Personal Finance and Professional Management Fundamentals

June 23, 2007

Pay Your Taxes Online

Online payment of taxes has been introduced to make your life as a taxpayer much easier. Paying taxes has never been simpler with the authorities introducing the mechanism of online payment. The use of electronic means to deliver services is not only an efficient and speedy process, but it also facilitates a transparent process for disseminating information and delivering it to the taxpayers of the nation.

Online payment of taxes helps you save time, is convenient and is paperless. You could be working in office or relaxing at home — the facility to pay your taxes is just a click away. To make use of this facility, all you need is an account with a bank that provides net-banking and also e-tax payment facility. State Bank of India, HDFC Bank, IDBI Bank, UTI Bank and Union Bank of India are some banks that provide the e-tax payment facility.

The procedure for payment of taxes online is simple and the userfriendly instructions make it even more attractive. To start with, you need to log on to NSDL-TIN website and click on the ‘e-Tax-online payment’ option. You will then be directed to a list of banks that provide the e-tax payment facility. Depending upon the bank you hold an account with, you need to click on the option and choose the tax challan applicable in your case.

If it is a tax deducted at source payment, challan No 281 will apply; else challan Nos 280, 282 or 283 will be applicable. Challan No 280 is used for payment of advance tax and self-assessment tax. Challan No 282 is used for payment of miscellaneous taxes like gift tax, wealth tax, estate tax, expenditure tax etc. Challan No 283 is used for payment of fringe benefit tax or banking cash transaction tax.

On opting for the challan type applicable, particulars such as the permanent account number (PAN) or tax deduction account number (TAN) as may be applicable, name and address of the taxpayer, relevant assessment year, type of payment and name of the bank will be displayed. These particulars will need to be filled in carefully, as an incorrect PAN/TAN (if it does match the records of the income tax department) will not allow further processing of the payment. The mandatory fields are highlighted and to ensure smooth processing, these fields need to be populated. You will then reach the net banking site provided by your bank where you hold your account and with the use of the allocated customer ID and password, the payment will be processed.

Once the process is complete and the bank processes the online transaction, you will be issued an acknowledgment indicating the challan identification number (CIN). After a week of making the payment, the status of the payment may be verified at the NSDL-TIN website under section ‘Challan Status Inquiry’. The alternate way to verify the payment of taxes is the online bank statement.

Apart from being relieved of the hassles of visiting the bank for paying taxes and the additional paper work, an added advantage is that online payment does not require attaching the acknowledged counterfoil with your return. Quoting the challan identification number is sufficient proof for the tax authorities. Imagine, not having to worry about the challan copies and the related paperwork.

As for your security concerns, the tax authorities assure the taxpayers that the transmission through the NSDL-TIN website is encrypted and is with the secure socket layer authentication.

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June 18, 2007

While Planning For Educational Expenses, Tackle Emergencies

While planning for educational expenses, make sure you set aside some amount to tackle emergencies. Here we highlight the need for a contingency fund.

With education expenses increasing over the years, a lot of advance planning is required to ensure that adequate sums of money are available to complete one’s course when required. Most people consider the funds that are required for fees and other expenses over the time period of the course and then provide for such funds. However, one must also set aside an additional sum to tackle any emergencies that may arise. Such emergency costs cannot be planned for. But care should be taken to ensure that a large part of the total expenses is not classified as emergency costs because this reflects poor planning.

As regards the basic expenses, fees have to be paid at the beginning of each financial year or as specified by the institution. Also, books have to be bought during a certain time period. Since these expenses are spaced out over various time periods, they reduce the burden on the individual. However, such a luxury is not possible in the case of a contingency fund. There is no surety as to when the need for such a fund may arise and hence, the fund has to be ready for use from the day of start of the education.

Once such a contingency fund has been created, one needs to decide the amount that has to be kept in it. If only a small amount is set aside in this fund, one may have to run around at the last minute for additional funds. This was the case recently when students appearing for their CFA exam had to bear the cost of flying to a neighboring country, as well as acquiring a visa, in order to sit for their exam.

While the amount set aside in the contingency fund should not be too small, it should not be too large either, as this will result in a huge sum being locked-in. There are no rules for this, but one way is to consider the contingency amount as a certain percentage of the actual cost of the educational course. This may be 5% or 7% or even 10% of the total fees; the figure depends upon one’s judgment of the expenses that may crop up.

Once the amount is fixed, one should ensure that this figure is invested in the right manner so that it can be used when required. Keeping this amount in a savings account is not a good idea because it will not earn much return. At the same time, this amount has to be invested in a place from where it can be withdrawn quickly if required.

Hence, two options are available for an investor. The first option is a simple fixed deposit with a bank where there is no lock-in. The other option is any liquid scheme of a mutual fund. Here, the growth option that generates capital gains is a better route, even though this results in a slightly larger tax impact. The higher tax blow is not a deterrent because the main reason for investing the money here is not to earn higher returns, but to earn some return while the money is lying around, waiting to be used in case of an emergency.

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