Tax Deduction under Section 80C

Tax Deduction under Section 80C

Saving and Deductions in 80C

Tax Deductions under Section 80C

This article is in continuation of earlier part-1 entitled, “Tax Saving under Section 80C”.

(e) National Saving Certificate (NSC), Senior Citizen Savings Scheme (SCSS), 5-year Time Deposit (TD) in Post Office, Kisan Vikas Patra (KVP) and 5-Year tax-saving Fixed Deposit (FD) in Banks:

The term of above stated investments is at least 5 years. The investments can be claimed as deduction under section 80C.

Here the point is whether the interest earned on NSC, KVP, SCSS, TDs, FDs is taxable or not?

The interest earned on NSC, KVP, SCSS, TDs, and FDs are liable to tax and will be included in income of the recipient as ‘income from other sources’.

(f) Equity Linked Saving Scheme of Mutual Funds under section 80C:

The investments in mutual funds with lock-in period of at least 3 years are eligible for deduction under section 80C. The investments in Mutual Funds are subject to market risk and the returns are determined on the basis of performance of the stock market during the years of investment.

Here the point is whether the returns on such mutual fund investments are taxable or not?

The income from sale of investments in mutual fund after the lock-in period of 3 years are considered as Long Term Capital Gain (LTCG) and such income is taxable in the hands of recipient.

(g) Repayment of Home Loan (Principal Component) under section 80C:

In case, an individual took a home loan for the purchase or construction of residential house and the construction of the property is completed or possession of property is taken during the financial year; then the amount of repayment of principal component of the home loan can be claimed under section 80C. Any payment made to the Government Development Authorities for purchase of residential house is also eligible as deduction under section 80C.

(h) Payment of Tuition Fees of two children under section 80C:

The amount paid as tuition fees during the financial year can be claimed as deduction under section 80C. However, the portion of payment comprises development charges, library charges, and other such charges are not counted as tuition fees. The tuition fees should be paid for children’s education to the school or college or university located in India only.

(i) Payment of Stamp Duty or Registration Charges for purchase or construction of residential house:

Whenever a residential property is purchased, the buyer pays stamp duty and registration charges to the Government. After completing the construction of house property or taking possession of the same, the charges can be claimed as deduction under section 80C.

(j) Payments or Investments in Pension Plans under section 80CCC:

The financial institutions, insurance companies and banks offer various types of pension or annuity plans offering monthly pension after the date of retirement or age of 60; are eligible for claiming the deduction under section 80CCC came under the overall limit of section 80C.

Here, the point is whether the returns from such pension plan in the form of monthly pension or in form of interest or bonus are taxable or not?

The monthly pension received after the maturity of the pension or annuity plan, is taxable in the hands of recipient. In case, the plan is surrendered before maturity and amount is received, that will be taxable including interest or bonus received upon it.

(k) Payment or contribution to Government Pension Scheme under section 80CCD (1):

The salaried people or employees can contribute up to 10% of their salary in notified government pension account (i.e. National Pension Scheme or Atal Pension Yojana). The self-employed taxpayers can also contribute up to 20% of their gross total income or Rs. 1,50,000 whichever is less; to claim deduction under section 80CCD(1).

(L) Payment or Contribution to Government Pension Scheme under section 80CCD (1B):

The salaried people or employees can also claim additional deduction of Rs. 50,000 above the overall limit of 80C (i.e. Rs. 1,50,000) for their contribution to notified pension scheme (i.e. National Pension Scheme or Atal Pension Yojana) under section 80CCD (1B).

The 80CCD (1) is included in the overall limit of 80C i.e. Rs. 1,50,000 while the 80CCD(1B) is additional deduction up to Rs. 50000 for contribution in notified Government Pension Scheme. The total deduction can be claimed including 80CCD (1B) Rs. 150000 plus Rs. 50000 that is Rs. 200000.

However, the deduction under section 80 CCD (1B) is for contribution in Tier – 1 account of the National Pension Scheme or Atal Pension Yojana.

(M) Payment or Contribution to Government Pension Scheme under section 80CCD (2):

The employers can also contribute to the employee’s pension scheme to the extent of 10% of the employee’s salary. In case, this amount is disbursed to the employee for depositing into his pension account; then this amount received from employer will be deposited into the employee’s pension account and deduction can be claimed under section 80CCD(2). This deduction will be additional to 80C and 80CCD(1B).

Here salary includes the Basic Pay and Dearness Allowance.  

When does an individual or HUF cannot claim deduction under section 80C:

In case, the individual or HUF earned income only from capital gains i.e. on sale of long-term assets or securities then 80C deduction cannot be claimed to reduce the tax liability.

Overall limit of deduction under section 80C:

Section 80CCE of income tax details that the amount of deduction under section 80C, 80CCC, and 80CCD (1) cannot exceed more than Rs. 1,50,000.

It is worth to mention here that the deduction of 80CCG which was started for investments under a government approved equity savings scheme (Rajiv Gandhi Equity Saving Scheme) had been discontinued from the Financial Year 2017-18.

 *Copyright © 2018 Dr. Lalit Kumar. All rights reserved. 

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Implications of forming HUF on Income tax

Implications of forming HUF on Income tax

While computing the income tax on the income of an individual, first Rs. 2,50,000 are exempt, and such limit of income exempt from tax is known as basic exemption limit (BEL). The exemption is also available in the case of Hindu Undivided Family (HUF). The family members together can form HUF and take separate PAN for it. In such case, the deductions are also applicable on both HUF and individual accounts of family members. In case of deduction u/s 80C, apart from all family members, the HUF can also claim the deduction and save the taxes.

How HUF works in saving taxes on incomes of family members?

All family members form a Hindu Undivided Family (HUF) and took a separate PAN number for it. The HUF is formed as a joint business by family members. The members can take a salary from the revenues earned by HUF instead of their contribution to the business and commercial operations of HUF. The business starts earning revenues and paying salaries to the family members. To claim deduction u/s 80C, the HUF’s PAN can be used to take the insurance cover of the life of members. After forming the HUF, the income from house property is treated as income of HUF instead of any family member.

Assets of Hindu Undivided Family (HUF)

Whenever any gift is received or property is acquired as ancestral property or acquired by the contribution of all family members, it becomes the property of HUF and the rent from such property is considered as income of HUF instead of the income of family members. The common pool of assets whenever generates any income that is quantified as the income of HUF.

Why do people hesitate to form HUF for saving taxes?

Once the HUF is formed and assets are purchased jointly in the name of HUF. The common property is managed by all family members and due to the maintenance of equal rights of property, each family member took less interest to spend upon assets, and at the time of dissolution of HUF, there are a large number of conflicts among the family members to get equal right in the revenues generated from the business. At the time of dissolution, when assets are distributed among the family members, then such income is quantified as the individual income of each family member, leading to more tax liability. 

*Copyright © 2018 Dr. Lalit Kumar. All rights reserved.