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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Tax Saving under Section 80C

Tax Saving under Section 80C

The Drawing and Disbursing Officers are responsible to deduct accurate amount of Tax Deduction at Source (TDS) from the salaries of the employees. Most of the employees ask DDOs to advise upon tax savings and each DDO before giving advice, should be clear the instruments, investments, payments associated with the section 80C. The ‘Professional Guidance’ webpage is providing full detail in simplest way for complete understanding of section 80C. The major deduction which attracts taxpayers is still under section 80C of Income Tax Act, however it is still restricted up to Rs. 1,50,000. The taxpayers invest a certain amount to claim this deduction and all insurance companies, financial companies, banking companies targets the taxpayers (individuals and Hindu Undivided Family – HUF) to attract them for their plans to claim deduction under section 80C. Which of the option is good for the taxpayers and why; that is still a matter of concern and every individual considers the pros and cons of each investment before making investment.

Tax Deduction under Section 80C

Options to select for claiming Deduction under Section 80C:

For claiming deduction under section 80C, the individual and HUF can consider various options and payments should be made up to 31^st March of the financial year.

An individual / HUF can take a life insurance policy (for self, spouse and children including annual plans, deferred annuity plans, and Unit Linked Insurance Plans - ULIP) and claim deduction on payment of its premium during the financial year. He can deposit amount in Provident Fund (Public Provident Fund, Recognized Provident Fund, Superannuation Fund), National Saving Certificate / Kisan Vikas Patra, Mutual Funds (Equity Linked Saving Schemes or Notified Pension Funds), UTI funds, specific Bank Fixed Deposits or bonds (infrastructure bonds, notified bonds of NABARD, Senior Citizen Saving Scheme, Five Years-Time Deposit with Post Office etc.) and other investments entitled to claim deduction under section 80C. Apart from it, the deduction can be claimed for payments of tuition fees of two children, repayment of housing loan (only principal component), stamp duty or registration charges paid for purchase or construction of residential house etc.

(a) Life Insurance Premium under Section 80C for Individuals and HUF:

If amount is paid for annuity plan of Life Insurance Policy, that can be claimed as a deduction under section 80C. Such premiums paid for self, spouse and children can be claimed under section 80C and the premium paid for policy of father, mother, or others cannot be claimed as deduction under section 80C.

Here the point is whether the amount received on maturity of the ULIP will be taxable in the year of receipt or not?

It depends upon the amount of premium and sum assured value of the policy. In case, the premium paid is less than 10% of the sum assured value of the policy then amount received on maturity of the policy will be exempt under section 10 (10D), otherwise it will be taxable.

(b) Employee’s Provident Fund Investments under Section 80C for Individuals and HUF:

The salaried people usually pay a part of their monthly salary as a contribution to Employee’s Provident Fund. Such contributions in Provident Fund Investments are eligible to claim deduction under section 80C. The employers also deposit equal amount of contribution in the account of employee’s provident fund.

Here the point is, whether the contribution of employer and interest earned on provident fund during the year is taxable in the hands of employee or not?

The employee and employer’s contribution to provident fund accumulate a corpus and interest is earned upon the same. Such interest earned up to 9.5% is not taxable in the hands of the employee. The interest earned above the limit of 9.5% per annum will be taxable. Further, if the employer contributes more than 12% of employee’s salary in employee’s Provident Fund Account, then the excess will be taxable in the hands of employee.

What will happen if an employee decides to contribute more than 12% in his provident fund?

If an employee contributes more than 12% of his salary in provident fund, then such contribution is known as Voluntary Provident Fund (VPF) and such contribution is also eligible for deduction under section 80C.

Whether the interest earned on maturity of provident fund is taxable or not?

The interest earned and maturity amount is exempt.

(c) Public Provident Fund Investment under Section 80C for Individuals and HUF:

An individual or HUF can open a Public Provident Fund (PPF) Account in post office or bank and the PPF account has a lock-in period of 15 years however, partial withdrawals can be made after 7 years of opening the account. The minimum amount required to be deposited in PPF account is Rs. 500 per year and the maximum amount can be deposited up to Rs. 1,50,000.

Here the point is whether the interest earned on PPF account is taxable or not?

The banks and post office provide interest on PPF account on annual basis means it is compounded yearly. It is exempt in the hands of recipient.

(d) Sukanya Samriddhi Yojana (SSY) investment under Section 80C:

An individual only if he / she is one of the parents or legal guardian of one or two girl children with age up to 10 years, can open Sukanya Samriddhi Yojana Account in post office or bank and contribution in this account can be made up to Rs. 1,50,000 per year. The lock-in period of the account is up to the age of 21 years of the girl child and the amount to be deposited in this account is for 15 years thereafter amount is not deposited in this account. Such contribution can be claimed as deduction under section 80C.

Here the point is whether the interest earned on SSY account is taxable or not?

The interest earned on SSY account is compounded annually and it is exempt in the hands of recipient. The interest rate on SSY account is usually declared higher than the PPF account’s interest rate. Both the interest rates are revised every year by the Government.

To continue the understanding, please go through the next part: Tax Deduction under Section80C.

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

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Income Tax Relaxations from FY 2019-20

Income Tax Relaxations from FY 2019-20

In the earlier article on Retirement and Pension Benefits, we gone through the retirement and pension benefits. The managerial administration deals taxation provisions very strictly as per the updated rules and directions notified by the income tax department from time to time. In order to ensure compliance of rules and directions, a lot of paper work is done by the individuals, companies, and government offices. Before providing any deduction or exemption, necessary documents are required to be kept in custody by the drawing and disbursing officers, principal accounts officers, and individuals claiming for the deductions and exemptions. From financial year 2019-20, first time provisions are made to reduce the paper work by relaxing a few norms with regard to tax deduction at source (TDS). 

Income Tax Relaxations from FY 2019-20

An individual can save a lot of amount by sincerely following the rules of income tax. The tax-saving provisions can minimize the tax liability. Let's have a look upon the exemptions in Income Tax:

The major changes which will directly influence an individual from Financial Year 2019-20 are:

(i) Rebate under section 87A:

From FY 2019-20, the rebate under section 87A extended from Rs. 2500 to Rs. 12500. An individual is eligible to get rebate under section 87A if the taxable income i.e. Gross Total Income minus Deductions 80C to 80U, is less than or equal to Rs. 5 Lacs.

The income tax slabs are not changed and due to increase in rebate the individuals with the taxable income up to Rs. 5 Lacs will have nil tax liability. Let’s understand it:

The income tax slabs are up to Rs. 250000 – Nil, from 250000 to Rs. 500000 – 5%, from 500000 to Rs. 1000000 – 20%, and above Rs. 1000000 – 30%.

In case, the taxable income is Rs. 500000, the tax payable will be nil up to Rs. 250000 and next 250000 @5% i.e. 12500. The rebate will be provided on 12500 thus the tax liability will be 12500 – 12500 = Nil.
During FY 2018-19, the rebate was Rs. 2500 for individuals with taxable income up to Rs. 3.5 Lacs.

In other words, "Individuals having taxable income upto Rs. 5, 00, 000 will get full rebate on Tax Payable Amount". 

(ii) Increase in Standard Deduction under Salaries Head:

From FY 2019-20, the standard deduction increased to Rs. 50000. The standard deduction for the FY 2018-19 was Rs. 40000. This standard deduction is available to the salaried & pensioners because they have income from the salaries head. All individuals with income from Salaries head are eligible to get standard deduction up to Rs. 50000 of the income from salaries, and the remaining will be taxable under the head of salaries.

(iii) No tax on two self occupied houses in House Property Head:

Till 31^st March 2019, the individuals had option to decide only one self occupied house in case they had more than one house. The income from other house properties was required to be taken while computing income from house property. Suppose, an individual has two houses laying vacant. He may reside in one house and the second house which is not giving any rental income, earlier it was required to take notional rent of the house as taxable income and accordingly compute the taxable income. From FY 2019-20, an individual can claim two house properties as self occupied if no rental income is earned from the properties.
The people looking to relocate themselves or facing problems due to work at two locations can easily manage two houses now. 

Under section 54, now two houses can be considered. 

(iv) Tax Deduction at Source on interest on deposits after amount becomes greater than Rs. 40000:

Earlier the banks and financial institutions were directed to deduct tax deduction at source (TDS) if the interest on deposits becomes greater than Rs. 10000. The limit is increased up to Rs. 40000. However, in order to get relaxation from such TDS, the individuals have right to deposit Form 15 G / 15H with the banks and financial institutions in case the interest income increased more than the limit. The Form 15G / 15H is basically a declaration on part of the individual that his or her income is not taxable therefore no tax should be deducted at source by the banks and financial institutions.

It is worth to mention here that from FY 2018-19; the senior citizens (individual with age more than 60) had been made exempt to pay tax on income of interest on deposits if the income is up to Rs. 50000.

Copyright © 2019 Dr. Lalit Kumar. 

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Tax Deduction at Source

Tax Deduction at Source

The income tax is paid by the assessee either in form of Advance Tax or Self-Assessment Tax as per the expected or actual incomes earned during the financial year. This is the moral duty of assessee to pay the income tax. The income tax department also ensures the deduction of taxes on various payments and in such case the person or organization making payments, deduct the taxes and then make the payments. Such deduction of tax is known as Tax Deduction at Source (TDS). The person or organization who deducted tax before making specified payment, pays the deducted tax on behalf of payee to the income tax department. The TDS is deducted on payments of salaries, interest, commission, brokerage, professional fees, royalties, contract payments.

Rate of TDS deducted on particular payments:

Salaries are paid to the employees, interest and commission are paid to the customers, interest and brokerage are paid to the investors, professional fees and royalties are paid to professionals and contract payments are made to the contractors. Before deducting tax at source, it is required to know the PAN number of the recipient to whom the payment is being made. In such case, he is known as deductee. The person or organization who deducts the tax at source is known as deductor.

(a)          In case of payment of salaries:

The TDS is deducted as per the income category of the employee. In such case, the annual expected taxable income is calculated and as per the estimated tax liability, the TDS is deducted from the amount of salaries. From Financial Year 2018-19, the slab rates of income tax have been revised. For example, an employee is being paid salary @Rs. 50000 (Fifty Thousands) per month then the expected annual income will be Rs. 6 Lacs minus standard deduction of Rs. 50000 (from FY 2019-20) i.e. the tax payable on Rs. 5.5 Lacs will be computed including surcharge (if any) and education cess. The surcharge is applicable @10% in case the taxable income is above Rs. 50 Lacs but up to 1 Crore while it is @15% in case of taxable income exceeds 1 Crore. The tax payable will be computed and thereafter the TDS is deducted on the basis of tax payable. In case of monthly payments of salaries, the TDS will be deducted equal to the amount of (total annual tax payable divided by 12). The section 192 states that the TDS will be computed on the basis of Tax Liability i.e. (income tax plus surcharge) plus education cess @4% on (income tax plus surcharge).

(b)          In case of payments other than salaries:

10% TDS is deducted on interest on Fixed Deposits, interest of securities, and other types of interest payments. In case of unexpected income from winning of lottery or games or quiz contests or horse race etc. 30% TDS is deducted by the deductors. In payments of contractors, if the contractor is individual or HUF then 1% TDS is deducted otherwise 2% TDS is deducted. In payments of commission, 5% TDS is deducted. In payments of remuneration or royalties or professional fees etc.; 10% TDS is deducted. The provisions for TDS on various types of payments are described in section 192, 192A, 194, 195 and 196.

In case of purchase of immovable property (other than rural agricultural land), the buyer makes payment to the seller. If the sale proceeds are less than Rs. 50 Lacs then no TDS will be deducted but if it is more than Rs. 50 Lacs then TDS is deducted @1% on amount of sale proceeds.

Threshold Limits for not deducted TDS:

 In case, the payments are not so much or subject to a particular limit; then no TDS is deducted by the deductors. For example, in case of salaries if the deductee’s taxable income is not chargeable to tax i.e. up to basic exemption limit (BEL) then no TDS will be deducted from the salaries. The BEL for persons up to age 60 is Rs. 2,50,000; age 60 to 80 (senior citizens) is Rs. 3,00,000; age more than 80 (super senior citizens) is Rs. 5,00,000. Section 192A states that the premature withdrawal from accumulated balance of provident fund up to Rs. 50,000 is not subject to TDS. The annual payment of interest up to Rs. 10000 are not subject to TDS however in case of interest on debentures the threshold limit is Rs. 5000. Similarly if the amount of winnings from lottery is less than 10,000 then TDS is not deducted. In case of payment of rent, if the amount is less than Rs. 50,000 per month then there will be no TDS deducted by the deductor but if it exceeds Rs. 50000 per month, then 5% TDS is required to be deducted.

Provision of submitting Form 15G or 15H:

In case, the deductee’s estimated total income is not taxable then he can submit an undertaking in prescribed format i.e. 15G (for individuals with age up to 60) and 15H (for senior citizens).

Duties of Deductors for TDS:

It is the moral duty of a deductor to deposit the TDS to income tax department on behalf of deductee. For this purpose, first of all, the deductor obtain Tax Deduction Account Number (TAN) and file the TDS statements known as TDS return by due dates as specified by the income tax department. Further, it is also required to issue the TDS certificate to the deductee so that he can claim the benefit of TDS deducted in his ITR. In case, the deductor fails to remit the TDS amount to income tax department by due date, he is required to pay interest on late payment of TDS and also required to pay penalty and in few cases, also subject to imprisonment up to seven years.

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

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