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All you need to know about tax exemptions and reimbursements!

5 Sep,2018

What is tax exempt?

Tax-exempt refers to income or transactions which are free from Income Tax. The reporting of tax-exempt items may be on a taxpayer's individual or business tax return and shown for informational purposes only.  

What is tax reimbursement/tax refund?

A tax refund(tax rebate) is a refund on taxes when the tax liability is less than the taxes paid. Tax payers can often get a tax refund on their income tax if the tax they owe is less than the sum of the total amount of the withholding taxes and estimated taxes that they paid, plus the refundable tax credits that they claim. (Tax refunds are often paid after the end of the tax year.)

Many of the allowances, reimbursements paid to us as a part of salary are either fully taxable or tax-exempt up to a certain limit but the tax exemption is subject to certain conditions. This limit determines how much of these allowances/reimbursements are taxable or otherwise in our hands. As a tax payer, it is must for you to know about the limits and conditions inorder to claim your tax exemption.

Some of these allowances are fully taxable and it is an important factor that has to be considered while calculating one's tax. We have combined the list of a few allowances and reimbursements that are often paid to employees as part of salary which are fully taxable, partially tax-exempt and the limits up to which these are exempted from tax.

1. House Rent Allowance (HRA): If you are receiving HRA as part of your salary and you pay for residential accommodation then you can claim the HRA paid to you as exempt from tax subject to certain limits and restrictions. These are as follows:

Minimum of the following HRA is exempt from tax:

(i) Actual HRA received

(ii) 50% of annual salary* if living in metro cities or else 40%

(iii) Excess of annual rent paid over 10% of annual salary*

*Salary here is considered as basic plus dearness allowance (if it forms part of retirement benefits) and commission received on the basis of sales turnover.

However, if no rent is paid by you, then whole HRA received is taxable.

2. Dearness Allowance (DA): Dearness Allowance is most of the time received by Government employees. However, it is fully taxable for every salaried taxpayer irrespective of whether they are a government or non-government employee.

3. Leave Travel Allowance (LTA): Employees (an Indian or foreigner) who receive LTA from their employers can claim exemption.

However, this exemption is subject to the following rules:

(i) The exemption is available on 2 journeys in one block of 4 years.

(ii) The amount of exemption available is lower of the actual amount spent to reach the destination via shortest route or the amount received from the employer.

(iii) To claim exemption, the cost of reaching the destination can be taken as A/C first class (for railways) or economy class of national carrier (for air travel).

(iv) Exemption is allowed only if actual expenditure has been incurred for travelling anywhere in India.

4. City Compensatory Allowance : This is offered to employees to compensate for high cost of living in cities. Just like DA, it is fully taxable in an employee's hands.

5. Overtime Allowance: This allowance is taxable in the employee's hands.

6. Children Education Allowance : If you are receiving children education allowance from your employer then you are eligible to claim a tax exemption under the Income Tax Act. However, the maximum amount exempted is Rs. 100 per month for maximum of up to 2 children. Along with this, you can also claim deductions for fees paid for your children under section 80C. Similarly, any hostel expenditure allowance received by you for your children from employer is eligible for exemption up to Rs. 300 per month or Rs. 3600 per annum for maximum up to 2 children.

7. Other allowances to meet specific expenses in course of employment under section 10(14(i) :  Your salary can also include components like, Attire allowance ( granted to meet the expenses on dress code requirement), Telephone allowance ( To meet expenditure on telephone  and internet expenses), Vehicle allowance ( to meet expenses on vehicle, if vehicle is used for performance of office duties), Helper Allowance etc. These allowances are exempt to the extent actual expenditure incurred.


Want to know about your own tax exemptions and reimbursements? call or Walk into ADCA's office - one of the top audit firms in bangalore.

Filing of KYC by All Directors on Annual Basis

25 Jul,2018

As part of updating its registry Ministry of Corporate Affairs (MCA) has provided for filing of KYC by all directors on an Annual Basis.  MCA has notified Companies (Appointment and Qualification of Directors) Fourth Amendment Rules 2018 on July 5th 2018, which will come into effect from July 10th 2018. Form DIR-3 KYC has been notified for the purpose.

Below is the FAQ on this compliance :

Who is required to file DIR-3 KYC ?

Every person holding a DIN  on the last day of financial year is required to file a DIR-3 KYC. Even if a person is holding DIN and not  a director in any of the companies, he/ she is required to file DIR-3 KYC.

What is due date? What is extended due date for financial year ending March 31st 2018 ?

Due is date is April 30th of following financial year. For Financial year ending March 31st 2018, due date has been extended to August 31st 2018.

Consequence of not filing DIR-3 KYC? How to rectify non-compliance?

If the DIR-3 KYC is not filed within due date, DIN would be marked as deactivated, and no filing will be allowed with such DIN. To remove the defect DIR-3 KYC need to filed with late fee upon which DIN would activated.  Late fees has been prescribed at Rs 5,000/-

Who has to Certify Form DIR- 3 KYC ?

Form DIR 3 KYC need to be certified by DSC of Director  and DSC of Practicing Professional.

What are the KYC Documents :

i Photo in JPEG format.

ii. Proof of Identity- self attested :

  1. PAN Card Copy ( In case of Indian National)
  2. Passport copy ( In case of Foreign National)

iii. Proof of Residence – self certified – any of following

  1.   Aadhar card
  2. Passport
  3. Driving License
  4. Voters ID
  5. Electricity Bill
  6. Telephone bill

iv. Valid Person Email id and Mobile No. Same will be verified by OTP.


Filing your KYC could be hasslesome and time consuming. Mr. Anil D'Souza of ADCA, a higly qualified CA in Bangalore, can help you with that.

Due date for Filing Income Tax Return & Consequences of not filing IT Return within Due Date

25 Jul,2018

Due date for Filing Income Tax Return & Consequences of not filing IT Return within Due Date

The Income Tax Depart Act has prescribed various due dates for filing of Income Tax Return by different class of assessees. Section 139 of Income Tax Act, 1961 provides for following different due dates for different class of assesses:

  1. 30th day of September of Assessment Year in following cases
    1. Company – e Companies registered under Companies Act, includes body corporates registered under law of a foreign country.
    2. Person (other than company) whose accounts are required to be audited under this Act or under any law for the time being in force. For example, Societies required to get books of accounts audited under Societies Act, LLP required to get books audited under LLP Act etc. Section 44AB of Income Tax Act  prescribes that Books of an Assessee is required to be audited if turnover of business exceed Rs 1 Crore or Gross Receipts of Professional Exceed Rs 50 lakh, hence these cases are covered under this due date.
    3. a working partner of a firm whose accounts are required to audited. Remuneration of working partner of a firm is linked to profit declared by the firm, that is reason person tax filing due date for working partner is same as applicable to the firm.
  2. 30th Day of November of the Assessment year in case of Assessees who is required to get Transfer Pricing Audit done under Section 92E of Income Tax Act,1961
  3. 31st Day of July in case of Assessees who are neither companies nor otherwise required to get the books of accounts audited.

Belated filing of Income Tax Return  & consequence of not filing IT return within the due date :

Belated Filing :

If the return is not filed within due date same can still be filed within the end of Assessment year, i.e March 31st of the year following the financial year.  For example if Return pertain to Financial year 2017-18, the assessment year is 2018-19, and if the return is not filed within due of July 31st or Sep 30th of 2018, belated return can still be submitted by March 31st 2019.

Consequences of not filing IT return within the due date :

  1. Late fees of Rs 5,000 is applicable if the return is filed by December 31st of Assessment Year / Late fees of Rs 10,000 is applicable if return is filed after December 31st of Assessment Year. ( Late fee will be limited to Rs 1,000 for those with income up to Rs 5 lakh).
  2. Carry forward of losses (other than loss under House Property) are not allowed unless return is filed within due date.
  3. Interest under section 234A @ 1% per month becomes applicable on amount tax payable after the due date. This is in addition to interest @ 1%  per month under section 234B. So on any tax which is not paid within the due date for filing return, interest required to paid @ 2%  per month on taxes paid after due date. It is advisable to deposit tax before the due date, even if for some reason return can’t be filed before due date to avoid interest @ 2% per month.

Let ADCA (Excellent team of chartered accountants near HSR layout) do the ITR filing fo you to get the maximum benefits of tax saving.

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