Exemption on HRA - House Rent Allowance

Exemption on HRA - House Rent Allowance

-Dr. Lalit Kumar Setia

In the class, the participants usually ask how much rent we can pay for getting full exemption on House Rent Allowance? If a person is paying Rent equivalent to the HRA amount, then how many portions of HRA will be taxable? Should I pay more rent than HRA for getting a full exemption on HRA? What does Income Tax Act tell regarding exemption on House Rent Allowance? Without getting confused, let us understand how to compute the amount of exemption in the received amount of House Rent Allowance.

Who can claim exemption on House Rent Allowance – HRA?

The person who are doing service or in other words, the employees get an amount for meeting their cost of rent as an allowance that is known as House Rent Allowance. Only those salaried persons who are residing in a rented house can get an exemption on House Rent Allowance. The salaried person who is not residing in a rented house, cannot get exemption on House Rent Allowance and their whole amount of HRA is taxable.

From the Financial year 2020-21, the Income Tax Department has introduced New Tax Regime. It is worth mentioning here that the persons who are opting for New Tax Regime, are not allowed to claim exemption on House Rent Allowance – HRA. Such persons even if paying rent, are not eligible to get exemption of HRA and their full HRA amount is taxable.

Need not to say, the HRA amount should be included first in the amount of Gross Salary then only the exemption is claimed on HRA.

How to compute Salaries after exemption of HRA?

There are two steps to compute the Salaries after exemption of HRA:

Step 1 – Take the amount of Salaries including HRA

Step 2 – Subtract the amount of exempted HRA

How much amount should be subtracted/How much HRA is exempt?

There are three figures which are compared and at least of the figures is exempt.

a. Amount of HRA received and included in the Gross Amount of Salaries

b. Rent Paid – 10% of Salary*

c. 40% of Salary* or 50% of Salary*

*Here Salary means Basic Salary and Dearness Allowance.

It is found in the classroom inquiries that most of the employees usually takes a percentage of Basic Salary than Basic Salary + Dearness Allowance. That is wrong.

How much amount a person can pay as Rent to claim full exemption on House Rent Allowance?

It is known that the amount of HRA is exempt at least of the three figures, one is HRA received, second is Rent Paid – 10% of Salary, and third 40% or 50% of the Salary.

The full exemption can be up to the amount of HRA received. In most of cases, Rent Paid – 10% of Salary is the amount of exemption. If we took it as a parameter to decide the amount of full exemption on HRA, then the following amount can be paid as rent:

HRA Received = Rent Paid – 10% of Salary

Then, Rent Paid = HRA Received + 10% of Salary

Let us take an example: 

Suppose Basic Salary is Rs. 50000, DA is Rs. 8000 and HRA is 10% i.e. Rs. 5000. The person is paying Rs. 6000 as rent.

Then the exempt HRA will be at least of the following:  

a. Rs. 5000 HRA Received   

b. Rent Paid Rs. 6000 – 10% of (Basic Salary and DA)

= Rs. 6000 – 10% of (50000 + 8000)

= Rs. 6000 – Rs. 5800 = Rs. 200.

c. 40% of Salary

= 40% of (50000 + 8000)

= 50% of 58000

= Rs. 29000.

a. Rs. 5000, b. Rs. 200, c. Rs. 29000.

It means Rs. 200 will be exempt and the remaining will be taxable.

How much rent can be paid in this case to get the full exemption?

Rent Paid for full exemption = HRA Received + 10% of Salary

= Rs. 5000 + 10% of (Rs. 50000 + 8000)

= Rs. 5000 + Rs. 5800

=Rs. 10800. 

*Copyright © 2021 Dr. Lalit Kumar. All rights reserved.

This article is written by Dr. Lalit Kumar Setia; a renowned author and trainer. He completed his Doctorate in Commerce from Kurukshetra University Kurukshetra and MBA in Information Technology from GJU, Hisar. He also wrote two books, 15 research papers, and organized more than 200 Training Courses during his working period since 2006 in Haryana Institute of Public Administration, Gurugram. The article was published on 31^st August 2021 and last updated on 4^th September 2021. The writer can be contacted on lalitkumarsetia@gmail.com 

Next Articles on Income Tax:

https://drlalitsetia.blogspot.com/2021/08/tds-on-payment-made-to-government.html

and

https://drlalitsetia.blogspot.com/2021/07/tan-for-deductors.html

Responsibilities of Head of Accounting Organizations

Responsibilities of Head of Accounting Organizations

-Dr. Lalit Kumar

In Government Organizations, the hardest responsibility is ‘ensuring economy, efficiency, and effectiveness – the 3 Es’ in payments and the second hardest responsibility is to improve the tax collection system to the extent possible. The Chief Controller of Accounts (CCAs) or Controller of Accounts (CAs) is with the independent charge being Head of Organizations. They are expected for critical analysis of Government functions based on above stated 3 Es – Economy, Efficiency, and Effectiveness.

Rules, Regulations, and Instructions:

The Finance Ministry with the help of the Finance Department frames rules and regulations, also issue instructions as per the need of changing business environment. To improve transparency with online procurement of goods and services, the Government e-Marketplace (GeM) incorporated by the Government and now in every state, there is more emphasis upon adoption of GeM. However, the heads of accounting organizations are responsible to certify the reasonability of the rates on which products and services are being procured in their offices.

Emphasis upon Outcome Budgeting:

The time is changing fast, now Government is focusing upon Outcome instead of Outlay and Output. There are ceilings in the budget for effective monitoring of the utilization of financial resources and managing the debt due to excess demand of financial resources in the offices. The budget is formed based on the Output-Outcome Monitoring Framework (OOMF) as per the latest guidelines of the Ministry of Finance / Finance Department.

In Finance Department, the Budget branch is entrusted to furnish accurate budget estimates and monitoring of utilization of funds as per the amount proposed by the departments.

Financial Reporting:

The heads of accounting organizations are responsible to prepare the reports based on financial records to enable better decision-making by the Administrative Officers (IAS / IPS / IFS etc.).

The reports and periodical reviews, analytical diagrams for managerial decisions, are now part of the financial reporting.

Internal and External Audit

It is well known that the Audit function is completed by the Chartered Accountants (CAs) in Private and Public Sector Organizations as per the Companies Act. But at the same time, in Government Organizations, the primary audit function is directly in the hands of heads of Accounting Organizations i.e. Accounts Officers, Senior Accounts Officers, Chief Accounts Officers, etc.

a. Enforcing Internal Controls and Checks –

The challenge is to supervise and ensure timely payments to the right beneficiaries and claimants as per the rules framed by the Finance Department and latest instructions. The Government also deals with the Contractors and Vendors for the supply of goods, services, works including manpower solutions.

b. Preparing Monthly Accounts as per Rules –

It is not so easy as it seems. Accurate figures of accounts along with compiling the financial records, reconciliation of the accounting information is a hard responsibility. Most of the time, the RTI Activists demand such information and put their queries with quoting the inaccurate information sometimes due to clerical mistakes (if any). The accounting tasks are time-bound and related to taxation, budgets, and compliance of Companies Act or Partnership Act for preparing Financial Statements and the disclosure of the same in the public domain.

After preparing the accurate financial accounts, these are submitted to the Accounting Organization i.e. CGA in Central Government and AG (Accounts) in State Governments.

c. Advisory Services for reforming taxation –

The Government Organizations realize revenues most of the times from taxation and it is the basic focus area to reform by the Government. The heads of accounting organizations are responsible to advise the Government for reforming the taxation function and make it more transparent and error-proof.

The rising debt on Government can easily be reduced with effective collection of taxes with least cost.

Leveraging Information Technology:

Without Information Technology, every function is incomplete. The Internet of Things and Artificial Intelligence have changed the scenario of Accounting. The use of Software, Apps, Web portals, and tools of Artificial Intelligence not only detects the irregularities but also supports administrators to think out of the box and make the organizations more profitable. The technological environment cannot be easily understood by Accounting people because, in most Government Organizations, the heads of accounting organizations lack skills in Information Technology such as the Internet of Things and Artificial Intelligence tools.

The implementation of Financial Rules with the help of Financial Management Systems convince the officers both Accounting and Administrative officers to use the portals for carrying out their financial functions. The preparation of Sanctions, processing of Bills, Making Payments in digital forms, processing of Receipts and Management, incorporating the Direct Benefit Transfer using Payments directly into the Accounts of Payees / Beneficiaries, analyzing the flow of Cash and Funds including inflows and outflows in various types of activities, and finally reporting of financial records with the use of templates, graphs, and diagrams; every function is being transformed with the impact of Information Technology.

Course on Decision Making for Effective Financial Administration by Dr. Lalit Kumar Setia:

This course first time organized from 6th September to 10th September, 2021 particularly to support the Officers/Official ensuring effective financial administration in their offices.
The Haryana State Training Policy, 2020 notified by Honorable Chief Secretary to Government, clearly state to focus upon equipping all functionaries of Government with adequate knowledge and skills, bring about positive attitudinal changes, and build capacities to enhance performance.
The main objective of the above course is to build and enhance the capacities and sharpen the skills for making decisions relating to ensure proper utilization of financial resources, procurement of goods and services using online and offline modes, workout medical reimbursement in Cashless and packages, and deduction of Tax Deduction at Source (TDS) as per Income tax and GST Act as per the directions of Government for effective financial administration.
By the end of this course, participants will be able to:
•              Describe the bases of making Financial Decisions in ensuring proper utilization of Financial Resources, Budgetary Control by using Online Budgeting portal as per guidelines of Government
•              Describe the process of making decisions in Procuring Goods and Services, taking sanctions, use of approved source and open market, Tendering and Online Procurement using Government e-Marketplace (GeM).
•              Describe the rules, latest instructions, and directions of Government for Effective Financial Administration in Income Tax, Goods and Services Tax, Medical Reimbursement, Recovery of over payments, submission of e-TDS returns in Income Tax and GST etc. 

The Government Departments can apply for the desired training on lalits.hipa@nic.in and after confirmation/acceptance of the nominations, the participants are added to Google meet classes. For more information, the contact number of Dr. Lalit Kumar Setia is +91-9416382720.

*Copyright © 2021 Dr. Lalit Kumar. All rights reserved.

This article is written by Dr. Lalit Kumar Setia; a renowned author and trainer. The article was published on 9th August, 2021 and last updated on 4^th September, 2021. The writer can be contacted on lalitkumarsetia@gmail.com 

Next Article - Computerised Systems

https://drlalitsetia.blogspot.com/2020/08/computerized-accounting-systems.html 

- How a Person Caught for Tax Evasion

https://drlalitsetia.blogspot.com/2021/07/how-person-caught-for-tax-evasion.html

How a Person Caught for Tax Evasion

 How a Person Caught for Tax Evasion

-Dr. Lalit Kumar Setia

Modes of Tax Evasion:

Taxpayers most of the time, try to delay the payment of taxes or even be failed to pay the taxes. The Government takes it very strictly and there are provisions of penalties, late fees, interest on delayed payment etc. Secondly, there are instances where the smuggling is used to hide the transactions and such things are curbed with the help of taxation inspectors. Third, one of the major modes of tax evasion is the submission of false tax returns. In Government as well as Corporate organizations, the employees and suppliers to organizations, submit false tax returns hiding their income; known as concealment of income. Submission of false tax returns is taken very strictly and the person is required to pay 300% of the amount including a 200% penalty and even there are provisions for imprisonment if it is done intentionally by a person.

The fourth way is to show inaccurate financial statements, most organizations maintain two types of books, one in the fairway and the second is a rough way. Whenever any taxation inspector or audit team comes into the shop/office, the fair accounts are shown which are incomplete. Even it is tried to give bribes and hide the facts from Government.

The fifth way is the submission of false documents (affidavits, certificates, undertakings, etc.) particularly to claim exemptions, deductions, and other benefits available in the Income Tax Act. This is mostly done by the persons who know the provisions in a smarter way.

The sixth way is ‘Non Reporting of Income’, for example, hiding the income from specified sources such as the sale of assets, business transactions without taking money in a bank account, etc.

The seventh way is ‘to store the money and wealth outside the country so that the Government cannot look into the money and wealth retained by the persons.

How Government collects Tax?

The Income Tax Department directs Drawing and Disbursing Officers (DDOs) to deduct a certain percentage of tax from certain specific nature of payments and thereafter remit the same. In the United States of America (USA) is known as ‘Pay As You Earn’ means the citizens while receiving an income, get the tax deducted first. It is basically a great method to reduce tax evasion. Isn’t it?

Status of Income-tax return forms

In India, the extended last date of Income-tax return was 31st December 2021. As of 19th December 2021, the total income tax return forms received were 3.83 crores out of which, more than 50% that is 2.17 crores were submitted by salaried employees. The figures state that out of people contributing to the collection of income tax, the majority of taxpayers belonged to the 'Salaries category', and this majority matters in the economic development of India. 

In Government organizations, DDOs are responsible to withdraw government money from the treasury and disburse the same as per the rules of the Finance Department. How do DDOs support tax administration? What is expected from the DDOs as far as Income Tax is concerned?

A. Obtaining Tax Deductor Account Number (TAN):

Before deducting tax at source (TDS), it is a must for the DDOs to obtain a Tax Deductor Account Number (TAN). It is required to mention the TAN number while depositing the TDS, submit the return of TDS, and issue the certificate of TDS to the deductee.

B. Receiving the correct PAN number from the Deductees and Mentioning it:

It is true that the DDO has to deduct TDS if payments are of certain specific nature as per the Income Tax Act. But it is also necessary that the amount deducted at the source is reflected in the correct PAN of deductees. In case, the PAN number is written wrong or the deductee submits it wrong; the tax credit cannot be provided.

C. Tax Deduction at Correct Rate as per Act and its Deposit

A DDO should be aware of the provisions of Income Tax, how much tax or at which rate, the tax be deducted from which nature of the payment. After deduction of tax, it cannot be retained in the pocket of DDO or in any other account of office/government. It is required to transfer the deducted amount to the designated banks either through book transfer or challan. In case, the TDS is collected by Government Department then it is transferred immediately with the book transfer entry at the time of making payment, and in case of others, it is required to deposit the TDS amount before the 7^th of the following month. There is one exception, that is the last month of the financial year i.e. March. In case, the TDS amount is collected by others (i.e. other than Government Department), it is required to deposit the amount before 30^th April.

For a deposit of TDS, the deductor is required to use Challan no. 281 and pay the amount either on the web portal of Income Tax or in designated banks that facilitate Income Tax Department in effective administration. It is also necessary to quote the correct section of the Income Tax Act with the correct rate of TDS in each deductee record.

D. TDS / TCS Return filing by Deductors:

All Government Departments, Companies, Persons whose accounts are required to be audited, and the persons with more than 50 deductees are required to compulsorily submit the TDS / TCS return in a specific format i.e. Form 24Q for Salaries Payments, Form 26Q for Non-Salaries Payments, and Form 27EQ for Tax Collection at Source, etc.

It is also necessary to file the correction statements whenever there is any discrepancy noticed in the earlier-filed TDS / TCS returns.

E. Issue of Certificates to the Deductees:

It is required to issue the certificate to the deductee with mentioning the details of the amount deducted. In the case of salaried deductees, Form 16 is issued up to 31^st May and in the case of non-salaried deductees, Form 16A is issued within 15 days from the due date of furnishing the TDS return.  

*Copyright © 2021 Dr. Lalit Kumar. All rights reserved.

This article is written by Dr. Lalit Kumar Setia; a renowned author and trainer. The article was published on 27th July, 2021 and last updated on 4^th September, 2021. The writer can be contacted on lalitkumarsetia@gmail.com 

Next Pages

-Taxability of Conveyance Allowance

https://questionsinexam.blogspot.com/2021/07/taxability-on-conveyance-allowance.html

-Irregularities in Tendering:

https://drlalitsetia.blogspot.com/2021/07/irregularities-in-tendering.html 

-TDS on payment made to Government

https://drlalitsetia.blogspot.com/2021/08/tds-on-payment-made-to-government.html

Attention Deductors - Deposit of TDS

Attention Deductors - Deposit of TDS

-Dr. Lalit Kumar*

The TAN holders or deductors are required to deposit the amount deducted from the payments and issue a TDS certificate to the recipients of the payment. There are two ways to pay the TDS in the Income Tax Department; firstly without generating the Income Tax Challan and Secondly with generating the Income Tax Challan. In the case of TDS deposited without generating Income Tax Challan, the due date for the deposit of TDS is the same day when the payment is made and tax is deducted. In the case of TDS deposited by Income Tax Challan, the due date for the deposit of TDS is the 7^th of the coming month in which the deduction is made from the payment.

There are a few exceptions, in case the sum is deducted under section 194-IA or 194-IB or 194M then it is required to generate challan in Form no. 26QB or 26QC or 26QD; the due date is 30 days from the end of the month in which the deduction is made.

How to pay or deposit the amount of TDS:

Generally, the TDS is processed through electronic fund transfer at the time of making payments on which TDS is required to be deducted. For example, the Government Department or organizations remit the TDS without generating Income Tax Challan, by making book adjustments or book transfers and furnishing 24G or 26G to NSDL every month. However, if it is not possible, then the deductor can also furnish Challan No. 281 in an authorized bank for processing the amount of TDS to the Income Tax Department.

What will happen if TDS is not deducted or deposited by the Deductors?

It is the duty of the deductor to deduct the TDS before making payments and remit the same by adopting the above-said procedure. In case, the deductor failed to deduct TDS from the payment and not deposit the same to the Income Tax Department, it means the deductor is in default.

In such circumstances, (a) in case the deductor fails to deduct TDS, it is required to pay simple interest @1% per month or part of a month, on the amount of TDS for the period of delay (months or part of a month between “Date of tax deducted and date on which tax was deductible). (b) in case the deductor deducted the TDS but not deposited, it is required to pay simple interest @1.5% per month or part of a month, on the amount of TDS for the period of delay (months or part of a month between “Date of tax actually paid and date of TDS deducted).

Further, under section 271C, there is a penalty provision equal to the amount of TDS not deducted by the Deductor. Such penalty can be up to the amount of tax in arrears as per the provisions of section 221. Apart from the penalty, the deductor shall be punishable with rigorous imprisonment for a term not less than 3 months but which may extend to 7 years.

Are you interested in an Online Course related to Income Tax?:

1. https://smartinstituterls.blogspot.com/2022/12/income-tax-matters-in-government.html 

2. https://smartinstituterls.blogspot.com/2022/12/computation-of-income-tax-liability.html

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Introduction to Income Tax Matters

Introduction to Income Tax Matters

Income Tax Matters

The Drawing and Disbursing Officers are entrusted to deduct accurateamount of Tax Deduction at Source (TDS) by the Income Tax Authorities, on the other hand, the employees of the office approach the Drawing and Disbursing Officer (DDO) to guide and suggest for income tax planning. In such scenario, a DDO should be well versed and updated with all provisions of Income Tax particularly in relation with computation of income of an individual, computation of amount of Tax Deduction at Source (TDS), timely deposit of deducted amount of TDS, generation of Form-16 / 16A for employees / vendors and quarterly e-filing of e-TDS return.

What is a Tax?

Tax is a fee charged by a government on a product, income or activity. There are two types of taxes: direct taxes and indirect taxes. If tax is levied directly on the income or wealth of a person, then it is a direct tax e.g. income-tax, wealth tax (introduced in 1957 and abolished in 2015 Union Budget). Wealth Tax was replaced with a surcharge of 12% upon income of high net worth individuals, HUFs, and Corporates. If tax is levied on the price of a good or service, then it is called an indirect tax e.g. Goods and Services Tax (GST), 4-tier tax structure i.e. 5%, 12%, 18%, and 28%.

What is Income Tax Act?

The levy of income-tax in India is governed by the Income-tax Act, 1961. The Act contains 298 sections and XIV schedules. These undergo change every year with additions and deletions brought about by the Finance Act passed by Parliament. The Income Tax Return is also filed by the citizens who have taxable income as per the Income Tax Act. As a DDO, the following details of each chapters should be known regarding each chapter of the Income Tax Act:

•      Chapter I: 

Introducing the Income Tax Act and how it works for Government.

•      Chapter II: 

When the Income Tax Act commenced and what the extent of the Income Tax Act is enforced.

•      Chapter III: 

About the charge and levy of income tax, total income and its scope, dividend income, and income arising from working abroad etc.

•      Chapter IV: 

Various forms of incomes that do not included in the total income for income tax purposes such as certain incomes from property, trusts, institutions, incomes of political parties etc.

•      Chapter V: 

Income of other individuals forming part of the taxpayers’ or assessee’s total income including income from business / profession, capital gains, house property etc.

•      Chapter VI: 

This chapter contains provisions for transfer of income particularly when there is no actual transfer of assets.

•      Chapter VII: 

This chapter contains deductions applicable on certain payments and incomes while computing the total income.

•      Chapter VIII: 

This chapter contains rebates and share of member in an association or body.

•      Chapter IX: 

It is a principle that no income should be taxed twice. This chapters contains double taxation relief that is rebate on income tax and relief in amount of income tax payable.

•      Chapter X: 

This chapter contains special provisions where payment of income tax is avoided including agreements with foreign countries i.e. Double Tax Avoidance Agreement (DTAA) and also information about those countries with which there exists no agreement on tax payment.

•      Chapter XA: 

This chapter contains general anti-avoidance rules for income tax.

•      Chapter XII: 

This chapter details on the calculation of tax under certain special cases

•      Chapter XIIA: 

This chapter provides the special provisions for incomes earned by Non-Resident Indians (NRIs).

•      Chapter XIIB: 

This chapter contains special taxation provisions applicable to certain companies from sections 115J to section 115JF.

•      Chapter XIIBB: 

This chapter details the taxation process for conversion of a foreign company into an Indian subsidiary.

•      Chapter XIID: 

This chapter details the taxation process for profits made by domestic companies. It also points out the interest payable on non-payment of tax by the companies with the cases of defaults in payments.

•      Chapter XIIDA: 

This chapter provide details on rules for levying tax on distributed income of a company.

•      Chapter XIIE: 

This chapter deals with the provisions of tax on distributed income of unit holders.

•      Chapter XIIF: 

This chapter contains provisions for tax on income received from venture capital companies or venture capital funds.

•      Chapter XIIG: 

This chapter contains the special provisions particularly related to taxation of shipping companies.

•      Chapter XIII: 

This chapter contains all information about Income Tax authorities including their appointments, powers, control etc.

•      Chapter XIV: 

This chapter provides details regarding section 139 to section 152 which are relating to how to deal and file with income tax return. How to obtain Permanent Account Number (PAN) for filing income tax return. It also provides details on online activities for income tax return.  

•      Chapter XIVA: 

This chapter contains the provisions for avoiding repetitive appeals including the appeals already pending with the courts.

•      Chapter XV: 

This chapter details the liabilities of taxpayers in various cases and how to recover tax from the people and companies not adhering to rules or intentionally not paying their taxes.

What does Income comprise?

As per income tax act, the definition of income is inclusive, means it is not limited to certain types of incomes only. It states, “Income includes”. The scope of income cannot be confined to a range of incomes only; it leaves room for more inclusions within the ambit of the term. Income means net receipts and not gross receipts. Net receipts are arrived at after deducting the expenditure incurred in connection with earning such receipts. The expenditure which can be deducted while computing income under each head.

*Copyright © 2019 Dr. Lalit Kumar. All rights reserved.

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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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