I would like to talk about Income tax
benefits for FY 2019-20 (AY
2020-21) because June 30 is an extremely important deadline for a whole range
of taxation. The Income tax Act, 1961 providing the deductions and exemptions
on our investments and expenses. Here, I have given some of the most important
deductions and exemptions. The taxpayers should be remembered the following tax
deductions or exemptions before paying the Income tax to government for
Financial year 2019-20.
1. House Rent Allowance
(HRA) :-
If we are living in a rented house and
receive HRA as a part of the salary, we can claim this exemption u/s 10(13A) in
accordance with Rule 2A of the Income Tax Rules as :-
i. HRA received, or
ii. 50% of Basic salary + DA, if we
are living in a Metropolitan city. Otherwise, 40% if we are living in other
than Metropolitan city., or
iii. Excess of rent paid over 10% of basic
salary + DA, whichever is lower.
Example :-
Assume that one employee earns a basic
salary + DA of ₹40,000 per month and living in a rented house (Mumbai) and rent
paid ₹10,000 per month. His actual HRA is ₹16,000.
i. Actual HRA received i.e. ₹16,000,
ii. 50% of basic salary i.e. ₹20,000,
iii. Excess of rent paid over 10% of
basic salary + DA i.e. (10,000 – 4,000) = ₹6,000, whichever is lower.
Hence, ₹6,000 per month is the least
and will be exempted for HRA deduction.
In case of self-employed who do not
receive HRA from their employer, can claim deduction up to ₹60,000 in a financial
year u/s 80GG.
2. Leave Travel
Allowance (LTA) :-
This exemption can be claimed by those
who receive this LTA from their employer u/s 10(5) of the Income-tax Act, 1961.
The deduction is lower of the LTA amount or actual expenses. This exemption can
be claimed to the extent of actual expenditure incurred on domestic journey (travel
within India). No international travel is covered under LTA. The exemption for
LTA allowed to an employee and their family for 2 travels undertaken within a
block of 4 calendar years. The block applicable for the current period is
calendar years 2018 to 2021.
3. Life Insurance Policy
:-
We can claim deduction up to ₹1,50,000
u/s 80C on premium paid for a life insurance policy. The maximum deduction
allowed is only 10% on sum assured. For example, if the sum assured is ₹10,00,000,
the limit is ₹1,00,000. If we pay an actual annual premium of ₹1,20,000, the maximum
deduction allowed is only ₹1,00,000. However, if we purchased the life
insurance policy before 31st March 2012, then we are allowed a deduction
of up to 20% of the sum assured amount.
4. Health Insurance
Policy :-
If we are less than 60 years of old
and paying health insurance policy for ourselves or spouse or our children,
then we can claim maximum health insurance policy premium amount of ₹25,000 u/s
80D of the Income Tax Act. If we are above 60 years of old, the maximum deduction
will be ₹50,000. If we pay health insurance premium for our senior citizen
parents as well, we can claim additional deduction of Rs 50,000. If the premium
is lesser than the maximum deduction, you can claim maximum amount up to ₹5,000
deduction for expenses on preventive healthcare. Super senior citizens who are having
more than 80 years, can claim a maximum deduction of ₹50,000 on actual expenses
incurred on their healthcare.
5. Medical Expenses :-
(A) We can claim the
deduction for medical expenses u/s 80DD for medical
expenditure incurred in case of self, spouse, children, parents, or
dependent siblings. Such deduction and deductible amount will be applicable in
below conditions :-
i. If disability is 40% or
more but less than 80%, then fixed deduction of ₹75,000.
ii. If there is severe
disability i.e. more than 80%, then fixed deduction of ₹1,25,000.
It should be noted that the
certificate of disability is required from respective medical authority to claim
this deduction.
(B) Deduction for Medical
Expenditure u/s 80DDB for Self or Dependent relative
i. A deduction up to ₹40,000
is available with respect to any expense incurred towards treatment of
specified medical diseases or ailments for himself or any of his dependent in
case of individuals and HUFs below age 60.
ii. A deduction up to ₹1,00,000
is available with respect to any expense incurred towards treatment of
specified medical diseases in the case of senior citizens and super senior
citizens.
It should be noted that we need
to get a prescription for such medical treatment from the concerned specialist
in order to claim such deduction.
6. Home Loan amount :-
If we have taken a home loan for purchasing
or constructing a house, then we can claim deduction on both interest and
principal payments as the maximum amount of ₹2,00,000 as mentioned below. If we are not able to construct such a home
within 5 years, then we are eligible to claim for maximum amount of only
₹30,000 per annum.
|
Deduction
|
u/s
|
Maximum Deduction allowed
|
Condition
apply
|
|
Principal
|
80C
|
₹1,50,000
|
House property should not be sold
within 5 years of occupied.
|
|
Interest
|
24b
|
₹2,00,000
|
Loan must be taken for purchase or construction
of a house and the construction must be completed within 5 years from the end
of financial year in which loan was taken.
|
|
Interest
|
80EE
|
₹50,000
|
Amount of loan taken should be ₹ 35,00,000
or less and the value of the property does not exceed ₹50,00,000.
|
|
Stamp duty
|
80C
|
₹1,50,000
|
can be claimed only in the year in
which these expenses are incurred.
|
|
Interest
|
80EEA
|
₹1,50,000
|
The stamp value of the property
should be ₹45,00,000 or less. The taxpayer is not eligible to claim deduction
u/s 80EE-
|
7. Education Fee :-
We can claim deduction towards expenses
incurred on tuition fee paid during the financial year to any school, college,
university or other educational institution situated in India for the purpose
of full time education of any two children up to maximum amount of ₹1,50,000
u/s 80C(2)(xvii) of the Income Tax Act, 1961. However, no deduction can be available
in respect of development fee or donation or any other payment of similar
nature.
8. Interest on Education
loan :-
We can claim deduction towards an
interest paid on education loan for self or spouse or children u/s 80E. This
deduction has no limit i.e. we can claim entire amount how much we paid during
the financial year. The deduction is allowed for a period of 8 years or until
the interest is paid by the individual in full, whichever is earlier. However,
it should be remembered that no deduction can be claimed during the moratorium
period.
9. Exchange Traded Funds
(ETFs) by CPSE :-
We can claim deduction towards
investment in ETFs during the financial year up to a maximum amount of
₹1,50,000 u/s 80C of the Income Tax Act, 1961. ETFs are good investment option
as contributions of this scheme are invested in a wide range of government
companies operating in different core sectors (i.e. electricity, energy, etc.) of
the economy. It tracks the CPSE (Central Public Sector Enterprises) index.
10. Unit Linked
Insurance Plan (ULIP) :-
We can claim the premium paid towards
ULIPs which are offered by Insurance companies is eligible for a tax deduction
up to a maximum amount of ₹1,50,000 u/s 80C. Moreover, the returns out of the
policy on maturity are exempt from income tax u/s 10(10D) of the Income Tax Act
1961. Hence, we can say that this is a dual benefit from a single contribution
of this policy. The benefits of investment in ULIPS are :-
i. Life cover,
ii. Income tax benefits,
iii. Flexibility of a portfolio
switch,
iv. Finance long-term goals, etc.
However, the returns are not as high
as ELSS because, a part of the investment amount goes into buying the insurance
cover.
11. Equity linked savings
scheme (ELSS) :-
We can claim deduction towards investment
in ELSS of Mutual Funds during the financial year up to a maximum amount of
₹1,50,000 u/s 80C of the Income Tax Act, 1961. The ELSS of MF can offer higher
returns and tax benefits.
However, the returns from these schemes are taxable. The profit from ELSS treated as long term capital gains (LTCG)
and taxed at 10% for gain more than ₹1,00,000.
12. Fixed deposits (FD) :-
We can claim deduction towards
investment in Fixed deposits (5-year lock-in period) of Banks and Post offices during
the financial year up to a maximum amount of ₹1,50,000 u/s 80C of the Income Tax
Act, 1961. However, interest earned on FDs is taxable income. The rate of
return on FD of post office 7.7% at present. The interest rate of FD through
banks is vary from bank to bank.
13. Public Provident Fund
(PPF) :-
We can claim deduction towards
contribution to PPF during the financial year up to a maximum amount of
₹1,50,000 u/s 80C of the Income Tax Act, 1961. The PPF which is a long-term tax
saving investment scheme having a lock-in period of 15 years and investors need
not to pay tax at any stage of the investment. The rate of return on PPF
is 7.9% at present.
14. National Savings
Certificate (NSC) :-
We can claim deduction towards
contribution to NSC during the financial year up to a maximum amount of
₹1,50,000 u/s 80C of the Income Tax Act, 1961. There is no maximum investment
limit in NSC, and TDS will not be deducted on the interest amount. However,
interest earned on NSC is taxable income. The rate of return on NSC also 7.9%
at present.
15. National Pension
Scheme (NPS) :-
(a). We can claim deduction towards self-contribution
of NPS (which is a part of Section 80C) during the financial year is 10% of the
salary (in case of employees) but not more than the maximum limit of ₹1,50,000
or u/s 80CCD(1) of the Income Tax Act, 1961. But, in the case of self-employed
taxpayer, this limit is 20% of the gross income.
(b). The employees can claim additional self-contribution
up to an amount of ₹50,000 u/s 80CCD(1B) as NPS tax benefit. Therefore, NPS allows
a maximum tax deduction of ₹2,00,000.
(c). Section 80CCD(2) covers
the employer’s contribution to NPS, which will not form a part of Section 80C.
This benefit is not available for self-employed taxpayers. The maximum amount
eligible for deduction will be :-
i.
Actual NPS contribution by employer,
ii.
10% of Basic + DA,
iii.
Gross total income, whichever is lower.
NPS is run by the government
of India and is open to public. NPS to boost returns of retirement
savings.
16. Other Pension Plans :-
Other than NPS, LIC and Mutual fund
houses are providing investment options of retirement plans either deferred or
immediate annuity income after retirement. Any contribution to such plans will
make us eligible to claim deduction of up to ₹1,50,000 u/s 80C during the financial
year.
Thank you,
Chandra Sekhar Reddy
