Tag Archives: Income tax

What is Section 80C Deduction In Income Tax

Whenever we think of income tax, the first thing that immediately comes into our mind is how to save it !! One of the best options for Saving Income Taxes comes under Section 80C.

What Is Section 80C?
It is an investment option to save the tax. Government has specially promoted it for long term savings.

Limit:
The maximum limit of Rs 1 lac can be deducted from your income under Section 80C. However, there is a provision for additional Rs 20,000, solely reserved for Infrastructure Bonds. In this way if you are in highest tax bracket of 30% and you have invested upto Rs 1 lac under section 80C then you are saving Rs 30,000. For example if your salary is Rs 16 lacs per annum but you are investing Rs 1 lac in 80C then your taxable income will be Rs 15 lacs only. Even if you invest more than 1 lac in 80C, you can show only 1 lac as investment in 80C .

Investment:
Following investment options are eligible for Section 80C deduction.

Market Linked:

Fixed Income:

  • Provident Fund (PF) & Voluntary Provident Fund (VPF)
  • National Savings Certificate (NSC)
  • Infrastructure Bonds
  • Public Provident Fund (PPF)
  • 5-Yr bank fixed deposits (FDs)
  • Pension Funds – Section 80CCC
  • Senior Citizen Savings Scheme 2004 (SCSS)
  • 5-Yr post office time deposit (POTD) scheme
  • NABARD rural bonds

Others:

  • Life Insurance Premiums
  • Home Loan Principal Repayment
  • Stamp Duty and Registration Charges for a home
  • Children’s tuition fees.

Sample Calculation:

Example 1
If your Taxable Income is Rs.700000 and your yearly home loans principal repayment is Rs.40000 and you don’t have any other investments, then your Taxable Income for that financial year is Rs.700000 – Rs.40000 = Rs.660000.

Example 2
If your Taxable Income is Rs.700000 and your yearly home loans principal repayment is Rs.100000, then your Taxable Income is Rs.700000 – Rs.100000 = Rs.600000.

Example 3
If your Taxable Income is Rs.500000 and your yearly home loans principal repayment is Rs.140000, then your Taxable Income is Rs.500000 – Rs.100000 = Rs.400000. Because you can exempt maximum of one lac under this section.

So the overall conclusion is the main purpose of 80C is to encourage everybody for long term investment.But there are number of investment options under 80C so we should select the investment options very carefully. Like for younger age person, we should invest more in Market Linked Investment Avenues because by taking risk we can earn much money. On the other hand, for old aged person we should invest more in Fixed Income Investment where there is little risk.

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Indian Railways Introduces New Guidelines For Tatkal Ticket Bookings From 11th Feb 2011 : To Carry Original Id Proofs During Travel

Are you planning to travel by train with a Tatkal Ticket on or after 11th Feb 2011 ?? If you are, you should be aware of the New Guidelines introduced by Indian Railways, otherwise you may end up paying a hefty price for your ignorance. In its latest circular released on 31st Jan 2011, Indian Railways has made it mandatory for passengers traveling on Tatkal Tickets to carry an Original Identity Proof during the course of their journey. Failing which they will be treated as Ticket-less Travelers and penalized accordingly.

If there are more than one passengers travelling on the same ticket, any one of the passengers will have to produce any Identity Proof in Original, failing which all passengers travelling on the said ticket will be treated as travelling without tickets and will be charged excess fare and penalty as per rules.

The Tatkal Ticket Booking Scheme was introduced in 1997, with a provision that passengers booking Tatkal Tickets would indicate their Identity Card Number at the time of booking and would be required to carry the same Identity Card during the journey. This provision was subsequently withdrawn in August 2004.

We already have a similar rule in place for all e-Tickets booked through IRCTC (Indian Railway Catering and Tourism Corporation), irrespective of whether its a Tatkal Booking or not. But now that rule has rightly been extended to cover all Tatkal Booked Tickets. According to Indian Railway Officials, the latest move to mandate an Original Copy of ID Card while travelling on a tatkal ticket, was aimed at putting to end massive complaints of Bulk Booking and the role of touts in cornering tatkal tickets. However it has clarified that you don’t need to carry it along while booking the Journey Ticket:-)

These are following 8 Original Identity Cards, which can be carried by passengers travelling on Tatkal Booked Tickets while travelling.

  1. Voter Photo Identity Card issued by Election Commission of India
  2. Passport
  3. PAN Card issued by Income Tax Department
  4. Driving Licence issued by RTO
  5. Photo Identity Card issued by Central/State Government
  6. Student Identity Card with photograph issued by recognized School/College for their students
  7. Nationalised Bank Passbook with photograph
  8. Credit Cards issued by Banks with laminated photograph

So next time, you go and get a Tatkal Ticket from a Broker/Travel Agent in your surrounding by paying extra, be careful, especially with this new regulation in place after 11th Feb 2011. The circular regarding this new guideline for Tatkal Ticket Booking is available at Indian Government’s website
http://pib.nic.in/release/release.asp?relid=69444

Capital Gain Taxation Short Term Capital Gain(STCG) Long Term Capital Gain (LTCG) And DTC (Direct Tax Code)

In one of our earlier blog-posts, we had discussed Capital Gain and Underlying Tax Benefits at length. Now that DTC (Direct Tax Code) is going to be implemented, probably from Financial Year 2011-2012 onwards, some rules regarding Capital Gain are set to be revised.

In the present Income Tax Regime, Capital Assets are classified as Short-Term Capital Gains (STCG) and Long-Term Capital Gains(LTCG) on the basis of time period, it is held. The Assert-Holding Time-Period is taken as a simple difference between Selling Date and Buying Date. But in DTC (Direct Tax Code), this Assert-Holding Time-Period is going to be calculated differently. DTC(Direct Tax Code) proposes this Holding Period to be calculated from the End of Financial Year in which asset was acquired. For example, if the Purchase Date is 20th July 09 and Selling Date is 21st July 10, under the Current Taxation Regime, Holding Period is 1 year 1 day, but once DTC (Direct Tax Code) is in place, Holding Period will become only 3 months 20 days.  You could see the difference. What qualified as a Long Term Capital Gain (LTCG) before will now be counted as a Short Term Capital Gain (STCG) !!

This modification to this act may also throw absurd results for two assets with merely one day difference. Say for example, Ram acquired an asset on 28th March 2009 and sold it on 1st April 2010, while Shyam acquired an asset on 1st April 2009 and is also selling it on same date i.e, 1st April 2010. In present Income Tax Act, both Ram as well as Shyam will get an indexed benefit and their gains will be counted as a Long Term Capital Gain(LTCG) for listed shares asset, simply because it is held for more than 1 year. Let’s see what happens, once DTC (Direct Tax Code) is in place. Ram will continue getting indexed benefit and his capital gain will be counted as a Long Term Capital Gain(LTCG) where date of acquiring is counted from 31st March 2009 to 1st April 2010 and clearly it has completed one financial year. But Shyam won’t get indexed benefit and for him gain will be a Short Term Capital Gain (STCG) because the Asset Holding-Period is only one day (01 Apr 2010 – 31st Mar 2010). So he has to wait till 1st April 2011 to complete 1 financial year, so that his gain will be counted as a Long Term Capital Gain (LTCG). As you can see, only couple of days could be the difference between Short Term and Long Term Capital Gains, resulting into you not getting the benefits of Long Term Capital Gains (LTCG).

In present Income Tax Regime, for the unlisted shares, which are acquired before 1981, the cost of acquisition is calculated from 1 April 1981 whereas in DTC (Direct Tax Code) it is shifted to 1 April 2000 and indexation will also be allowed from the same.

Presently, all assets other than listed equity shares and units of equity oriented funds are eligible for the benefits of indexation. Presently, long term capital gains for such assets is calculated after deducting the indexed cost from the net sale price and you have to pay tax at the rate of 20% of indexed capital gain. But in DTC (Direct Tax Code) the capital gains after indexation are proposed to be included in your total income and taxed according to Income Tax Slab, your Current Income falls into.

There are some very interesting resources on Web discussing the impact of DTC (Direct Tax Code) on Capital Gain and Tax Structure, lying underneath. So if you could not get what you were looking for, you can always go for more details at following places

http://www.moneycontrol.com/news/business/dtc-20-how-will-new-capital-gains-tax-impact-investors_464384.html
http://www.dnaindia.com/money/comment_defer-capital-gains-dos-till-dtc-becomes-law_1402568
http://taxguru.in/direct-tax-code/capital-gain-taxation-under-dtc-regime.html
http://www.thehindubusinessline.com/mentor/2010/04/19/stories/2010041950361100.htm

Having said all that, we would still recommend you not to take any step/actions right now (Be smart, but not over smart :-)). DTC(Direct Tax Code) is yet to be finalized and some of its provisions are still being reviewed by parliamentary committees. So its very much possible that it may undergo some changes, before DTC (Direct Tax Code) finally gets enacted as law. Let’s keep our fingers crossed 🙂

Government Issues Clarification On DTC (Direct Tax Code) Clause For NRIs (Non Resident Indians)

If you are an NRI (Non Resident Indian) fretting over the New Taxation Clauses, due to be introduced as part of DTC (Direct Tax Code), adversely affecting your tax-liabilities, we have some good news in store for you. In one of our earlier blog-posts, we had mentioned a New Clause in DTC (Direct Tax Code), which when implemented will ensure NRIs (Non Resident Indians) who frequent their native country i.e, India, will have to pay More Taxes on their Global Income.

As per the existing laws, an NRI(Non Resident Indians) is liable to pay taxes on his or her global income, if he or she stays in India for a period of more than 182 days in a financial year. But DTC (Direct Tax Code) proposes to shorten this duration to just 60 days.

Indian Government has just issued a clarification on DTC (Direct Tax Code) clauses specific to NRIs. On Saturday, Finance Minister Pranab Mukherjee allayed apprehensions among Non Resident Indians (NRIs) that the proposed Direct Taxes Code (DTC), when implemented, would badly affect them in terms of their tax liability owing to a clause in the Bill defining their residential status. Moreover, no final decision has been taken as yet on the clauses incorporated in the DTC (Direct Tax Code), as the Bill is still under scrutiny by a Standing Committee Of Parliament.

He clarified that it was a “misconception” that if an NRI stays in India for 60 days in a financial year, his status turns into Indian residents for taxation purposes. As per the DTC proposal, an NRI will be deemed as resident only if he has also resided in India for 365 days or more in the preceding four financial years, together with 60 days in any of these fiscal years. “Only when the two criteria are met, an individual will be considered resident for taxation purposes,” he said.

In a further clarification, Mr. Mukherjee pointed out that even if an NRI becomes a resident in any financial year, his global income does not immediately become liable to tax in India. Global income would become taxable only if the person also stayed in India for nine out of 10 precedent years, or 730 days in the preceding seven years.

Hope this convinces the NRIs (Non Resident Indians) Brigade not to abandon their plans to frequent their Home Country i.e, Hamara Bharat Mahan 🙂

Good Things Bad Things Ugly Things Pros And Cons Summary Highlights About DTC(Direct Tax Code)

Starting with Financial Year 2011-2012, Indian Government is planning to abolish the existing Income-Tax Act 1961 and replace it with DTC (Direct Tax Code) . There are going to be wholesale changes in the way, taxes are being calculated and paid by organizations and individuals, including the existing Income Tax Slabs. In an Earlier Blog Post, we have already discussed these proposals for New Income-Tax-Slabs being introduced by DTC (DTC Tax Code). Let us turn to some of other highlights, especially the good things, bad things and ugly things and Pros and Cons of DTC (Direct Tax Code)

Good Things (Pros)

  1. Earlier, as per Income Tax Act 1961, most of the investments came under EEE(Exempt-Exempt-Exempt) Category. What that meant was the tax exemption is enjoyed at all the Three Stages – Investment, Accumulation and Withdrawal. All this is going to change, once DTC regime comes in place. As per DTC proposals, most of these investments (except few mentioned in the second paragraph) will now be considered under EET(Exempt-Exempt-Tax) Category. What is means is you will have to pay taxes on any money being withdrawn from these funds.
    Earlier it was supposed to cover most of the investment avenues like Life Insurance, Mutual Funds, Equity Linked Saving Schemes etc. But Thank God, our parliament members showed some sympathy and revised the rules on 15th June, 2010 to exclude some investments from EET category. Now Provident Funds (GPF, EPF and PPF), NPS (New Pension Scheme administered by PFRDA), Retirement Benefits (Gratuity, Leave Encashment etc), Pure Life Insurance  Products & Annuity Schemes will all continue to follow the EEE Regime.
  2. On top of existing Rs 1 lakh tax benefit, an extra Rs 50,000 has been added for Pure Life Insurance (Sum insured is atleast 20 times the premium paid), health insurance, mediclaims policies and tuition fees of children.
  3. Maximum limit for medical reimbursements has been increased to Rs 50,000 per year from current Rs 15,000 limit.
  4. Tax Exemption for interest-payment on housing loan for self-occupied property will remain the same i.e,  Rs 1.5 lakhs per year.
  5. For income/losses from housing property, deductions for Maintenance and Property Tax would be reduced from 30% to 20% of the Gross Rent. Also all interest paid on house loan for a rented house is deductible from tax.
  6. Tax exemption on Education Loan Payments to continue.
  7. Surcharge and Education cess are abolished.
  8. Corporate tax to be reduced from present 34% to 30 % including education cess and surcharge

Bad Things (Cons)

  1. No tax benefit on Principal Repayment on House Loan and Stamp Duty and Registration Charges on purchase of house property either.
  2. No tax benefit for LTA (Leave Travel Allowance)
  3. No tax benefits for investments made as part of Unit Linked Insurance Plans (ULIPs), Equity Mutual Funds (ELSS), Term Deposits, NSC (National Savings Certificates), Long Term Infrastructures Bonds.
  4. All dividends will attract 5% tax.
  5. As per the existing laws, an NRI(Non Resident Indians) is liable to pay taxes on his or her global income, if he or she stays in India for a period more than 182 days in a financial year. But DTC is going to shorten this duration to just 60 days.

We can only hope that all the good things are implemented as part of DTC and bad ones, if not dropped altogether, will at least be made reasonable. So let’s keep our fingers crossed and wait for its final implementation 🙂

Tax Benefit On Home Loans And Economics Of Purchasing Second House

All of us have a dream of owning  a house, no matter how small or big it may be. But one should not think of purchasing a house being just an emotional decision, in reality, it is one of the safest bet for your investments and a very good avenue for reducing income tax liability. Under the Income Tax Act, 1961 All Resident Indians are eligible for certain tax benefits on some portion of principal and interest components of their Home Loans.

There are two ways, in which you will be benefited, when you purchase a house and take a home loan. First one being Tax Exemptions and second one being the Usually High-Returns on your Investment made against your house, simply because of ever-rising property prices. With the recession all but over, housing sector is going to witness yet another boom. So if you have not bought a house yet, this could very well be your shot at redemption 🙂

Tax Benefits on First Home Loan:

If you purchase your first house, by-default it is taken as self-occupied. You will enjoy tax-exemptions via following two ways

  • Up to Rs 1 Lakh for Principal Repayment that can be claimed under section 80 C
  • Up to Rs. 1.5 Lakh on Interest Repayment, that will be deducted from your taxable income under Section 24.

Interest repayment comes under the heading of ‘Income From House Property‘ and is taken as a loss or negative amount.

Tax Benefit On Second Home Loan:

If your disposable income is high enough to afford a second home, then you can enjoy even more tax-benefits than the one you did on your first home !! Even though, you may already have a home loan running, banks are generally more than willing to finance your second house as well, provided your income is high enough to convince them about your loan-repayment-capability. Most of the people either let out their second home for rental income or make it the place for other family members.

Second house is not taken as a self-occupied house and you have to pay taxes for rental income from it. This income is calculated after deducting up to 30% on maintenance expenses and property taxes. You will again enjoy tax-exemptions via following two ways

  • Up to 1 Lakh for Principal Repayment under section 80 C
  • Unlimited Exemption on Interest Repayment, albeit with a difference. Loss from house property is calculated as Annual Interest Repayments minus the Adjusted Rental Income and this differential amount is  eligible for tax-benefits.

As you can see, there are more tax-incentives in store, when you go about buying the second house. But you should have enough money in order to afford a second home. Apart from owning a second house and earning a rental income, you also get more and more tax-exemptions. Now this is what we call Sone Pe Suhaga 🙂 Isn’t it ??

So…..when are you planning to buy a house ?? your first one, may be your second one 😉