Income tax


Image by alancleaver_2000

Income Tax, Income Tax Planning, Basic Pay In Salary, Gratuity Limit, Tax Slabs, Tax-Free Gratuity Limit

With the government raising the gratuity limit, it makes sense to negotiate for a higher basic salary to ensure a better payout.

The Union cabinet’s decision to raise the tax-free gratuity limit from Rs 3.5 lakh to Rs 10 lakh is likely to become a tool for companies to retain employees.

In 2008, when the government implemented the Sixth Pay Commission for central government employees, it was with effect from 2006. This helped employeesreap rich benefits. The decision to increase the limit forprivate sector employees brings them at par with government employees in terms of gratuity benefits.

However, employees wanting to take advantage of this decision need to be aware of a few things. One, salary negotiations will become critical as it makes sense to ask for a higher basic salary, especially if he is planning to stay with the company for long. Also, job-hoppers stand to lose money which is deducted from their salary under the gratuity head.

“To have a cost-optimum structure, the basic salary should be 40-50 per cent of the pay,” says Vikas Vasal, executive director, KPMG. This ensures that a person strikes a balance between the taxes he has to pay, his take-home salary, and exemptions and deductions available under the Income-Tax Act.

While negotiating for a new job, it is best if you ask for a higher basic pay. This will help you accumulate a good gratuity, or “accrued benefit,” as it is called. “After this announcement, employees should be more concerned with the basic salary than the cost to company, especially the middle class, for whom Rs 10 lakh is a significant sum,” said K Pandia Rajan, managing director, Ma Foi Randstad, citing the example of the US, where the basic salary is 70 per cent of the total.

In India, many employers keep the basic pay low, say tax experts. In such cases, employees should take a re-look at their basic salaries. If the basic salary as a percentage of the overall salary is low, the person should ask the employer to bring it to the 40-50 per cent level. “In small organisations, there is a scope for such negotiations,” said a tax expert. Knowing the method of gratuity calculation will clarify this point. The calculation is based on the current basic salary multiplied by the number of years, and further multiplied by 15/26.

If an employee with a basic monthly salary of Rs 20,000 has resigned after completing five years of service, he will get Rs 57,692 as gratuity. For someone who is retiring after 30 years and has a basic salary of Rs 60,000, the gratuity will be Rs 10,38,461. Of this, the person does not need to pay tax on Rs 10 lakh. The remaining Rs 38,461 will attract tax. The taxpayer needs to add the excess amount to his income to calculate his tax liability.

In future, an employee will be able to save tax on gratuity if he invests the amount in an annuity plan. “The draft of the Direct Tax Code has made a provision for such an investment,” said Vasal. In the Budget speech, the finance minister said the government was likely to implement the Direct Tax Code from April 1, 2011.

Any organisation with more than 10 employees needs to make provision for gratuity payouts according to the Payment of Gratuity Act, 1972. An employer makes this payment at the time of retirement, resignation, and death or disablement due to an accident or a disease.

In the private sector, only manufacturing companies have low employee churn. In other sectors, attrition rates are quite high.

Many feel that employees in the private sector do not give importance to gratuity as they rarely work in a company for long. “Young employees today look at cash-in-hand more than long-term benefits like gratuity,” said a human resource head of a large company.

To be eligible for gratuity, an employee needs to put in a substantial number of years in the job. While the Payment of Gratuity Act, 1972, pegs this at five years, many companies have set higher limits.

This clip comes from Aaron Russo’s film, America: Freedom to Fascism. You can watch the film online @ video.google.com Please learn the truth behind the income tax: it was created with the Federal Reserve Act in 1913 – its purpose being to fund the government to pay the interest incurred on government loans from the (private) Federal Reserve. In other words, the income tax is paid to central bankers, and have no gains to you whatsoever. Learn about how international bankers (such as the Rothschild’s and Rockefeller’s) have come to dominate the world through the control of financial systems, via their ownership of central banking institutions. But that’s only the beginning… We have become their slaves, and they desire to form a world-government that will control us all under their supreme authority. And knowing the truth is the only thing that can set us free. MARCH ON WASHINGTON! April 15th, 2008 PROTEST THE INCOME TAX AT YOUR LOCAL POST OFFICE! So long as there is a central bank, you will never be free or prosperous.

Learn Accounting :Understanding Basic Accounting Controls

Tampa, FL March 27, 2009 – Whether you operate a large multi-national corporation or a small local restaurant, understanding some basic accounting controls will go a long way towards creating more reliable financial results and rendering you a better night’s sleep. Basically, accounting controls are operational, financial, or technological mechanisms used by businesses to ensure or encourage a particular behavior or result. Internal controls give owners and managers some degree of assurance that people are doing what they are supposed to be doing and that material mistakes, accidental or otherwise, will be detected prior to going out the door. For example, segregating responsibility for check writing from the responsibility for reconciling monthly bank statements helps to control against improper check disbursements. In the example above, segregating such duties may be difficult in small businesses with limited staffing capabilities. However, alternate control mechanisms, such as manager or owner review of monthly bank reconciliations, can be implemented to partially mitigate such risks.

It’s no surprise that internal controls frequently come at a cost. As such, the number and strength of the controls within any given internal control structure is usually a function of the owner or manager’s resource capacity and risk tolerance level. As such, it is important to conduct a general risk assessment of the business process or function that you are looking to control in order to focus your efforts most effectively and gain the most bang-for-your-buck as they say.

First, let’s talk about some higher-level control concepts that should be present across most accounting processes to set the stage for more detailed transaction or process-level control mechanisms. One of the best ways to standardize behavior and set expectations is to create formal written policies and procedures to govern the actions and activities within your business or department. In accounting, such policies and procedures are frequently summarized in an Accounting Manual, which specifies the who, what, when, and how of common accounting procedures and activities. Another control concept, illustrated in the earlier example, is known as segregation of duties. Optimally, no single individual should have the responsibility or ability to initiate, authorize, process, and record a given transaction (i.e. they shouldn’t have end-to-end responsibility). Segregating such duties decreases the chances of errors, intentional or otherwise, going undetected.

Next, let’s look at some common accounting functions and give some examples of common internal controls specific to each. It is important to note that these are only examples and any good internal control system should be customized to the needs and risks within your organization or department. Below is a list of some common accounting areas, their functional objectives, and some common internal controls suggestions.

Accounts Receivable, Credit, & Collections - To ensure that all funds intended for the organization are received, promptly deposited, properly recorded, reconciled, and kept under adequate security. • Formally document policies and procedures governing accounts receivable, credit, and collection processes detailing timelines, responsibilities, actions, responsibilities, etc • Require credit reporting on all customers prior to credit issuance • Require periodic review of key customers to ensure ongoing credit worthiness • Establish limits of authority for credit issuance and terms (system or otherwise) • Limit system access to alter credit limits and/or terms only to appropriate personnel • Require manager approval for adjustments to and/or write-offs of A/R balances • Sequentially number credit memo adjustments to A/R balances • Require periodic reconciliation of the General Ledger to the Cash and A/R subsidiary ledger balances along with managerial review of this reconciliation • Reconcile bank statements to the General Ledger on a regular basis • Set-up lock-boxes for receipt of customer payments in order to limit the handling of checks and other forms of payment • Establish a central point of contact for incoming mail, preferably someone without the ability to post cash and/or adjust customer A/R balances in the system • Create summary reporting to be reviewed by management on a periodic basis, such as A/R aging, credit memos by customer, credit memos by employee, write-offs by customer, write-offs by employee, etc. • Limit access to alter or create records in the customer master file to appropriate parties • Batch receipt input data is compared to control totals and differences are investigated and resolved • Mail account statements to customers • Maintain support files in a secured area and restrict to appropriate personnel

Accounts Payable, Purchasing – To ensure that funds are disbursed only upon proper authorization of management, for valid business purposes, and that all disbursements are properly recorded. • Formally document policies and procedures governing accounts payable and purchasing processes detailing timelines, responsibilities, actions, responsibilities, etc • System access to create, edit, or delete purchase orders is restricted to appropriate personnel • Ability to add, modify, or delete vendor records in the vendor master file is restricted to appropriate individuals • All new vendors or major modifications to vendor information require manager approval • The vendor master file is periodically purged of old and obsolete vendors • A three-way match between the invoice, PO, and receiver must be present before payment is released to the vendor • Adjustments to A/P balances (credit notes) require managerial approval and is restricted to appropriate personnel • Check stock, signature plates, etc are appropriates secured and access is restricted to appropriate personnel • Dual signatures are required on all manual check disbursements • Positive pay account maintained at bank • Check sequences and gaps are investigated • Bank statements are reconciled to the general ledger regularly and reviewed by management • Major supplier statements are reconciled to the A/P subsidiary ledger • Support files are maintained in a secured area and restricted to appropriate personnel

Payroll – To ensure that payroll disbursements are made only upon proper authorization to bona fide employees, that payroll disbursement is properly recorded and that related legal requirements (such as payroll tax deposits) are complied with. • Formally document policies and procedures governing payroll processes detailing timelines, responsibilities, actions, responsibilities, etc • Access to add, modify, delete records from the employee master file is restricted to appropriate personnel. Modification to significant data (i.e. salaries, etc) requires managerial approval. • Payroll is disbursed manually with picture ID only on an annual basis in order to validate that paychecks are for bona fide employees (i.e. not ghost employees) • Support files are maintained in a secured area and restricted to appropriate personnel

Fixed Assets – To ensure that fixed assets are acquired and disposed of only upon proper authorization, are adequately safeguarded, and properly recorded. • Formally document policies and procedures governing fixed asset-related processes detailing timelines, responsibilities, actions, responsibilities, etc • Assets are appropriately secured • Book to physical reconciliation is conducted annually to validate condition and existence • Access to the fixed assets register is restricted to appropriate personnel • Asset disposals and write-offs require managerial approval above certain levels • Asset acquisitions must be approved in advance of purchase • Pre-numbered asset tags are affixed to all fixed assets • Asset valuations are periodically reviewed by management for continued relevance • All supporting paperwork must be obtained prior to entry into the fixed asset register • Support files are maintained in a secured area and restricted to appropriate personnel

Inventory – To ensure that inventories are received and/or shipped only with proper authorization and documentation, properly recorded, and appropriately safeguarded. • Formally document policies and procedures governing inventory-related processes detailing timelines, responsibilities, actions, responsibilities, etc • Inventories are appropriately secured • Book-to-physical or cycle counts are conducted periodically to validate condition and existence • Inventory will only be received with valid support paperwork (i.e. PO) • All inventory receipts must be verified for quantity and condition against the bill of lading and the packing slip and recorded on pre-number receiver forms or a log • The receipts log is reviewed and reconciled to system receipts by management on a daily basis • Support files are maintained in a secured area and restricted to appropriate personnel • Inventories are periodically marked to market to ensure proper valuation • Inventory write-offs require management review and approval • System access to process inventory adjustments is restricted to appropriate personnel • All inventory shipments must be accompanied by a valid order • Periodic managerial review of open work orders, inventory aging reports, etc • All shipments are recorded in a shipping log, which is reviewed and reconciled to the system shipments by management on a daily basis

Financial Closing or Reporting– To ensure that financial data is recorded, consolidated, and reported accurately, timely, and in compliance with US GAAP. • Formally document policies and procedures governing financial closing processes detailing timelines, responsibilities, actions, responsibilities, etc • Create and maintain a comprehensive close checklist of all close activities • Closing checklist and binder with all supporting entries should be reviewed and approved by the controller and/or owner prior to close • Segregate duties within the account reconciliation, journal posting, and management review/approval processes • All non-standard, adjusting, and/or manual journal entries require management approval • Establish a budgeting and forecasting process. Use trend analysis (horizontal and vertical) in order to sanity check results. Research and resolve any unusual variations • Ability and/or access to post journal entries is limited to appropriate personnel

Understanding the underlying concepts behind basic accounting controls will allow you and your organization to create an internal control structure, both within accounting and beyond, that enables more effective and efficient operating and financial results. And one more thing it provides…a little extra peace of mind.

For more information on accounting and auditing, please visit The Accounting Nation website at http://www.accountingnation.com.

CAF’s Charities Online Accounts Awards 2005


Image by HowardLake

Basic Accounts Bookkeeping At Home Saves Assessment Tax

The financial benefits of preparing basic accounts bookkeeping records and producing the self assessment tax return can be overlooked. Starting bookkeeping at home is an option for anyone self employed and is important as the self assessment tax paid each year is typically the highest financial outgoing. Bookkeeping home accounts is worth the effort and does not require a high level of technical accounting or tax knowledge. Sole Trader Basic Accounts Bookkeeping Sole trader basic accounts require the simplest form of bookkeeping. Sole trader basic accounts bookkeeping require little more than retaining supporting documents of sales income and expenses and creating two lists of financial transactions. Producing the basic accounts in the format of an income and expenditure statement is sufficient to complete the self assessment tax forms. An income and expenditure statement is the total sales made during the financial year with the expenses listed by type of expense and deducted to leave the balance as the net taxable profit or loss. Starting Bookkeeping Home Accounts The first stage in starting bookkeeping is to collect together all documentary records of receipts or sales received. Review the documents and if incomplete use other sources of third party evidence such as bank statements and deposits t achieve an accurate total. Stage two to producing the home accounts is a similar process of collecting together the supporting evidence of purchases made and expenses incurred. Again if incomplete examine other potential sources of evidence such as bank and credit card accounts. Bookkeeping home accounts is just that, keeping books at home which is the home accounts. Bookkeeping is a function that many self employed business people can benefit from financially. Basic Accounts Bookkeeping Can Save Accountant Fees A significant proportion of a bookkeepers fee or the accountant fees for small business is the sorting of receipts and listing them in order, in effect doing the basic accounts bookkeeping. Accountant fees are better spent on financial advice and tax matters than producing the basic accounts themselves. The basic bookkeeping task of sorting the sales and purchases documents can produce real savings in the accountant fees. Most accountancy firms would actually prefer to receive their client records in a basic accounts presentation to enable the accountant provides a higher level of accountancy services. Save Self Assessment Tax by Understanding Basic Accounts When a sole trader adopts a positive attitude in preparing the bookkeeping basic accounts other benefits accrue. Preparing the basic accounts increases the perception of profitability and may encourage the small business owner to prepare the bookkeeping more often. By being aware of profitability financial problems may be noticed earlier and low profits will stimulate the competitive nature of sole traders and self employed businesses to improve the financial performance. The self assessment tax liability for self employed people is a major annual issue. Understanding the basic accounts will pose tax questions in regard to capital allowances which need to be claimed in the self assessment tax return. The increase in tax knowledge should maximise tax allowance claims thereby reducing the self assessment tax liability.

Guide to careers and courses.