Salary Individual Tax deduction for 2014 as per Income Tax Act
Salary Employee faces difficult task in saving tax. Though there are many section under which they can save tax, however not everyone is aware of all the benefits which they can claim. The article helps salaried individual to know various deductions and benefit available for saving and effectively planning tax outgo via proper investment and planning.
SECTION 80C:
In computing the total income of Salaried assessee, deductions specified under chapter VIA section 80C will be allowed from the Gross Total Income of the assessee. The aggregate amount of deductions under this chapter shall not, in any case, exceed the gross total income of the assessee. Section 80C provides deduction in respect of specified qualifying amounts paid or deposited by the assessee in the previous year. The persons covered under this section are Individual /HUF. Following are some of the features
Who can claim deduction under section 80C- Deduction under section 80C is available to an individual or a Hindu undivided family.
What is the qualifying investment to avail deduction- Deduction is available on the basis of specified qualifying investments/ contributions/ deposits/ payments made by the taxpayer during the previous year. Such investments, deposits, etc can be made out of taxable income or otherwise.
What is the basis of deduction- Deduction is available on actual payment basis. For instance, if insurance premium becomes due on March 24, 2013 and actually paid on April 1, 2013, such premium is qualified for deduction under section 80C for previous year 2013-14.
How much deduction available under section 80C - The maximum amount deductible under section 80C is Rs. 1 00, 000.
Is there any combined maximum ceiling- The aggregate amount of deduction under section 80C, 80CCC and 80CCD (1) [i.e. contribution by an employee (or any other individual) towards notified pension scheme (NPS)] cannot exceed Rs. 1,00,000. However, from the assessment year 2012-13, employer’s contribution towards NPS (to the extent of 10 per cent of employee’s salary) shall not be considered for ceiling of Rs. 1, 00,000.
ELIGIBLE AMOUNTS:
The amount eligible u/s 80C are mentioned as under,
Any sums paid or deposited in the previous year by the assessee —
1. As Life Insurance premium to effect or keep in force insurance on life of (a) self, spouse and any child in case of individual and (b) any member, in case of HUF. Insurance premium should not exceed 20% of the actual capital sum assured.
2. To effect or keep in force a deferred annuity contract on life of self, spouse and any child in case of individual. Such contract should not contain a provision for cash payment option in lieu of payment of annuity.
3. By way of deduction from salary payable by or on behalf of the Government to any individual for the purpose of securing to him a deferred annuity or making provision for his spouse or children. The sum so deducted does not exceed 1/5th of the salary.
4. As contribution (not being repayment of loan) by an individual to Statutory Provident Fund; i.e., any provident fund to which the Provident Funds Act, 1925, applies.
5. As contribution to Public Provident Fund scheme, 1968, in the name of self, spouse and any child in case of individual and any member in case of HUF.
6. As contribution by an employee to a recognized provident fund.
7. As contribution by an employee to an approved superannuation fund.
8. Any sum deposited in a 10 year or 15 year account under the Post Office Savings Bank (CTD) Rules, 1959, in the name of self and as a guardian of minor in case of individual and in the name of any member in case of HUF.
9. Subscription to the NSC (VIII issue).
10. As a contribution to Unit-linked Insurance Plan (ULIP) of UTI or LIC Mutual Fund (Dhanraksha plan) in the name of self, spouse and child in case of individual and any member in case of HUF.
11. To effect or to keep in force a contract for such annuity plan of the LIC (i.e., Jeevan Dhara, Jeevan Akshay and their up gradations) or any other insurer as referred to in by the Central Government.
12. As subscription to any units of any Mutual Fund referred u/s. 10(23D) (Equity Linked Saving Schemes).
13. As a contribution by an individual to any pension fund set up by any Mutual Fund referred u/s 10(23D).
14. As subscription to any such deposit scheme of National Housing Bank (NHB), or as a contribution to any such pension fund set up by NHB as notified by Central Government.
15. As subscription to notified deposit schemes of (a) Public sector company providing long-term finance for purchase/construction of residential houses in India or (b) Any authority constituted in India for the purposes of housing or planning, development or improvement of cities, towns and villages.
16. As tuition fees (excluding any payment towards any development fees or donation or payment of similar nature), to any university, college, school or other educational institution situated within India for the purpose of full-time education of any two children of individual.
17. Towards the cost of purchase or construction of a residential house property (including the repayment of loans taken from Government, bank, LIC, NHB, specified assessees employer etc., and also the stamp duty, registration fees and other expenses for transfer of such house property to the assessee). The income from such house property should be chargeable to tax under the head "Income from house property".
18. As subscription to equity shares or debentures forming part of any eligible issue of capital of public company or any public financial institution approved by Board.
Explanation: For the purpose of this clause,-
- “eligible issue of capital” means an issue made by a public company formed and registered in India or a public financial institution and the entire proceeds of the issue are utilized wholly and exclusively for the purpose of any business referred to in sub-section (4) of section 80IA;
- “public company shall have the meaning assigned to it in section 3 of the Companies Act,1956 (1 of 1956);
- “Public financial institution“ shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1 of 1956).
19. As Term Deposit (Fixed Deposit) for 5 years or more with Scheduled Bank in accordance with a scheme framed and notified by the Central Government, in the Official Gazette for the purpose of this clause:
Explanation: For the purpose of this clause ,”scheduled bank” means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), or a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), or a corresponding new bank constituted under section 3 of Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of Banking Companies (Acquisition and Transfer of Undertakings) Act,1980 (40 of 1980), or any other bank, being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934).
20. As subscription to any notified bonds of National Bank for Agriculture and Rural Development (NABARD) as the Central Government may, by notification in the Official Gazette, specify in this behalf.
21. In an account under the Senior Citizen Savings Schemes Rules, 2004.
22. As five year term deposit in an account under the Post Office Time deposit Rules, 1981.
Relevant Conditions/Points as per section 80C:
1. No deduction shall be allowed to assessee in the previous year of happening of following events If the assessee:—
(a) Terminates the contract of insurance (referred in item 1 above), by notice to that effect or if the contract ceases to be in force by reason of failure to pay any premium, by not reviving the contract of insurance, in case of any single premium policy, within 2 years or in any other case before the premiums have been paid for 2 years.
(b) Terminates the participation in any ULIP plan (referred in item 10 above) by notice to that effect or ceases to participate by reason of failure to pay any contribution, by not reviving his participation, before contributions in respect of such participation has been paid for 5 years.
(c) Transfers his house property (referred in item 17 above) before the expiry of 5 years from the end of the financial year in which possession of such property is obtained or receives back, whether by way of refund or otherwise any sum specified in that clause.
(d) Sales or transfers any equity shares or debentures (referred in item 18 above) to any person at any time within a period of 3 years from the date of their acquisition (i.e., date on which assessees name is entered in the register of members or debenture holders).
(e) Withdraw any amount (referred in item 21 and 22 above) including interest accrued thereon, before the expiry of the period of five years from the date of deposit. The amount of interest withdrawn will not be taxable in the year of withdrawal if the same has been including in the total income of the assessee of an earlier year.
2. Any sum paid or deposited as above need not be out of current year’s income but should not exceed the total income of the relevant previous year.
Extent of Deduction:
100% of the amount invested or Rs. 1, 00,000/- whichever is less. However, as per Section 80CCE, the total deduction the assessee can claim u/ss. 80C, 80CCC and 80CCD (1) shall be restricted in aggregate to Rs. 1, 00,000/-.
80CCC: Payment Of Pension Fund Plan/ Payment For Annuity Plan
Who is eligible? : Individual
Condition:
a. Payment should be made towards an Annuity Plan/ Pension Fund Plan of LIC or any other Insurer.
b. The payment should be made out of taxable income.
Amounts of Deduction:
- Payment Made
100000/-
Whichever is less.
80D: Medical Insurance Premium/ Mediclaim
Who is eligible? : Individual
Condition:
a. Payment should be made for Medical/ Health Insurance Premium (Mediclaim)
b. Payment should be made by any mode other than cash.
Total payment
OR
15000/- or 20000/-
(Senior citizens)
Whichever is less
or
Amounts of Deduction:
INDIVIDUAL
Group 1
Group 2
Self, Spouse, Dependent Children
Parents
Senior Citizens = Age of 65 or above
80D also includes payment on account of preventive health check-up subject to a cap of Rs.5,000 but within the overall ceiling
80DD: Medical Treatment Of Dependent Handicap
Who is eligible? : Individual
Condition:
a. There should be a handicap person in the family.
b. Individual should spent atleast some amount on the treatment of handicap.
c. Such handicap should depend upon Individual.
Amounts of Deduction:
Amount spent on treatment should be completely ignored deduction is given to the individual who is doing the treatment but amount depends upon level of disability of handicap.
Level of Disability: Up to 39% No Deduction
: 40% to 80%Flat Deduction of rupees 50000/- (normal).
: 81% & above Flat Deduction of rupees 100000/- (severe).
80E: Interest on loan taken for Higher Education
Who is eligible? : Individual, Spouse & Children
Condition:
a. Loan should be taken for higher Education.
b. Interest on such loan has to be paid in previous year.
Amounts of Deduction:
= Amount of interest paid in Current Year (C.Y)
80U: Deduction for Handicap
Who is eligible? : Individual
Condition:
Individual who is claiming the Deduction under section 80U should be a Handicap Individual
Amounts of Deduction:
Level of Disability: Up to 39% No Deduction
: 40% to 80%Flat Deduction of rupees 50000/- (normal).
: 81% & aboveFlat Deduction of rupees 100000/- (severe).
80TTA: Saving Account Interest Exempt
Interest from bank savings account is taxable, even though there is no tax deduction at source (TDS). Since 2012-13 under Section 80TTA interest up to Rs10,000 in one financial year is exempt from tax.
House Rent Allowance
House Rent Allowance (HRA) is given by the employer to the employee to meet the expenses in connection with rent of the accommodation which the employee might have to take for his residential purpose. This House Rent Allowance so paid by the employer to his employee is taxable under the head “Income from Salaries” to the extent it is not exempt u/s 10(13A)
HRA received xxx (Less) Exempt u/s 10(13 A) (xxx)
(=) Taxable Amount xxx
The balance amount after claiming HRA Exemption would be added in the total salary of the employee and would be taxed as per the income tax slab rates.
House Rent Allowance exempt u/s 10(13A)
HRA received is exempt u/s 10(13A) to the extent of the minimum of the following 3 amounts:-
- Actual House Rent allowance received by the employee in respect of the relevant period.
- Excess of Rent paid for accommodation occupied by him over 10% of the salary for the Relevant Period.
- 50% of the salary where the residential house is situated in Mumbai, Calcutta, Delhi or Chennai and 40%of the salary where the house is situated at any other place for the relevant period.
Provident Fund
Provident funds can be classified into four categories:
- Statutory Provident Funds;
- Public Provident Fund;
- Recognized Provident Funds;
- Unrecognized Provident Funds.
PROVIDENT FUND
|
Public Provident Fund (PPF) |
Statutory Provident Fund (Govt) |
Recognized Provident Fund |
Unrecognized Provident Fund |
|
|
_ |
Exempt |
Exempt |
Exempt |
|
_ |
Exempt |
Exempt up to 12% of Basic salary |
Exempt |
|
_ |
Exempt |
Exempt if interest rate is up to 9.5%p.a |
Exempt |
|
_ |
Exempt |
Exempt |
Taxable |
Note:
- Employer’s contribution to Recognized Provident Fund Taxable above 12% of Basic salary.
- Interest on Recognized Provident Fund Taxable above 9.5% p.a.
- Lump sum amount from Unrecognized Provident Fund fully taxable.
Gratuities
A gratuity is directly relatable to the past services which the employee has rendered to his employer as such. Pension as well as gratuity arises out of a master servant or an employer-employee relationship. In both these case generally contractual agreement serves as a basis regarding the liability to pay and the right to receive a gratuity or pension. The only difference lies in the fact that whereas gratuity is a lump sum payment, pension consists of a series of periodical payments.
To the extent that a gratuity is not exempt u/s 10(10), it is chargeable to tax under the head "salaries". This is so because Section 17(1) specifically defines "salary" to include any gratuity. But even here, implicit is a master servant or an employer-employee relationship. Thus even section 17(1) will bring into the ambit of 'salary' not any gratuity received as a bounty and gift but only such gratuity as is paid by an employer to an employee.
GRAUTITY
Government Employee
Fully Exempt
Others
Covered by POGA
Not covered by POGA
1. Gratuity received OR
2. Rs 100000 OR
3. Last 10 months average salary (Basic+ DA+ Commission) x ½ x completed years. (ignore months)
Exempt amount is :
1. Gratuity received OR
2. Rs 100000 OR
3. Salary last drawn (Basic+ DA) x
15/26 x years worked (after Rounding off)
Whichever is less
Whichever is less
TAXABLE =RECEVIED - EXEMPT
Leave Encashment section 10(10AA)
The cash equivalent of unutilized earned leave is to be termed as leave encashment and it will not form part of total income if received on retirement in one of the following circumstances.
a. In respect of payment received by an employee of the Central Government or State Government as the cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement whether on superannuation or otherwise.
b. In the case of others, concerning the category of leave specified at (a) above, the exemption is limited to the cash equivalent of leave salary related to unutilized leave of up to 10 months, calculated on the average salary of the 10 months preceding the month of retirement, or Rs. 300000 whichever is lower.
LEAVE ENCASHMENT (AFTER RETIREMENT)
Government Employee
Others
Fully Exempt
Exempt amount is:
1. Average monthly salary x balance leave
2. Average monthly salary x 10 months
3. Rs 300000
4. Leave encashment actually received
Whichever is less
TAXABLE =RECEVIED - EXEMPT
TAXABLE =RECEVIED - EXEMPT
Calculation of balance leave
Completed years x 1 month = xxx
(-) ctual leave taken (in months) = xxx
Balance leave (in months) = xxx
Perquisites
Any benefit which is given by employer over and above Basic salary in Kind is called as perquisites. All perquisites are taxable and some are fully exempt.
Taxable perquisites:
1. Rent free accommodation.
2. Accommodation at concessional rent.
3. Interest free loan.
4. Loan at concessional interest rate.
5. ESOP’s (Employee’s stock option plan) given free of cost.
6. Life Insurance Premium paid by employer.
7. Moveable assets like car, furniture, bike etc.
8. Employee’s obligation paid by employer.
9. Household facilities like gas, electricity etc.
10. Domestic servants provided by employer for e.g. cook, gardener, maid etc.
11. Educational facilities provided to family members of employee’s.
Exempt perquisites:
1. Breakfast facilities.
2. Lunch facilities.
3. Refreshment facilities.
4. Recreational facilities.
5. Medical treatment at employer’s hospital.
6. Medical treatment at hospital approved by government or local authority or commissioner of Income Tax.
7. Any other medical treatment – upto Rs 15000/-
8. Medical Insurance Premium paid by employer
9. Travel tickets.
10. Goods provided by employer to employee.
For any Query you can write to chirag@cachauhan.in . Before making any investment or tax saving decision please do consult your fianncial / tax advisor. Author do not take any responsibility for misrepresentation or interpretation of the Act.
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