Monday, 4 August 2014

Everything about Tax Saving Deductions

The government of India allows various expenses & investments to be deducted from the taxable income of the assesse. This helps the assesse to bring down the taxable income & helps him/her to increase take home salary by paying lesser taxes.

HRA Deduction

The employee has to actually pay the rent & the residential accommodation occupied by the assesse is not occupied by him. The deduction available is the least of
  • Actual HRA received
  • Rent paid in excess of 10% of *salary
  • 50% of salary if assesse lives in Mumbai/Delhi/Calcutta/Chennai, & 40% of salary if the assesse lives in any other city
Salary here is defined as basic pay + dearness allowance + commission based on fixed percentage of turnover achieved by employee.
For purposes of calculation in this tool, one should add commission based on fixed percentage of turnover achieved by employee to the dearness allowance.

Investments under section 80C, 80CCC & 80CCD – Basic Deductions

The total deduction available here is limited to `1.5 Lakhs
NSC/Term Deposits/Other saving schemes – Contribution to various deposit schemes for which deduction under 80C is available like National Savings Certificate, Post Office 10/15 year deposits, pension funds, etc.
Provident Fund – Contribution to Employee Provident Fund or a recognized provident fund or contribution to PPF in the name of assesse, spouse or children.
Superannuation Fund – Contribution to any approved superannuation fund
Life Insurance - Premium paid for Life insurance of assesse, spouse or child. The premium should be less than 10% of the sum assure if the policy is taken after 1st April 2012. For other policies, the deduction can be availed if it was
Deferred Annuity - Premium paid to keep in force a deferred annuity for assesse, spouse or children
Annuity – Premium paid to keep in force an annuity plan
ULIP – Contribution to Unit Linked Insurance Plans
ELSS – Investments in Equity linked saving schemes of various mutual funds
Repayment of principal of Housing Loan – The repayment of principal for buying or constructing a housing property is deductible. However if the property is transferred within 5 years from the end of the financial year in which the possession of property is obtained, entire deductions availed for all previous year become chargeable in that year.
Tuition Fees – Tuition Fees paid for full time education of any 2 children

Investments under section 80D – Medical Insurance deduction

Premium paid for health insurance of self, spouse & children is deductible. The limit is `15,000 & for senior citizens (more than 65 years of age) it is `20,000.
Additional deduction is available on premium paid for health insurance of parents. The limit is`15,000 & for senior citizens (more than 65 years of age) it is `20,000.

Investments under section 80E – Educational Loans deduction

The interest paid on education loan of assesse, spouse and children is deductible. The deductions can be availed for next seven years from the start of the interest paying year.

Investments under section 80CCG – Rajiv Gandhi Equity Savings Scheme deduction

Deduction is available for half of the amount invested by assesse if he/she is a new retail investor. The assesse can get deduction of upto `25,000 total in a period of 3 consecutive years.
Conditions for new retail investor
  • Not opened a Demat account and has also not done any trading in the derivative segment till RGESS account opening date.
  • Opened the Demat account and has not made any transactions in equity and/or in the derivative segment till designating such account as RGESS.
  • Gross annual income for the the financial year should be less than or equal to Rs. 12 lakh.

Deduction due to Loss on House Property

For a self-occupied house, loss on house property is the interest paid on housing loan. The interest is allowed as deduction upto`2 lakhs.
For a let-out property, loss on house property = 70% of (Annual Rent – Property Tax) – Interest paid on housing loan. There is no upper limit on the interest paid on housing loan to be claimed for deduction for let out property.
For a non self-occupied property, which is also not let-out, a market value of rent is to be calculated. Then the losson house property is to be calculated in the same way as that for let out property.

Other deductions

Section 80G deduction- Donations
Donations to various social funds & charitable institutions are exempted either fully or up to 50%. There is also a limit on the amount of deduction that can be claimed with respect to gross income

Section DD deduction – Medical Expenditure for handicapped relative
Deduction of `50,000 is available on the expenses incurred for the medical treatment or maintenance of a handicapped dependant.If the dependant has severe disability, the deduction amount is `1 lakh.

Section DDB deduction – Medical treatment of specified diseases
Deduction upto `40,000 is available on the expenses incurred in the treatment of specified diseases for self or dependant. For treatment of senior citizen dependant, the deduction limit is increased to`60,000.

Section 80U deduction – Deduction for physical disability or severe disability
Deduction of `50,000 is available for handicapped assesse. If the assesse has severe disability, the deduction amount is `1 lakh.

Section 80EE deduction – Interest on housing loan
This rebate on home loan interest is applicable only for home loans satisfying the following conditions:
  • Loan is sanctioned by a financial institution or housing finance company between 1st April 2013 and 31st March 2014.
  • Loan amount is `25 lakhs or less and cost of residential house is `40 lakhs or less.
  • This should be the only house owned by the taxpayer at the time of sanction.
The maximum deduction on interest paid that can be claimed is `1 lakh. If interest paid is less than`1 lakh in financial year 2013-14, then the remaining deduction can be claimed in 2014-15 on the interest paid in that year.

No comments:

Post a Comment