Before calculating your taxes, it is important to know that there are some incomes, investments and expenses that are eligible for deduction from ‘gross total income’. After all eligible deductions, the ‘total income’ is exigible to tax.
Contributions to Specified Schemes: Sec. 80C
Contributions by an individual or HUF to a large number of schemes qualify for a deduction from gross total income. The following are the main ones:
- LIC & ULIP premiums including deferred annuities
- Recognised Provident Fund
- Family pension
- Post office schemes like PPF, NSC, Senior Citizen Savings Scheme, Sukanya Samriddhi
- 5-year time deposits of post offices and also of a scheduled bank
- Tuition fees but not any development fees or donations, paid to any university, college, school or other educational institution in India for full-time education of any 2 children of the individual. The concession is available to each of the parents, if eligible, even in respect of the same child
- Payment for purchase or construction (not repair, renewal or reconstruction) of a residential house (not necessarily self-occupied), towards repayment of loans borrowed from some specified sources. It shall also include stamp duty, registration fee and other expenses incurred on transfer but shall not include:
Such a house is required to be held for at least 5 years from the end of the FY in which its possession was taken. Similarly, a single premium LIC policy is required to be held for at least 2 years. Other policies should have their premiums paid for at least 2 years.
If the house is transferred or the policy is liquidated before the specified holding periods, the deductions claimed shall be deemed to be the income of the assessee for the year.
Contributions in the name of the spouse and all children, major or minor, married or otherwise, including married daughters to (i) any life insurance company for life cover, (ii) LIC deferred annuity, (iii) PPF and (iv) ULIP of UTI and Dhanaraksha of LIC are also eligible for the deduction. Similarly, contributions by HUF to all the items mentioned above, except LIC deferred annuity in the name of any member of the family are also eligible.
Pension Plans: Sec. 80CCC
Deduction is allowed on deposits by an individual (and not HUF) out of his income chargeable to tax to an approved annuity plan for receiving pension. LIC’s Jeevan Nidhi, Future+ and Jeevan Suraksha-I, ICICI Prudential’s Life Time, Life Link and Forever Life and HDFC Standard’s Personal Pension Plan, and the latest Reliance Retirement Fund, etc, are such plans. This concession is not available to contributions made by the assessee on plans taken for anyone other than himself.
Unfortunately, as and when any amount is received from this fund by the individual due to surrender of the annuity plan in whole or part and also the annuity received as pension is also fully taxable. Most unfortunately, the amount received by the nominee or legatee is also fully taxable!
Total deduction available from all these avenues put together along with contributions to National Pension Scheme covered by Sec 80CCD (1) which we shall cover later is ` 1,50,000.
Discussions on additional deductions will continue in the following editions.
The authors, A.N. and Sandeep Shanbhag, are leading financial advisors. Write to them at firstname.lastname@example.org