500% increase in complaints against banks

Reserve Bank of India says the number of customer complaints against banks (public and private) filed with them increased by over 500% in the 12 months between July 2006 and June 2007. The figure stands at 34,499 as compared to 5772 in the 12 months before.

Leading the pack are SBI and ICICI bank and the majority of the complaints are related to credit cards. I guess this is the result of customers becoming more aware about their rights. It also shows the need of huge improvements in the processes followed by banks. A bank official says, “People now complain at the drop of a hat”. But I feel if this was the case then the number of complaints would have seen no end.

Let’s hope that this would make the banks think a bit more about serving their customers in a customer-friendly manner.

Income tax may come down in India

Riding on a buoyant economy and making the most out of it with respect to direct taxes, the revenue department may consider reviewing direct tax rates and structures (income tax slabs) in the coming annual budget. This move comes as an aftermath of a 45% growth rate in direct tax revenues due to tax administration improvements, increase in voluntary compliance etc.

A week back the Finance Minister was seen saying that the Rs. 10,000 increase in tax slabs last year didn’t give much of a relaxation to the tax payers of the country. The ministry will also seek inputs from public, tax experts and industry associations on this. Let’s hope that this welcome move shall come into effect and lower the burden of taxation on the working class.

Tax savings options on conveyance allowance

For salaried individuals, the conveyance allowance or transport allowance is exempt from taxation up to Rs. 800 per month while he earns in India. For physically handicapped persons, this limit is Rs. 1600 per month. This exemption is provided without furnishing any bills.

If one has a car and uses that to travel to the workplace, then a vehicle maintenance exemption can be claimed for the petrol/diesel cost and vehicle maintenance expenses incurred. The exemption limit is Rs. 1200 per month if the engine capacity is less than 1600 c.c. and Rs. 1600 per month if the engine capacity is greater than 1600 c.c. If you are keeping a driver, an additional exemption of Rs. 600 per month is also available. Please note that when you claim the vehicle maintenance exemption, the conveyance allowance exemption is not available.

Some companies have different components included in the Cost To Company of their employees through which fuel bills, driver wages etc. can be reimbursed and is considered as an expense, hence exempted from taxation. You may check with the finance department of your company to find out the options available to you regarding this.

How is tax exemption on HRA calculated

It’s a common misconception that the tax exemption a person gets for paying house rent is equal to the HRA component of his/her salary. And usually we submit the receipt of house rent paid equal to the HRA component of our salary, even if it is more, to get the exemption on HRA.

But, do you know that the exemption limit on HRA is calculated in a different way by the tax man?

HRA exemption given is the minimum of the following,
a) HRA received
b) 40% of basic salary
c) Total HRA claimed – 10% of basic salary during the claim

For example, if your basic salary is 10,175 per month and the HRA component of the salary is 4,070 per month and you are claiming it for a period of one year then,

HRA received = 4,070 x 12 = Rs. 48,840
40% of basic salary = Rs. 48,840

If you are claiming HRA of Rs. 4,070 per month (48,840 per year), thinking that this is the upper limit, the third component (c) of HRA calculation becomes,
Total HRA claimed – 10% of Basic salary during the claim = 48,840 – 12,210 = Rs. 47,790, which makes the minimum of the three as 47,790.

Which means instead of Rs. 48,840 you will get an exemption for only Rs. 47,790!

Thus, you may have to work around with this a bit to get the maximum savings on HRA.

Inflation Rate might be understated in India

India’s inflation rate based on Wholesale Price Index currently runs at 3.01%; a five year low. But experts say that the real rate of inflation is understated in India.

Fuel prices are a major contributor of inflation in India. And the government hasn’t raised fuel prices even though the global oil prices have reached close to $100 a barrel. The rise not being transferred to the economy means we are riding on an unreal inflation rate which would have increased otherwise or ideally should have.

Liquidity (supply of money) in the market is another factor that affects inflation rate in India. Due to foreign inflows (money from outside) and a subsequent appreciation of rupee, liquidity should have moved upwards, contributing to inflation. But the RBI is adopting CRR hike and other similar measures that suck liquidity out from the economy which could have increased inflation otherwise.

It seems the Finance Ministry is concerned only about reducing inflation, as have been repeatedly talked off by the FM. This would add to the woes on an already criticized method of inflation calculation, which is based on WPI with respect to the more accurate CPI.

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