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Income Tax worries?

Find out how your investments in best performing mutual fund and insurance cover for your family can save you taxes.

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Understand more about Tax Deductions

Section 80C of Income Tax Act allows an individual to or a hindu undivided family (HUF) to invest in tax saving instruments to reduce the income tax liability. You can invest up to Rs 1.5 lakh per year in various instruments listed under this section. The investment options under this section include life insurance premium, public provident fund, employee provident fund, Sukanya Samriddhi Yojana, National Saving Certificate, Five year fixed deposits with banks-post office, Senior citizen saving scheme, life insurance plans, equity linked saving schemes, principal repayment on housing loan, tuition fee paid for maximum two children’s education.

If used in a prudent manner, these investments can not only help you save income tax but also help you achieve your financial goals.

Section 80D of the Income Tax Act lets an individual avail deduction for health insurance premium paid. The health insurance premium paid for self, spouse, dependent children and parents is eligible for this deduction. One can avail of a deduction up to Rs 25,000 for self and family. In case of a senior citizen health insurance policy the deduction allowed is up to Rs 30,000. Within this limit deduction of Rs 5,000 is allowed for expenses incurred towards preventive health check-ups.

For super senior citizens with no health insurance, a deduction up to Rs 30,000 is allowed for the expenses incurred on medical treatment.

You should buy adequate health insurance to financially overcome a possible hospitalization of self or a family member.

Section 80DD allows the assessee a deduction for expenditure incurred in the form of medical treatment, treatment and rehabilitation of a handicapped dependent suffering from disability. Deposits for maintenance of such dependent in specified scheme are also eligible for the tax benefit.

Extent of deduction is linked to the extent of disability. In case of 40% disability, the deduction is capped to Rs 75,000 per year. For 80% disability, the tax deduction is capped to Rs 1.25 lakh.

However, if you claim such a benefit then the same cannot be availed by the dependent in his tax returns under section 80U of Income Tax Act.

This section allows tax deduction for expenditure incurred by you for medical treatment of certain diseases. These include Neurological Diseases (where the disability level has been certified as 40% or more), Parkinson’s Disease, Malignant Cancers, Acquired Immune Deficiency Syndrome (AIDS), Chronic Renal failure, Hemophilia and Thalassaemia. The tax benefit is capped on actual basis up to Rs 40,000 per year. If you are a senior citizen, then the benefit is lower of actual expense or Rs 60,000. In case of super senior citizen (80 years or above of age) this amount is capped at Rs 80,000.

To avail this benefit a medical certificate from competent medical practitioner is required.

Interest paid on education loan is eligible for a tax deduction. Under Section 80E of the Income Tax Act such interest paid on your education is deducted from your gross taxable income while computing income tax liability. The education loan can be taken for self, spouse or children. The deduction is available from the year the repayment starts and not from the year you availed the loan. The deduction is available for a maximum of 8 years or till the interest is paid, whichever is earlier.

The tax benefit associated with interest on education loan is however not available for HUF.

Contributions made to prescribed funds fetch the much required tax break. Section 80G offers deductions up to 50% or 100% of the donation subject to the limits stated in the Income Tax Act. To avail the tax deduction one requires Name of the Donee, PAN of the Donee, Address of the Donee, and the amount contributed.

As proposed in Budget 2017, cash donations are capped to Rs 2,000 from tax benefit point of view. The donations made in ‘Kind’ such as donating utensils, clothes, books do not qualify for deductions.

If you are salaried individual but do not have house rent allowance or are self-employed and are paying rent for an accommodation for residential purpose, then you can claim tax deduction under section 80GG of Income Tax Act.

It comes with certain conditions-

You pay rent and you do not get any HRA, even for a part of the year.

You should not own and occupy any other house anywhere

You or your spouse or your minor child or your HUF must now own any house in the city you reside or work in.

If you satisfy these conditions, deduction available to you will be the lower of:

Rs 5,000 per month,
25% of your total income
Rent paid in excess of 10% of your total income

An individual gets a tax deduction under section 80U of the Income Tax Act if he is suffering from any of the stipulated conditions.

Specified disabilities:

  • Blindness
  • Low vision
  • Leprosy-cured
  • Hearing impairment
  • Locomotor disability
  • Mental retardation
  • Mental illness

If one is suffering from 40% or more from such conditions, he is entitled to a fixed deduction of Rs 75,000 irrespective of his income and expenditure incurred on the condition.

In case of disability of more than 80%, he is entitled to a fixed deduction of Rs 1.25 lakh irrespective of his income and expenditure incurred on the condition.

Rajiv Gandhi Equity Savings Scheme (or RGESS) was introduced in the Finance Act, 2012. New retail investor who complies with the condition of gross total income less than Rs 12 lakh can enjoy deduction under RGESS.

One can invest maximum Rs 50,000 for claiming deduction under RGESS. New retail investor gets 50% deduction of the amount invested from the taxable income for that financial year.

This investment has to be in the prescribed securities and subject to lock in period as defined in the Income Tax Act. Only individuals can avail of this tax deduction.

This can be availed of by an individual till March 31st 2017. This has been discontinued from FY2017-2018.

This section lets an individual or HUF to enjoy a tax deduction for interest earned on saving account with bank, co-operative society or post office to the extent of actual or Rs 10,000 whichever is lower.

This benefit is not applicable for the interest earned on term deposits.

Interest income earned from a saving bank account over Rs 10,000 will be subject to tax a per your slab.

Tax Saving with ELSS

ELSS has provided better returns compared to similar tax saving instruments. Also it has the lowest lock in period.

Investment Option Lock-In Period Return CAGR p.a. Tax Status on Returns Risk
Public Provident Fund 15 Years 8.10% Tax free Low
National Saving Certificate 5/10 Years 8.0% Taxable Low
Fixed Deposits 5 Years 7.70% Taxable Low
ELSS 3 Years 17.8% Tax free High
Which ELSS to Invest In?

Top Performing ELSS has been

  • Motilal MOSt Long Term Fund -DP (G)

    1 Year Return

    35.0%

    View Details

    Motilal MOSt Long Term Fund -RP (G)

    1 Year Return

    33.0%

    View Details
  • Mirae Asset Tax Saver Fund - DP (G)

    1 Year Return

    28.9%

    View Details

    IDFC Tax Adv. (ELSS) -Direct (G)

    Rating

    1 Year Return

    25.6%

    View Details
  • L&T Tax Advantage -Direct (G)

    Rating

    1 Year Return

    25.3%

    View Details

    L&T Tax Advantage (G)

    1 Year Return

    24.4%

    View Details
  • IDFC Tax Advantage (ELSS)-RP (G)

    Rating

    1 Year Return

    24.2%

    View Details

    JM Tax Gain Fund -Direct (G)

    1 Year Return

    23.4%

    View Details
  • Principal Tax Savings - Direct

    Rating

    1 Year Return

    22.2%

    View Details

    Principal Tax Savings

    Rating

    1 Year Return

    21.9%

    View Details
  • JM Tax Gain Fund (G)

    1 Year Return

    21.4%

    View Details

    BOI AXA Tax Advantage - Direct (G)

    1 Year Return

    20.6%

    View Details

Tax saving with life insurance

Premium paid towards securing life insurance cover from an insurance company is eligible for a tax shelter. Section 80C of Income Tax Act allows a deduction for an amount up to Rs 1.5 lakh per year for the premium paid to a life insurance company. As per the current rule, the sum assured of the life insurance policy must be at least ten times the life insurance premium paid.

All proceeds of a life insurance policy are tax-free in the hands of the beneficiary as per Section 10(10D) of the Income tax Act.

Tax saving with health insurance

Buying health insurance policy not only allows you to buy a health cover but also fetches a tax deduction under section 80D of the Income Tax Act. The health insurance premium paid for self, spouse and dependent parents is eligible for tax break. One can claim up to Rs 25000 for self and family. In addition to this, in case of senior citizen the tax deduction is extended to Rs 30000.

Health insurance policies include traditional hospitalization reimbursement health policies, hospital cash benefit policies, critical illness benefit policies among others.

FAQS

  • Q

    If I have paid more tax when filing my returns, will it be refunded?

    A

    Yes, the excess amount will be refunded by cheque or direct credit into your bank account. Disclaimer: While we have made efforts to ensure the accuracy of our content (consisting of articles and information), neither this website nor the author shall be held responsible for any losses/ incidents suffered by people accessing, using or is supplied with the content.

  • Q

    What are the benefits of filing my income tax returns?

    A

    One, it's your obligation to file your income tax returns. There may be legal consequences for not doing so. Two, tax paid is utilised for the development of the nation. Last but not the least, it will help you to be in the good books of the financial institutions such as banks. It's useful when you apply for a loan since you need to submit a copy of your income tax returns when applying for a loans.

  • Q

    Who are my relatives?

    A

    Your wife or husband. Your brother or sister. Your wife or husband's brother or sister. Your parents. Your wife or husband's parents. Your parents' brothers and sisters. Your wife or husband's parents' brothers and sisters. Legal heir, if any.

  • Q

    Do I need to pay tax on gifts received?

    A

    Gift received in cash, which exceed Rs 50,000, are taxable. However, gift tax is not applicable in the following situations: 1.Cash received from a relative 2.Cash received on the occasion of marriage 3.Cash received through a will or inheritance

  • Q

    What are receipts? Are all receipts considered as income?

    A

    A receipt is your entire income before tax deductions. Not all receipts are considered as income. Basically, they are of two kinds: 1. Capital receipt: This is the income earned by selling the source or asset. For example, income earned from selling a property, gold, etc. 2. Revenue receipt: Income from source such as salary, interest accrued on deposits, rent from property is termed as revenue receipt.

  • Q

    Who is a resident of India?

    A

    If you have spent more than 182 days in India then you are considered as a resident irrespective of your citizenship.

  • Q

    Is the income tax act applicable only to residents?

    A

    It is applicable to both residents and non-residents. If you earn income in India then you would have to pay more taxes even if you are a non-resident of the country.

  • Q

    Where do I file my income tax returns?

    A

    Normally, there are separate wards (sub offices of the regional income tax office) assigned for filing your tax returns. Within these wards are circles or divisions (sub offices of wards) for separate classes of people. For instance, if you are a salaried person, you will have to file your returns in a separate ward or circle, which will be different from a government or a private employee filing his returns. Similarly, if your income is less than Rs 10 lakh, a separate ward will be assigned to you and if it's more than Rs 10 lakh it will again be different ward. (Click here to know where you can file your returns.)

  • Q

    What happens if the form is not signed properly?

    A

    Your form will be treated as invalid.

  • Q

    Can anyone else sign the form on my behalf?

    A

    Yes, in certain situations. For instance, if you have been away from India and want to file your tax returns, somebody else can sign on your behalf provided you have authorised him (or her) to do so.

  • Q

    What should I keep in mind while filing my returns?

    A

    Avoid overwriting and correction on the form. The form must be properly signed. The document should be filled in block letters. Enter the correct PAN number. Proof of investment to be attached. Original TDS certificates and challans for payments of advance tax and self assessment tax. Mention the date, correctly.

  • Q

    What are the charges if I file income tax returns after the due date?

    A

    You may have to pay a penalty up to Rs 5,000.

  • Q

    Which ITR Form is applicable to me?

    A

    There are four forms listed below. Choose your category, accordingly. If your income is from salary, pension, family pension and interest > ITR 1 Individuals and HUFs* with income from any source other than business or profession > ITR 2 Individuals and HUFs who are partners in a partnership firm and do not have any proprietary business or profession > ITR 3 Individuals and HUFs who have a proprietary business or profession > ITR 4

  • Q

    What documents do I need to file my income tax return?

    A

    Form 16: Your employer will give you this form. It has information about the income earned and the tax deducted from your salary during the year. Form 16A: This form is also called a TDS certificate and is for tax deducted at source on other income such as interest on bank deposit. It is given to you by financial institutions such as banks or companies, which deduct tax at source every month or year. Summary of all bank accounts or passbooks: You need a summary of all bank transactions carried out during the financial year, which include income earned, investments made, expenses etc. Property details: If you have purchased or sold any property during the year, you will need the details. If the property bought is on loans, do keep a copy of the home loan details with you. If you sold your property then you may be eligible for capital gain tax. Interest certificate: You need this certificate if you have taken a loan from a bank or financial institution, to buy a house. Broker contract notes: Bills for sale and purchase of shares and dividends. Investment details that have not been disclosed in form 16. For example if you have invested in tax-saving tools such as life insurance, Public Provident Fund and it is not mentioned in form 16 issued by your employer, you need the proof of investment. Tax payment challan, if any: If you have paid advance tax, you need to attach the proof.

  • Q

    What is the last date for filing your income tax returns?

    A

    The last date is July 31.

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