Monday, March 16, 2009

This is Stock Market -Humour

Once upon a time, in a village, a man appeared and announced to the villagers that he would buy monkeys for $10 each.

The villagers seeing that there were many monkeys around, went out to the forest, and started catching them. The man bought thousands at $10 and as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and people started going back to their farms. The offer increased to $25 each and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it! The man now announced that he would buy monkeys at $50 ! However, since he had to go to the city on some business, his assistant would now buy on behalf of him.

In the absence of the man, the assistant told the villagers. "Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when the man returns from the city, you can sell them to him for $50 each." The villagers rounded up with all their savings and bought all the monkeys. Then they never saw the man nor his assistant, only monkeys everywhere!

Moral of the story: Don't be greedy.

Wednesday, March 11, 2009

Saturday, March 7, 2009

Thursday, March 5, 2009

How do taxes affect my salary?

When is my income treated as salary income?
If you are an employee in any organization, and you get a monthly salary, this income is treated as ‘salary income’ for tax purposes. That means, if you are a freelancer or are hired by an organization on contract basis, your income would not be treated as salary income. (In such case your income would be treated as income from business and profession).

How much tax do I have to pay?
This depends on how much your taxable income works out to. Taxable income is the total of all those components of your salary that are taxable. It also considers all investments that you have made to save tax. The tax is then calculated on the basis of following slabs:

For men:

Up to Rs 1.5 lakh: Tax free

From Rs 1.5 lakh to Rs 3 lakh: 10 per cent

From Rs 3 lakh to Rs 5 lakh: 20 per cent

Above Rs 5 lakh: 30 per cent

For women:

Up to Rs 1.8 lakh: Tax free

From Rs 1.8 lakh to Rs 3 lakh: 10 per cent

From Rs 3 lakh to Rs 5 lakh: 20 per cent

Above Rs 5 lakh: 30 per cent

What are my salary components and how are they taxed?
Your salary is broken up into several components, like basic, HRA, special allowance etc. The main reason for doing this is to make your salary tax effective; to ensure that you pay minimum tax on your salary. Here is a run down on the various common components and how they are treated according to the tax laws.

Your basic salary is fully taxable.

Dearness Allowance (DA)
This is an allowance given to you to compensate for inflation or rising prices. DA is fully taxable.

House Rent Allowance (HRA)
This is an allowance that you get from your employer to compensate you for the rent you may be paying. But this component is tax-free only if you are actually paying rent. If you live in your own home, this component is taxable.

If you are paying rent, there are certain conditions just to ensure that you do not claim a higher rent reimbursement, to get a greater tax benefit. Out of your total HRA component, the least of the following three amounts will be deducted as tax free. The remaining will be taxed.

If you are in Mumbai, Kolkata, Delhi or Chennai:

HRA actually received OR
Rent paid in excess of 10 per cent of salary OR
50 per cent of salary

If you are in any other city:
HRA actually received OR
Rent paid in excess of 10 per cent of salary OR
40 per cent of salary

How to calculate taxable amount
Step 1 – Take the figure of HRA received during the year
Step 2 – Calculate the lowest of the three amounts mentioned in the table above according to the city you are staying in
Step 3 – Deduct Step 2 from Step 1
The balance is taxable

Conveyance allowance
You get this allowance to meet your traveling expenses from home to work. An amount of up to Rs 800 per month is exempt from tax. If your employer pays you a monthly conveyance allowance of more than Rs 800, then you will have to submit proofs such as fuel and petrol bills for that excess amount to claim tax exemption. If you don’t, then you have to pay tax on it.

Children Education Allowance and Hostel expenditure allowance
Your employer can pay you an amount of Rs 100 per month per child for up to two children towards children’s education. He can also pay Rs 300 per month per child for up to two children towards hostel expenditure. Both these are tax-free.

Leave Travel Allowance (LTA)
The government encourages you to take a holiday anywhere in India with your family. So this is an allowance that an employer may pay you as reimbursement towards any travel expenses within India for you and your family. The tax structure of this component is slightly complicated.

This allowance is normally a part of your annual CTC (cost-to-company). However, different companies follow different rules of payout, thanks to the opaque income tax laws. The law says that ‘two journeys in a block of four years’ will be tax free. (The block of four years is pre-defined. They are 1998-2001, 2002-2005, 2006-2009, 2010-2013 and so on. These are calendar years.) There are two different interpretations and your company may take a stand depending on how it chooses to interpret the law:

One: The company will pay you this allowance every year in the block of four years. It will allow you to submit bills during any two out of these four years. When you submit bills, your amount becomes tax free. For the other two years, you will have to pay tax on that amount.
Two: The company will not pay you this allowance every year. In fact, it will pay you the allowance only when you submit bills during two out of the four years. If you don’t submit any bills, the company will pay you the entire amount for four years at the end of the fourth year. They will deduct tax before paying it to you.

The reimbursement would be restricted to actual travel expenses. However, there is an overall ceiling on this, which is restricted to:

- Air travel Economy fare of national carrier (India Airlines or Air India)
- Rail travel First class AC fare
- Road Public transport – First class or deluxe class
- If there is no recognized transport – Equivalent of first class AC fare

Medical re-imbursement
Your company will reimburse the expenditure that you incur on medical expenses for you and your family. This is however restricted to Rs 15,000 per annum.

What are perquisites?
Perquisites or perks as they are commonly referred to are benefits that your company gives you in addition to the regular salary. These are usually non-cash benefits like accommodation or car or even concessional loans and so on.

Since these are non-cash components, they cannot be taxed directly. So the income tax laws attach a certain value to each of these components and charges a tax on them. The main categories are:
• Residential accommodation
• Use of car
• Services such as that of a gardener, watchman, sweeper or any personal attendant
• Provisions such as gas, electricity or water that is paid by the company
• Any free education or concessional education that the company pays you or your family
• Interest free loans
• Reimbursement of holiday related travel or accommodation expenses
• Festival gifts or vouchers
• Individual club membership

How is tax on perquisite calculated?
Since these are non-cash components, they cannot be taxed directly. So the income tax laws attach a certain value to each of these components and charges a tax on them. The calculation of this value varies from category to category. Nevertheless, the thumb rule across all categories is that only those benefits that you use for personal purpose will be considered as perquisites. The total of all perquisite values will be added to the salary income and tax will be calculated on the usual slabs.

Photograph: Tim Boyle/Getty images

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