A. In order to avail of tax benefits under Section 80 C, you can invest in following products
• Tax saving 5 year FD’s
• Life Insurance policies
• Public provident fund
• Pension plans
• National saving Certificates
• Post office time deposits
• Buying home with housing loan ( Only principal of loan is eligible for 80C deduction )
• Equity linked saving schemes
Q2. What are the other deductions available other then section 80 C?
A. Depending upon the eligibility criteria, one can claim various deductions from the gross total income:
1. Section 80 D: You can invest upto Rs. 30,000 in medical insurance; avail of tax benefits. (Rs. 15, 000 for self, spouse and dependent children plus Rs 15, 000 for non-senior parents Rs 15,000). However, the limit of Rs 15,000 is enhanced to Rs 20, 000 in case premium is paid for senior citizens
2. Section 80 E: The interest on loans taken for higher education and vocational training is eligible as a deduction
3. Section 80 G: Donations to specific trusts/ and Funds are eligible for deduction ranging from 50-100% subject to a 10% overall ceiling of adjusted gross total income in respect of certain donation
4. Section80DD: A fixed total of Rs. 50,000 shall qualify as deduction (irrespective of amount incurred) either towards expenditure for the medical treatment of handicapped dependant or sum paid under an approved annuity scheme framed for payment of an annuity. In case the disability is severe, the claim can go up to Rs 75,000/- In this years budget The limit for severe disability is proposed to be increased to Rs.1,00,000 from the current Rs.75,000
Q3. Do all tax saving instruments offer same benefit?
A. No, Income tax treatment for different tax saving instruments are different. While most of the tax saving instruments offer tax benefits only at the time of contributions there are few instruments like insurance which not only offer tax benefits at the time of contributions but also at the time of maturity.
Q4. I hear a lot about EEE, ETE and EET, What does it mean?
A. EEE (exempt,exempt,exempt), EET (exempt, exempt, taxed) & ETE (exempt, taxed,exempt,) are different methods used for taxation of savings instrument.
Under “EEE” scheme of taxation of eligible savings instruments, the initial contributions are exempt from tax, also on accumulation of income therein is exempt from tax, and similarly the withdrawals/benefits from the investments are exempt as well.
In EET instruments while contributions and accumulations would continue to remain exempt, the withdrawals/benefits would be taxed.
In ETE instruments only the interest accrued on the investments is taxed while the contribution & maturity benefits are tax free.
Q5. Are investments made in fixed deposits subject to tax deducted at source (TDS)? What is the limit below which TDS is not applicable?
A. The following provisions of tax deduction applies for making payment of interest on securities/ and other instruments, which is applicable other than insurance products.
Section | Section description | Exemption limit |
193 | Interest on listed debentures issued by a company in which public are substantially interested and interest is paid by a/c payee cheque. | Upto Rs 2,500 |
194A | Payment of interest other than interest on securities | Rs. 10,000 if interest is payable by banks, Rs 5000 in case of others. |
Q6. What are the tax benefits available to an individual in respect of premium paid on life insurance policies?
A. Entire life insurance premium paid by an individual/ HUF qualifies for a deduction upto Rupees One lakh for each financial year under Section 80C of Income Tax Act, 1961.
Q7. Can tax benefits be claimed if the premium is paid by an individual on his/her spouse's policy?
A. Tax benefits can be claimed by an individual who pays life insurance premium on behalf of his/her spouse's policy under Section 80C of Income Tax Act, 1961.
Q8. Are maturity proceeds on life insurance and pension policies taxable?
A. The maturity proceeds of life insurance policies are not taxable. However, under pension plans, up to one-third of the maturity amount can be withdrawn and the same is treated as tax-free. An annuity has to be purchased with the remaining two-third amount. Pension receipts from the same will be treated as income in the hands of the beneficiary and taxed accordingly.
Q9. What are the deductions available in respect of a medical insurance premium?
A. Medical insurance premium paid qualifies for deduction under Section 80D as follows:
• Premium paid up to Rs 15,000 (in a financial year) is eligible for deduction from gross total income.
• You can also pay medical insurance premium for your parents & claim an additional deduction of Rs 15,000 under Section 80D. In case of senior citizens, the limit is Rs 20,000
In other words, an individual who pays medical insurance premium for himself and his parents will be eligible to claim tax benefits to the extent of Rs 30,000 i.e. Rs 15,000 (for himself) and Rs 15,000 (for his parents)
Q10. Can I get tax benefits on the entire amount I pay as rent?
A. No, this is common misconception, the maximum rent amount on which you can claim tax benefit is the lowest of the following amounts
• House Rent Allowance given by the employer
• 50% of your basic salary if you live in a metro, 40% for other locations
• Actual rent paid minus 10% of your basic salary.
Thus if actual rent paid is lower than 10% of your basic salary you receive no exemption. The other key point is that you cannot claim any exemption under this section if you live in your own home or if you are not paying rent to anyone.
Q11. I have heard of Interest and Principal repayment of home loans as having separate tax benefits. How much can I save in each?
A. Yes, Tax benefits can be claimed on both the principal and interest components of the home loan under the Income Tax Act, 1961. Interest on borrowed capital is deductible up to Rs 150,000 (in a financial year). However, interest for pre-construction period is allowed in five equal instalments (within the above limit) commencing from the year in which house is constructed/ acquired. For let out properties, the entire interest paid is deductible under section 24 of the Income Tax act. Principal repayment of the loan/capital borrowed is eligible for deduction of upto Rs 100,000 (in a financial year) under Section 80C.
Q12. Does interest on loan taken for the reconstruction, repairs or renewal also qualify for deduction of Rs. 150,000?
A. Yes, the interest on a loan, taken for repairs, renewals or reconstruction, also qualifies for the deduction of Rs 150,000.
Q13. Can I invest in the name of a family member and get the tax benefits in my name?
A. Yes you can, you can invest in insurance and PPF in your name or in name of your wife and children & claim tax benefits. In case of medical insurance you can take policy for your parents & take tax benefits on the amount.
Q14. Can I claim tax savings on the investments made in my name by a family member?
A. No, you cannot, the person contributing towards the investments is only eligible for tax benefits.
Q15. What are the investment options under Section 80 C?
A. Bank deposits - Term deposits in a scheduled bank with a minimum period of five years offers tax advantage. Term deposits are a one-time investment and there is no commitment to pay in the future.
Employee Provident Fund (EPF) - This is a saving for employees and helps them save for retirement. Every month, 12 per cent of basic salary is deducted and put into a kitty maintained either by the government or company’s trust. The contribution currently earns a tax-free return of 8.5 per cent. The rate of return is fixed by the government every year in March-April.
Public Provident Fund (PPF) - This is a self-directed investment option. It is essentially a 15-year investment that gives a tax-free return of eight per cent as of now. The rate is subject to change. Investments of Rs 500-70,000 qualify for a tax deduction under Section 80C.
Home loans - The total amount eligible for deduction is up to Rs 1 lakh a year for the principal amount.
Equity-linked savings schemes (ELSS) -These are mutual fund products and carry market risk. Like all tax saving options, these plans have a lock-in period of three years. Therefore, it makes sense to go in for funds with good track records rather than the new fund offers, especially in this category.
National Savings Certificates (NSC) - These are for those who are less averse to risk. This government-backed security is available at post offices and gives an interest rate of eight per cent, compounded half-yearly as of now. The interest is entirely taxable. NSCs are good for those in lower tax slabs with an investment horizon of six years.
Life insurance – The premium for life insurance policy is eligible for a tax deduction up to Rs 1 lakh under Section 80C. If the premium paid in any of the years is more than 20 per cent of the sum assured, then deduction will be allowed only up to 20 per cent of the sum assured. This applies to all term, endowment and unit-linked plans.
Post office time deposits - The scheme is similar to bank fixed deposit. Tax benefit is applicable only for deposits under the 5-year period. Currently interest rate is 7.5 % payable annually but calculated on a quarterly basis.
Q16. How can I avail tax benefits under Section 80 D, 80DD, 80G & 80 E?
A. Health insurance - Under Section 80D, Individual/ HUF can claim deduction for medical insurance premium up to Rs 15,000, with an additional deduction of Rs 5,000 if the policy is in the name of a senior citizen (65 years or older). In addition to the above, an individual who pays premium for medical cover for parents is allowed deduction of Rs 15, 000/- each year.
Educational loan - The interest on loans taken for higher education and vocational training are also eligible for deduction from your total income under Section 80E. There is no monetary ceiling on the interest you can claim as a deduction. The loan must have been taken from a financial institution or an approved educational institution for higher education for himself/ spouse or children. Remember, repayment of loan or interest on loans taken by parents for higher education of their child is not eligible for deductions.
Charity - To avail tax benefits under Section 80G, donations must be made only to specified trusts. The tax breaks vary according to the trust to which you have donated.
Medical treatment - Any expenditure for the medical treatment (including nursing) of a handicapped person, training and rehabilitation of a person suffering from a permanent physical disability (including blindness) or from mental retardation, qualifies for a deduction under Section 80DD upto Rs 50,000. A life insurance policy bought for the benefit of such a handicapped person is also eligible for this benefit up to Rs 50,000. In case the disability is severe, the claim can go up to Rs 75,000. In this years budget The limit for severe disability is proposed to be increased to Rs.1,00,000 from the current Rs.75,000
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