Do I need to pay income tax on the money I have received under voluntary retirement scheme?
You have not mentioned the amount that you have received under the voluntary retirement scheme. As per the existing rules, any amount received by an employee of a company or local authority where the scheme of voluntary retirement is framed as per Rule 2BA of the Income Tax Rules gets a tax exemption of up to Rs. 5 Lakhs from the amount received as voluntary retirement. If the amount of money is more than the stipulated Rs. 5 Lakhs then you will need to pay income tax on the amount which is in the excess of the laid down limit of Rs.5 Lakhs.
As an entrepreneur can I get tax deduction on expenses I made prior to starting out my business?
The income tax act of 1961 offers a number of tax benefits for entrepreneurs. To answer your question, yes you can get tax deduction benefits on money you may have spent on setting up of your business prior to actual formation of the business. All capital expenditure on setting up of the business including expenses you may have incurred while preparing project reports, doing market surveys as well as any engineering expenses for your business are covered under section 35D and liable for tax deduction benefits. The deduction however is limited to 5% of the cost of the project or capital employed in the business.
I made some donations with some organization towards Nepal earthquake relief. Are donations made in cash applicable for tax deduction?
Donations made both in cash or cheques are eligible for tax deduction however in case o cash donations, the maximum deduction allowed in limited to Rs. 10,000. You have not mentioned the name of the organization to which you have donated but kindly note that donations to foreign charitable trusts are not eligible for any tax deduction. For claiming tax deductions under various sections of the income tax act, you do not need to attach any documentary proof(s) along with your tax return. Make sure you have the stamped donation receipt with you which must specify that the charity or organization is eligible for tax deduction under section 80G.
Section 80G allows you to claim a deduction from your total taxable income when you make donations and charity contributions. Of course, the deduction under Section 80G is over and above the deduction available under Section 80C. Firstly, you need to keep in mind that deductions are allowed only for contributions made to an Indian trust or organisation. Even in India, not all donations are eligible. Specific donations to prescribed funds and institutions can be claimed as a deduction under this section. There are limits to the amount of deduction you can claim. So, you may not be able to claim donations to organisations in other countries.
Also, donations in the form of food, clothes or any other items will not be eligible for a deduction under Section 80G. Also, donations made in cash that exceed Rs. 2,000 cannot be claimed as a deduction. Earlier, this limit was Rs. 10,000.
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A government employee is usually entitled to a lot of retirement benefits, which is why government jobs are considered to be the most secure and much sought-after. But these perks are not tax-free. This is clearly specified under the heading ‘Salaries’ in section 17 (3) of the Indian Income Tax Act. Nevertheless, certain exemptions are allowed under section 10 of the law, either completely or partially.
Let us explore the exemptions in detail:
- Gratuity (Section 10 (10)):
o Any demise plus post retirement gratuity availed by Central and State Government staffs, Defense staffs and the same in local authority will be exempted.
o Any gratuity availed by people under the Payment of Gratuity Act (1972) shall be exempted (with certain conditions). The first one is that for each year of service or part thereof, gratuity shall be waived off for up to fifteen days remuneration based on the previous salary rate. The next limitation is that the amount of gratuity must not be more than Rs. 20 lakhs.
o For employees belonging to other categories, gratuity is exempted on a couple of conditions such as it being restricted to salary of 15 days (on the basis of past ten months’ average) for each service year with Rs. 20 lakhs as the set limit.
o According to the Board’s letter F. No. 194/6/73-IT (A-1), which was dated on 6th June 1973, the waiver regarding gratuity is allowed even in cases of employment cessation or resignation. The taxed part of gratuity is eligible for relief u/s 89 (1).
o Gratuity disbursement to a widow and/ or other legatees of any staff member who passes away while in service is also exempted from income tax as mentioned in Circular Number 573 dated on 12st August 1990.
- Compensation on VRS OR ‘Golden Handshake’ (Section 10 (10-C)):
o Money given to any worker of public sector or any other firms, authority established under Central, State or Provincial Act, Co-operative Societies, Local Authority, Universities, IITs and Notified Management Institutes etc.
o VRS under which the disbursement is being made should be enclosed in line with the recommendations in the Rule 2BA of Income Tax Rules. In the event of an organization other than a government one or a co-operative society, this scheme had to be authorized by the Chief Commissioner/ Director General of Income Tax until 2002.
o If tax-exemption is permitted under this section for any valuation year, it won’t be sanctioned concerning some other assessment year.
- Commutation of Pension (Section 10 (10-A):
o If the staff of Central & State Government, Local Authority, Defence Services and any establishment Central or State Acts, the whole commuted value of pension is exempted.
o For other employees, if they avail gratuity, the commuted value of one third of the retirement pension is exempted, else, the commuted value of Y2 of the pension.
o Judges of Supreme Court and High Courts shall be eligible for exemption of commuted value up to Y2 of the retirement pension (Circular Number 623 dated on 6th January 1992).
- Encashment of Leave (Section 10 (10-AA)):
o Leave Encashment when in service is taxed, relief u/s 89 (1) if applicable can be filed.
o Any disbursement by way of leave encashment enjoyed by Central & State Government workers when they retire has exmeptions. The period of earned leave at credit is completely exempted.
o In case of other staff members, the exemption is to be restricted to the money paid for unused earned leave (earned leave privilege cannot be more than 30 days per one year of service, ten months’ salary or leave encashment availed until then, whichever is lesser. This is again limited to Rs. 3 lakhs for sequestrations post 2nd April 1998.
- Retrenchment Compensation (Section 10 (10-B)):
Retrenchment compensation given to a government servant as per the Industrial Disputes Act of 1947 or any other Act or Guidelines is tax-exempted if the reimbursement is calculated at an average pay for fifteen days for each active year in service. And it should not exceed Rs. 5 lakhs.
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