hike rates further. Since home loan is the biggest single cash outflow in the Indian households, it is important for a borrower to understand how a home loan works and the ways to reduce the burden.

Principal and interest component

In the initial few years, the interest is the main component in the EMI — around 80 to 85 per cent and rest is the principal. When the lender increases interest rates, the tenure of the loan is increased without disturbing the EMI amount. Ideally, a lender should ask a borrower before increasing the tenure but in practice most lenders just send an intimation letter without giving an opportunity to the borrower to make a pre-payment or increase the EMI to offset the increase in burden. Expert advises “As soon as you get the letter from the lender on increase in interest rate, sit with their executive and do the calculations. You would not want your tenure to be increased from 240 months to 400 months.” There is a limit, however, to which a lender can increase a borrower’s tenure. Once reaching that limit, the lender demands that the borrower make a part pre-payment or increase the EMI amount. Experts advise home loan borrowers to prepare themselves financially and mentally for more rate hikes in the near future.

Part prepayment

This is the time to liquidate investments such as fixed deposits to make partial pre-payment. An FD would give you a return of over 7 per cent post tax, while on a home loan you would be paying interest at around 11.5 per cent. Some part pre-payment would significantly take the pressure off. Along with the FD, you may also look at liquidating some part of your mutual fund or insurance investments in consultation with your financial advisor. If you are locked into an investment or do not have enough bank savings to make the pre-payment, you may look at extending the tenure of your loan.

Loan refinancing

Loan refinancing simply means taking a new loan to repay an old one. Avoid shifting your home loan to some other lender in these times as there is not much difference in the lending rates among various lenders. Only if you get a differential of 2 per cent or more should you look at balance transfer of loan.

Balance transfer to other lenders has its own cost implications and its better to do all the calculations while exploring such options. Through various online tools available on the internet, you may calculate the net outflow on taking a refinance decision. Though you may be able to reduce your EMI but if the tenure increases substantially, it will result in high net outflow making it a bad decision. It depends on your current ability to service the loan. If you feel that the cash saved every month on a lesser EMI can help you lead a better life, then it could make sense. However, if the refinance is going to result in a net outflow of more than 15 per cent of the current loan, it is better to stay away from it.

There have been instances when NBFCs increased the home loan rates which were significantly above the then prevailing market rates. In case your home loan rate is 2 per cent above the market rates, you must renegotiate the rates with the lender and if negotiations fail, refinancing can be a good option.

With further rate hikes expected, you would do well to do your calculations and take a hard look at your liquid assets that can come handy in case your home loan EMI becomes unmanageable. Do not forget to keep an eye on the increase in the tenure by the lender. Doing a little math at this stage would save you from sudden shock later.

KEY TAKEAWAYS

* EMI burden is set to increase

* Discuss payment schedule with lender

* Use FD/MFs to make part payments

* Exercise refinancing option if difference is at least 2 per cent

source: www.indianexpress.com

DTC: How will it impact Tax Payers

2012-02-10T17:29:00.000+05:30

The Direct Tax Code (DTC) is expected to be rolled out from April 1, 2012 and the proposed bill is likely to be tabled soon before the Parliament. In this article, we discuss how the proposed changes can impact your taxation under the DTC regime.

Salary Income

The limit for medical reimbursement is proposed to be enhanced from Rs 15,000 to Rs 50,000. But the exemptions in relation to Leave Travel Assistance, children education allowance and hostel allowance are missing in the DTC. Salaried class, in fact, would need to wait to know the real impact as rules for valuation of perquisites have still not been rolled out.

Rental Income

Those having rental income will have to pay little more under DTC as the standard deduction is proposed to be reduced from 30 per cent to 20 per cent. The concept of taxing income from house property on notional basis has been done away and it is the income from actual letting which would be taxed.

Capital gains

The concept of long term capital gains (LTCG) and short term capital gains (STCG) has been done away with, in the DTC. Capital gains would be taxable as income from ordinary sources at applicable slab rates. Individuals falling under 30per cent tax bracket having any taxable LTCG are presently taxed at 20 per cent. Such individuals may end up paying 30 per cent tax on such gains under the DTC regime. The LTCG gain arising from shares or equity linked mutual funds (assets) on which STT has been paid would continue to be not taxable as under the DTC 100 per cent deduction is to be allowed from such gains. However, individuals falling in the tax bracket of 10 per cent or 20 per cent and having STCG would pay lower tax at 5 per cent or 10 per cent respectively as 50 per cent deduction has been proposed from such gains under the DTC. STCG from such assets presently suffer tax at 15 per cent.

The benefit of indexation is proposed to be provided in respect of assets transferred after one year from the end of the fiscal year in which it is purchased. The date of considering the fair market value as on April 1, 1981 is also proposed to be advanced to April 1, 2000.

Deductions

DTC proposes to restrict the deduction of Rs 1,00,000 only to the approved funds, namely, approved provident fund, pension fund, superannuation fund, PPF etc. However, an additional deduction of Rs 50,000 has been proposed to cover payments such as life insurance premiums (where premium not to exceed 5 per cent of sum insured), health insurance premiums and the tuition fee. The principal repayment of housing loan, 5 year term deposits with banks or post offices or deposits in senior citizens saving schemes, non pure life insurance premiums etc will no longer be eligible for deduction under the DTC.

Others

Currently, Indian citizens qualifying to be ordinarily resident are subjected to wealth tax in India on their wealth situated anywhere in the world. Assets situated outside India are excluded from the taxable wealth in case of non-residents or even for any ordinarily resident foreign nationals. Under the DTC, ordinary residents be taxed on their wealth situated anywhere in the world irrespective of whether such individuals are citizens of India or not. Although the taxable wealth exemption limit is proposed to be enhanced from Rs 30 lakh to Rs 1 crore, but the definition of taxable wealth is also proposed to be expanded.

Also, Indians settled abroad who come to India on visit may trigger global taxation in India sooner due to certain changes in the tax residency provisions under DTC.

Although the prime objective of DTC is to simplify the provisions, but taxpayers do expect to see simplifications on ground, that is, timely receiving of refunds, less hassles at tax offices etc. One will have to wait for the final print to see what the DTC actually brings.

source: www.indianexpress.com

What to do with your Annual Bonuses?

2012-02-10T17:27:00.003+05:30

It’s Feb. Apart from the heat, it’s also the season for your annual performance bonus.

A few of you may already have made plans for the use of this money as soon as it hits the salary accounts. But many of you must be wondering what to do with this money. Often this money gets spent in an unplanned manner and afterwards, you may repent and wish that you had used the money in a better way.

Here is a list of financially prudent things to do (in the order of priority) with your annual bonus rather than blowing it all up in one massive binge.

Build up your contingency fund –

You should build up your contingency fund to at least 3 to 4 months of expenses in case you haven’t done that already. Building up a contingency fund is a crucial part of your financial plan. This contingency fund can be maintained in the form of bank FDs (try opting for sweep in sweep out option if your bank offers) or liquid mutual funds. Contingency fund comes in to picture in case of emergencies like job loss, illness or any other condition due to which one is not able to earn any sort of income for a few months.

Prepay your expensive loans –

In case you are having expensive loans like credit card debt, personal loans, gold loan, loan against security, or such where you are paying high interest rate, you should choose to utilize your annual bonus to prepay these loans and closing them even if there is a stiff pre-payment penalty. This will save you a lot of interest which you are going to pay in future. You can also consider repaying relatively lower priced loans such as home loans and education loans after seeking advice from your financial planner or tax consultant.

Tax planning –

Most of you may try to allocate the money towards tax planning by buying tax savings mutual funds to get deductions under section 80C. Tax savings through equity based instruments should always be done systematically and never in lump sum. Investment in to equities should always be systematically over a period of time rather than putting money in lump sum. So, in case you are planning to invest the money into tax savings mutual fund schemes, you should keep the money in liquid funds or your savings bank account with sweep in and sweep out option and invest the money through Systematic Investment Plan (SIP)/Systematic Transfer Plan (STP) over the balance part of the year.

Save for your future goals –

Keep this money aside for any goals you had in mind but you were not able to save enough or at all for the goal due to shortage of funds. You should invest this money wisely with an appropriate asset allocation between equity and debt keeping your time horizon in mind. In case your time horizon is sufficiently long (more than 5 years), a significant proportion (around 80%) of your bonus amount can be allocated towards equity based instruments. The remaining amount should be invested in appropriate debt products. Also consider balanced funds which give you this kind of asset allocation anyways with tax advantage to boot. While investing in equity products, please remember to do it over a period of time and not in a lump sum.

In case you have a goal which is just a few months away, for example, if you are planning to buy a home in time horizon of less than 3 years, then investment in equities is not prudent. You should choose appropriate debt products like bank FDs, Fixed Maturity Plans and Income Funds etc. for these kinds of investments. Also you should choose debt products in case you are awaiting any investment opportunity anytime in near future.

Of course a certain portion of the annual bonus can be used to go on that dream holiday that you have planned or that LCD TV or home theatre which you have been planning to buy. If at least a significant portion of the annual bonus has been used in the other alternatives, you can splurge guilt free on these kind of expenses.

Ideally you should sit with your financial planner and have a plan in advance on how to use the annual bonus.

source: www.indianexpress.com

Set up an Office at Home

2012-02-08T10:45:00.000+05:30

It may help cut down on rent and commuting cost, but check the legal and operational limits before doing so.

Who can set up an office at home?

Full-scale commercial usage of residential flats is often opposed by cooperative housing societies, a certain percentage, or in some cases, a fixed area, is legally marked for official use. This area can vary across the country and even within the city, and you will have to go through the different state laws, local or housing society by-laws to find out the exact figure. For instance, within the Mumbai Metropolitan region, an area of 220 sq ft can be used for certain commercial activities. The rules are as valid for apartments as for independent houses. The usage is also confined to professions, such as those practiced by doctors, lawyers and chartered accountants. Besides, activities like teaching painting or dancing, holding yoga classes, tuitions, or conducting cookery classes, are also allowed in a residential area.

The dual usage of space has been allowed after various court rulings and Acts passed over the past five decades. In one such ruling, the Maharashtra State Cooperative apellate court favoured a resident of Ghatkopar, Mumbai, in 1986, stating that activities such as conducting yoga classes in a residential flat did not breach the by-laws of the cooperative housing society. According to the ruling, professional activities, such as teaching of certain art forms, would not be viewed as commercial activity, even if charges are levied.

In another case filed under the Karnataka Shops and Commercial Establishments Act, 1961, it was ruled that the use of residence as an office by CAs, lawyers and doctors would not be considered a commercial activity. The premise was that the work and skill involved in such professions are predominantly mental or intellectual rather than physical or manual.

However, these should not be considered as blanket rulings.

Seeking mandatory approvals

Before you convert a part of your house into an office, you will need to acquire permission from various authorities. If you don’t, the business will be considered illegal.

You need three types of approvals.

1. Permission from the local municipal authorities

Explaining the kind of commercial activity and the area you will require to conduct the business. Once the go ahead is given, commercial charges will be applicable on property, water and other taxes paid on the said property. Even electricity charges will be levied according to the commercial rates applicable in that area, the size of the property and the commercial activity conducted. A person will also need a shop and establishment license from the local municipal authorities before starting the business.

2. Permission from the town planning authority

Since certain zones are demarcated in the town as residential commercial areas, one will need permission from the town planning authority before starting a commercial activity.

3. Approval from the housing society where the flat is situated

If the person is a tenant, he will need a no-objection statement from his landlord as well. The society may levy higher building maintenance and parking charges on such flat owners.

Pros and cons

Pros:

You can save on rent. The savings will be higher if your current office is in an expensive commercial/ business area. As you won’t have to buy the same equipment for your home and office, such as a printer or furniture, you can shave off more expenses.
You can devote more time to the family, which is beneficial if you have young children or elderly parents, who need constant care.
One of the biggest savings is on commuting time, which could be channelled towards more productive pursuits.
Working from home also means that you can be your own boss and fix your timings to accommodate other tasks that need to be completed also you can develop a flexible office schedule.

Cons:

Your productivity may fall if there are no deadlines or job pressure or if the demands of home are greater and become more time-consuming.
If you aren’t diligent about your work schedule, it could impact productivity, or you could find yourself more involved with personal and familial work.
The absence of colleagues and collegial atmosphere may also lead to a diminished competitive spirit.
Office and home help to de-stress the pressure in each sphere. You could feel high-strung if you are overworked on both the fronts.
There could be the problem of neighbours, who could create a fuss if the number of visitors is large as it may lead to more parking problems and greater commotion in the area.

Despite the charges paid to the society and local municipal authorities, you could end up saving 30-40%:

1) On lease compared with the amount and

2) Charged by commercial establishments.

Source: ET Wealth

PUBLIC PROVIDENT FUND - PPF

2011-12-13T17:14:00.005+05:30

The key to wealth creation lies in the practice of saving regularly and systematically. The Public Provident Fund (or the PPF) is one such long-term investment option that would suit investors of all types. Scoring high on safety, by virtue of it being government backed, this wonderful option comes with tax benefits, loan options and a low maintenance cost.

Scheme Availability

A PPF account can be opened at anytime during the year. It is open all through the year.

Who can open a PPF account?

A PPF account can be opened by an individual on his own behalf or on behalf of a minor of whom he is the guardian or on behalf of an association of persons or a body of individuals. An individual can open only one account for himself.

Mode of Operation

Single
Minor with parent/guardian

Returns

Interest 8.6% p.a. (earlier 8.0% p.a.) (Compounded annually) is credited to the PPF account at the end of each financial year.

The interest rate in your PPF account is calculated on the lowest balance between the fifth and the last day of the month. So to maximize your earnings, try making deposits between the 1^st and the 5^th of the month. Interest is compounded annually and credited on 31^st of March each year.

Investment Limitation

Min Amount: ` 500/- and additional investment in multiples of ` 5/-

Max Amount: ` 1,00,000/- (earlier ` 70,000)

You could vary the amount and the number of installments, as per your convenience, provided you do not exceed 12 installments in one financial year.

Tax Benefits

Deposits in a PPF account qualify for a deduction under section 80C. Furthermore, the entire maturity amount including the interest is non-taxable. Not only is the interest earned tax free, PPF deposits are exempt from wealth tax too.

Tenure of Investment

15 years from the date of initial investment with a block of 5 years there-after up to a max of 30 years incl. 15 years.

Maturity

The PPF account matures after 15 years. One can then exercises on option of continuing the account for an additional block of 5 years or close it.

Continuing PPF after the 15 year period

PPF account holders have an option of extending their accounts after the 15 year tenure with or without further subscription, for any period in a block of 5 years. The balance in the account will continue to earn interest at normal rate as admissible on PPF account till the account is closed. In case the account is extended without contribution, any amount can be withdrawn without restrictions. However, only one withdrawal is allowed per year. If you continue the account after 15 years, with continued deposit, withdrawal up to 60 per cent of the balance at the beginning of each extended period (block of five years) is permitted

Withdrawal

The entire amount in your account could be withdrawn only on maturity. However, in times of financial crises partial withdrawals are permitted subject to certain ceiling limits. You could withdraw once a year, from the 7^th year onwards. Such withdrawals, must not exceed, 50% of the balance at the end of the fourth year, or 50% of the balance at the end of the immediate preceding year, whichever is lower, less the amount of loan if any.

Loans

You could take a loan on your PPF deposit, subject to certain terms and conditions. The first loan could be taken from the third year onwards till the sixth year. Up to a maximum of 25% of the balance at the end of 2nd immediately preceding year would be allowed as loan. Such withdrawals are to be repaid within 24 months. Rate of interest charged on the loan would be 2% more than the PPF interest rate prevailing then. A second loan could be availed as long as you are within the 3rd and the 6th year, and only if the first one is fully repaid. Also note that once you become eligible for withdrawals, no loans would be permitted. Inactive accounts or discontinued accounts are not eligible for loan.

Transfer

The account can be transferred at the request of the subscriber from one office to another, including from Bank to Post Office and vice- versa all over the country.

Nomination

Nomination can be done at the time of opening the account or during the tenor of the account.

A subscriber may nominate one or more persons to receive the amount standing to his credit in the event of his death. No nomination can, however, be made in respect of an account opened on behalf of a minor.

In the event of the death of the subscriber, the amount standing to his credit can be repaid to his nominee or legal heir, as the case may be, even before the expiry of fifteen years. Legal hairs can claim the amount up to Rupees One Lakh without production of succession certificate after observing certain formalities.

Payment Default

If the PPF account-holder fails to deposit the minimum ` 500 in a given financial year, the account is considered as discontinued but the interest will continue to accrue and be paid at the end of the term. Loans and withdrawals are not allowed. This account can be revived on payment of a fee of ` 50 for each year of default, along with the arrears of subscription of ` 500 for each such year

Termination of an Account

No PPF account can be terminated before its completion. However, if requests for premature closure of PPF accounts and refund of deposits from the subscribers are genuine in nature, such cases can be dealt with under Rule 13 of the scheme.

Since no withdrawal is permissible before the expiry of four years from the end of the year in which the account was opened vide para 9 (withdrawal) of the scheme, the request for termination or closure of accounts can be considered only after the expiry of the said period. For example, the request for premature closure of accounts opened in 2010-11 can be considered only after 1.4.2016. Such requests may, therefore, be forwarded to the Ministry of Finance along with the following information -

Name and address of the account holder
Account number
Date on which the account was opened
Loans availed of if any from the account with dates and position regarding repayment
Satisfactory reasons given for the request and evidence in support thereof
Designation and address of the income tax authority under whose jurisdiction the subscriber falls
Any other information relevant to the request.

Free from any Attachment

A PPF account is free from any attachment under any order or decree of a court in respect of any debt or other liability incurred by him.

PPF for NRIs

Non Resident Indians may also open a PPF account out of the funds in the applicant's non-resident account in India in banks subject to the following conditions -

The account is marked as non-resident account.
All credits therein or debits thereto are made subject to the same regulations as are applicable to non-resident account.

TIPS FOR INVESTING

Best for long term investment.
Apart from a Post Office, a PPF account can also be opened in SBI and its associates and other select nationalized banks.
The most popular tax saving instrument where deposits in a PPF account qualify for a deduction under section 80C. Furthermore, the entire maturity amount including the interest is non-taxable. Not only is the interest earned tax free, PPF deposits are exempt from wealth tax too.
A PPF account cannot be attached by the Govt. or any court of law or through any decree.
To maximize your interest earnings, try making deposits between the 1^st and the 5^th of the month.

Do you need to pay tax on receiving a gift?

2011-11-21T12:25:00.001+05:30

If the value of the gifts received by you during a year is above 50,000, you will have to pay tax on it. However, there are a few exceptions to this rule.

According to the Income Tax Act (as well as the Direct Taxes Code, which is likely to come into effect from 1 April 2012), if you receive a gift whose value exceeds 50,000, it will be clubbed with your income and you will have to pay tax on it. This rule is also applicable if the combined value of all the gifts received by you during a financial year exceeds the limit. If the total value of your gifts exceeds 50,000, you have to pay tax on the entire amount, not simply on the difference.

This rule applies even in cases where you have bought a product from someone at a much lower price than its fair value. For instance, if the depreciated value of a car is 4.5 lakh, but you buy it for 3 lakh, the balance 1.5 lakh will be considered as a gift and clubbed with your income. However, if you pay 4.1 lakh, you will not have to pay tax as the value of the gift (or the balance amount) is less than 50,000. The fair market value of a gift is the price that it would fetch if it is sold in the open market on that particular date as determined by a registered valuer. For real estate, the stamp duty value will be considered as the market value.

Gifts given by specified relatives are exempt from tax, regardless of their value. Such relatives include spouse, siblings, brothers or sisters of spouse/parents, grandparents and grandchildren as well as their spouses. Also, if a property is bequeathed to you under a Will, given on the occasion of your marriage or gifted by a local institution/authority, you won’t be taxed. A gift given in contemplation of death by the donor will also be exempt. If a person knows that he is going to die in a few days and gifts his assets to a person, the recipient is exempt from paying tax. However, if you receive an expensive gift during an engagement, anniversary or birthday party, it will be taxed.

Under Section 56 of the Income Tax act, the value of the gift is clubbed with your total income and taxed according to your tax slab. For example, if you receive a gift worth 10 lakh in a financial year, it will be clubbed with your income. As this amount will put you in the highest income bracket, you will have to pay a 30% tax, plus surcharge, on your total income.

In case you earn an income from the gift, it will be taxable under the heading ‘Income from other sources’. For instance, if you get rental income from a house that has been gifted to you, this will be taxed. A gift given to your minor child or income from that gift will be clubbed with your income. Suppose, you have gifted a house or shares to your minor child (or spouse), it will be tax-exempt. However, the rental income or dividend earned will be clubbed with your income and taxed accordingly. But if you give such assets to your parents, who have no source of income, the income earned from it will be considered as their income. This can help you reduce your tax liability.

If you have received real estate as a gift, it is advisable to get a gift deed signed by the donor or get the property registered with the registrar. This will help you avoid legal hassles in the future. However, you should be careful as a gift deed, once signed, cannot be revoked. In case you are gifting real estate, you can add a condition/clause stating that if the recipient dies within your lifetime and does not have any descendants, the property should return to you. Property cannot be gifted to a foreign national though you can gift residential or commercial property to an NRI. However, you cannot give him agricultural/plantation land.

You need to be careful about assessing the gifts you have received in a year while filing your income-tax return. If you fail to do so, not only will you have to pay the interest liability on your outstanding payments, but could also end up paying a fine that is one to three times the amount of tax you were supposed to pay.

What can be gifted?

1. Real estate, which includes residential and commercial structures, as well as land.

2. Paintings and sculptures.

3. Archaeological artefacts.

4. Jewellery, as well as gold and silver bars and coins.

5. Stocks and bonds of companies.

When is it exempt from tax?

1. If the total value of the gifts received in a financial year is less than 50,000.

2. If the asset has been gifted by specified relatives, regardless of its value.

3. If you have received the gift on your marriage.

4. If the asset has been bequeathed to you through a Will.

source:economictimes.com

Consequences of Late Filing of Income Tax Return !!!

2011-06-30T10:43:00.000+05:30

Season of filing income tax return has just started. 31st July is the due date for filing tax return for individuals and others who are not required to get his accounts audited u/s 44AB of the I T Act. So, here is a quick update on four penal provisions related to late filing of return of income.

1. Pay interest u/s 234A

If you file return after due date , and after processing u/s 143(1) or after assessment u/s 143(3) or 144 of the I T Act, the tax arises, interest u/s 234A shall be charged for late filing of return which is imposed for period starting from the month after the due date (in case of individual 1st August as the due date generally falls on 1st July)

2. No carry forward of business or capital loss

Section 80 of the I T Act provides that following loss cannot be carried forward if the return is not filed within due date

a. Business Loss ( including speculative loss)

b. Capital loss (short term or long term loss)

c. Loss in race horse maintenance

3. No revised return facility

Income tax Act, u/s 139(5) provides facility to revise the return within one year from the end of the month in which the return was filed or assessment order passed , which ever happened earlier. This facility of revising return is available to tax payer only if

a. Return is filed u/s 139(1) i.e. within due date. or

b. Return is filed in pursuance of notice u/s 142(1) of the I T Act.

4. Eight kinds of exemption /deduction not allowed

Exemption u/s 10A or 10B or deduction u/s 80IA,80IB,80IC,80ID & 80IE are not allowed if the tax return is not filed within due dates.

Trusts may have to park funds with EPFO

2011-06-27T10:24:00.000+05:30

More than 2,000 establishments that manage their employees provident fund accounts may soon have to handover the entire corpus to the Employees' Provident Fund Organisation, or EPFO. The top policy-making body of EPFO, the Central Board of Trustees, has endorsed a proposal, which seeks to take away the trusts' right to manage the funds. The move is aimed at securing the retirement savings of nearly five million subscribers who have contributed an estimated Rs 1 lakh crore to the corpus of these trusts. Hundreds of organisations turn sick every year and fail to pay the provident fund dues to their workers, Labour Secretary PC Chaturvedi said. "The new provision would ensure that workers' money is safe in such cases," he said. The EPFO has submitted its proposal to the labour ministry, which is now preparing a Cabinet note to amend the Employees Provident Fund and Miscellaneous Provisions Act of 1952.

source:economictimes.com

Tax gifts to spiritual gurus as income

2011-06-27T10:23:00.000+05:30

The common view is that gifts received in individual capacities – not as trustees of public trusts – should be liable to tax. Issues have arisen before courts regarding the taxability of gifts received by the heads of religious and spiritual bodies under the Income-Tax Act, 1961 (Act). The majority view seems to be that such gifts received in individual capacities – not as trustees of public trusts for them – should be liable to tax. However, the Madras High Court in its recent decision in the case of CIT v. Gopala Naicker Bangaru, (2010 236 CTR (Mad) 82, has held that such receipts are not taxable. The assessee in the case before the High Court (HC) is the head of a religious cult. Devotees ‘make their offerings for contribution voluntarily to him at the time of his birthday and the same has been accounted for as capital receipts'. During the previous year relevant to A.Y. 2004-05, he received Rs1.75 crore as gifts on his birthday. The A.O. ‘treated the gifts as having nexus to his profession as a religious head' and taxed the same. The CIT(A) allowed the appeal of the assessee on the ground that the ‘gifts are not consideration for profession/vocation' following the decision in CIT v. Vanamamalai Ramanuja Jeer Swamigal, (1998) 231 ITR 632 (Mad). The Tribunal upheld the CIT(A)'s decision on the ground that the gifts received have no direct nexus with any of his activities.

source:thehindubusinessline.com

Salaried Individuals with Total Income up to Rs 5 Lakh Exempted from Filing IT Return

2011-06-24T18:06:00.000+05:30

Salaried individuals with total income up to Rs 5 lakh will be exempted from filing income tax return for the assessment year 2011-12.

The finance ministry notified the scheme on Thursday, which will allow only those individuals not to file an income tax return who are getting salary from a single employer with total income of Rs 5 lakh after allowable deductions, and interest income from deposits in a saving bank account up to Rs 10,000.

In his budget speech for 2011-12, Finance Minister Pranab Mukherjee had proposed to exempt salaried employees from filing tax returns in order to reduce the compliance burden on small taxpayers. According to the Memorandum to the Finance Bill 2011, the government was to be issue a notification exempting 'classes of persons' from the requirement of furnishing income tax returns.

The Central Board of Direct Taxes has notified the scheme, under which such individuals (with income up to Rs 5 lakh) must report their Permanent Account Number (PAN) and the entire income from bank interest to their employer, pay the entire tax by way of deduction of tax at source, and obtain a certificate of tax deduction in Form No 16.

Individuals receiving salary from more than one employer, having income from sources other than salary and interest income from a savings bank account, or having refund claims shall not be covered under the scheme.

The finance ministry also stated that the scheme shall also not be applicable in cases wherein notices are issued for filing the income tax return under section 142(1) or section 148 or section 153A or section 153C of the Income Tax Act 1961.

How to operate a Joint Bank Account

2011-06-24T15:41:00.001+05:30

Banks have several deposit schemes that can be customized for people with varying needs. Deposit accounts can be opened by an individual in his own name (single account) or by two or more individuals jointly (joint account).

Banks offer different types of joint account relationships. Here are a few.

EITHER OR SURVIVOR

This is the most common type of joint account and is applicable between any two individuals. For example, if a husband and wife have a joint account with ‘either or survivor’ clause, either of them can operate the account and in the case of the death of one of the depositors, the other can continue or the final balance in the account along with all interests (as applicable at the time of closure) will be paid to the survivor.

If there is a nominee for the account, the conditions will be the same and the nominee gets access to the funds on the death of both the account holders.

ANYONE OR SURVIVOR

This type of account is normally held when more than two individuals start an account jointly. Here, any of the depositors can operate the account at a time and in case if any of the depositors expire, the others can continue the account and if required, the final balance along with interest will be paid to any of the survivor/s as requested.

FORMER OR SURVIVOR

In this type of joint account, only the first account holder can operate the account. The second depositor gets the right only on the death of the first after undergoing some basic formalities like submission of proof of death etc.

LATTER OR SURVIVOR

This is similar to the former or survivor, but the difference is that, in this type of account, only the second account holder (latter) can operate the account. The survivor or the former account holder gets access to the fund only on death of the latter and on producing the proof for the same.

MINOR’S ACCOUNT

A savings bank account can also be opened in the name of a minor jointly with a guardian. Here, only the guardian is supposed to operate the account on behalf of the minor. The guardian should be parents or in special cases, a legal guardian, as appointed by court. Some banks allow minors above the age of 12 to open and operate accounts independently.

THINGS TO REMEMBER

• Any mandate / power of attorney for operating a joint account or authorizing another person on behalf of the depositors, is to be given by all account holders or with the consent of all account holders.

• All operational instructions and information in connection with the relationships formed is to be given by all the joint account holders irrespective of the mode of operation.

• If there is a nominee to a joint account, the nominee gets access to the account only when all the account holders cease to exist. In case if both the account holder and nominee is no more, the legal heirs of depositor/s will get the funds.

• Individuals jointly running a business can open only a current account for business transactions. In case of current accounts, only the person authorized by the company / management will have the authority to operate the account.

• In case of a joint account, all the depositors are singly and jointly liable for overdraft if any, even if the application / demand promissory note is signed by one of them.

• Financial transactions through net banking, will be available if the mode of operation is indicated as 'either or survivor' or 'anyone or survivor'. The user of net banking in that case should either be the sole signatory or the authorised to act independently. User-ID and password for net banking will be issued to all account holders on request.

• Those who enter a joint account should be aware that all partners are liable for all the dealings in an account as a single or joint entity. So joint accounts should be opened only with someone you can trust.

Individual accounts may meet court restrictions and delays on the death of the account holder, in the absence of a nominee. This is not the case in a joint account where the survivor of the account is entitled to the balance, without any legal restrictions.

source:in.reuters.com

Changes in Schedule VI – Old vs New (Revised)

2011-06-22T17:36:00.001+05:30

Ministry of Corporate Affairs (MCA) had revised Schedule VI of Companies Act, 1956 and notified the same on 1^st March 2011. The refreshed Schedule VI shall apply to all companies from 1^st April 2011 onwards.

The revised Schedule VI introduces many new concepts and disclosure requirements and does away with several statutory disclosure requirements of the existing Schedule VI. The New Schedule VI is as per the currently in use non-converged accounting standards as under Companies (Accounting Standards) Rules, 2006.

Changes in Revised Sch VI

The changes brought in revised format have been segregated in the following manner: -

Balance Sheet
Profit & Loss A/c

General Changes

1. While both Vertical and horizontal forms of presentation were allowed under old schedule VI, only vertical form is allowed under revised Schedule VI.

2. Once a unit measurement is used, it should be used uniformly in the Financial Statements.

Changes in Balance Sheet

Liabilities

1. Change in nomenclature – “Sources of Funds” has been replaced with “Equity & Liabilities”

2. Share Capital – Company would need to show in sub-head à Shares held more than 5% in company along with number of shares

3. Debit Balance of P&L A/c shall now be shown as negative figure under head Surplus

4. Liabilities will now broadly be classified as

Current Liabilities &
Non Current Liabilities

5. Deferred payment liabilities and loans & advances from related parties to be shown separately under head “Long term Borrowings”.

6. Provisions to be classified as Short Term Provisions & Long Term Provisions

Assets

1. Change in nomenclature – “Application Of Funds” has been replaced with “Assets”

2. Fixed Assets to be further classified as

Tangible
Non-Tangible

4. Current Assets are to be shown under separate head.

5. “Sundry Debtors” have now been named “Trade Receivables”

6. “Cash and Bank Balances” have now been termed as “Cash and Cash Equivalents”. Classification under this head has been completely revamped.

7. Inventories – Goods in transit shall be disclosed under the relevant sub-head of inventories

8. Misc expenditure (to the extent not written off or adjusted) shall now not be shown separately under head “Other Current Assets”

9. The amount of dividend proposed to be distributed to shareholders (equity and preference) for the period and amount per share to be disclosed separately

Changes in Profit & Loss A/c

1. Under head “Other Income” - Net gain/loss on foreign currency translation and transaction (other than finance cost) shall be disclosed separately.

2. Employee benefit expense shall disclose additionally expense on account of Employee stock option scheme (ESOP)

3. Following shall now be disclosed separately –

Provision for loss of Subsidiary companies

Net loss on sale of Investments

Details of exceptional and extraordinary items

Prior Period items

Adjustment to carrying amount of investments

4. A new format has been issued for face reporting of Profit & Loss A/c.

Impact of Revision in Schedule VI

1. The revised schedule VI intends to familiarize companies with Ind-AS/IFRS by using certain concepts such as current/non-current classification.

2. The revised Schedule VI has eliminated the concept of schedules and such information will now be provided in the notes to accounts. This is as done when applying IFRS.

3. From now on, the compliance requirements of Act and/or Accounting standards will prevail over schedule VI.

4. Better presentation, disclosure is intended to facilitate better organised data for users of financial statement.

Post Office Deposits to attract Income Tax from this year

2011-06-22T17:30:00.000+05:30

In an attempt to monitor all deposits made under post office schemes and bring them at par with bank interest earnings, the Central Board of Direct Taxes (CBDT) has notified that income from post office savings schemes will be taxed from the current financial year.

By making it mandatory for individuals to declare investments in their tax returns, Income Tax Department has brought all such deposits under its scanner.

A CBDT notification said a declaration to this effect has to be made in the income tax returns filed by an individual. Any income earned beyond Rs 3,500 annually in case of individuals and Rs 7,000 in case of joint accounts will be taxable, the notification said.

By setting a minimum limit of Rs 3,500 on interest earnings, the Income Tax Department has exempted small depositors who get 3.5% interest. Thus, a small depositor with a maximum saving of Rs 1 lakh, and Rs 2 lakh in case of joint account holders, won’t have to pay any tax.

Small and marginal farmers who generally invest in post office schemes would thus be exempt from the new levy. Tax will be applicable for only those who invest in post office instruments more than the prescribed limit.

“This is done to minimize and phase out tax deductions and exemptions,” CBDT spokesperson Shishir Jha said. The government is slowly moving towards the Direct Tax Code which seeks to phase out tax deductions.

Interest earnings from bank savings account are taxed by the government. This will also bring post office earnings at par with earnings from banks. Post office deposits had swelled over the years both from small and large investors. All such deposits were going under the radar of the tax investigators. There was no mechanism to keep a check.

Basic Money Tips Your Father Must Have Taught You

2011-06-22T17:22:00.000+05:30

Lately I have been thinking about the basic financial education that your father must have taught you. I interacted with a number of young people and discussed the same and was surprised to note that many of them didn’t have any basic understanding of how finances work.

So I thought of sharing basic financial education tips with everyone. The tips that I’m about to share with you are the result of my past mistakes and hard-earned experience.

1. Limit your Debt

A debt today will narrow your capacity to make choices in the future. If you do, you’re essentially spending tomorrow’s wages today. It will make you indentured servant to your lenders. Limiting your debt will help you more control over your life as you get older.

2. Needs vs. Wants

It is very important that you understand the difference between needs and wants. You will have to make many hard choices in life. Just have patience, a time will come when your salary will rise and with it, so will your purchasing power. Moreover, by saving and investing your hard earned funds, you would also be able to get a handsome return on your money.

3. Love your Job

Luck helps many to be successful but the real source of success is found through lots of hard work tied with a serious interest for whatever you do. If you want to end up making your own luck, just make sure that you find a job that you really love.

4. Importance of Savings

Financial freedom could only be attained if you spend less than you earn. Start saving, it will enable you to roll through emergencies, retirement and will pay you a great future for your golden years.

5. Non-Monetary Happiness

Never think that you have to be “rich” to attain financial freedom. There are lots of examples showing that people earning millions per year aren’t financially free and people earning much less are financially free. Financial freedom is more about a state of mind, always remember a rich life is defined by the things money can’t buy.

6. Be Responsible

Be courageous and take responsibility for all of the troubles that are direct or indirect result of your own judgment. Always keep in mind that you alone control your own destiny. Moving on an easy route and ignoring all important signs can result in as the biggest mistake of your life.

These tips will definitely help you achieve financial freedom and will help you tackle financial problems.