LITERATURE

SURVEY

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 LITERATURE SURVEY

Tax Deductions

Tax Deduction is a legal way to reduce the income hence the tax that one needs to pay. One
can claim the reduction under different heads given in table below.

Code Maximum Limit Schemes

 Public Provident Fund provides 8.6% return
compounded annuallyPayment of life
insurance premium.Investment in pension Plans.
 Equity Linked Savings schemes (ELSS) of mutual
funds
 National Savings Certificates
 Tax saving Fixed Deposits provided by banks for
a tenure of 5 years. Interest is also taxable
80C 1 lakh  Principal repayment of housing loans
 Tuition fees upto 2 children
 Post office investments.

This section has been introduced by the Finance Act,

2005.

Payment of premium for annunity plan of LIC or any

other insurer.The Finance Act 2006 has enhanced the
80CCC 1 lakh
ceiling of deduction under Section 80CCC from
Rs.10,000 to Rs.1,00,000 with effect from 1.4.2007.

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80CCD 10% of his salary. Deposit made by an employee in his pension account.
Subscription to long term infrastructure bonds. Was for
the financial year 2010-11 and 2011-12. However, the
80CCF Rs. 20,000.
exemption is no longer present from financial year 2012-
13.
Rs 35,000.00

 15,000.00 for
premium payments
towards policies
on self, spouse and
children
 15,000.00 for
premium payment Premium in health insurance of you, your spouse,
80D
towards non-senior children or dependent parents
citizen dependent
parents
 OR
 20,000.00 for
premium payment
towards senior
citizen dependent

Medical treatment (including insurance) of disabled

Rs. 50000.Rs. 75000 if
80DD
disability is severe.
dependent. It includes(a) expenditure incurred on medical
treatment, (including nursing), training and rehabilitation
of handicapped dependant relative.(b) Payment or deposit
to specified scheme for maintenance of dependant
handicapped relative.W.e.f. 01.04.2004 the deduction
under this section has been enhanced to Rs.50,000/-.

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 Further, if the dependant is a person with severe disability
a deduction of Rs.1,00,000/- shall be available under this
section.
Expenditure must be actually incurred by resident
assessee on himself or dependent relative for medical
Rs 40,000 andRs 60,000 treatment of specified disease or ailment. The diseases
80DDB
for senior citizen. have been specified in Rule 11DD. A certificate in form
10 I is to be furnished by the assessee from a specialist
working in a Government hospital.
Interest paid on educational loan taken for higher
80E No Limit
education of you, your spouse or children.
100% of donation amount
for special funds50% of
80G Donation to certain funds, charitable institutions etc.
donation amount for all
other donations.
Rs. 2000 per month or
House rent in excess of 10% of income, if no HRA is
80GG 25% of your gross salary,
received.
whichever less.
To an individual who suffers from a physical disability
80U 1 lakh or Rs 1,00,000
(including blindness) or mental retardation
Rs. 3 lakh or
Income by way of royalty in respect of a patent registered
80RRB the income
on or after 01.04.2003.
received,whichever is less.
Royalty or copyright income received in consideration for
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authoring any book of literary, artistic or scientific nature
QQB
other than text book
24 Rs. 1,50,000 Interest paid on housing loan.

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Ref:Finotax:Deductions Allowable under various sections of Chapter VIA of Income Tax
Act,NiftyPredictions:INDIA INCOME TAX ACT- TAX DEDUCTIONS, TAX
EXEMPTIONS 80C 80D 80DD 80E 80GG 24 80G

Verify Tax Deducted at Source

Tax deducted at Source or TDS is a certain percentage deducted at the time of payments of
various kind such as salary, commission, rent, interest on dividends etc and deducted amount
is remitted to the Government account. This withheld amount can be adjusted against tax
due. The person/organization deducting the tax is called as Deductor while the person from
whom the tax is deducted is called Deductee.

Deductee can know his TDS details through online Form 26AS. Those who wish to view
their TDS details can register their names with PAN no in Income Tax website or view it
directly if they have bank account with selected banks. This helps to eliminate the mismatch
and the above changes also help to avoid the mismatch in form 26AS and in Form 16A.The
Tax Credit Statement or Form 26AS is generated when valid PAN has been reported in the
TDS statements.

Documents needed

The various documents that one need for income tax calculation other than the bank account
statements are as follows. Earlier the documents were attached with the income tax return
form. The new return form are annexure less. Hence no documents need to be
attached. But the financial records need to be kept for atleast 7 years. Paper Work A
Necessary Headache (Dec 2011) is about the financial papers that need to be kept.

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Calculation of Income Tax

The image below recaps the process of calculating income tax.

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Some calculators that might help you are incometaxindia.gov.in Calculator to calculate tax
liability based on Total income, investmentyogi calcualtor

Income Tax return (ITR) Forms

To file Income tax returns one needs to fill different Income Tax returns form which are
: ITR-1 (Sahaj) ,ITR-2 ,ITR-3, ITR-4 and ITR-4S( Sugam). ITR-5 and ITR-6 can only be
filed through e filing mode. These forms are released every year by Income Tax Department.
Details of forms for individuals and Hindu Undivided Family (HUF) are as follows:

Form Category Details

1. Income from salary/pension: or
2. Income from one house property(excluding where loss brought
ITR-1
Individual forward from previous year): or
SAHAJ
3. Income from other sources( excluding winnings from lottery
and income from races horses)
Those who can not file Sahaj above as the total income also
ITR-2 Individual/HUF includes Income from Capital Gains. So sources of income
become:1. Income from salary/pension: or
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 2. Income from one house property(excluding where loss brought
forward from previous year): or
3. Income from other sources( excluding winnings from lottery
and income from races horses)
4.Income from Capital Gains.
They should not have Income from Business or Profession.
Being partners in firms and not carrying out business or
ITR-3 Individual/HUF
profession under any proprietorship.
It is applicable for small businessmen and professionals covered
ITR-4S under presumptive taxation. They derive business income which
Individual/HUF
SUGAM is computed in accordance with special provisions referred to in
section 44AD and section 44AE of the Act.
Carry out any business or professional activity in addition to
having sources of income applicable to ITR-3 i.e Not covered in
ITR-4 Individual/HUF
ITR 1 to 4S mentioned above and deriving income from a
proprietory business or profession

Note:In a case where income of another person like spouse,minor child,etc.is to be clubbed
with the assessee this return form can be used only if the income being clubbed falls in to
above income categories

Where to pay Income Tax

If you have some tax to pay you can pay through

• Online deposit
• Nationalised banks

Challan No. ITNS 280 is used for payment of Income tax. It’s pdf from tin.nsdl website..

How to fill Income Tax Return

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Computing and filing your I-T return could be done both offline and online.

Offline

 You could either hire a Chartered accountant(CA) who will do the entire groundwork
as well as compute your tax liability, or
 you can do it yourself.

With CA you will provide the information required above. He will do the calculation, ask you
to pay any extra tax amount due and sign on the relevant ITR form. The CA would also take
care of the task of submitting the from to the income tax office concerned and provide you the
acknowledgement. The CA may typically charge you anywhere between Rs. 200 and Rs.
3,000, depending on how varied your sources of income are and other factors such as
complexity in calculating tax returns for ex: capital gains.

If you do it yourself then you would need to download the relevant ITR Form from
www.incometaxindia.gov.in . Fill up the required details in the form, submit it at the ward
concerned at the income-tax office and collect the acknowledgement.

The non-government websites differ from each other on two counts, the number of income
sources they cover and the process involved. They also have different packages, offers and
discounts. Remember that when you file your returns online, you are sharing important
personal financial details, such as your income, savings and investments, bank account details,
and so on. So how should you choose a tax-filing portal?

1. Check whether the portal provides the form that you want. While most offer ITR 1 and
ITR 2, only few have the others.
2. If the portal accounts for all the sections ex: Carrying forward losses from the previous
years.
3. Most important step is to go through the site’s security and privacy policy. You must
check that the portal encrypts the saved and transmitted data and is protected from
hackers.

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To check the authenticity of the portal, you can access the list of E-Return intermediaries
(ERI) Know your ERI on incometaxindiaefiling .gov.in Most portals usually charge a fee
only when you have to submit the returns, so you can go through these and choose the one in
which the user interface is the smoothest. A good portal will prompt you to fill up a slot you
have missed or ask you to rectify a mistake . This reduces the chances of making errors. Image
below compares some of the e-filing websites( Ref:OutlookMoney:Many Happy returns(Jul
2011))

Submission of ITR V form

Once you have submitted your efile return, you will have to print the ITR V form and send it
by post to theCentral Processing Centre (CPC) Bangalore within 120 days of e-filing your
return. The ITR V form should be printed in black ink only and signed personally in blue ink.
It should not be folded and the bar code should be clearly visible. Dos and Dont’s for printing
and submitting of ITR-Vs to ITD-CPC Bangalore Address of CPC Bangalore is:

Post Bag No.1, Electronic City Post Office, Bengaluru, Karnataka-560100

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You can buy and use a Digital signature also. A digital signature authenticates electronic
documents in a similar manner a handwritten signature authenticates printed documents. If
you file electronically using digital signature you do not have to submit a physical copy of
the return.

Did the overview helped? Apologies upfront for any mistakes. Please let us know and we will
correct. If we missed out anything please let us know.

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Tax saving options : 80C,80CCC,80CCD,80D,80U,80E,24

The Income Tax Act, 1960 has provided Section 80C,80CCD, 80CCC, 80CCCE benefit to
save tax by investing upto 1 lakh in different options, each suited to a different need. One can
choose a combination of fixed income, life insurance and market-linked investments
depending on one’s financial goals and investment horizon. If you are saving for your
retirement, you can diversify among ELSS, EPF and PPF investments and avail deduction on
home loan principal payment and children’s annual tuition fees,for those who are retired, they
can choose among SCSS, PO MIS for regular income and safety of capital invested, but with
an overall cap of rupees 1 lakh per annum.

In this article we shall cover the tax saving sections of Income Tax Act, various tax saving
options under Section 80C, Section 80CCC, Section 80CCD, Section 80CCE, Other
deductions available like Medical insurance (Section 80D), Education Loan (Section 80E),
Interest on Housing Loan (Section 24), Disability and Disease (Section 80U). We compare the
various options and also how ,since November 2011, Government has linked interest rates on
small savings to market rates,pegged to the benchmark yield of government bonds.

Income Tax Act :Tax saving sections

Levy of income tax in India is governed by Income Tax Act of 1961 which came into force on
1st Apr 1962. It has 298 Sections and XIV Schedules. These undergo change every year with
additions and deletions brought about by the budget, presented by Finance Minister, which
when passed by the Parliament becomes Finance Act. To encourage long term investments
and savings, tax saving options are included in the Income Tax Act under sections 80C,
80CCC, 80CCD, 80CCE . These section states that qualifying investments, up to a maximum
of Rs.1 Lakh, are deductible from your income.

 Section 80C: savings for deduction under income tax and their limits. 80C became
effective w.e.f. 1st April, 2006 replacing Section 88.
 Section 80CCC: Deductions in respect of contribution to certain Pension Funds
 Section 80CCD: Deduction in respect of contribution to new pension scheme
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  Section 80CCE: Limit of deduction under section. 80C, 80CCC and 80CCD

There are other tax saving options like:

 Medical Insurance and Health Checkups under Section 80D

 Interest on Housing Loan under Section 24
 Education Loan under Section 80E
 Disability and Disease under Section 80U

Tax saving expenses in 80C

Some expenses that qualify for deductions under section 80C.

Home Loan Principal Repayment: The Equated Monthly Installment (EMI) that you pay
every month to repay your home loan consists of two components – Principal and Interest.The
principal component of the EMI qualifies for deduction under Sec 80C. Even the interest
component can save you significant income tax – but that would be under Section 24 of the
Income Tax Act. Taxguru FAQ on Housing Loan and Income Tax Benefit covers it in detail.

Stamp Duty and Registration Charges for a 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 in the year of purchase of the house.

Children Education Expense : Tuition fees paid at the time of admission or otherwise to
any school, college, university or other educational institution situated within India for the
purpose of full time education can be claimed under 80C, for maximum of two
children.Payment towards Development fees, Donation and payment of similar nature does
not qualify for deduction u/s 80C. No deduction will be available for tuition fee paid for
studies of self or for studies of spouse.

Tax saving investing options in 80C

The options saving under section 80C are as follows:

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Employee Provident Fund(EPF) & Voluntary Provident Fund (VPF) : Employee
Provident Fund(EPF) is automatically deducted from salary. Both you and your employer
contribute to it. Under the current norms, 12% of the employee’s salary is contributed towards
EPF, which is exempt from income tax. While employer’s contribution is exempt from tax,
your contribution (i.e., employee’s contribution) is counted towards section 80C
investments. Any contribution over and above the 12% limit by the employee towards EPF is
consider as voluntary provident fund (VPF) and the same is also exempt from tax, subject to
the overall 80C limit per annum. EPF, falls under the EEE tax regime wherein the interest
received (on retirement from service or withdrawal after 5 years of service) is tax-free in the
hands of the investor. The interest payable on EPF is determined each year by the Employee
Provident Fund Organisation (EPFO). O

Public Provident Fund (PPF) : PPF offers an interest rate of around 8% (8.8% for FY 2012-
13) compounded annually and mandatory investment tenure of 15 years. Interest is calculated
on the lowest balance between the close of the fifth day and the last day of every month. Only
the amounts which are actually cleared on or before the 5th of the month are eligible for that
month’s interest. Money cannot be withdrawn before the completion of 6 years. It falls under
EEE (exempt-exempt-exempt) tax regime i.e not only the investor can enjoy deduction on the
amount invested in this scheme but the interest received on maturity is also exempt from tax.
The government of India decides the rate of interest for PPF account. The current interest rate
effective from 1 April 2012 is 8.80% p.a(compounded annually).

National Savings Certificate (NSC) : NSC also offers a return of around 8% on half yearly
compounding basis. Interest accrued on NSC is also eligible for Section 80 C benefit. Interest
received on NSC, at the time of maturity, is taxable in the hands of the investor. Earlier only a
6 year National Savings Certificate was available for investors. Since 1 April 2012 two types
of NSCs are on offer:

 NSC VIII Issue : 5 year instrument with current interest rate as 8.6% . Maturity value
of Rs 100 shall be 152.35 after 5 years.

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  NSC IX Issue: 10 year instrument with current interest rate as 8.9%. Maturity value
of Rs 100 shall be 234.35 after 5 years.

The government of India decides the rate of interest for new NSCs. For NSCs bought the
interest rate remains constant for the entire tenure i.e Unlike many other instruments where a
change in the interest rate is applicable to an existing investment(EPF, PPF) here the rate is
locked in at the time of making of the investment

Tax saving Bank Fixed Deposits : These are like regular fixed deposits with interest being
compounded quarterly but with a lock-in period of five years. Investment up to Rs 1 lakh in
these special tax saving bank fixed deposits entails an investor tax deduction under Section
80C. Most public and private banks offer these tax saving FDs such HDFC Bank. The
drawback is taxability of interest income upon maturity.It is important to note that there is no
option for premature withdrawal even with penalty for tax savings FD and the interest is
taxable. The rates you can find at moneycontrol Best Rates for Fixed Income by selecting
Deposits as Bank Deposits and Tax Status as Tax Saving as shown in picture below.

Finding Tax saving Fixed Deposit Rates at MoneyControl

Senior Citizens Saving Schemes (SCSS) : Indian citizens who have attained 60 years of age
or those who have attained at least 55 years of age and have opted for voluntary retirement
scheme are eligible to invest in senior citizens saving scheme. If offers interest rate of 9.3% a
year, payable on quarterly basis. Maximum investment is upto 15 lakh. It has lock in of 5
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years which can be extended by 3 years. While investment in this scheme is eligible for tax
deduction under Section 80C, interest earned shall be taxable in the hands of the investor. Tax
is deducted at Source (TDS) .The government of India decides the rate of interest for SCSS.
Details at IndiaPost’s Senior Citizen Savings Scheme (SCSS) Account and RBI’s Senior
Citizens Savings Scheme, 2004

Equity Linked Saving Schemes (ELSS) : These are Diversified Equity mutual Fund
schemes, which invest in stock market, with lock in of 3 years. The returns are linked to the
performance of equity markets, hence are volatile.If one invests in ELSS by means of SIP
(Systematic Investment Plan)every monthly investment carries a lock in period of 3 years not
the date of first investment. More details at ThinkRupee ELSS You can track performance of
ELSS at MoneyControl Performance Tracker or Valueresearchonline’s ELSS Comparison.

Life Insurance Premium:Any amount that you pay towards life insurance premium for
yourself, your spouse or your children can also be included in Section 80C deduction.If you
are paying premium for more than one insurance policy, all the premiums can be included.
The life insurance policy may be purchased either from LIC or from any other private player
in the insurance industry. An insurance plan will be eligible for tax deduction and the
income will be tax-free only if it covers the policyholder for 10 times the annual
premium. Till 2011, policies were required to offer a cover of five times the annual premium
for tax breaks. Please note that life insurance premium paid by you for your parents (father /
mother / both) or your in-laws is not eligible for deduction under section 80C. Our article Life
Insurance covers different kinds of Life Insurance policies.

Unit Linked Insurance Plans (Ulips): Ulips, or market linked insurance schemes provide
investors the benefit of both life cover and investment in equity and debt market. These are the
insurance plans where a portion of premium is used for insurance, rest is invested in a mutual
fund (equity ,debt) hence returns of these plans are market linked. These plans are complex &
also expensive as they cover charges for insurance(mortality charges), fund
management,Premium Allocation Charges. MoneyControl covers FAQ on ULIP’s HDFC

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ULIP covers it in detail along with comparison with Conventional Plans and Mutual Funds.
MoneyControl ULIP shows NAV’s of ULIPs.

Section 80CCC

Section 80CCC of Income Tax Act deals with the deductions and income in respect of
contributions to certain Pension funds by an individual assessee Payment of premium for
annuity plan of LIC or any other insurer. Deduction is available upto a maximum of Rs.
100,000. Please note that amounts received on surrender (whole/part) of annuity plan,
amounts received as Pension is taxed as income. Note:The limit of deduction under Section
80CCC will be part of the overall limit prescribed under Section 80CCE.

Section 80CCD

The National Pension System (NPS) is a defined contribution based pension system
launched by Government of India with effect from 1 January 2004. Section 80CCD of income
tax act provides deduction under the section 80CCD(1) in respect of contribution made by the
employee, and a deduction under the section 80CCD(2) in respect of contribution made by
the employer to the New Pension System (NPS). Contribution made to the pension scheme
under section 80CCD(2)(employer’s contribution) shall be excluded from the limit of one lakh
rupees provided under section 80CCE. The Finance Act, 2011 amended section 36 so as to
provide that any sum paid by the assessee as an employer by way of contribution towards a
pension National Pension System(NPS) to the extent it does not exceed ten per cent of the
salary of the employee, shall be allowed as deduction in computing the income under the head
“Profits and gains of business or profession”.

Section 80CCE.

The aggregate amount of deductions under section 80C, section 80CCC and section 80CCD
shall not, in any case, exceed Rs. 1,00,000.

Other Tax Saving Deductions

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