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Section 80 Deductions

Section 80C of the Income Tax Act allows certain investments and expenditure to be tax-exempt. The total limit under this section is Rs. 100,000 (Rs. 1.0 lakh) which can be any combination of the below:

* Contribution to Provident Fund or Public Provident Fund
* Payment of life insurance premium
* Investment in pension Plans
* Investment in Equity Linked Savings schemes (ELSS) of mutual funds
* Investment in specified government infrastructure bonds
* Investment in National Savings Certificates (interest of past NSCs is reinvested every year and can be added to the Section 80 limit)
* Payments towards principal repayment of housing loans.Also any registration fee or stamp duty paid.
* Payments towards tuition fees for children to any school or college or university or similar institution. (Only for 2 children)

The investment can be from any source and not necessarily from income chargeable to tax.

Section 80D: Medical Insurance Premiums

Medical insurance, popularly known as Mediclaim Policies, provide deduction up to Rs 15000 . For senior citizens, the deduction up to Rs. 20,000 is allowable. This deduction is available for premium paid on medical insurance for oneself, spouse, parents and children.

Interest on Housing Loans

For self occupied properties, interest paid on a housing loan up to Rs 150,000 per year is exempt from tax. However, this is only applicable for a residence constructed within three financial years after the loan is taken and also the loan if taken after April 1, 1999.

For let out properties, the entire interest paid is deductible under section 24 of the Income Tax act. If the house is not occupied due to employment, the house will be considered self occupied.

Receipt of gift is tax free without any limitation if received from “relative”. The word relative has been defined under Explanation given section 56(2)(v) which is reproduced below:

Explanation.For the purposes of this clause, relative means

(i) spouse of the individual;

(ii) brother or sister of the individual;

(iii) brother or sister of the spouse of the individual;

(iv) brother or sister of either of the parents of the individual;

(v) any lineal ascendant or descendant of the individual;

(vi) any lineal ascendant or descendant of the spouse of the individual;

(vii) spouse of the person referred to in clauses (ii) to (vi);

It means that if your wife receives gift of any amount from

1. You

2. Your brother or sister

3. Her brother or sister

4.Brother or sister of your or her parents.

5.Her lineal descendent or ascendant

6.Your lineal descendant or ascendant

7.Spouse of any body mentioned above.

It can be seen that son of sister of your wife does not fall with any of the relationship given above. therefore son of sister of your wife is not a relative of your wife for the purpose of section 56(2)(v) of the I T Act. As such gift of Rs 25,000 is tax free only and any amount exceeding that is taxable under I T Act.

Tax rate applicable

The income will be added to your total income and taxed at the normal rate a pplicable in case of an individual.There no special tax rates for gifts.

To claim LTA, you fulfill two criteria, you can do so:

i. You should have taken leave from your company
ii. You should actually travel

You can either travel alone or with your family. However, if your family travels without you, no LTA can be claimed.

2. How often can I claim LTA?
Twice in the block of four calendar years.
This block is not calculated with the start of your employment. The government defines these blocks.

Presently the block is 2002-2005. Since it is the calendar year and not the financial year, it will be from January 1, 2002 to December 31, 2005.

3. What if I fail to avail of it?

In case you fail to do so, there is a carry over option.
Let’s say that in the block of four years, you never did claim any LTA.
You can do so in the first year of the next block of four years.

4. What is the proof of travel to avail of LTA?
According to rule 2B, you can produce an air, rail or any public transport ticket.
You can even submit the bills issued by the car rental company if you rent a vehicle.
However, the travel is applicable anywhere in India and not abroad. So an international air ticket will not hold.

5. Is LTA taxed?
You can receive LTA as either reimbursement or allowance.

Reimbursement
In case of LTA as reimbursement, it is not taxable.

Let’s say your company offers an LTA of Rs 50,000. For proof of travel, you produce an air ticket of Rs 10,000.

In such a case, you can claim only Rs 10,000 as LTA and it will be exempt from tax.

Allowance
If you do not submit any proof of travel, you will get your LTA but will have to pay tax on it.
If you produce proof of travel, it will not be taxable to the extent your proof of travel is covered.

Let’s say you are entitled to Rs 50,000 as LTA as part of your salary. Since you produced proof of travel as Rs 10,000, you will not be taxed on this amount. However you will be taxed on the net Rs 40,000 as per your income tax slab rate.

LTA is not a fringe benefit as the latter are benefits that are usually enjoyed collectively by the employees and cannot be attributed to individual employees.

6. Can both spouses claim LTA?
If both spouses are getting the LTA benefit in their places of work, they can both claim exemption on LTA from their employers and the benefit for four journeys in one block.

They do not have to take the precaution of not travelling twice during the same year.

Moreover, they can take the same family members or different ones as long as they stick to the definition of the members for this purpose.

Family includes spouse, children as well as dependent parents, brothers and sisters. In respect of children born on or after October 1, 1998, the exemption will be restricted only to two surviving children unless the birth after one child has resulted in multiple births (twins or triplets).

7. If I and my wife travel this year, can we both claim LTA simultaneously?
No. You cannot claim LTA twice for the same journey. If both of you take a holiday together and you claim LTA, she cannot.

8. If I am entitled to a particular amount as LTA, but my expenses are higher, can I claim more?
Say in the year 2005-06, you receive on Rs 8,000 as LTA, but spend Rs 50,000 on travel. You can claim exemption only to the tune of Rs 8,000.

In India if you happen to be a salaried employee claiming House Rent Allowance (HRA) from your employer, you are eligible for an Income Tax exemption under Section 10(13A) of the Income Tax Act. How do you calculate this exemption amount? Simple.

Find the minimum of the following three options:

1. Actual house rent allowance received from your employer
2. Actual house rent paid by you minus 10% of your basic salary
3. 50% of your basic salary if you live in a metro or 40% of your basic salary if you live in a non-metro

This minimum figure is the allowed income tax exemption on house rent allowance. It’s prudent to work this out so that you can structure the other components of your variable pay better.

Have you ever looked close at the statement of tax generated each month (along with your salary slip) by your employer? Do you understand where your money is going? If no, it’s high time you did.