Tag Archives: United States

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.

LIC (Life Insurance Corporation Of India) Jeevan Anand Endowment Assurance Life Insurance Policy

Today I happened to call  an LIC (Life Insurance Corporation Of India) Agent aka Insurance Advisor, as I had an insurance requirement. The gentleman came prepared with all his documents. After the initial pleasantries were exchanged,  he started drawing some charts, which looked more like my future kundali than financial planning. He discussed a whole bunch of insurance policies, starting from Jeevan Saral moving onto Jeevan Aastha and concluding with Jeevan Anand. Believe me, after listening to all he had to say about these policies and underlying sales-pitch, I was forced to day dream of becoming a millionaire. I got really confused and was not able to decide which one to opt for. But eventually, the agent helped me make the final decision and we settled on Jeevan Anand, as according to him, it best suited my financial planning and future purposes. Whatever I got out of this somewhat lengthy discussion, I would like to share with you.

JEEVAN ANAND
Jeevan Anand is a combination of Endowment Assurance (a life insurance  designed to pay a lump sum after a specified term, usually on its ‘maturity’ or on death, whichever is earlier) and Whole Life Plan (a type of life insurance contract that provides for insurance coverage of the contract holder for his/her entire life). Under this plan, you have to pay a fixed premium amount for a particular term. On survival, you will get a lump sum amount, which will be equal to the Sum Assured (SA) plus Accumulated Bonuses and Final Additional Bonus at the end of selected term. If death happens before the maturity, the survivor/nominee gets all the aforementioned benefits. The main feature of this plan is you are insured for you whole life, even after your maturity period is over. If death happens after the maturity period, the survivor/nominee will only get the Sum Assured(SA). No wonder, it has been marketed with a tag-line “Zindagi ke saath bhi Zindagi ke baad bhi” 🙂

Some other salient features of this insurance policy follow

  • Premium Payment Frequency : You can choose different payment frequency like monthly, quarterly, half yearly or yearly.
  • Age Limit : Age limit for premium is  18 to 65 years and limit for premium paying term accordingly is set to 10 to 57 years (Total age till which this policy is valid is 75 Years)
  • Loan Availability : You can avail a loan against your policy after paying premium for 3 years.
  • Sum Assured : The minimum amount for sum assured is 1 lakh whereas max is unlimited.
  • Accident Benefit : In case of death by accident (subject to an age limit of 70 years), the policy holder can get an additional sum assured upto Rs 500,000. In case of permanent disability of the policy holder (due to accident), the additional sum assured is payable in installments.
  • Tax Benefit : Under the present income tax regime, you can claim tax exemption under Section 80C.

Let us illustrate all the benefits for this policy by taking an example:

  • Profile : Ram,aged 35, takes a Jeevan Anand Insurance policy  for 25 years for sum assured of Rs 1 lakh.
  • Premium Amount : Rs 4,535 annually
  • Total Premium Paid : Rs 1,13,375
  • Benefit On Survival: After maturity, he gets Rs 1,41,500 (in the worst-case at a growth rate of 6%). In the best case, when growth-rate is to become 10%, he will receive 2,41,000 Rs. Apart from the Sum Assured i.e, Rs 1 Lakh, the bonus accrued will be 41,500 (at 6% growth-rate) and 1,41,000 Rs (At 10% growth-rate). For the last financial year, LIC had announced an Accumulated Bonus as about Rs 45 per Rs 1000 per year.
  • Benefits On Death Before Maturity: If Ram dies within premium term, he will be receiving an amount= Sum Assured that is 1 lakh+accrued bonus till his death.
  • Benefits on Death After Maturity : If Ram dies after premium paying term and maturity period, He will be receiving an amount=sum assured only that is Rs 1 Lakh.

Before jump to a decision of taking Jeevan Anand, the first thing you have to decide is whether you plan to for Investment or Insurance. If you look at Jeevan Anand as an Investment Avenue, it’s not good. It takes almost 25 years for your amount to double, which means very poor gain. So if you are looking for investment, I would advise against Jeevan Anand. It’s better to opt for any other investment options like Real Estate, Stocks, Mutual Funds, which promises farm more returns as compared to what Jeevan Anand may offer. In fact, some mutual funds also has Insurance facility as well as tax benefits. On the other side, if you are looking at Jeevan Anand from an Insurance Perspective, even then I would advise you against it. If you are looking for insurance, it’s always better to go for a Pure Term Insurance Plan. Yes, it will not give you any benefit at the end of maturity, but will provide you with a healthy insurance cover and that too at a premium far less than you would pay for Jeevan Anand.

What Is Covered Area, Carpet Area,Built Up Area And Super Built Up Area In A House

Whenever we go for  purchasing a flat, we tend to get confused when we hear a number of jargons, like covered area, carpet area, built up area, super built up area to name a few, by real estate agents. Its not so difficult to be fooled in such rhetorics and these are one of the most common places where you can be(and in fact will be 🙂 if you are not alert) cheated by builders. This tutorial makes an attempt to help all prospective house-buyers in understanding these terms.

  • Covered Area : This is the Actual Area under the roof.
  • Carpet Area : As its name suggests, Carpet Area is the area where we can spread a carpet, means area calculated from inner wall to wall distance inside the house. This would also include steps if any, inside the house. So essentially, Carpet area is nothing but the net usable area inside the house.
  • Built up Area : Built up area is Carpet Area + Area of walls and ducts+ 1/2 the Area of terrace. This is usually 10% more than the carpet area.  A terrace is considered as half the actual area for calculating built up area.
  • Super Built up Area : This is built up area + area occupied by common amenities like lifts, corridors, awnings, club house, stairs. Super built up is usually around 25% more than Built up area. This is also called as Salable Area.

So next time you go around searching for a house and a property agent talks about these jargons, you know exactly what he is talking about !! If they are selling you a 1400 sq ft flat, then it doesn’t necessarily mean, you are getting 1400 sq ft  for personal usage. Here 1400 sq ft is super built up area or salable area. In reality, the actual usable area, that you might be getting, could possibly be only 1000 sq ft !! Let’s do the maths backwards

Carpet Area : 1000 sq ft
Built Up Area : will be ~ 10% more than carpet area, so it comes to 1000+100 = 1100 sq ft
Super Built Up Area : will be ~ 25% more than built up area, so it comes to 1100 + 280(~ 300) = 1400 sq ft.

You can see, even though you are buying a 1400 sq ft flat, you are only getting 1100 sq ft, as the remaining means 300 sq ft is nothing but area of your common usage like lifts, garden, stairs etc !! So if you want to compare two flats rate-wise, a rule-of-thumb would be to calculate carpet area first and then compare, how much you are paying per sq feet. This way, you will be able to do a  fair comparison and not get fooled by property-dealers 🙂