Institute of Nuclear Medicine and Allied Sciences (INMAS), Timarpur DRDO Campus, Brig.

SK Mazumdar Road Timarpur (District ) New Delhi http://industrialrelations.naukrihub.com/industrial-disputes.html 4 IR website

1. What is the meaning of Salary? For Income Tax purposes, Salary includes the pay, allowances, bonus or commission payable monthly or otherwise or any monetary payment which may be called by any name from one or more employers. 2. What are the components of Salary? Some of the inclusions in the salary are: a. Wages; b. Any annuity or pension; c. Any gratuity; d. Any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages; e. Any advance salary; f. Leave Encashment g. Any other monetary payment by the employer 3. Are allowances given by the employer to be actually spent to avail exemption? Yes, allowance given by the employer has to be actually spent to avail exemption 4. In case of an employee residing in his own house, is the HRA exempt from tax? No, since he is not paying any rent the entire HRA is taxable. HRA exemption is based on a formula and if rent paid is NIL, full HRA is taxable. 5. Is the Transport/Conveyance Allowance taxable? Transport/Conveyance allowance is exempt upto Rs.800 per month subject to actual spend for official purpose. Amount spent on traveling between home to office and vice versa is also considered to be official purpose. 6. When can I claim LTA and when is this taxable? You may claim LTA as per your company/employers policy. The LTA is not taxable twice in a block of four calendar years (Jan-Dec, currently the block is 2006-2009) based on actual spend. The journey can be performed to any place within India through road, rail or air (economy class only). Any claim more than twice in the block of 4 years is taxable. 7. I get reimbursement of medical expenses incurred by me from my employer. Is it taxable? What if I get a medical allowance? Medical allowance or reimbursement is not taxable upto Rs. 15,000 in a financial year subject

to actual spend. If it is given as an allowance, then it will not be taxable upto the amount incurred by you on medical expenses/treatment for your dependents, subject to a limit of Rs. 15,000 per annum. Any amount over and above Rs. 15,000 is taxable. 8. What is the treatment of bonus and commissions? These are fully taxable. 9. My employer contributes towards EPF as a part of my salary. Is it taxable? Contribution to EPF upto 12% by employer is not taxable. You may contribute any amount without any limit for which you will get a deduction. If you withdraw EPF during the continuance of employment or before expiry of 5 years from becoming a member even in case of cessation of employment (leaving the service/job), it will be fully taxable in the year of withdrawal. 10. Is Education allowance taxable? Education allowance is not taxable upto Rs. 100 per month per child subject to a maximum of two kids. 11. What about Other allowances? All other allowances by whatever name called are taxable. Some special allowances to Government employees may be exempt. 12. Is foregone salary taxable? The voluntary foregoing of salary due to an Assessee is only an application of income. Hence that foregone salary is taxable. 13. Is pension to be taxed as salary? Yes, they are to be taxed under the head 'salaries'. In some cases, commuted pension may not be taxable. 14. Can an employee receive gratuity from more than one employer during any previous year? What are the tax implications? Yes, he can receive gratuity from more than one employer, but the maximum amount exempt from tax cannot exceed least of (i) Rs 3,50,000/(ii) Half-months salary for each completed year of service (iii) Gratuity actually received. 15. Is Leave Encashment taxable? Leave encashment during the continuance of job is fully taxable. However, if one gets leave encashment on cessation of employment (leaving the service/job), it is not taxable subject to certain limits as under: 1. Notified Amount (Currently Rs. 2,40,000) 2. 10 months average salary 3. Leave encashment salary received on termination 4. (Leave Entitlement - Leave Availed) * Average Monthly Salary In case of Government employees, leave encashment on retirement is not taxable.

16. Are gifts made in kind by the employer a taxable perquisite? Yes, the perquisite value would be the market price of the gifted article. However, if the value of such gifts up to Rs.5,000 in the aggregate per annum would be exempt, beyond which it would be taxed as a perquisite. Gifts, which are made in cash or convertible into money (eg. Gift cheques) are not exempted. 17) Is the amount spent on membership fee by the employer on the membership of the employee in a professional institution a taxable perquisite? Yes, it is taxable.

1. Conveyance allowance : non-taxable up to 800 per month. No proofs/bills required to submit. 2. Medical Allowance : non-taxable up to 15000 per year on producing medical bills. 3. Leave Travel allowance: 2 trips on a block of 4 years can be claimed and reimbursement will be non-taxable. There is no maximum limit. 4. Children Education allowance: Per school going child 1200 per annum is non-taxable. Maximum for 2 children, so max 2400 per annum becomes non-taxable. 5. Telephone Allowance: Amount is tax free if the phone is used for official purposes and bills submitted. There is as such no limit, but should be kept around 5-6000 per month maximum. 6. House Rent allowance: Rent receipts can be shown for taking tax benefit for living in a rented house. Income tax exemption for HRA will be least of following: a) The actual amount of HRA received as a part of CTC b) 40%(if living in non-metro area) or 50% (if living in metro area) of basic salary. c) Rent paid minus 10% of basic salary 7. Leased car: Employer may show car provided to employee, that employer has taken on lease from some outside person. No limit on lease amount, but this amount will not go in employee salary but will be paid to owner (which can be any person, be it employee's father/mother/brother/relative etc.). employees can provide any third party's car details, RC and PAN copy and a car lease on stamp paper. In this case, company will directly pay that third party car rent. So some part of salary will go to somebody else's account as car rent. All these increase employer's headache and there are TDS implications as well. Also the car rent income will be added to third party's income. 8. Car maintenance expenses: Petrol/Diesel bills or service bills can be shown towards car maintenance. If car is self-owned and self-driven, max limit is 1800 (Upto 1600CC car) and 2400 (Above 1600CC). 9. Meal coupons: Sodexho passes or any such meal vouchers are non-taxable, but upto 50 Rs per working day, that means 1100 per month (assuming 5 days a week). 10. Driver Salary: No limit for company provided car, 900 per month for self owned car. 11. Internet Expenses: If company provides internet at employee'e premise, it can be nontaxable. 1) In Case of General Assesses:

Exemptions: 1) 80 C Limit Unchanged (Rs. 1,00,000)(refer to our earlier blog for all options under section 80 C (http://bit.ly/4px5hz) 2) 80 CCF Additional Rs. 20,000 on investments towards approved Infrastructure bonds 3) 80CCD: Contribution to NPS and returns on NPS tax free, but withdrawal still taxable 4) 80 D Mediclaim Premium on the Health of Investment limit a) Self Spouse and Children Rs. 15,000 b) Parent/Parents Rs. 15,000 c) If Parent/ Parents Senior citizen Rs. 20,000 5) Section 80DD Deduction under section 80DD

Exemption given for Expenditure made for a disabled dependant towards Medical Treatment/Training/Rehabilitation. It also includes the LIC/Insurance premium paid towards maintenance of such dependant. Maximum deduction allowed is Rs. 50,000/- in case of normal disability and Rs. 1 Lakh in case of severe disability.

6) 80DDB Deduction under section 80DDB

Exemption given for expenditure incurred on specified disease or ailments such as cancer/aids. Maximum deduction allowed is Rs. 40,000/-. In case of Senior Citizens, maximum deduction allowed is Rs. 60,000/-

7) Section 80E Deduction under section 80E Deduction is allowed for repayment of interest component of Higher Education loan. All education after Class 12 is allowed, either vocational or Fulltime. But should be from a school/institute/university recognized by the government. 8 ) Section 80G

Contribution to exempt charities 25/50/75/100% depending on the charity and as per approval 100% exemption on donation to political parties

9) 80U Deduction under section 80U

Deduction upto Rs. 50,000/- is allowed in case of Permanent Disability. In case of Permanent Disability exceeding 80%, maximum deduction allowed is Rs. 75,000/-.

10) Section 24(1)(vi)

Housing loan interest.Maximum Investment Limit Rs. 1,50,000 (for loans taken after 1 April 1999, for loans before that Maximum Investment Limit 30,000).

11) Superannuation Any contribution made by a company to superannuation fund upto Rs. 1,00,000 tax free in the hands of the employee 12) Conveyance/Transport Allowance Any Conveyance / Transport Allowance given to an employee is tax free upto Rs. 9,600 /- (No Supporting Bills required) 13) Medical Allowance Any Medical Allowance given to an employee is tax free upto Rs. 15,000 /- (Supporting Bills required) 14) HRA Any House Rent Allowance given to an employee is tax free upto the minimum value of the following conditions (subject to when an employee can produce rent paid receipts from landlord for the period and if the employee has not availed of tax exemptions for home loan interest / principal repayment): a) 50% of Annual Basic (40% of Annual Basic in case of non-metros) b) Actual HRA received c) Rent Paid (10% of Annual Basic) 15) Professional Tax Any Professional Tax deducted from an employees salary can be reduced from the annual salary income to arrive at taxable salary 16) Provident Fund Provident Fund contributions (under section 80 C and subject to an overall investment limit of Rs. 1,00,000 ) deducted from an employees salary are tax exempt.

HRA Exemption

HRA allowance received by the employee Or Actual rent paid (10% of Basic + D.A.) Or 50% of (Basic + D.A.) incase the location is (Mumbai, Kolkata, Chennai, Delhi) or 40% of (Basic + D.A.) in case of other cities. Or whichever is less of the above three.

Conveyance Exemption
Maximum Exempted u/s 10 upto Rs.9600 p.a. (i.e. @ Rs. 800 per month when paid along with the salary)

Medical Exemption
Maximum Exempted u/s 10 upto Rs.15000 p.a. based on the bills produced by the employee (i.e. @ Rs. 1250 per month when paid along with the salary)

Education Exemption
Maximum Exempted u/s 10 upto Rs.2400 p.a. based on no of dependent childrens declared by the employee (i.e. @ Rs. 200 per month when paid along with the salary)

Telephone Exemption
Maximum Exempted u/s 10 upto Rs.18000 p.a. based on the bills produced by the employee (i.e. @ Rs. 1500 per month when paid along with the salary)

Petrol and Vehicle Maintenance Exemption

For Car: Rs. 1200 p.m. * 12 months = 14,400 For Driver: Rs. 600 p.m. * 12 months = 7,200 These are the sum total of all the exemptions allowable for Salaried Employees. However there are many Deductions, Tax Benefits & Tax Breaks under various sections, which are permissible for computation of Income Tax. This will be dealt in a separate article.

LTA Exemption
LTA is exempt to the tune of ecomony class airfare for the family to any destination in India, by the shortest route. For Assessment Year 2010 2011 the applicable Block is Year 2006 2009. LTA can be claimed twice in a block of 4 calendar years. The Next block is from Jan 2010 to Dec 2013.

What is Financial Year or FY (As it is termed by Income Tax Department of India)

Financial year is the Year in which a person has earned his income. In simple terms, if you have been employed from 01st of April 2009 to 31st of March 2010, then this period is termed as your Financial Year. However it is not restricted only to an employee or an individual. In the Income Tax Of Indias list of Jargon or terms of usage, Financial year is applicable to all entities, whether it is employee, small and medium enterprise, large corporates etc. In fact it is applicable to every entity which generates revenue / or manages revenue (Like Trusts) in a given Financial Year. It must be understood that in India always the Financial Year starts on 01st of April of every Year, and ends on 31st of March next year. So, if you have generated income in Financial Year (FY) 2009 2010, then it means that you have generated that income between 01st of April 2009 to 31st of March 2010.

What is Assessment Year or AY (As it is called by Income Tax Department of India)

Assessment year is the year in which you file your returns for the Income earned for the financial year, which had just ended. For example if you are filing income tax returns in July 2010, then you would be filing returns for Financial Year 2009 2010 & this is what is called Assessment Year. Why so? Please note that you have earned your income in Financial Year 2009 2010 (whose definition has been already explained) and you are now approaching Income Tax Department of India for Assessment of Your Income earned in last financial year, in the current financial year which is 2010 2011 (As July 2010 falls in the financial year 2010 2011, since Financial year 2010 starts on 01st April 2010 and ends on 31st March 2011), that is precisely the reason the Income Tax Department Terms your Assessment of Income as Assessment Year. In other words, the running financial year (which is 2010 2011) is also Assessment Year 2010 2011 for the purpose of Income Tax returns submission.

Salaries paid in India are usually a mix of a number of allowances and perquisites, each having a separate tax treatment. As such the computation of an individuals tax liability from his/her gross salary is a complicated task. The following are some common components of gross salary and their tax implications:
Component Basic House Rent Allowance Supplementary allowance Conveyance Lunch coupons Medical reimbursement Leave travel allowance Taxable Income Fully taxable Fully taxable Fully taxable Partially exempt Fully Exempt Partially exempt Partially exempt

Companys contribution towards Partially exempt PF Telephone reimbursement Car reimbursement Annual bonus Mediclaim contribution Gratuity Fully Exempt Fully Exempt Fully taxable Fully Exempt Partially exempt

The detailed tax treatment of some common salary components is as under:

Basic: The basic component of the salary is the actual compensation for the work and is fully taxable. House rent allowance: HRA is given to employees to help them meet the cost of rented accommodation. Tax treatment of HRA is a bit complicated; three figures need to be computed: o Actual HRA received o Amount by which rent paid exceeds 1/10th of salary (basic + DA) o 50% of the salary (basic + DA) if located in Mumbai, Delhi, Kolkata or Chennai and 40% of salary if located elsewhere o Rs 8,000 o Rs 10,000 (10% of Rs 25,000) = Rs 7,500 o 50% of Rs 25,000 = Rs 12,500

The lower of the above three amounts is allowed as a deduction from the HRA received and the rest is considered taxable. Ram lived in Mumbai and paid rent of Rs 10,000 p.m. His basic salary was Rs 25,000 p.m. He received an HRA from his employer of Rs 8,000 p.m. The 3 figures to compute his HRA tax liability are as follows: The lowest among the 3 figures (Rs 7,500) will be allowed as a deduction and the rest (Rs. 500) will be taxable.

Supplementary allowance: This allowance is normally given as an additional benefit to employees and is fully taxable. Conveyance: Conveyance allowance is paid to employees to compensate them for their travel expenses. It is fully exempt if it is a reimbursement of expenses incurred for official purposes. If it is given to cover the employees expenses of travelling from residence to work, it is exempt up to a limit of Rs 800 p.m. and the rest is taxable. Lunch coupons: Many employers provide lunch or lunch coupons to their employees nowadays. These are fully exempt from tax as long as they are not given in cash. There is also no limit laid down by law on the amount that can be paid through such coupons. Medical reimbursement: Often medical expenses incurred by the employee or his/her dependants are reimbursed by the employer. Such reimbursements are exempt from tax, up to an amount of Rs 15,000 p.a. Leave travel allowance (LTA): LTA is often given to employees to reimburse them for expenses incurred on outstation personal travel. It is exempt from tax up to the amount actually spent twice in a block of 4 years. Provident fund: Provident fund is a means of retirement savings. An employee contributes part of his/her salary towards the fund and this contribution is matched by the employer. The tax implications of PF are given in the table below.* Particulars Statutory Recognised Unrecognised Public PF PF PF PF No contribution from employer Available

Exempt up Employers contribution Exempt to 12% of Exempt salary Section 80C rebate Available Available Available

Interest on PF

Exempt if interest rate does not Exempt exceed Exempt notified rate of interest Exempt

Exempt

Lump sum payment at Exempt Exempt retirement/termination

Exempt

of service

Telephone reimbursement: Many employers reimburse the telephone expenses of their key employees. Since communications is acknowledged to be an important element in business today, such reimbursements are fully exempt from tax subject to submission of actual bills. Car reimbursement: Any reimbursements made by the employer in case of use of a car for official purposes by an employee are fully exempt from tax. Annual bonus: This is a popular additional incentive given by many employers. It is fully taxable. Annual bonus also includes any amounts given in the form of incentives, commissions, etc. Mediclaim contribution: Any premium paid by the employer on a health insurance policy for an employee is fully exempt from tax.

In addition to the salaries, there are also a number of perquisites provided by employers. A summary of the tax treatment of some common perquisites is as under:
Perquisite Rent-free accommodation Telephone at residence Motor car for personal use Club membership Tax implication Taxable Exempt Exempt Exempt

Refreshments during working hours Exempt subsidized lunch/dinner Training expenses Holiday home facility Awards/presents/rewards Expenses on credit cards Exempt Exempt Exempt Exempt Exempt

Professional Tax

If you are a professional or a working individual of a reputed organization, then you are required to pay professional tax. Professional tax in India is a state-level duty.

What is professional tax? In India, this tax is imposed by various states. It is imposed on business owners, working individuals, merchants and people carrying out various occupations. The following states impose this levy in India - Karnataka, West Bengal, Andhra Pradesh, Maharashtra, Tamilnadu, Gujarat, and Madhya Pradesh. Professional tax is levied by particular Municipal Corporations and majority of the Indian states impose this duty. It is a source of revenue for the government. The maximum amount payable per year is ` 2,400/- and in line with your salary, there are predetermined slabs. It is paid by every member of staff employed in private companies. It is subtracted by the employer each month and sent to the Municipal Corporation. It is compulsory as income tax. You will be eligible for income tax deduction for this payment. Criteria in various states of India In Maharashtra, this duty is applicable both on individuals and companies as laid down by the guidelines of the Maharashtra Professional Tax Act of 1975. Every individual living in Maharashtra, involved in any business, profession, occupation or employment is legally responsible to pay it and has to get a Certificate of Enrolment from the Professional Authority. As soon as you receive this certificate, you can fulfill your personal tax liability for 5 years by making a one-time payment, which is equivalent to the sum of Professional Tax for 4 years beforehand, getting relief for payment of one year. In Tamil Nadu, it is imposed by the Municipal Council on businessmen, professionals, and employed individuals. Every company which conducts business and every individual, who is involved directly in any business, occupation, or employment in the town panchayat on the first day of the half-year for which return has been submitted, needs to pay biannual tax at the rates stipulated. Professional Tax Slabs in Various States In West Bengal
Income Upto 1,500 From ` 1501 To ` 2001 Tax to be imposed Nil ` 18

From ` 2001 To ` 3001 From ` 3001 To ` 5001 ` 5001 From ` 6001 -7001 From ` 7001 to ` 8000 From ` 8001 to ` 9000 From ` 9001 to ` 15,000 From ` 15001 to ` 25,000 From ` 25,001 to ` 40,000 Beyond ` 40,001

` 25 ` 30 ` 40 ` 45 ` 50 ` 90 ` 110 ` 130 ` 150 ` 200

In Maharashtra

Income upto ` 2500 From ` 2500 to ` 3500 From ` 3500 to ` 5000 From ` 5000 to ` 10000 More than ` 10000

Tax to be imposed Nil ` 60 ` 120 ` 175 ` 200

In Tamil Nadu

Income Upto ` 21000 From ` 21001 to ` 30000 From ` 30001 to ` 45000 From ` 45001 to ` 60000 From ` 60001 to ` 75000 More than ` 75001

Tax to be imposed Nil ` 75 ` 188 ` 390 ` 585 ` 810

Tax Benefits under Section 80D, 80DD and 80DDB

Complete guide income tax deductions under sections 80D, 80DD and 80DDB which relate to medical expenses and health insurance/mediclaim. Good understanding will help you in substantial tax savings.

Every family has regular medical expenses. This may be towards a health insurance premium, or expenditure related to a family members disability/critical illness. The Income Tax Act of 1961 has made provisions to reduce this burden through tax deductions under section 80D, 80DD, 80DDB. Read on to understand how to use these sections to your benefit.

Section 80D in Respect to Health Insurance Premiums Investments made towards payment of health insurance premiums, qualify for a tax deduction under section 80D.

Available Deduction - For individuals less than 65 years of age, amount of health insurance premium paid or Rs. 15,000, whichever is lesser. For senior citizens above 65 years, amount of health insurance premium paid or Rs. 20,000, whichever is lesser.

A further deduction of Rs 15,000 could be claimed, for buying health insurance policy for your parents (Rs 20,000 if either of your parents is a senior citizen). This is irrespective of whether theyre dependent on you or not. No deductions can be claimed for in-laws.

Scope of Deduction - Individual assesses can claim deduction for premiums paid towards health insurance of self, spouse, parents and children.

For HUF assesses, premium paid for insuring the health of any member of the HUF, can be used for deduction.

Key Factors to keep in mind 1. 2. 3. The premium may be paid by any mode of payment, other than cash. The health insurance premium that you pay must be from the taxable income applicable for the year you claim. Premiums should not be from gifts received by you. Part payment of premium is allowed. For example, suppose your parents contribute 50% of their health insurance premium and you pay the balance 50% of their premium. In such a case, you could avail the deduction for the amount contributed by you and your parents too could avail deduction for their contribution.

Section 80DD for Medical Treatment of Handicapped Dependents If you are incurring expenditure for the treatment of your handicapped dependent, you could claim a deduction under section 80DD. Available Deduction - Rs 50000, or actual expenditure incurred, whichever is lesser. For severe handicap conditions Rs. 1,00,000 is the deduction limit.

Scope of Deduction - Deduction can be claimed for dependent parents, spouse, children and siblings. Dependents must not have claimed any deduction for their disability.

Deductions are permissible in either of the following cases. a) Costs incurred for medical treatment, training or rehabilitation of a disabled dependent, including amount spent for nursing. b) Amount paid towards an insurance scheme for the maintenance of your disabled dependent in case of your untimely death.

Meaning of Disability- Disability means a person suffering from 40% or more of any of the below disabilities. A severe disability condition is 80% or more of the disabilities. a) Blindness and Vision problems b) Leprosy-cured c) Hearing impairment d) Locomotor disability e) Mental retardation or illness

Key factors a) Individuals would need to produce a copy of the disability certificate as issued by the central or state government medical board to claim deduction. b) Insurance policy obtained must be in your name and should be a policy for life. It could pay either an annuity or a lump sum amount for the benefit of the dependent on your death. c) If the disabled dependent predeceases you, the policy amount is returned to you, and treated as income for the year in which you receive it, thus fully taxable in your hands.

Section 80 DDB for Treatment of Specified diseases Costs incurred for treatment of specified illnesses, could fetch you a tax benefit under section 80DDB. Available Deduction - For individual assesses less than 65 years of age, a deduction limit of Rs. 40,000 is applicable. For a senior citizen, the limit is Rs. 60,000.

Scope of Deduction - Deduction is applicable for treatment of self, spouse, children, siblings, and parents, wholly dependent on you.

Diseases covered a) Neurological Diseases (where the disability level has been certified as 40% or more). b) Parkinsons Disease c) Malignant Cancers

d) Acquired Immune Deficiency Syndrome (AIDS) e) Chronic Renal failure f) Hemophilia g) Thalassaemia

Key Factors 1. If you are already receiving any reimbursement for the treatment from your insurance company or employer, deductions cannot be claimed. If you are receiving partial reimbursement, the balance amount can be used for a deduction. A certificate would be required from a specialist working in a government hospital, as proof for the specified ailment.

2.

Written for InvestmentYogi by Ramya Ramachandran

Deduction under section 80C and tax planning

Posted In Income Tax | Articles, Featured | 463 Comments

Background for Section 80C of the Income Tax Act (India) / What are eligible investments for Section 80C: Section 80C replaced the existing Section 88 with more or less the same investment mix available in Section 88. The new section 80C has become effective w.e.f. 1st April, 2006. Even the section 80CCC on pension scheme contributions was merged with the above 80C. However, this new section has allowed a major change in the method of providing the tax benefit. Section 80C of the Income Tax Act allows certain investments and expenditure to be tax-exempt. One must plan investments well and spread it out across the various instruments specified under this section to avail maximum tax benefit. Unlike Section 88, there are no sublimits and is irrespective of how much you earn and under which tax bracket you fall. The total limit under this section is Rs 1 lakh. Included under this heading are many small savings schemes like NSC, PPF and other pension plans. Payment of life insurance premiums

and investment in specified government infrastructure bonds are also eligible for deduction under Section 80C Most of the Income Tax payee try to save tax by saving under Section 80C of the Income Tax Act. However, it is important to know the Section in toto so that one can make best use of the options available for exemption under income tax Act. One important point to note here is that one can not only save tax by undertaking the specified investments, but some expenditure which you normally incur can also give you the tax exemptions. Besides these investments, the payments towards the principal amount of your home loan are also eligible for an income deduction. Education expense of children is increasing by the day. Under this section, there is provision that makes payments towards the education fees for children eligible for an income deduction Sec 80C of the Income Tax Act is the section that deals with these tax breaks. It states that qualifying investments, up to a maximum of Rs. 1 Lakh, are deductible from your income. This means that your income gets reduced by this investment amount (up to Rs. 1 Lakh), and you end up paying no tax on it at all! This benefit is available to everyone, irrespective of their income levels. Thus, if you are in the highest tax bracket of 30%, and you invest the full Rs. 1 Lakh, you save tax of Rs. 30,000. Isnt this great? So, lets understand the qualifying investments first. Qualifying Investments Provident Fund (PF) & Voluntary Provident Fund (VPF: PF is automatically deducted from your salary. Both you and your employer contribute to it. While employers contribution is exempt from tax, your contribution (i.e., employees contribution) is counted towards section

Section 80C. Deduction for Investments including Life Insurance and Provident Fund Section 80C was inserted from assessment year 2006-2007. It provides deductions from gross (total) income for qualified amounts paid or deposited by the assessee in the previous year. Main Provisions.

The deduction is available only to an individual or a HUF from the gross total income, The deduction is allowed irrespective of whether such amount is paid or deposited by the taxpayer out of his income chargable to tax,

The deduction is available on the basis of specified qualifying investments/contributions/payments made by the taxpayer during the previous year, The maximum amount deductible under section 80C is Rs. 1,00,000. Also the total amount of deductions under sections 80C, 80CCC and 80CCD is Rs. 1,00,000.

Gross Qualifying Amount for the Deduction Following nature of payments are qualifying amounts

Life insurance premium on the life of self, spouse or child or a member of HUF subject to a maximum of 20 per cent of sum assured, Payment in respect to non-commutable deferred annuity plan taken in the name of self, spouse or child, Any sum deducted from salary payable to a government employee for securing Deferred annuity for the benefit of the employee, spouse or children (subject to maximum of 20 per cent of salary), Contributions (not the repayment of loan) towards statutory provident fund and recognised provident fund, Contribution towards an approved superannuation fund, Subscription to National Saving Certificates, VIII Issue, Contribution to ULIP (unit-linked insurance plan) of Unit Trust of India and or LIC Mutual Fund, Payments for notified annuity plan of LIC including New Jeevan Dhara, New Jeevan Akshary, New Jeevan Dhara I, New Jeevan Akshary I, II and III. Subscription towards notified units of Mutual Fund or UTI, Contribution to notified pension fund set up by Mutual Fund or UTI, Any sum paid (and accrued interest) as subscription to Home Loan Account Scheme of National Housing Bank or contribution to any pension fund of National Housing Bank, Any sum paid as subscription to any scheme of public sector company engaged in providing longterm finance for purchase/construction of residential houses or from the housing board in India engaged in planning and development of cities. Any sum paid as tution fees for the admission or otherwise to any university/college/educational institution in India for full time eduction for any two children of the taxpayer, Any payment towards the cost of construction/purchase of residential property including payment of loan taken from Government bank,

cooperative bank, LIC, National Housing Bank, taxpayer's employer where such employer is a public company, public sector company, university or cooperative society, Amount invested in approved debentures of, and equity shares in, a public company engaged in infrastructure including power sector or units of mutual fund utilised for infrastructure, Amount in fixed deposits of 5-years or more with a scheduled bank in accordance with a scheme framed and notified by the Central Government (applicable from assessment year 2007-2008), Subscription to any notified bonds of National Bank for Agriculture or Rural Development (applicable from assessment year 2008-2009), 5-year time deposit in an account under Post Office Time Deposits Rules 1981, and Deposit in an account under the Senior Citizen Saving Scheme Rules, 2004.

Minimum Period of Holding

Unit-linked Insurance Plan -- 5 years, Life Insurance Premium -- 2 years Cost of construction or purchase of residential property -- 5 years Time deposit in Post Office Rules, 1981 -- 5 years Senior Citizen Saving Scheme Rules, 2004 -- 5 years.

Section 80CCC. Deduction for Contribution to Pension Funds Section 80CCC provides deductions from gross (total) income for amounts paid or deposited by the assessee to any annuity plan of Life Insurance Corporation of India or any other insurer for receiving pension from the fund referred to in clause (23AAB). Main Provisions.

The deduction is available to an individual who is resident or nonresident, Indian citizen or foreign citizen The deduction is allowed only if such amount is paid or deposited by the taxpayer out of his income chargable to tax, The maximum amount deductible under section 80C is Rs. 1,00,000. Also the total amount of deductions under sections 80C, 80CCC and 80CCD is Rs. 1,00,000.

Surrender value received is taxable in the year of receipt in the hands of the assessee or nominee. If deduction is claimed under 80CCC, pension received will be taxable in the hands of assessee or the nominee in the year of receipt.

Section 80CCD. Deduction for contribution to pension scheme of Central Government. Deduction is allowed to an individual employed by the Central Government or any other employer on or after the 1st day of January, 2004, has in the previous year paid or deposited any amount in his account under a pension scheme notified or as may be notified by the Central Government. However, the deduction is limited to 10 per cent of his salary in the previous year. Where, the Central Government or any other employer makes any contribution to the employees account, the employee shall be allowed a deduction in the computation of his total income. However, the deduction is limited to 10 per cent of his salary in the previous year. If after claiming the deduction, any amount together with interest or bonus accrued is received by the assessee or his nominee in whole or in part, in any previous year, is taxable of the assessee or his nominee, as the case may be, if it is received-(a) On account of the closure or opting out of the pension, or (b) As pension received from the annuity plan purchased or taken on such closure or opting out. Where any amount paid or deposited by the assessee has been allowed as a deduction under section 80CCD (a) No rebate with reference to such amount shall be allowed under section 88; (b) No deduction with reference to such amount shall be allowed under section 80C. Explanation. For the purposes of 80CCD, salary includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites. 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.

80C investments. You also have the option to contribute additional amounts through voluntary contributions (VPF). Current rate of interest is 8.5% per annum (p.a.) and is tax-free. Public Provident Fund (PPF): Among all the assured returns small saving schemes, Public Provident Fund (PPF) is one of the best. Current rate of interest is 8% tax-free and the normal

maturity period is 15 years. Minimum amount of contribution is Rs 500 and maximum is Rs 1,00,000. A point worth noting is that interest rate is assured but not fixed. Life Insurance Premiums: Any amount that you pay towards life insurance premium for yourself, your spouse or your children can also be included in Section 80C deduction. Please note that life insurance premium paid by you for your parents (father / mother / both) or your inlaws is not eligible for deduction under section 80C. If you are paying premium for more than one insurance policy, all the premiums can be included. It is not necessary to have the insurance policy from Life Insurance Corporation (LIC) even insurance bought from private players can be considered here. Equity Linked Savings Scheme (ELSS): There are some mutual fund (MF) schemes specially created for offering you tax savings, and these are called Equity Linked Savings Scheme, or ELSS. The investments that you make in ELSS are eligible for deduction under Sec 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. Please read Income Tax (IT) Benefits of a Home Loan / Housing Loan / Mortgage, which presents a full analysis of how you can save income tax through a home loan. 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. National Savings Certificate (NSC): National Savings Certificate (NSC) is a 6-Yr small savings instrument eligible for section 80C tax benefit. Rate of interest is eight per cent compounded half-yearly, i.e., the effective annual rate of interest is 8.16%. If you invest Rs 1,000, it becomes Rs 1601 after six years. The interest accrued every year is liable to tax (i.e., to be included in your taxable income) but the interest is also deemed to be reinvested and thus eligible for section 80C deduction. Infrastructure Bonds: These are also popularly called Infra Bonds. These are issued by infrastructure companies, and not the government. The amount that you invest in these bonds can also be included in Sec 80C deductions. Pension Funds Section 80CCC: This section Sec 80CCC stipulate that an investment in pension funds is eligible for deduction from your income. Section 80CCC investment limit is clubbed with the limit of Section 80C it maeans that the total deduction available for 80CCC and 80C is Rs. 1 Lakh.This also means that your investment in pension funds upto Rs. 1 Lakh can be claimed as deduction u/s 80CCC. However, as mentioned earlier, the total deduction u/s 80C and 80CCC can not exceed Rs. 1 Lakh. 5-Yr bank fixed deposits (FDs): Tax-saving fixed deposits (FDs) of scheduled banks with tenure of 5 years are also entitled for section 80C deduction.

Senior Citizen Savings Scheme 2004 (SCSS): A recent addition to section 80C list, Senior Citizen Savings Scheme (SCSS) is the most lucrative scheme among all the small savings schemes but is meant only for senior citizens. Current rate of interest is 9% per annum payable quarterly. Please note that the interest is payable quarterly instead of compounded quarterly. Thus, unclaimed interest on these deposits wont earn any further interest. Interest income is chargeable to tax. 5-Yr post office time deposit (POTD) scheme: POTDs are similar to bank fixed deposits. Although available for varying time duration like one year, two year, three year and five year, only 5-Yr post-office time deposit (POTD) which currently offers 7.5 per cent rate of interest qualifies for tax saving under section 80C. Effective rate works out to be 7.71% per annum (p.a.) as the rate of interest is compounded quarterly but paid annually. The Interest is entirely taxable. NABARD rural bonds: There are two types of Bonds issued by NABARD (National Bank for Agriculture and Rural Development): NABARD Rural Bonds and Bhavishya Nirman Bonds (BNB). Out of these two, only NABARD Rural Bonds qualify under section 80C. Unit linked Insurance Plan : ULIP stands for Unit linked Saving Schemes. ULIPs cover Life insurance with benefits of equity investments.They have attracted the attention of investors and tax-savers not only because they help us save tax but they also perform well to give decent returns in the long-term. Others: Apart form the major avenues listed above, there are some other things, like childrens education expense (for which you need receipts), that can be claimed as deductions under Sec 80C. So, where should you invest? Like most other things in personal finance, the answer varies from person to person. But the following can be the broad principles: Provident Fund: This is deducted compulsorily, and there is no running away from it! So, this has to be the first. Also, apart from saving tax now, it builds a long term, tax-free retirement corpus for you. Home Loan Principal: If you are paying the EMI for a home loan, this one is automatic too! So, it comes as a close second. Life Insurance Premiums: Every earning person having dependents should have adequate life insurance coverage. (For more on this, please read Life after life Why you should buy Life Insurance) Therefore, life insurance premium payments are the next. Voluntary Provident Fund (VPF) / Public Provident Fund (PPF): If you think that the PF being deducted from your salary is not enough, you should invest some more in VPF, or in PPF.

Equity Linked Savings Scheme (ELSS): After the above, if you have not reached the limit of Rs. 1,00,000, then you should invest the remaining amount in Equity Linked Savings Scheme (ELSS). Equities provide the best, inflation-beating return in the long term, and should be a part of everyones portfolio. After all, what can be better than something that gives great return and helps save tax at the same time?

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leave something Short form By a law (Stand for) Stop (by Law)

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