Deduction u/s 80C of Income Tax F/Y 2011-12

Friends,

The various budgets that have come by in the past have opened choices of various kinds of investment alternatives. When we invest in these we could save tax. The significant question would be what should be the field of investment that is to be chosen. It could be residential house property, medical insurance policy etc. If the house is ready for occupation then from that year itself investment in residential house property which is for self-occupation can get you tax deduction in according to section 80C which allows the deduction of Rs.1 lakh even if you are repaying housing loan to bank, financial institution or employer etc. Invest in pension plan which can enable you to be entitled for a combined deduction under section 80C and also section 80CCC for up to Rs.1 lakh only.

Various other popular areas of investment that could be opted by tax payers to avail deductions under the section 80C of Income Tax Act, 1961 are premium payment of life insurance, payment to public provident fund, payment of tuition fee for the purpose of child’s education, investment in NSC bonds, investment in National Saving Scheme (NSS) bonds, investment in ELSS and also housing loan repayment. Therefore you could choose from all these options of investment along with pension plan investment and achieve the target of total investment summing up to Rs.1 lakh. This is the maximum amount that you could try to contribute by the investment option to obtain tax benefit.

Making investments even in bank fixed deposits belonging to any scheduled bank with a maturity period of at least 5 years is eligible to entitle your investment to be claimed for deduction u/s 80C. The chance to avail deduction under section 80C by paying tuition fee for the educational purposes of children is limited only to the payment for two children. This deduction is applicable to any two children of the tax payer. It is to be noticed that when both husband and wife are earning members of the family then they are entitled for a separate limit of two children each. This would mean that they would be capable to be entitled for deduction of tax by paying for tuition fees of 2 children each.

This deduction is not applicable when the child is attending a part time or distance education course. It is intended for only full time courses. Even fees for private tuition or coaching classes are not eligible for deduction u/s 80C. The educational institution in which the children attend their full time course should be located only in India though it could be affiliated to a foreign institution. Pre-nursery, play school and nursery class fees are interesting eligible for deduction u/s 80C but donations paid or late fees, term fees, transport charges etc are not eligible. There is no necessity that the child be a legal child. Even an unmarried person can claim deduction u/s 80C if he has children. Adopted children are also eligible to claim deduction u/s 80C as there is also no necessity to be biological parent of the child.

What is EEE or EET or ETT in Terms of Taxation?

Friends,


What do the three characters meanings?
I understand these words are very untidy to you but comprise so much significance in the taxation world. So let’s try to understand these expressions.

    * “E” means Exempt
    * “T” means Taxable.
    * “T” means Taxable.

Words laid down above appears to be higgledy-piggledy for non-professionals, but for all taxpayers it is must to understand these words before investing in saving instruments like PPF, NSC, FD, Post Saving account.

Almost all instruments fall under the following equations.

    * EEE (Exempt – Exempt – Exempt)
    * EET (Exempt – Exempt – Taxable)
    * ETE (Exempt – Taxable – Exempt)
    * ETT (Exempt – Taxable – Taxable)

The above equations are passed in three stages when someone invest in investment instruments.

Stages for tax benefit and taxation

1)   First Stage  -   Investment Stage

    * The moment - when somebody practically makes an investment.

Almost all Investments are exempt from tax  i.e. First E for EEE, EET.

2) Second Stage – Earnings Stage

    * The moment – When you get benefit (interest, accrued interest etc.) on your investment i.e First Stage

But the  second stage may be taxable or exempt i.e. Second E may be T or E
For example :

    * Interest on  National Savings Certificate (NSC) is taxable
    * Interest on Provident Fund (PF) or Voluntary Provident Fund (VPF) is not taxable.

3)   Third Stage -  Withdrawal Stage

    * The moment – when you withdraw the whole or part of your investment with benefit i.e. interest or accrued interest.

Now same as second stage may be taxable or not i.e third stage may be E (exempt) or T (Taxable)

For example

PPF is fall under EEE (Exempt – Exempt – Exempt).

See all tax saving Schemes

Now lets understand with saving instruments and tax saving schemes in which equation they fall.

Public Provident Fund (PPF)

    * Investment: Tax-deductible
    * Accumulation: Tax-free
    * Withdrawal: Tax-free

Stages :  Exempt – Exempt – Exempt or EEE regime is followed for PPF.

National Savings Certificate (NSC)

    * Investment: Tax-deductible
    * Accumulation: Taxable
    * Withdrawal: Tax-free

Stages :  Exempt – Taxed – Exempt or ETE regime is followed for NSC.

Provident Fund (PF)

    * Investment: Tax-deductible
    * Accumulation: Tax-free
    * Withdrawal: Tax-free

Stages :  Exempt – Exempt – Exempt or EEE regime is followed for PF and VPF.

Tax Saving Fixed Deposits

    * Investment: Tax-deductible
    * Accumulation: Taxable
    * Withdrawal: Tax-free

Stages :  Exempt – Taxed – Exempt or ETE regime is followed for these FDs.

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Can PPF Account be extended beyound 15 years ?

Friends,

PPF (Public Provident Fund) is a good investment under section 80C of Income Tax. This account should be opened as soon as one joins Service. The main benefit of this scheme as on today is one get Rebate in the Income Tax in the relevant years and at the end interest received from this account is TAX FREE. So one can think whether it could be extended for more than 15 years ?

Here we discuss in brief. We have to initially open the Open the PPF account for 15 years and after the initial period of 15 years is over, one can keep on extending the deposit for a period of 5 years at a time. In fact, this is where the magic of PPF begins. One need not start a fresh PPF account and continue it for all of 15 years — just extend the old one for five years at a time, indefinitely. This way, the same PPF account offers additional liquidity to what is offered during the initial term.

Overall, then, after the initial 15-year period, you can convert your PPF investment into a 5-year deposit that offers 8% tax-free interest, tax saving under Sec. 80C and immense liquidity —- and all this for your lifetime.

The PPF account can be continued (after the term of 15 years) either with or without further subscription. The only thing that investors should be careful of is that once an account is continued without contribution for any year, the subscriber cannot change over to with-contributions extension. [Notification F.3(6)-PD/86 dt 20.8.86].

Coming to liquidity, an investor, continuing his account with fresh subscriptions, can withdraw up to 60% of the balance to his credit at the commencement of each extended period in one or more instalment, but only one per year.

(Notification F.7/2/97-NS IIdt. 9.2.1998). For example, say the term of your PPF account is ending on March 31, 2007. The balance at that time in the account is say Rs 15 lakh. Now, you may opt to continue the account for 5 more years (i.e. till March 31, 2012) and invest regularly as you have been.

However, over the period of five years till March 2012, you may withdraw only Rs 9 lakh which is 60% of the balance standing to your credit on March 31, 2007.

But, what if you wish to continue but not invest further? In other words, you may wish to earn the tax-free interest but may not wish to commit further funds. That, too, is possible.

In case the account is extended without contribution, any amount can be withdrawn without restrictions. However, only one withdrawal is allowed per year. The balance will continue to earn interest till it is completely withdrawn

(Clarification 7 to Clause 9(3A) of the PPF Scheme, 1968).

I was under the impression that these aspects of PPF are not commonly known amongst investors. However, it turns out that some bank branches, too, aren’t fully aware of these rules.

Several readers have written in complaining that their bank has flatly refused to extend the account and instead wants the investor to close the existing account and start a fresh one.

Yet another reader points out that his bank has specified that an extension will be allowed only for two blocks of five years each. After that, the account will have to be closed.

In another case, the bank official specifies that post 15 years, 60% of the closing balance may indeed be withdrawn, but this has to be done at one shot — more than one installment will not be allowed.

Another bank dictates that withdrawal after maturity has to be done in a similar fashion as it was being done during the tenure of the scheme.

There are several more similar complaints, but space constraints preclude listing all of them.

The issue does get resolved when you show them the rule book, of course, but it is felt that given the popularity and demand for the instrument, some training in PPF rules will prevent wastage of valuable time for both depositors and bank concerned.

Deductions u/s 80 C to 80 U for Individuals for F/Y 2011-12

Friends,

(Public Provident Fund (Amendment) Scheme, 2010) 

Now its the time to finalize your Income Tax Calculations for this financial year i.e. 2010-11. Every one is planning to save tax while making some savings. Here are the details of Income Tax Sections from 80 C to  80 U with the help of these section you will find yourself easy to make calculations. The season of tax has arrived. Therefore , there is need for easy chart of all tax deduction u/s 80c to 80U for an Individual taxpayer?Under Income tax , deduction u/s 80C, 80CCC, 80CCF, 80D, 80DD, 80DDB, 80G , 80GG, 80GGA, 80GGC , 80IAB , 80IB , 80IC , 80ID ,80IE , 80JJA , 80QQB ,80RRB , 80U  are relevant to Individuals depending on the condition fulfillment. (TAX PLANNING)

The following chart of deductions will give instant and fair idea about certain deductions to individual tax payers. (section 80IAB to 80IE are not discussed which are specific to business men ) .

Sl No	Section	Details of deductions		Quantum
1	80C	General deduction for investment in PPF,PF,Life Insurance, ULIP, Stamp duty on house, Fixed deposits for 5 years , bonds etc		Maximum Rs 1 ,00,000 is allowed.Investment need not be from taxable income.
2	80CCC	Deduction in case of contribution to pension fund. However, it should be noted that surrender value or employer contribution is considered income.		Maximum is Rs 1,00,000
3	80CCD	Deduction in respect to contribution to new pension scheme. Employees of central and others are eligible.		Maximum is sum of employer’s and employee’s contribution to the maximum : 10 % of salary.
4		It should be noted that as per section 80CCE , the maximum amount of deduction which can be claimed in  aggregate of 80C ,80CCC & 80CCD is Rs 1,00,0000
5	80D	Medical insurance on self, spouse , children or  parents	Rs 15,000 for self , spouse & childrenExtra Rs 15,000 for insurance on parents. IF parents are above 65 years, extra sum should be read as Rs 20,000 Thus maximum is RS 35,000 per annum
6	80DD	For maintenance including treatment or 7insurance the lives of physical disable dependent relatives (CLICK HERE FOR MORE DETAILS)	Rs 50,000 . In case disability is severe , the amount is Rs 75,000.
7	80DDB	For medical treatment of self or relatives suffering from specified disease	Acutal amount paid to the extent of Rs 40,000. In case of patient being Sr Citizen , amount is Rs 60,000
8	80E	For interest payment on loan taken for higher studies for self or education of spouse or children. (Eligibility - Who Can Claim This)	Actual amount paid as interest and start from the financial year in which he /she starts paying interest and runs till the interest is paid in full.
9	80G	Donations to charitable institution. (Make Donations and Cut down your Tax)	100% or 50% of amount of donation made to 19 entities (National defense fund , Prime minister relief fund etc. )
10	80GG	For rent paid.	This is only for people not getting any House Rent Allowance. Maximum is Rs 2000 per month.  Rule 11B is method of computation.
11	80GGA	For donation to entities in scientific research or rural development f	Only those tax payers who have no business income can claim this deduction .Maximum is equivalent to 100 % of donation.
12	80GGC	For contribution to political parties	100 % of donations
13	80QQB	Allowed only to resident authors for royalty income for books other than text book	Royalty income or Rs 3,00,000 whichever is less.
14	80RRB	For income receipt as royalty on patents of resident individuals	Actual royalty or Rs 3,00,000 whichever is less.
15	80U	Deduction in respect of permanent physical disability including blindness to taxpayer	RS 50,000 which goes to Rs 75,000 in case taxpayer is suffering from severe disability.

And for this Financial Year a one can make Deduction 
u/s 80 CCF for Rs. 20000/- in addition to Rs. 100000 u/s 80C.  

 

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SBI Bonds 2011 at 9.95% Rate of Interest

Friends,

  (READ FULL STORY ON BUDGET 2011-12)

There are plethora's of options available today where one could park his or her funds so that it grows in beneficial mode. Every individual always has some income left on his disposal after spending a part of the income on his or consumption needs. Now that many of us do not know the right way through which such savings can be made to grow. One such option where investing would earn a handsome returns is bonds. Bonds today are issued by a number of financial institutions. The country’s leading bank SBI too issues bonds which gives their investors favorable returns.

SBI has introduced a Lower Tier 2 bond of retail nature very recently. The issue is open for subscription from February 21, 2011 which has closing date of  February 28, 2011.

The maximum amount of interest available under this bond is 9.95% per annum for a period of 15 years. So the rate of return is really favorable. The terms of the bond provides that those who invest in these bonds in bulk i.e. for non retail investors the interest rates are 9.30% for the initial 10 years from the date of the allotment and the interest rate is 9.45% if the tenure if the bond is 15 years. The bond cannot be redeemed before the maturity period or is redeemable only when prior approval of the bank is taken. The face value of the each bond is Rs. 10000 for bonds having a tenure of 10 years and also for bonds having tenure of 15 years.

 (Income Tax Slab Rates 2011-12) 

The bonds which are to be open for issue has been rated CARE AAA by the credit rating agencies CARE and the CRISIL has rated the bond  AAA/STABLE which proves that the bond is a very secured one and one should not be worried about their funds. The important thing to remember in order to subscribe for this bond is that one needs to have a demat account without which one would not be able to apply for such bonds. These bonds should not be misunderstood for the newly issued infrastructure bonds which carry a tax benefit of Rs. 20000 under section 80CCF of the Income Tax Act.

The bonds have been already been listed in the recognized stock exchange of the country- National Stock Exchange and Bombay Stock Exchange so it will be easier for the investor in trading of these bonds once the maturity is reached or even exchanging them in the market. The bond can be redeemed for Rs. 10000 per bond as per the terms of the bond.

(MAJOR HIGHLIGHTS OF UNION BUDGET 2011-12)   

The bonds that SBI is issuing is of a long term nature which will in turn be invested in long term investment plans so the liquidity of the bonds is constantly maintained. The application forms for the bonds will served on a first come first basis. So those who are planning to invest in such bond should grab it as early as possible and also before the date of closing of issue of the bond. This is a safer option to invest as it is the country’s largest bank providing loans of both short term and long term nature. So it is one of the flexible option to invest your funds.

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Public Provident Fund (Amendment) Scheme, 2010

Friends,

There is a major amendment in the Public Provident Fund Scheme. The amendment is regarding Hindu Undivided Family.

 

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Tax Planning-Where to Invest and Save Tax ?

Friends,

This financial year is going to be completed on 31st March. Everybody will be in planning How to Save Income Tax ? Here we will discuss all about Tax Planning. We should meet our tax obligations every year as responsible citizens. However, the law allows certain “tax-deductible” savings and we owe it to ourselves to benefit from these options, which could translate into future savings. Every citizen has a fundamental duty to pay taxes honestly and a fundamental right to avail of all the tax incentives that the government provides. Therefore, through prudent tax planning, not only can income-tax liability be reduced but a better future can also be ensured through compulsory savings in government and other schemes. Let us take a look at how one can achieve successful tax planning to enjoy optimum benefits.

Knowing the brackets

Everybody who earns an income falls under a particular and pre-defined “tax bracket”. It is important to keep in mind that your “taxable income”, or income after deduction, defines your tax bracket, and this could be lower than the amount of money you have earned over the year. According to the current income tax law, for Instance, if your taxable income is Rs 6,00,000 for the year, you would fall within the Rs 5,00,000 to Rs 8,00,000 tax bracket. You would have to pay the fixed sum for this slab, which is Rs 34,000 (ie, 10 % of earlier slab of 1,60,000 – 5,00,000 ) plus 20% of the amount that exceeds Rs. 5,00,000 . In this case , this excess  amount would be Rs 1,00,000. Thus your total income tax for the year would be Rs 34,000 + Rs 20,000 = Rs. 54,000.

Tax savings options

The February- March months are significant in regard to submission of investment declaration/details for the financial year, and every taxpayer is hard at work trying to meet the deadline on time. Although one has the option of making the necessary investments after the deadline, it may mean paying more  income tax deducted at source (TDS). Moreover, claiming the refund after filing the tax return before July the following year may turn out to be a tedious and hectic affair.

Therefore, the obvious question in everyone’s mind is what should I do to make use of the tax breaks that I am legally allowed? Well, to begin with, there is the deduction under Section 80C of the Income Tax Act, 1961, which includes a wide-range of investments and savings benefits.

What is Section 80C

In order to encourage savings, the government gives tax breaks on certain financial products under Section 80C of the Income Tax Act . Investments made under such schemes are referred to as 80C investments. Under this section, you can invest a maximum of Rs l lakh and if you are in the highest tax bracket of 30%, you save a tax of Rs 30,000.
 

The Section 80C Umbrella

It is important for the tax payers to note that –

• The deduction of investments and savings is applicable on the gross total income.

• Deduction is available only to individuals or HUFs.

• Deduction is available on the basis of specified qualifying investments / contributions / deposits / payments made by the taxpayer during the previous year.

• The maximum amount deductible is Rs. 1,00,000. Moreover, the aggregate amount of deduction under Section 80C, 80CCC (pension plans) and 80CCD (pension scheme) cannot exceed Rs. 1,00,000.

• Under section 80 CCF investments in notified infrastructure bonds aggregate amount of deduction up to 20,000

Exemptions under Section 80C

Section 80 C is the mother provision containing host of exemptions  which are  available under Section 80C. The exemptions include-

• Premium on life insurance policies ,Non-commutable deferred annuity plan ,Statutory provident fund and recognized provident fund , 15-year public provident fund (PPF), Approved superannuation fund , National Savings Certificates, VIII issue (NSC), Unit-linked insurance plans (ULIPs) of UTI, LIC, and other insurers, Notified annuity plan of LIC, Notified units of mutual funds or UTI ,Notified pension funds set up by mutual funds or UTI, Home loan account scheme or pension fund set up by the National Housing Bank, Any scheme of a public sector company engaged in providing long-term finance for purchase / construction of residential houses in India (e.g., public deposit scheme of HUDCO), Any housing board constituted in India for the purpose of planning, development or improvement of cities / towns, Tuition fees to any university / college / educational institute in India for full-time education of two children subject to limits, Payment towards the cost of purchase / construction of a residential property, including repayment of loan taken from government, bank, co-operative bank, LIC, and National Housing Bank, Amount deposited under the Senior Citizen Scheme (applicable from assessment years 2008-09) and Amount deposited in a five-year time deposit scheme in the post office (applicable from assessment years 2008-09).

Investment options under Section 80C

Investment options with Section 80C can be segregated as follows:

Fixed-income tax savings options

If you like the safety of a steady predictable income, every month, quarter or year, then there are a number of tax-savings instruments available for you. Admittedly, returns from fixed-income instruments average about 8% a year, and the return you get from these options is also free of market risk. These are suitable for investors with a lower risk tolerance or those who should take cautious risks, such as those entering retirement.

Market-linked options

ELSS: An ELSS (equity-linked savings scheme), offered by mutual funds, is a diversified equity scheme with a three-year lock-in period, providing tax benefits under Section 80C of the IT Act. As 80-100% of the corpus in a diversified equity scheme is invested in the equity market, the performance of these funds is in line with market trends. For instance, India witnessed a spectacular bull run between 2004 and 2007, and ELSS provided compounded annual returns of 30-50% during that period, far ahead of traditional tax-savings instruments like PPF and NSC. However, in the 2008 market crash, ELSS was not spared either and witnessed severe erosion in its net asset values (NAVs).

Taking an ELSS SIP (systematic investment plan) is the best solution to counter the volatility in the markets and average out the cost of investment over time. The minimum investment in an ELSS through the SIP route is as low as Rs500. That said, tax benefits for ELSS, however, will become history once the new DTC comes into force on April1,2012.

Unit-linked insurance plans

Unit-linked insurance plans (ULIPs) help you to secure your income and your dependents’ future using a combination of equity-linked savings schemes and term insurance. You can achieve both benefits through a ULIP by paying a fixed premium every year (payable across frequencies) that qualifies for a tax break. There are two types of ULIPs—a Type I ULIP pays the higher of sum assured or fund value as death benefit while a Type II pays the sum assured as well as the fund value. The benefits from the latter are usually better.

Indirect investments

There are instruments that fall under Section 80C which do not call for direct investments and yet save taxes, such as principle repayments of home loans. At times, while setting aside Rs1,00,000 for tax-related investments, many do not take into account this element of Section 80C. Always remember that only if these payments do not help you exhaust the Rs1,00,000 limit should you consider other options.

Provident Fund & Voluntary Provident Fund

Provident Fund is deducted directly from your salary by your employer. The deducted amount goes into a retirement account along with your employer’s contribution. While employer’s contribution is exempt from tax, your contribution (i.e., employee’s contribution) is counted towards section 80C investments. You can also contribute additional amount through voluntary contributions (VPF). The current rate of interest is 8.5% per annum and interest earned is tax-free.But proposed 9.5 % for fy 2010-11.

Public Provident Fund

An account can be opened with a nationalized bank or Post office. The current rate of interest is 8%, which is tax-free and the maturity period is 15 years. The minimum amount of contribution is Rs 500 and the maximum is Rs 70,000.

National Savings Certificate
These are 6-year small-savings instrument, where the rate of interest is 8% and is compounded half-yearly. The interest accrued every year is liable to tax but the interest is also deemed to be reinvested and thus eligible for section 80C deduction.

Equity-Linked Savings Scheme

Mutual funds offer you specially-created tax saving funds called ELSS. These schemes invest your money in equities and hence, return is not guaranteed. Money invested here is locked for a period of three years.

Life Insurance Premiums

Any amount that you pay towards life insurance premium for yourself, your spouse or your children can be included in section 80C deduction. If you are paying premium for more than one insurance policy, all the premiums can be included. Besides this, investments in unit-linked insurance plans (ULIPs) that offer life insurance with benefits of equity investments are also eligible for deduction under Section 80C.

Home Loan Principal Repayment

Your EMI consists of two components, namely principal and interest. The principal component of the EMI qualifies for deduction under Section 80C.

Stamp Duty and Registration Charges For Home

The amount you pay as stamp duty when you buy a house, and the amount you pay for the registration of the documents of the house can be claimed as deduction under section 80C. However, this can be done only in the year in the year of purchase of the house.

Five-Year Bank fixed deposits

Tax-saving fixed deposits (FDs) of scheduled banks with a tenure of five years are also entitled for section 80C deduction.

Others

Apart from the above, things like children’s tuition fees expenses that can be claimed as deductions under Section 80C. However, you need receipts to claim the same.

80CCF

The most important factor for Saving Under Section 80 CCF is it provides additional benefit to save tax in addition to a Maximum Limit of Rs. 100000/- under section 80 C. Now you can also save tax by claiming deduction of  Rs 20000/- by investing in Infrastructural Bonds.

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Some relief in Budget 2011-12 (Income Tax)

Friends,

At present the maximum limit u/s 80C is Rs. 1,00,000/- with an additional limit of Rs. 20,000/- under Section 80CCF. The tax exemptions for savings is received under section 80C of the Income Tax Act while the special window of Rs 20,000 investment in infrastructure bonds is available under section 80CCF (Total of Rs. 1,20,000/-).To give some relief to common man battling rising prices, finance minister  Sh. Pranab Mukherjee is expected to raise the exemption limit on annual savings of an individual in the upcoming Budget.

The savings exemptions may be raised in the Union Budget 2011-12 from the present Rs 1 lakh. In 2010-11, the finance ministry allowed an additional exemption of Rs 20,000 for investment in long-term infrastructure bonds.

Sh. Mukherjee is expected to raise the Rs 1 lakh exemption limit by another Rs 20,000 in the Union Budget in February, a Cabinet minister told FE. Besides pushing up the savings rate, this would align the current income tax regime towards the proposed Direct Taxes Code (DTC).

“This year is going to be an year of consolidation towards DTC,” a top official in the finance ministry had said recently. In the DTC, the government has proposed tax exemption on annual savings of up to Rs 1.5 lakh.

The tax exemption for savings limit of Rs 1 lakh when increased, will give an additional cushion to the common man who is grappling with price rise already. Tax experts also feel that there is a case for to raising the savings exemptions limit as the current exemption was prescribed long back. Last year, Planning Commission had suggested to the finance ministry that savings exemption limit can be raised to Rs 1.5 lakh.