INCOME TAX INDIA

 

Income Tax Return is a proof that you have paid your income tax. It contains details about your annual income and the amount of tax you have paid. Every year, Indian citizens who earn taxable income have to file Income Tax Return (ITR). Filing ITR will help you in getting a refund in case you pay more tax than what you are required to pay. If you fail to file your ITR, you might have to bear penalty etc. Income tax return form ranges from ITR 1 to ITR 7 which can be choose on the basis of Nature of Income, Nature of Person.

 

Deductions under Section 80

A tax that, imposed on individuals or entities which varies with respective income or profits.

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Income Tax Deductions?

Income Tax Deductions are allowed by the Income Tax Act as an instrument for tax saving and reducing the liability to pay tax. Act provides a list of deductions. Indian Income Tax Act, 1961 provides various income tax deductions under Section 80. The income tax deductions can be reduced from the gross taxable income while filing the income tax return. These deductions help in tax saving and reducing the tax liability of a person. 

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Section-57 Expenditures allowed as Deductions?

 

  • Expenses incurred for realisation of dividend or interest income;
  • Deductions to the extent amount remitted within due date are authorised in respect to contribution towards funds for the welfare of employees;
  • Family Pension- deduction is allowed to the extent of 33-1/3% of pension or Rs. 15000 whichever is less;
  • Deductions for current repairs, insurance and depreciation, will be allowed for income earned by way of lease rental;
  • A deduction equal to 50% will be allowed for interest received on compensation or enhanced compensation.
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What is National Pension Scheme (NPS)?

National Pension Scheme (NPS) started with the decision of the Government of India to stop defined benefit pensions for all its employees who joined after 1 January 2004. Here Central Government-backed savings scheme that aims to build a retirement corpus for the citizens of India. However, in 2009, it was opened to all sections. The scheme allows subscribers to contribute regularly in a pension account during their working life. On retirement, subscribers can withdraw a part of the corpus in a lumpsum and use the remaining corpus to buy an annuity to secure a regular income after retirement. 

Let’s take a closer look at the provisions of the NPS.

  • It is mandatory for central government employees to subscribe to NPS.

  • Other than employees of the Central Government, others can voluntarily contribute to NPS

  • Contributions to NPS have to be made consistently till the age of 60 years.

  • The minimum annual contribution of  Rs. 6,000 with the minimum monthly contribution of Rs. 500, is necessary to be eligible for tax deductions under Tier 1 of the NPS.

  • The minimum annual contribution to the NPS is Rs. 2,000 with the monthly contribution of Rs. 250, is mandatory for claiming deductions under Tier 2 of the NPS.

  • It offers a wide range of investment instruments to select from – Government securities, fixed income bearing instruments and equity funds. However, the latter cannot exceed 50%.

  • It’s a cost-effective market-linked investment scheme.

  • It allows partial withdrawals of up to 25% on specific situations based on the reason behind the withdrawal.

  • It enables individuals to withdraw 60% of the proceeds in lump sum, while the remaining 40% has to be reinvested into an annuity plan.

  • For deferred exit, 80% of the withdrawal proceeds have to be reinvested in annuity.

Section 80 Deduction Table for FY 2018-19

SectionsDeductionsLimitations
80C-Investment in PPF
– Employee’s share of PF contribution
– NSCs
– Life Insurance Premium payment
– Children’s Tuition Fee
– Principal Repayment of home loan
– Investment in Sukanya Samridhi Account
– ULIPS
– ELSS
– Sum paid to purchase deferred annuity
– Five year deposit scheme
– Senior Citizens savings scheme
– Subscription to notified securities/notified deposits scheme
– Contribution to notified Pension Fund set up by Mutual Fund or UTI.
– Subscription to Home Loan Account scheme of the National Housing Bank
– Subscription to deposit scheme of a public sector or
company engaged in providing housing finance
– Contribution to notified annuity Plan of LIC
– Subscription to equity shares/ debentures of an approved eligible issue
– Subscription to notified bonds of NABARD
Rs. 1,50,000
80CCC– For amount deposited in annuity plan of LIC or any other insurer for
a pension from a fund referred to in Section 10(23AAB)
80CCD(1)Employee’s contribution to NPS account (maximum up to Rs 1,50,000)
80CCD(1B)Additional contribution to NPSRs. 50,000
80CCD(2)Employer’s contribution to NPS accountMaximum up to 10% of salary
80CCGRajiv Gandhi Equity Scheme for investments in EquitiesLower of
– 50% of amount invested in equity shares; or
– Rs 25,000
80DMedical Insurance – Self, spouse, children
Medical Insurance – Parents more than 60 years old or (from FY 2015-16)
uninsured parents more than 80 years old
– Rs. 25,000
– Rs. 50,000
80DDMedical treatment for handicapped dependent or payment to specified
scheme for maintenance of handicapped dependent
– Disability is 40% or more but less than 80%
– Disability is 80% or more
– Rs. 75,000
– Rs. 1,25,000
80DDBMedical Expenditure on Self or
Dependent Relative for diseases specified in Rule 11DD
– For less than 60 years old
– For more than 60 years old
– Lower of Rs 40,000 or the amount actually paid
– Lower of Rs 1,00,000 or the amount actually paid
80EInterest on education loanInterest paid for a period of 8 years
80EEInterest on home loan for first time home ownersRs 50,000
80GGFor rent paid when HRA is not received from employerLeast of :
– Rent paid minus 10% of total income
– Rs. 5000/- per month
– 25% of total income
80GGBContribution by companies to political partiesAmount contributed (not allowed if paid in cash)
80GGCContribution by individuals to political partiesAmount contributed (not allowed if paid in cash)
80RRBDeductions on Income by way of Royalty of a PatentLower of Rs 3,00,000 or income received
80TTAInterest Income from Savings accountMaximum up to 10,000
80TTBExemption of interest from banks, post office, etc.
Applicable only to senior citizens
Maximum up to 50,000
80USelf-suffering from disability :
– An individual suffering from a physical disability (
including blindness) or mental retardation.
– An individual suffering from severe disability
– Rs. 75,000
– Rs. 1,25,000
Section 80C?

Deductions on Investments

Under section 80C, a deduction of Rs 1,50,000 can be claimed from your total income. In simple terms, you can reduce up to Rs 1,50,000 from your total taxable income through section 80C. This deduction is allowed to an Individual or a HUF. A maximum of Rs 1, 50,000 can be claimed for the FY 2018-19, 2017-18 and FY 2016-17 each.

Section 80CCD?

Deduction for Contribution to Pension Account

a. Employee’s contribution – Section 80CCD (1) is allowed to an individual who makes deposits to his/her pension account. Maximum deduction allowed is 10% of salary (in case the taxpayer is an employee) or 20% of gross total income (in case the taxpayer being self-employed) or Rs 1, 50,000, whichever is less.FY 2016-17 and earlier years –  In the case of a self-employed individual, maximum deduction allowed is 10% of gross total income.

b.Deduction for self-contribution to NPS – section 80CCD (1B)  A new section 80CCD (1B) has been introduced for an additional deduction of up to Rs 50,000 for the amount deposited by a taxpayer to their NPS account. Contributions to Atal Pension Yojana are also eligible.

c. Employer’s contribution to NPS – Section 80CCD (2)  Additional deduction is allowed for employer’s contribution to employee’s pension account of up to 10% of the salary of the employee. There is no monetary ceiling on this deduction.

Section 80 CCD(1B)

What is Sec 80 CCD (1B)

Section 80CCD of the income tax act deals with deductions offered to individuals contributing to the NPS. As per Section 80CCD, until the year 2015, an individual was eligible to claim an income tax deduction of up to Rs. 1 lakh against contributions made to the NPS. In the budget for the year 2015, the government enhanced the maximum amount payable to the NPS to Rs. 1.50 lakh per annum. Additionally, a new sub-section 1B was also introduced, which offered an additional deduction of up to Rs. 50,000/-for contributions made by individual taxpayers towards the NPS.

The additional deduction of Rs. 50,000/- under Section 80CCD(1B) is available to assess over and above the benefit of Rs. 1.50 Lakhs available as a deduction under Sec 80CCD(1). Thereby, raising the maximum limit of exemption to Rs. 2.00 Lakhs with Section 80CCD(1) + Section 80CCD(1B).

Here are some of the critical points about Section 80CCD (1B) that you should be aware of it.

(i) The additional deduction of Rs. 50,000/- is available only for contributions made to NPS Tier 1 accounts.

(ii) Tier 2 accounts are not eligible to claim the deduction under Section 80CCD(1B).

(iii) The deductions under Section 80CCD(1B) are available to salaried individuals as well as to self-employed individuals.

(iv) You need to produce documentary evidence of the transaction related to the contribution to NPS.

(v) Partial withdrawals are allowed under NPS but are subject to specific terms and conditions.

(vi) The total exemption limit under Section 80CCD(1B) is Rs. 50,000/- and is independent of exemptions under Sec 80 C. Thereby, you can claim a maximum deduction of  Rs. 2,00,000/-.

(vii) In case the assessee dies, and the nominee decides to close the NPS account, then the amount received by nominee is exempt from taxation.

(viii) If partial withdrawals are made from the account, then only 25% of the contribution made is exempt from taxation.

(ix) If the assessee is an employee and decides to close the NPS account or opt out of NPS, then only 40% of the total amount is tax-exempt.

(x) The assessee can withdraw 60% of the entire amount on reaching the age of 60 years as tax-free income. The remaining 40% is also tax-free if it is used to purchase an annuity plan.

Section 80CCD(1B) offers you an excellent opportunity to save a substantial amount on your taxation liabilities. This way you can not only reduce your present tax liabilities but also work towards creating a substantial corpus for your retirement. Do keep in mind the points mentioned above, before taking any action related to your NPS account regarding Section 80CCD(1B).

 

Section 80D?

Deduction for the premium paid for Medical Insurance

                      Deduction under this section is available to an individual or a HUF. A deduction of Rs. 25,000 can be claimed for insurance of self, spouse and dependent children. An additional deduction for insurance of parents is available to the extent of Rs 25,000 if they are less than 60 years of age or Rs 50,000 (has been increased in Budget 2018 from Rs 30,000)  if parents are more than 60 years old. In case, a taxpayers age and parents age is 60 years or above, the maximum deduction available under this section is to the extent of Rs. 100,000.

The eligible amount of deduction u/s 80D in various cases, is subject to maximum limit as given below :

Particulars

Case-1

Case-2

Case-3

Self &

Family

(no one of them is a senior citizen)

Parent s   (no one of them is a senior citizen)

Self &

Family

(no one of them is a senior citizen)

Parents

(atleast

one of them is a senior citizen)

Self &

Family

(atleast one of them is a senior citizen)

Parent s

(atleast one of them is a senior citizen)

Medical Insurance, etc.*

25,000

25,000

25,000

50,000

50,000

50,000

Medical

Expenditure**

50,000

50,000

50,000

Maximum deduction allowable

25,000

25,000

25,000

50,000

50,000

50,000

Aggregate

amount        of

deduction allowable u/s 80D

50,000

75,000

1,00,000

** Allowable only if no amount is paid for medical insurance.* Includes (i) contribution to the Central Government Health Scheme/notified scheme for self & family; and (ii) amount paid for preventive health check-up up to Rs.5,000/-.

Note 1: The payment for preventive health checkup can only be made in cash, other payments must be made by non-cash mode.

Note 2: Finance Act, 2018 amended section 80D of the Act to provide that in case of single premium health insurance policy having cover of more than one year, the deduction shall be allowed on proportionate basis for the number of years for which health insurance cover is provided, subject to the monetary limits specified above.

Here

  • ―family‖ means the spouse and dependent children of the employee.

―Senior citizen‖ means an individual resident in India who is of the age of sixty years or more at any time during the relevant previous year.

Section 80E?

Deduction for Interest on Education Loan for Higher Studies

A deduction is allowed to an individual for interest on loan taken for pursuing higher education. This loan may have been taken for the taxpayer, spouse or children or for a student for whom the taxpayer is a legal guardian. The deduction is available for a maximum of 8 years (beginning the year in which the interest starts getting repaid) or till the entire interest is repaid, whichever is earlier. There is no restriction on the amount that can be claimed.

Section 80EE?

Deductions on Home Loan Interest for First Time Home Owners

FY 2017-18 and FY 2016-17 This deduction is available in FY 2017-18 if the loan has been taken in FY 2016-17. The deduction under this section is available only to an individual who is a first time home-owner. The value of the property purchased must be less than Rs 50 lakh and the home loan must be less than Rs 35 lakh. The loan must be taken from a financial institution and must have been sanctioned between 01 April 2016 to 31 March 2017. Through this section, an additional deduction of Rs 50,000 can be claimed on home loan interest. This is in addition to deduction of Rs 2,00,000 allowed under section 24 of the Income Tax Act for a self-occupied house property.

Section 80 G?
  • National Defense Fund set up by the Central Government
  • Prime Minister’s National Relief Fund
  • National Foundation for Communal Harmony
  • An approved university/educational institution of National eminence
  • Zila Saksharta Samiti constituted in any district under the chairmanship of the Collector of that district
  • Fund set up by a State Government for the medical relief to the poor
  • National Illness Assistance Fund
  • National Blood Transfusion Council or to any State Blood Transfusion Council
  • National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities
  • National Sports Fund
  • National Cultural Fund
  • Fund for Technology Development and Application
  • National Children’s Fund
  • Chief Minister’s Relief Fund or Lieutenant Governor’s Relief Fund with respect to any State or Union Territory
  • The Army Central Welfare Fund or the Indian Naval Benevolent Fund or the Air Force Central Welfare Fund, Andhra Pradesh Chief Minister’s Cyclone Relief Fund, 1996
  • Chief Minister’s Earthquake Relief Fund, Maharashtra
  • Any fund set up by the State Government of Gujarat exclusively for providing relief to the victims of earthquake in Gujarat
  • Any trust, institution or fund to which Section 80G(5C) applies for providing relief to the victims of earthquake in Gujarat (contribution made during January 26, 2001 and September 30, 2001) or
  • Prime Minister’s Armenia Earthquake Relief Fund
  • Africa (Public Contributions — India) Fund
Section 80 TTA?

Deduction from Gross Total Income for Interest on Savings Bank Account

A deduction of maximum Rs 10,000 can be claimed against interest income from a savings bank account. Interest from savings bank account should be first included in other income and deduction can be claimed of the total interest earned or Rs 10,000, whichever is less. This deduction is allowed to an individual or an HUF. It can be claimed for interest on deposits in savings account with a bank, co-operative society, or post office. Section 80TTA deduction is not available on interest income from fixed deposits, recurring deposits, or interest income from corporate bonds.

Section 80 TTB?

Deduction of Interest on Deposits for Senior Citizens

A new section 80TTB has been inserted vide Budget 2018 wherein, a deduction in respect of interest income from deposits held by senior citizens will be allowed as a deduction from the total income The limit for this deduction is Rs. 50,000. Further, no deduction under section 80TTA shall be allowed. In addition to section 80 TTB, section 194A of the Act will also be amended so as to increase the threshold limit for deduction of tax at source on interest income payable to senior citizens from the existing limit Rs 10,000 to Rs. 50,000.

NPS Tax Benefits while investing in Tier 2 Account ?

Earlier there was no income tax benefit if you invest in Tier 2 Account. However, due to Government of India changed rules, if Central Government Employee contribute towards Tier 2 Account, then he can claim the tax benefits under Sec.80C (Combined maximum limit under Sec.80C will be Rs.1.5 lakh ONLY). Also, if someone availed such tax benefits, then the invested money will be locked for 3 years (exactly like ELSS Mutual Funds). 

What are Tier-I and Tier-II accounts?

NPS offers two accounts: Tier-I and Tier-II accounts. Tier-I is a mandatory account and Tier-II is voluntary. The big difference between the two is on withdrawal of money invested in them. You cannot withdraw the entire money from Tier-I account till your retirement. Even on retirement, there are restrictions on withdrawal on the Tier-I account. The subscriber is free to withdraw the entire money from the Tier-II account. 

What is the minimum contribution in NPS?

You have to contribute a minimum of Rs 6,000 in your Tier-I account in a financial year. If you do not contribute the minimum amount, your account will be frozen. You can unfreeze the account by visiting the POP and pay the minimum required amount and a penalty of Rs 100. 

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