tax saving devices final

8/2/2019 Tax Saving Devices Final

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Tax Saving Devices

Presented By

CA Mayur Makadia

PartnerM A Shah & Co.Chartered Accountants


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SYNOPSIS

Concept of Deductions vs. Exemptions

Tax Saving Through Deductions

Tax Saving Devices U/Chap VI A Tax Saving Devices For Salaried People

Tax Saving Devices For Property Income

Tax Saving Devices For Capital Gains Income


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Tax Saving Devices U/Chap VIA

Deductions Available in Respect of CertainInvestments

Deductions Available in Respect of CertainPayments

Deductions Available in Respect of CertainIncomes


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Tax Saving Devices U/Chap VIA


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Investment Based Deductions

These deductions are available to all Individuals and

Hindu Undivided Families (HUFs).

Deduction available upto a maximum of Rs. 1,00,000against investment in any instrument specified u/s 80C.

Additional deduction of Rs. 20,000/- available againstinvestment in any Infrastructure Bonds specified u/s80CCF.

Instruments Specified may be market linked or fixedincome bearing.

Certain Minimum Lock in Period Prescribed for availingthe deduction.


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PUBLIC PROVIDENT FUND

Any individual other than NRI can open a PPF Accountincluding a minor [Father or mother (but not both)may open an account on behalf of a minor.

Salaried Persons can open a PPF A/c in addition totheir PF Account.

Option to pay each contribution in one lump sum p.a.,

or in instalments, not necessarily monthly.

Period: Initial Lock in period of 15 years - option to

continue after maturity in blocks of 5 years for anynumber of blocks.


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Withdrawals Permitted

Only after the 6th year is complete

Only one withdrawal can be made in onefinancial year.

Amount of withdrawal 50 % of thebalance at the end of the 4th immediately

preceding year or at the end of thepreceding year, whichever is lower.


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Loan Facility available

Loan is available only between the 2nd yearand the 5th year of opening the account.

Maximum permissible is 25 % of the

Balance available at the end of thepreceding 2 years.


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Other Considerations:

Interest as well as withdrawal totally exemptfrom tax.

A/c can be opened either with a post office,

any branch of State Bank or any nationalizedBank.



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The balance in the amount cannot be attached evenby the court.

A very good investment tool for conservativeinvestors.

Expected Returns for an annual contribution of Rs.1,00,000


Rate ofInterest

Amount Received After(In INR)

15 Yrs 20 Yrs 25 Yrs

8.60 % 30,90,100 53,12,696 86,70,131

8.00 % 29,32,428 49,42,292 78,95,442

7.00 % 28,07,724 46,55,253 73,07,620


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National Savings Certificates Minimum investment limit is Rs. 100 & no

maximum limit is prescribed. Investments

can be made in denominations of Rs 100,500, 1,000, 5,000 & 10,000.

Lock in period of 6 years (now 5 years) is

prescribed, however prematurewithdrawal permitted after 3 years underexceptional circumstances.



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National Savings Certificates Principal amount received at the time of

maturity is not taxable, however interestreceived is taxable annually.

Interest received qualifies as re-investment & therefore eligible for 80Cdeduction.

Available at any post office.17.02.2012 CA Mayur Makadia 12


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National Savings Certificates Can be pledged as a security for loan.

Rate of interest is now revised to 8.4%.

There is a plan to introduce NSC with a 10

year maturity period.



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Tax Saving Fixed Deposits Minimum investment of Rs.10,000 and

maximum of Rs.100,000.

Duration of investment is 5 years.

Two modes of Interest payment:

Traditional Interest is payable at monthly or

quarterly rests.

Reinvestment Interest is compoundedquarterly and reinvested with principal

amount.17.02.2012 CA Mayur Makadia 14


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Tax Saving Fixed Deposits Investments can be made by individuals and

HUFs.

Pre-mature withdrawal not allowed.

Loan facility not available.

Interest rates offered are in the range of8.5% - 10% (for Non-Sr. citizens)

For Sr. citizens interest rates are higher by 50 75 bps.

Interest received is taxable & subject to TDS.



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Investment Based DeductionsSr. Citizens Saving Scheme

Eligible assesses are as under

Persons 60 years or above.

Persons aged more than 55 years but less

than 60 years and who has retired.

Retired personnel of Defence services (excl.civil defence) irrespective of their age.

Saving instrument is a deposit with anypost office or branch of a nationalizedbank.



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Investment Based DeductionsSr. Citizens Saving Scheme

Minimum limit Rs. 1,000 & maximum Rs15,00,000.

Term of deposit is 5 years extendable to

further 3 years. Interest is payable at 9 % & is taxable.

Pre-mature withdrawal is permitted after a

period of 1 year in which case some penalcharges would be deducted.

NRIs and HUFs are not eligible.



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NABARD Bonds Eligible investors are as under: Individuals

HUF

Minor Children as natural / legal guardians

Minimum investment is five Bonds i.e. Rs.5,000/- and thereafter in multiples of onebond (F.V of one bond is Rs. 1,000).

The lock in period for investments is 5years.



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NABARD Bonds Rate of interest is 8.25% for Non-Sr.

citizens & 8.75% for Sr. citizens.

The interest income is taxable.

The bond is non-transferable.

The bond cannot be offered as a securityfor any loan or advance.



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Employees Provident Fund Salaried individuals are compulsorily

required to contribute 12% of the sum of

basic pay and dearness allowance toemployees provident fund (EPF).

This sum is deducted by the employers

from the monthly payroll of employees asa social security scheme akin to a forced-saving towards retirement planning.



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Employees Provident Fund The contribution made by the employee to

EPF is eligible for deduction u/s 80C.

The amount withdrawn on maturity (incl.interest earned) is tax-free.



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OTHER INVESTMENT BASED

DEDUCTIONS AVAILABLE

Contribution to Pension Fund u/s 80CCC Contribution to New Pension Scheme

(NPS) u/s 80CCD

Investment in Long Term InfrastructureBond u/s 80CCF



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Contribution to Pension Fund The persons eligible to claim this

deduction are resident as well as non-

resident individuals. Payments made to keep in force an

annuity plan for receiving pension at a

future date is allowed as a deduction. Maximum deduction allowed is Rs.

1,00,000.



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Contribution to Pension Fund Deduction in respect of this contribution &

in respect of any other investment u/s 80C

cannot exceed Rs. 1,00,000. Any amount withdrawn or pension

received from the plan is taxable in the

hands of the assessee or nominee in theyear of receipt.



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Contribution to New Pension Scheme The persons eligible to claim this deduction are

resident as well as non-resident individuals in

the age group of 18- 55 years. Maximum amount allowed as a deduction is as

under:

In case of employed persons

Employees contribution upto 10% of his salary.

Employers contribution upto 10% of employeessalary.



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Investment Based DeductionsContribution to New Pension Scheme In case of persons other than employees:

Contribution upto 10% of the Gross Total Income.

The amounts received under this scheme are

taxable on the following events: On maturity ; OR

Opting out of the scheme; OR

On receipt of pension from the annuity plan.

The amount received on maturity/opting out/byway of pension shall not be taxable in case theproceeds are utilized for buying an annuity planin the same year.



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Contribution to New Pension Scheme The overall deduction under this section,

u/s 80C & 80CCC cannot exceed Rs.

1,00,000.



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Investment Based DeductionsInvestment in Long Term Infrastructure

Bonds The persons eligible to avail this deduction

can be an individual or an HUF.

Minimum contribution is Rs. 10,000 &maximum amount is Rs. 20,000.

Tenure of this bonds is 10 years, however

exit option is available through secondarymarket or buyback after 5 years.



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Investment Based DeductionsInvestment in Long Term Infrastructure

Bonds Interest rates offered are in the range of 8% -

9% depending upon the investment option

chosen. Investment in Long Term Infrastructure Bonds is

eligible for deduction under Section 80CCFsubject to maximum limit of Rs. 20,000 which is

over and above the limit of Rs 1,00,000 availableu/s 80C, 80CCC & 80CCD.



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DEDUCTIONS BASED ONMARKET LINKED INSTRUMENTS

Equity Linked Savings Scheme (ELSS)Mutual Funds

Unit Linked Insurance Plans (ULIP)


DEDUCTIONS BASED ON


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Equity Linked Savings Scheme

Eligible persons are individuals includingNRI & HUFs.

Minimum limit of investment is Rs. 500 &

there is no maximum limit.

Rate of return is as per market situation



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Equity Linked Savings Scheme

Dividend Income arising from ELSS is

exempt from tax.

All ELSS have a lock-in period of 3 years

after which it can be sold back to the fundhouse & Capital gains if any are exempt.



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Unit Linked Insurance Plans

Eligible persons are individuals includingNRI & HUFs.

Unit Linked Insurance Plans (ULIPS) are acombination of Life Insurance as well asMutual Fund investment.

ULIPs give you life cover as well asexposure to stock market.


C O S S O


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Minimum limit of investment is Rs. 5,000 & thereis no maximum limit.

Rate of return is as per market situation.

All ULIPs have a lock-in period of 5 years

Premium in excess of 20% of sum assured is not

eligible for deduction.


DEDUCTIONS BASED ON


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Money invested in ULIPs is eligible for deductionunder Section 80C.

Maturity/ Death claim proceeds are notchargeable to tax.



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OTHER DEDUCTIONS

Life Insurance Premium

Children Tuition Fees

Purchase of House Property Related


OTHER DEDUCTIONS


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OTHER DEDUCTIONSLife Insurance Premium

Minimum & maximum contribution as per theterms of the insurance company.

Premium in excess of 20% of sum assured is noteligible for deduction

Minimum lock in period of 2 years.


OTHER DEDUCTIONS


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OTHER DEDUCTIONSLife Insurance Premium

Life insurance can be a term plan (which is non-money back) or endowment plan (which ismoney back)

LIP paid whether for term or endowment plan, iseligible for deduction under Section 80C.

Maturity (in case of endowment plan)/ Deathclaim proceeds are not chargeable to tax.



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OTHER DEDUCTIONSChildren Tuition Fees

The tuition fee paid for upto 2 children is fullyallowed as deduction subject to maximumoverall limit of Rs. 1,00,000.

Tuition Fees is eligible for deduction underSection 80C.

Tuition fees paid to any university, college,

school or other educational institution withinIndia is eligible.

Development fees or Donations or similar feespaid not eligible.


OTHER DEDUCTIONS


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OTHER DEDUCTIONSPurchase of House Property Related

Eligible persons are individuals & HUFs.

Eligible payments are as under:

Purchase or cost of construction of residential

house Stamp duty, registration fees & other

expenses for transfer of the property inassessees name.

However admission fees, transfer fees, etcpaid to society not eligible. Also renovation orrepair expense not eligible.


OTHER DEDUCTIONS


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OTHER DEDUCTIONSPurchase of House Property Related

Repayment of housing loan (principalcomponent)

House property should be held for a

minimum period of 5 years.



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PAYMENTS BASED DEDUCTION

Medical Insurance Premium (u/s 80D)

Maintenance Expenses of Physically

Disabled Dependant (u/s 80DD) Medical Expenses for specified Illnesses

(u/s 80DDB)

Interest on Education Loan (u/s 80E)

Donations (u/s 80G)

Rent paid (u/s 80GG)17.02.2012 CA Mayur Makadia 42



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PAYMENTS BASED DEDUCTIONMedical Insurance Premium

Eligible persons are individuals includingNRs & HUFs in respect of medical/healthinsurance premium paid for the following

persons: Self

Spouse

Parents Dependant Children

Any member of the family in case of HUF

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PAYMENTS BASED DEDUCTIONMedical Insurance Premium

Premium needs to be paid by cheque.

Maximum limit is Rs 15,000 for non-sr.citizens & Rs 20,000 for sr. citizens.

The person paying the premium is entitledfor the deduction.




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PAYMENTS BASED DEDUCTIONMaintenance Expenses of Physically

Disabled Dependant Eligible persons are resident individuals & HUFs.

Eligible expenditure is as under: Medical Treatment of a dependant family member

with disability.

Disability may be:

Normal disability (less than 80% disabilty)

Severe disability (above 80%)




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PAYMENTS BASED DEDUCTIONMaintenance Expenses of Physically

Disabled Dependant Allowable deduction:

Normal disability Rs 50,000

Severe disability Rs. 1,00,000

This deduction will be available only on furnishingalong with the return of income a certificate issued

by the medical authority.




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PAYMENTS BASED DEDUCTIONMedical Expenses for specified Illnesses

Eligible persons are individuals & HUFs

Eligible expenditure is as under:

Expenditure actually incurred for medical treatment ofsuch disease or ailment as under:

Neurological diseases where the diseases level is certifiedand its 40% & above

Cancer

AIDS Chronic Renal Failure

Thalassaemia, etc




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PAYMENTS BASED DEDUCTIONMedical Expenses for specified Illnesses

Allowable deduction:

Non- Sr. Citizens Rs 40,000

Sr. Citizens Rs 60,000

This deduction will be available only on furnishingalong with the return of income a certificate issued

by the a neurologist, an oncologist, a urologist, ahematologist, an immunologist or such otherspecialist working in Government Hospital.



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Interest on Education Loan Eligible person is an individual. Eligible expenditure in respect of interest paid on

education loan are as under:

Loan taken for full-time studies of thefollowing persons:-

An individual himself

Spouse Children (for any graduate or post-graduate

course )

Loan taken from an approved financial

institution or charitable institution17.02.2012 CA Mayur Makadia 49


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Interest on Education Loan

The deduction is allowed in the initial

assessment year (i.e., the assessment yearrelevant to the previous year, in which theassessee starts paying the interest on loan) andseven assessment years immediately succeeding

the initial assessment year.




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PAYMENTS BASED DEDUCTIONDonations

Eligible persons are all tax payers. Eligible donations is as under:

Donations paid to certain funds, charitable

institutions etc. specified u/s 80G. Donations for the renovation or repair of any

temple, mosque, gurdwara, etc.

Donations by the company to the IndianOlympic Association or any other associationor institutions (established in India).




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PAYMENTS BASED DEDUCTIONDonations

Allowable deduction: Donations made to funds or institutions set up by

Central and State governments of India for the

welfare of the public, qualify for 100% deduction.

Donations made to other funds and institutions

qualify for only 50% deduction.



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PAYMENTS BASED DEDUCTIONRent Paid

Eligible persons are individuals (whethersalaried or otherwise, who do not receive

house rent allowance may claim deductionunder this section.

Eligible Expenditure is as under:

Rent paid for own residential accommodation,whether furnished or unfurnished.



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PAYMENTS BASED DEDUCTIONRent Paid

Individual should file a declaration in Form No.

10BA along with return of income.

Allowable Deduction: the least of the following three:

Rs. 2,000 per month; or

25% of the total income (after allowing all deductions

except under this section); or

the excess of actual rent paid over 10% of the total

income.



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INCOME BASED DEDUCTION

Royalty Income of Authors fromauthoring of any book of literary, artistic

or scientific nature upto a maximum ofRs. 3,00,000. (u/s 80QQB)



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OTHER DEDUCTION FOR

PHYSICAL HANDICAP Eligible person is resident Indian who is

physically handicapped or disabled.

Disabilities include Blindness, Low vision,Leprosy, Hearing impairment, Locomotors

disability, Mental retardation, Mentalillness, autism, cerebral palsy etc.



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OTHER DEDUCTION FOR

PHYSICAL HANDICAP Allowable deduction:

Normal disability (less than 80% disability)

Rs 50,000

Severe disability (more than 80%) Rs. 1,00,000

This deduction will be available only on

furnishing along with the return of income acertificate issued by the medical authority.



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Tax Saving Devices Salary Income

Not Much scope for tax planning forsalaried people as most of the allowances

/ reimbursements are now considered asperqs. and taxable.

There are a few exemptions in respect ofcertain allowances received as part ofsalary



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Exempt Allowances are as under:

House Rent Allowance:

Actual HRA Received Rent Paid Minus 10% of the salary

50 % of the salary (if house situated in Mumbai,Delhi, Kolkata or Chennai) otherwise 40% of the

salary

Lowest of the 3 amounts is exempt.



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Leave Travel Concession

Assistance granted by an employer to employeeand his family for journey to any place in India

If Journey performed by Air Economy classairfare

If Journey performed by Train A/C First ClassFare

If journey performed by Road First class Fare



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The expenditure incurred on self and familyincluding parents, brothers and sisters dependenton the employee allowed.

Exemption available twice in a block of 4 years.

Only fare expenses are allowed as exemption andno lodging / boarding expenses etc. are allowed.



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Childrens Education Allowance Rs. 100/-per month per child for maximum 2 children

Childrens Hostel Allowance Rs. 300/- permonth per child for maximum 2 children

Conveyance Allowance Rs. 800 per month(Rs. 1,600/- pm for handicapped people).


T S i D i H P t


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Tax Saving Devices House PropertyIncome

Deduction in respect of Interest Paid oncapital borrowed for acquiring / constructing

a house property allowed as deduction.

Interest for the period prior to acquisition /

construction allowed in 5 equal annualinstallments from date of acquisition /construction.


T S i D i H P t


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Tax Saving Devices House PropertyIncome

Quantum of Deduction

Where the property is let out actual interest

paid during the year. Where the property is self occupied actual

interest paid or Rs. 1,50,000/- whichever islow.



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Tax Saving Devices For Capital Gains

Investment in House Property (Sec 54 &Sec 54 F).

Investment in Bonds (Sec 54EC)



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Tax Saving Devices For Capital GainsInvestment in House Property (Sec 54)

When Eligible Deduction available on Long Term Capital GainsArising on sale ofResidential House Property.

What is required to be done Invest the Capital Gains in Purchase of a

Residential House. Invest the Capital Gains in the construction of a

Residential House.



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What is the Time Frame

The New Residential House should bepurchased within a period of 1 year before

the sale or within 2 years from the date ofsale of the old house.

In case of construction, the construction

should be complete within 3 years from thedate of sale.



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What is the amount of deduction The Amount of Capital Gains or The cost of new property

whichever is lower.

What are the Other Conditions The new property must be held for at least 3 years

after purchase / construction. If transferred, before 3 years the cost to be reduced by the

gains exempted earlier resulting in a higher capital gain on

sale of new property. If the entire amount cannot be utilised for investment

in new property before the due date of ITR filing,unutilised amount to be deposited in special accountwith a nationalised bank.



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Tax Saving Devices For Capital GainsInvestment in House Property (Sec 54F)

When Eligible Deduction available on Long Term Capital Gains Arising on sale ofany Asset (other than residetialhouse).

What is required to be done Invest the Sale Proceeds in Purchase of a

Residential House. Invest the Sale Proceeds in the construction of a

Residential House.



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Tax Saving Devices For Capital GainsInvestment in House Property (Sec 54F)

What is the Time Frame

The New Residential House should bepurchased within a period of 1 year before

the sale or within 2 years from the date ofsale of asset.

In case of construction, the construction

should be complete within 3 years from thedate of sale.



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a Sa g e ces o Cap ta Ga sInvestment in House Property (Sec 54F)

What is the amount of deduction If sale proceeds are less than the Cost of new

house, the entire capital gain If sale proceeds are more than the Cost of new

house, then proportionate capital gain

What are the Other Conditions The new property must be held for at least 3 years

after purchase / construction.

If transferred, before 3 years the Capital Gains exemptedearlier shall be taxable as LTCG in the year of transfer.



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g pInvestment in House Property (Sec 54F)

No other property can be acquired / constructedwithin a period of 2 / 3 years.

Deduction available only if the assessee does not ownmore than 1 residential property (other than new

property) on date of sale.

If the entire amount cannot be utilised for investmentin new property before the due date of ITR filing,unutilized amount to be deposited in special account

with a nationalized bank



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g pInvestment in House Property (Sec 54EC)

When Eligible Deduction available on Long Term Capital Gains Arising on sale ofany Asset (including residetialhouse).

What is required to be done

Invest the Capital Gains in Purchase of Bonds ofNHAI / REC.



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What is the Time Frame The Investment in Bonds should be made

within a period of 6 months from the date ofsale of the asset.

What is the amount of deduction The Amount of Capital Gains or The cost of new property

whichever is lower.The maximum amount that can be invested insuch bonds is Rs. 50 Lakhs in one FY



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What are the Other Conditions The bonds must be held for at least 3 years.

If transferred or any loan taken against such bonds,before 3 years the Capital Gains exempted earlier shall be

taxable as LTCG in the year of transfer etc.

tax saving devices final

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