ITR4S, the difference between ITR4S and ITR4

You can file ITR4S or ITR4 if you have income from Business or Profession or freelancing. What is ITR4S? Difference between ITR4S and ITR4.How to choose which ITR to file between ITR4S and ITR4? What does ITR4S covers? Structure of the ITR-4S Form,How to file the ITR-4S Form ? Videos on how to fill ITR4S

ITR4S or ITR4

As per the Income Tax Act, an income from any profession that involves work, which requires you to use a skill, which is an intellectual skill or is a manual skill, then such income will be taxable under the head Profits and Gains of Business and Profession. As ITRs are based on type of income (among others) so One has option to file ITR4 or ITR4S.

ITR-4S is a four page document,  while ITR-4 is a detailed form, possibly one of the two longest of all tax return forms. Called Sugam, the ITR 4S is for businesses what the Saral ITR 1 is for individuals -short, easy to understand and file. Section 44AD has been from assessment year 2011-2012 (AY 2011-12) into Income Tax Act. Before AY 2011-12  section 44AD was only applicable to the business of civil construction. However, it is now applicable to all types of businesses

ITR-4S is a special case ITR, applicable for businesses where income is calculated on ‘presumptive method’.  As per Dictionary, Presumed means to accept legally or officially that something is true until it is proved not true. As per Dictionary, Presumptive means presumed in the absence of further information.  So  Your tax liability is calculated on the basis of a `presumed business income’, irrespective of what your actual income may be.

It  is covered by Section 44AD and Section 44 AE

  • Under Section 44AD Your Net Income is estimated to be 8% of the gross receipts of your business. Gross receipts or Turnover mean the total collections of the business. The receipts shall be inclusive of VAT & Excise Duty. The receipts shall also include delivery charges as well as receipts from sale of scrap. Discounts given, advances received and money received on sale of assets should be excluded. Section 44AD specifically mentions the word business, therefore section cannot be applied in case of professionals.
  • Under section Section 44 AE you can report your income as Rs 7,500 per month for each vehicle if you are in the business of plying, leasing or hiring trucks.
  • From FY 2016-17 or AY 2017-18 Section 44ADA is introduced for Professionals.  Professionals whose Total Gross Receipts do not exceed more than Rs. 50 Lakhs in a financial year can claim benefit of this Section from Financial Year 2016-17 onwards.
  • You don’t have to maintain books of accounts, profit & loss statements or audits. of this business.
  • You don’t have to pay Advance Tax for such a business.
  • You are not allowed to deduct any business expenses against the income.
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Insurance: Types of Term Plan

A term plan is the best and cheapest way to buy a life insurance policy for every individual who desires to secure his family in his absence. In a term plan the nominee gets a sum assured on death of policyholder during the policy term and nothing if policyholder survives the term.  Realising the need for something extra from the term plan, many companies such as Max Life Insurance has come out with variations of vanilla term plans, where they offer lump sum and monthly income to nominee. However, there are various types of term plan that you should understand so that you can choose according to your needs.

Vanilla Term Plan

What is a Term Plan?

A term plan is a comprehensive insurance plan. The nominee of the policy gets lump sum assured amount after the death of the term plan holder. This plan offers only death benefit but no maturity benefit. Death benefit is the amount that a nominee can receive if the policy holder unfortunately dies within the policy tenure. Maturity benefit is the amount that the policy holder receives after the policy tenure expires. The premium on term plans depends on three factors: age, term of the policy and the sum assured you choose. Even as term plans are the cheapest insurance product you get a further discount by buying them online. Comparison of the best term policy was easy as the one with maximum cover and minimum premium would top the list.

How does Typical Term Plan work?

Suppose Mr. Mehta, aged 30 years has opted for this traditional for basic term plan for sum assured of Rs. 1 Crore for 30 years for an annual premium of Rs.7400. After paying 9 premiums i.e at age 39 Mr. Mehta passes away. As per death benefit, his nominee will be eligible for Rs. 1 crore. If Mr. Mehta expires at age 61, his nominee will not be entitled for any amount.

How a term plan works

How a term plan works

Plain Vanilla Term Plans are Suitable for:

  • Nominees who are confident enough to investment the lump sum amount received in the appropriate investment avenue.
  • For the category of people who do not fear any future undetected expenses and feel that they will have sufficient funds to manage the same if need arises.

Generally the eligibility criteria for all term plans with any company are similar and can be as follows.

New Type of Term plans

The new kind of term life insurance break the sum assured into lump sum payment and monthly instalment payments for a fixed number of years. Some offer to increase the monthly income by a certain percentage to inflation index your cash flows. This helps if the nominees is not equipped to optimally utilise the lump sum. A term plan promises to pay the beneficiary the sum assured in lump sum if the policyholder dies during the policy term. Income benefit plans, on the other hand, break this sum assured down into monthly payments for a fixed number of years in order to provide regular cash flows to the nominee.

Please note the amount received as sum assured and additional income according to the plan is tax-free. But income earned from the proceeds of investing the term amount is not tax-free

Who is the New Type of Term Plans are Suitable for?

  • When the nominee is not very familiar with investment avenues where they can utilize sum assured to receive returns.
  • People with low savings who will find a difficulty meeting expenses.
  • If the term policy holder is the sole earning member regular and smooth flow of cash flow will financially secure the nominee in individual’s absence.

Sum Assured and Monthly Income Term Plan

This kind of term plan offers death benefit. The nominee is entitled to assured lump sum amount + 0.4% of the policy sum assured as an additional compensation every month for 10 years.

How does this actually work?

Let us take the same example of Mr. Mehta who is 30 years old and has bought Sum Assured+ Monthly Income Term Plan of Rs. 1 crore with an annual premium of Rs. 10400 in 2016. After payment of 9 premiums Mr. Mehta dies in 2024. As per Max Life Sum Assured plus Level Monthly Income Death Benefit Option his nominee will be eligible for Rs. 1 Crore + Rs. 40000 every month till 2034-2035.

(Rs. 1,00,00,000 * 0.4% = Rs. 40000/month)

Total benefit from the Term Plan to the nominee: Rs. 1,48,00,000

(Rs. 1 Crore + Rs. 40000*12*10 = Rs. 48,00,000)

Sum Assured monthly income term plan

Sum Assured monthly income term plan

Sum Assured Increasing Monthly Income Term Plan

It offers some assured + Increasing Monthly Income Term plan. With 100% sum assured and 0.4% of sum assured as additional monthly income the additional point here is this additional income increases every year at 10% simple interest.

How does this plan actually work?

Mr. Mehta who has opted for Max Life Sum assured+ increasing monthly income term plan with assured cover of Rs. 1 Crore in 2016 at an annual premium of Rs. 11100, deceased in 2024. Therefore his nominee will be qualified to get Rs. 1 Crore ( Sum assured) + Rs. 40000 (0.4% additional monthly income) from 2025. In 2026, his monthly income would increase by Rs. 4000(10% of Rs. 40000= Rs. 4000) and it will increase by 10% every subsequent year for a period of 10 years. In year 2034-35 the nominee will be entitled for a hefty monthly income of Rs. 76000/month.

Sum Assured monthly increasing income term plan

Sum Assured monthly increasing income term plan

Comparison of Different Type of Term Plans 

Using Max Online Term Plans as example

Compare Max Life Term Plans

Compare Max Life Term Plans

Comparing the Income Benefits Term Plans

But how do you compare these plans? In a plain vanilla plan that offers a lump sum benefit, the basic level of comparison can be on basis of premiums, but plans that offer staggered benefits, premium comparison is more difficult.

Say, you buy plan 1 for Rs.1000 that promises to pay your beneficiary Rs.1000 every year for 10 years, and plan 2 at the same cost promises to pay your beneficiary Rs.750 for 15 years. The total payout in the first plan is Rs.10,000 and Rs.11,250 in the second plan. So you may be inclined to buy the second plan. But you need to consider Inflation and Net Present Value.

Inflation eats into the value of money, which means what you can buy for Rs.1000 today, will cost you more than Rs.1000 in the future. Even as plan 2 offers a slightly higher payout in the future, it may not really be a better deal if you factor in inflation and time value of money.

For a suitable comparison, you need to look at net present value (NPV) of both the plans. Assuming inflation of 6%, NPV of all future cash flows from plan 1 comes to Rs.736 andRs.728 from plan 2. This means, plan 1 offers better value.

Net Present Value

Present Value works on the principle that Money now is more valuable than money later on. Why? Because you can use money to make more money! Let us say you can get 10% interest on your money. So 1,000 now could earn 1,000 x 10% = 100 in a year. Your 1,000 now would become 1,100 by next year. So 1,100 next year is the same as 1,000 now.

Formula for Present Value:

PV = FV / (1+r)n

  • PV is Present Value
  • FV is Future Value
  • r is the interest rate (as a decimal, so 0.10, not 10%)
  • n is the number of years

To get a Net Present Value you also need to subtract money that went out (the money you invested or spent): Add the Present Values you receive – Subtract the Present Values you pay

Example: A friend needs 500 now, and will pay you back 570 in a year. Is that a good investment when you can get 10% elsewhere?

  • Money Out: 500 now
  • You invested 500 now, so PV = -500.00
  • Money In: 570 next year
  • PV = 570 / (1+0.10)1 = 570 / 1.10 = 518.18
  • Net Present Value = 518.18 – 500.00 = 18.18

So, at 10% interest, that investment is worth 18.18. A Net Present Value (NPV) that is positive is good (and negative is bad).

Invest 2,000 now, receive 3 yearly payments of 100 each, plus 2,500 in the 3rd year. Use 10% Interest Rate.

Let us work year by year :

  • Now: PV = -2,000
  • Year 1: PV = 100 / 1.10 = 90.91
  • Year 2: PV = 100 / 1.102 = 82.64
  • Year 3: PV = 100 / 1.103 = 75.13
  • Year 3 (final payment): PV = 2,500 / 1.103 = 1,878.29

Adding those up gets: NPV = -2,000 + 90.91 + 82.64 + 75.13 + 1,878.29 = 126.97

Example: (continued) at a 6% Interest Rate.

  • Now: PV = -2,000
  • Year 1: PV = 100 / 1.06 = 94.34
  • Year 2: PV = 100 / 1.062 = 89.00
  • Year 3: PV = 100 / 1.063 = 83.96
  • Year 3 (final payment): PV = 2,500 / 1.063 = 2,099.05
  • Adding those up gets: NPV = -2,000 + 94.34 + 89.00 + 83.96 + 2,099.05 = 366.35

Looks even better at 6%

The following is the formula for calculating NPV: where

  • Ct = net cash inflow during the period t
  • Co = total initial investment costs
  • r = discount rate, and
  • t = number of time periods

NPV calculator 

With diversification in term plans, individuals can choose the most favourable plan for themselves that will be suited best for their family.

Note to Term Holder:

  • Before opting for the right term plan always compare the NPV of money considering the inflation rate.
  • You can choose the criteria given on Max Life How to choose a term plan #MaxLifeTermPlan shown in image below

    How to choose a Term Plan

    How to choose a Term Plan

Term plans are an excellent way to insure yourself and staggered payments add to customisation. Take advice from a planner to assess your insurance needs and look at NPV of income benefit plans to properly compare the premiums.

Note:This post is sponsored by Max Life Insurance.

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Income From House Property for more than 1 house

If you own a property, you have income from House Property. What will be Income from House Property for more than 1 house? How to Evaluate which house to choose when one has two houses and both houses are self occupied? How to Choose which one to show as Self Occupied in ITR? How to calculate Income from House Property when one is Self Occupied, One given on rent. When you have multiple Houses then how do you account for these multiple houses in ITR?

Overview of Income from House Property

If you own a property, you have income from House Property. A house property could be your home, an office, a shop, a building or some land attached to the building say a parking lot. The Income Tax Act does not differentiate between a commercial and a residential property. All types of properties are taxed under the head  Income from house property in the income tax return.

But if you occupy your house property to carry on a business or profession or your freelancing work– any income or expenses with respect to this property shall be covered under the head ‘Profits & Gains of Business & Profession’. You will be allowed to deduct expenses that you may incur towards maintenance and repairs from your business income. Any rent receipts will be added to your income.

Income From House Property and ITR

In Income Tax Returns (ITRs) section called Schedule-HP (HP for House Property) needs to be filled for details about percentage of co-owned property, loan, Annual Value,deductions etc. Information about the House needs to be filled in as shown in picture below. Income from house property can be divided between the co-owners which can reduce overall tax liability. Our article Income from House Property and Income Tax Return explains Income from House Property in Detail

Income From House Property in ITR for more than 1 house

Income From House Property in ITR

Calculation of Income from House Property is as follows

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Customise ITR: How to remove schedules not applicable to you

Many ITR, such as ITR2 have multiple schedules. Selection of ITR depends on kind of income one has. For example one having capital gain or two houses cannot file ITR1. ITRs have many schedules and not all will be applicable. For example if one has Salary Income and Capital Gain, but does not have Income from House Property then he does not need Schedule HP. This articles talks of how to Customise ITR so that you can remove schedules not applicable to you. How to add rows in ITR?

Which ITR to fill

Every tax payer is required to declare to the Income tax Department of the Government of India, summary of income, tax paid which he earned during the year(between April to Mar of next year) n a form prescribed by the Government something like report card in school. The form which one needs to fill in is called Income Tax Return.

There are various ITR forms such as  : ITR-1 (Sahaj) ,ITR-2A,ITR-2 ,ITR-3, ITR-4 and ITR-4S( Sugam). ITR-5 and ITR-6 which differ in information required and hence number of pages.

  • There are different Income Tax returns form based on
    • Who has to fill (individual, Hindu Undivided Family(HUF), Business etc). Did you know that Fourth Character in PAN specifies the type of tax-payer. For Individual’s it’s P , HUF it’s H, Firms F etc.
    • Whether a resident of India or not Our article Non Resident Indian – NRI explains who is NRI?
    • On types of Income earned ex: Income from Capital Gains or Income from House Property.
    • On whether losses are carried forward or not.
  • These forms are released every year by Income Tax Department as there are some modifications in income tax law in the budget or Finance Bill ex: exemption limit is modified, new tax saving option is introduced (80TTA ftom AY 2013-14), some tax saving option is removed (20,000 under 80CCF from AY 2012-13).
  • For income less than 5 lakhs one can file ITR manually. In case of physical filing the return, an individual needs to fill the printed form or the hard copy and submit it to the nearest Income Tax Office (ITO) and get an acknowledgement.
  • If income exceeds Rs. 5 lakhs one has to furnish the Return electronically.
  • The process of electronically filing Income tax returns through the internet is known as e-filing. One can file directly(incometax website) or through an e-Return Intermediary such as Taxsmile,Taxspanner. While the I-T department lets you file your returns online for free, most other portals charge a fee.
  • To e-file the returns one can fill the Excel utility/Java Utility/Prefilled form provided by the income tax department. Our article E-Filing of Income Tax Return covers e-filing in detail.  
  • Forms for the Financial Year 2015-16(assessment year 2016-17) can be downloaded from Income tax website(http://incometaxindia.gov.in/) Downloads->Income Tax returns ( http://www.incometaxindia.gov.in/Pages/downloads/income-tax-return.aspx). Income Tax’s Download  also provides instructions in Hindi and English with forms. It also has forms for earlier Assessment Year.

Use the right form and right Assessment Year. For the income earned between 1 Apr 2015 to 31 Mar 2016 the Assessment Year is 2016-17 (or Financial Year 2015-16) and income tax return by individual must be filed before 31st Jul 2016.

The only difference between ITR 2 and ITR 2A is that if one has income from capital gains, Details of foreign assets or  Details of Income accruing or arising outside India then one can furnish only ITR 2, one cannot file ITR 2A.

Many Schedules in ITR

For example ITR2 is divided into 20 schedules as shown in image of Excel Utility below.

ITR2 schedules

ITR2 schedules

But you don’t have to work with all schedules. For example if you don’t have Capital Gains,CG schedule. i.e you haven’t sold any property or gold or debt mutual funds then you can customise your ITR to not have the schedule. All you have to do is on the Home Tab , Select N in the column Select applicable sheets below by choosing Y/N and then click Apply. The Excel Utility will then appear as follows

ITR2 without Capital Gains chedule.

ITR2 without Capital Gains schedule.

How to Customise ITR

Customising ITR can mean simplying ITR by removing Non Applicable schedules or Adding Rows or Deleting Rows. Lets look in detail. Note Some of the schedules can’t be removed. These are in white color in Select Y/N column and don’t give Yes/No Option.

Customise ITR in Excel to remove Non Applicable schedules

  • Go to the  Home Tab or Home worksheet ,
  • Select N in the column Select applicable sheets below by choosing Y/N
  • click Apply.

The corresponding worksheet or tab will be removed.

Customise ITR in Java Utility for ITR

  • Go to the  Home  ,
  • For the Schedule Not Applicable to you Select No in the column Schedule Selection. Image below shows selection of Schedule HP .
Customise JAVA ITR remove selected schedule

Customize JAVA ITR remove selected schedule

The Selected Tab will be removed. The image shows the Home page after the Schedule HP is removed.

Customize JAVA ITR after Selecting No

Customize JAVA ITR after Selecting No

Adding  New Rows to Table in ITR

In ITR wherever information is captured in tables , such as Employers, Number of Houses, one can add multiple rows if required.

  • Adding new Row : Click ADD button to insert a new row and then enter values in the field provided. Make sure you provide information in all mandatory columns ( * ) marked
  • IN many cases you might get error Please fill in all the mandatory fields in the last row before adding another row.
  • Deleting Row : Select the row to delete from the list and click DELETE button
  • Remove unnecessary blank rows from the table by selecting the row and clicking on DELETE button.

Add/Delete Rows in Java ITR

customise-itr-add-delete-rows-java

Customise JAVA ITR Add Delete Rows

Add/Delete Rows in Excel ITR

Customise Excel ITR Add Delete Rows

Customise Excel ITR Add Delete Rows

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Actual Cost of Free Income Tax Filing

Free Free Free…There is some charm in the word, just like Free discount! Pay for a service or get it for free,what would you choose? Free of course, no brainier question right. After all, why shell out money for something that can be done at no cost? This is why a majority of taxpayers opt for filing their tax returns for free.But what is the cost of free Income Tax filing? are they paying a heavy price for it?

Income Tax efiling site is free but

The Income Tax Department offers free filing as government wants to encourage more and more people to file their returns.

One must have working knowledge of computers and software like Excel or Java. For ITR1 and ITR4S One can simply log on to the website and file his return for free.

But Income Tax efiling website does not offer any guidance, it expects you to know the rules. Many get the Assessment Year wrong or file the wrong ITR.

If you miss a certain deduction or exemption, the portal will not point out the error nor suggest a solution. It will happily keep the extra tax paid.

Are you paying more tax than due?

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