Home Loan Tax Benefit
The Indian government has always shown a great inclination to encourage citizens to invest in house. This is why a home loan is eligible for tax deduction under section 80C. And when you buy a house on a home loan, it comes with multiple tax benefits too that significantly reduce your tax outgo.
- Benefit on Interest Paid
A home loan must be taken for the purchase/construction of a house and the construction of the house must be completed within 5 years from the end of financial year in which loan was taken. If you are paying EMI for the housing loan, it has two components – interest payment and principal repayment. The interest portion of the EMI paid for the year can be claimed as a deduction from your total income up to a maximum of INR 2 lakhs under Section 24.
- Pre-construction period deduction
The income tax law provides for the claim of such interest also, called the pre-construction interest, as a deduction in five equal instalments starting from the year in which the property is acquired or construction is completed, over and above the deduction you are otherwise eligible to claim from your house property income.
- Benefits for first time Home Buyers
Additional deduction under Section 80EE is allowed for first time home buyers for maximum up to INR 50,000. To claim this deduction, the amount of loan taken should be INR 35 lakhs or less and the value of the property does not exceed INR 50 lakhs. The loan must have been sanctioned between 1st April 2016 to 31st March 2017. And on the date of sanction of loan, individual does not own any other house.
Section 80EE has been reintroduced effective from FY 2016-17. Earlier the deduction allowed under Sec 80EE was available for 2 years FY 2013-14 and FY 2014-15 only.
- Joint Home Loan benefits
If the loan is taken jointly, then each of the loan holders can claim a deduction for home loan interest up to INR 2 lakhs each and principal repayment u/s 80C up to INR 1.5 lakhs each in their individual tax returns. To claim this deduction, they should also be co-owners of the property taken on loan. So, loan taken jointly with your family can help you claim larger tax benefit.
- Principal repayment Deduction
The Principal portion of the EMI paid for the year is allowed as deduction under Section 80C. The maximum amount that can be claimed is up to INR 1.5 lakhs. But to claim this deduction, the house property should not be sold within 5 years of possession. Otherwise the deduction claimed earlier will be added back to your income in the year of sale.
- Deduction for Stamp Duty and Registration Charges
Besides claiming the deduction for principal repayment, a deduction for stamp duty and registration charges can also be claimed u/s 80C but within the overall limit of INR 1.5 lakhs. However, it can be claimed only in the year in which these expenses are incurred.
Tax benefit on HRA
Many taxpayers shell out house rent but can’t claim deductions due to the absence of the house rent allowance (HRA) component in their salary. Under Section 80GG, you can avail of the benefit for the rent even if your salary package does not include HRA, provided you are not eligible for any housing benefit. You will not qualify for this break if you, your spouse or child owns the house you live in. The exemption is limited to the least of rent paid less 10% of total income; or Rs 5,000 a month or 25% of total income.
If you’re a salaried individual, you can claim House Rent Allowance (HRA) to meet your rented accommodation-related expenses. Salaried individuals who live in a rented house can claim this exemption and bring down their taxes. HRA can be fully or partially exempt from tax. Our HRA exemption calculator will help you calculate what portion of the HRA you receive from your employer is exempt from tax and how much is taxable.
If you don’t live in a rented accommodation but still get house rent allowance, the allowance will be fully taxable
For most employees, House Rent Allowance (HRA) is a component of their salary structure. Although it is a part of your salary, HRA, unlike basic salary, is not fully taxable. Subject to certain conditions, a part of HRA is exempted under Section 10 (13A) of the Income-tax Act, 1961.
The amount of HRA exemption is deductible from the total income before arriving at a taxable income. This helps the employee to save tax. But do keep in mind that the HRA received from your employer, is fully taxable if an employee is living in his own house or if he does not pay any rent.
Who can avail the tax benefit of HRA?
The tax benefit is available only to a salaried individual who has the HRA component as part of his salary structure and is staying in a rented accommodation. Self-employed professionals cannot avail the deduction.
How much of my HRA is exempt from tax?
The entire HRA received is not always fully exempt from tax. The least of the following three will be taken to exempt from tax:
- HRA received from your employer
- Actual rent paid minus 10% of salary
- 50% of basic salary for those living in metro cities
- 40% of basic salary for those living in non-metro cities
The remainder of your HRA is added back to your taxable salary. Our calculator can easily help you figure out your HRA exemption.
The tax benefit is available to the person only for the period in which the rented house is occupied.
HRA exemptions can be availed only on submission of rent receipts or the rent agreement with the house owner.
It is mandatory for the employee to report the Pan Card of the ‘landlord’ to the employer if the rent paid is more than Rs 1, 00,000 annually.
Do’s and Don’ts of HRA tax exemption:
- You have must have a valid rent agreement. The rent agreement must mention all the relevant details such as amount of monthly rent, time period of rent agreement, any utility bills to be paid by you etc. “Make sure that there is a signed agreement between you and the landlord even if they are your parents. The agreement must mention the premises rented by you, other charges such as utility or property tax if payable by you.
- ‘If you do not provide PAN of your landlord then, you cannot claim tax exemption for HRA from your employer while withholding TDS on salary. While Income Tax Act does not restrict the employee from claiming tax exemption for HRA while filing returns but there will be mismatch in the salary income reported in the Form 26AS by your employer vis-à-vis that reported by you in your return.
- You must ask for receipt for the rent paid every month irrespective of the channel used for making payments. “It is mandatory to furnish rent receipts to the employer for claiming HRA exemption for the monthly rent paid more than Rs. 3000 per month.”
- Remember to deduct tax at source (TDS) @ 5%, from the rent paid to your landlord if you are paying rent above Rs. 50,000 per month. Interest at 1% per month is levied in case you forgot to deduct it and 1.5% per month where TDS is deducted but not deposited. It would also attract the penalty of Rs 200 per day for the period of delay
- In case PAN is not available, then your landlord must be willing to give you a declaration to this effect. Confirm this before taking house on rent so that you are able to avail the benefit of HRA exemption from your employer. Along with the declaration, you also need to obtain ‘Form 60’ dully filled by your landlord, in case PAN is not available. You need to submit these to your employer.
- In case of a shared accommodation, then along with the above mentioned details in the rent agreement, it should also mention number of tenants co-sharing the flat, ratio in which rent and how utility bills are to be divided.
- Make your rent payments preferably via banking channels instead of cash. Using banking channels helps to provide an electronic trail of money for the transactions occurred.
- In addition to rent receipts, if your payment exceeds Rs. 1 lakh annually, then it is mandatory for you to provide the PAN of your landlord to your employer to avail the full benefit of HRA exemption. It helps you to lower your TDS deduction.
Tax benefits on Specified Illness
Income Tax Department offers tax deduction for certain specific diseases to individuals and HUFs under Section 80DDB on the basis of expenses incurred by him for the treatment of such diseases or ailment. As per section 80DDB of the Income Tax Act, a person can claim deductions for medical expenses either for himself or dependents which can be one’s spouse, parents, children or dependent siblings. One can claim deduction, if he/she is a resident, individual or part of Hindu Undivided Family. However, it is mandatory that a person should be a resident of India for given tax year by which one claims the deduction.
Eligibility criteria for deduction u/s 80DDB
- Tax deduction under section 80DDB is available to all resident individuals as well as HUFs.
- However, tax benefits are not available to NRIs.
- In case the assesse is an individual, he can claim tax deduction if he incurred expenses for his own treatment or treatment of a dependent.
- In case the assesse is an HUF, it can claim tax deduction for the expenses incurred in the treatment of any member of HUF.
Amount allowed as a deduction
- For FY 2014-15 (Assessment Year 2015-16)
- Rs 40,000/- or the amount actually paid, whichever is less.
- In case of senior citizen, Rs 60,000 or amount actually paid, whichever is less.
- From FY 2015-16 onwards (Assessment Year 2016-17)
- 40,000/- or the amount actually paid, whichever is less.
- In case of senior citizen Rs, 60,000 or amount actually paid, whichever is less.
- For very senior citizens Rs 80,000 is the maximum deduction that can be claimed.
- From FY 2018-19 onwards (Assessment Year 2019-20)
- 40,000/- or the amount actually paid, whichever is less.
- In case of senior citizen Rs, 1, 00,000 or amount actually paid, whichever is less
The following diseases specified under rule 11DD qualify for tax deduction u/s 80DDB. However, the prescription in respect of the diseases or ailments is required from the specialists as mentioned below:
- Neurological diseases where the disability level has been certified (prescription issued by Neurologist having ‘Doctorate of Medicine’ degree or equivalent qualification) to be of 40% and above:
- Dystonia Musculorum Deformans
- Motor Neuron Disease
- Parkinsons Disease
- Malignant Cancers (prescription issued by Oncologist having Doctorate of Medicine degree or equivalent qualification)
- Full Blown Acquired Immuno-Deficiency Syndrome (AIDS) (prescription issued by any specialist having a post-graduate degree in General or Internal Medicine or equivalent qualification)
- Chronic renal failure (prescription issued by a Nephrologist / Urologist having Doctorate of Medicine degree or equivalent qualification)
- Hematological disorders (prescription issued by a Hematologist having Doctorate of Medicine degree or equivalent qualification):
Who qualifies as a dependent?
For the purpose of this section, dependents fall in two categories:
- For individuals, a disabled dependent can be spouse, son / daughter (any child), parents, brother / sister (siblings).
- For HUFs, a disabled dependent can be any member of the HUF.
Details of deduction allowed under section 80DDB
Deduction under section 80DDB is allowed for medical treatment of a dependent who is suffering from a specified disease
- Can be claimed by an Individual or HUF
- Allowed to Resident Indians
- When taxpayer has spent money on treatment of the dependant
- Dependant shall mean spouse, children, parents and siblings
- In case the defendant is insured and some payment is also received from an insurer or reimbursed from employer, such insurance or reimbursement received shall be subtracted from the deduction.
Tax Benefits-Disabled Individual
Section 80U – Tax Deduction for Disabled Individuals
There are certain sections under the income tax laws of India which provide certain tax benefits to individuals if either they or any of their family members are suffering from certain disabilities. Section 80U offers tax benefits if the individual suffers a disability while Section 80DD offers tax benefits if an individual taxpayer’s dependent family members suffers from a disability. This article is centered on discussing the tax benefits available under 80U.
Tax benefit is available to any resident individual who is certified as “a person with disability” by the “medical authority”.
Requirement to Claim Deduction under Section 80U
There isn’t any documentation requirement apart from the certificate certifying the disability from a recognized medical authority in Form 10-IA. There’s no need of producing bills for the cost incurred for the pursuance of treatment or such other expenses.
For making the claim under this section, one must submit the medical certificate indicating the disability together with the income tax return as per Section 139 for relevant AY. In case the disability assessment certificate has expired, one would still be able to claim such deductions in the year in which the certificate expires. However, a fresh certificate would be required from the succeeding year for claiming the benefits u/s 80U.
Certificates could be obtained from the medical authorities who could be either a neurologist having a degree of Doctor of Medicine (MD) in Neurology (in case of children, a pediatric neurologist having an equivalent degree) or a civil surgeon or Chief Medical Officer in a government hospital.
For deduction under section 80U, individuals or persons with disability are categorized into two types:
- Person with disability: A person with disability means the person is suffering from at least 40% of a disability. If an individual has at least 40% of a disability then he is eligible for a deduction of Rs. 75,000.
- Person with severe disability: A person with disability means the person who is suffering from at least 80% of a disability. If an individual has severe disability (i.e., 80% or more of a disability) then he is eligible for a deduction of Rs. 1,25,000.
Who Can Claim Deduction under Section 80U
A resident individual who has been certified as a person with disability by the medical authority can claim the tax benefit under Section 80U. For the purpose of this section, a person with disability is defined as a person who has at least 40 percent disability certified by the medical authorities.
For the purpose of this section, disability has been defined as one of the following:
- Low vision
- Hearing impairment
- Loco motor disability
- Mental retardation
- Mental illness
The section also provides a definition for severe disability which refers to a condition where the disability is 80 percent or more. Severe disability also includes multiple disabilities, autism and cerebral palsy.
Who is a medical authority?
The following kinds of medical authorities can certify a person to be disabled:
- A Civil Surgeon or Chief Medical Officer (CMO) of a government hospital.
- A Neurologist with an MD in Neurology.
- In case of children, a Paediatric Neurologist having an equivalent degree.
Difference between Section 80U and Section 80DD
Section 80DD provides tax deductions to the family member people and kin of the taxpayer with a disability whereas Section 80U provides deductions to the individual taxpayer with a disability himself. Section 80DD is applicable if a taxpayer deposits a specified amount as an insurance premium for taking care of his/her dependent disabled person. Under section 80DD, the deduction limits are same of Section 80U. Here, dependent refers to siblings of the assessee, parents, spouse, children or a member of Hindu Unified Family.
Tax Benefit – Donations
It is that time of the year when you’re looking for ways to save on as much tax as possible. You have already taken full advantage of the deduction under section 80C, bought a health insurance and are looking for other deductions available under the Income Tax Act, 1961 to save tax.
Another way you can save tax while doing some good work is by using the deductions available under Section 80G of this Act. Section 80G of the I-T Act allows donations made to specified relief funds and charitable institutions as a deduction from gross total income before arriving at taxable income.
Sub Sections of Section 80G
There are some sub-sections:
Section 80GGA: Under Section 80GGA any donation made to entities in scientific research or rural development are applicable for 100% tax deduction, provided it is donated by tax payers with no business income.
Section 80GGC: Section 80GGC allows for 100 per cent tax deduction towards contribution to a political party registered under section 29A of the Representation of the People Act, 1951 (43 of 1951) or an electoral trust.
Conditions while making donations
If you are planning to donate for a cause with a hope of claiming tax deduction, keep these points in mind. Only those donations made in cash or cheque are eligible for tax deduction. This means, if you are offering a helping hand by any other means like clothes, medicine, utensils, food, etc, you are not eligible to claim for the expenses incurred for the same. Donations made to foreign charitable trusts are not eligible for any tax deduction. Donations made for political parties against their miscellaneous expenses like brochures, souvenirs or pamphlets cannot be claimed.
Documents Required for Claiming Deduction under Section 80G
You will need the following documents to avail deduction under section 80G of Income Tax Act, 1961.
- You must obtain a stamped receipt from the trust or institution where you make a donation.
- It acts as a valid proof of donation.
- Such receipt should have the name, address and PAN of the trust or institution mentioned on it.
- Receipt should also include the name of the donor and details of amount donated mentioned on it.
- Registration number of the trust under section 80G and validity of registration (registration period) must be mentioned on the receipt.
2. Form 58:
- If your donation is eligible for 100% tax deduction then you also require a Form 58 from the trust or institution.
- Details like cost of project, amount authorised for project & actual amount collected by the institute is mentioned in Form 58.
- Without Form 58, your claim for 100% tax deduction can be rejected even if you have stamped receipt.
3.Photocopy of the 80G certificate:
- This document is not mandatory to claim tax deduction.
- However, you can ask for a photocopy of this certificate to ensure that it is still valid.
Who can avail the benefit?
Deduction under this section is not restricted to any specific category of persons/ assessees. This deduction can be availed by any assessee who makes a donation to the notified institutions and the relief funds set up by the government.
However, one must remember that any donation made to foreign trusts and political parties do not qualify for deduction under this section. Any donation to political parties made by an Individual can be claimed as a deduction under the section 80GGC of the I-T Act.
A. Donations which qualify for 100% deduction without any upper limit:
- National Illness Assistance Fund
- National Blood Transfusion Council or to any State Blood Transfusion Council
- National Defence Fund set up by the Central Government
- Prime Minister’s National Relief Fund
- National Foundation for Communal Harmony
- Zila Saksharta Samiti constituted in any district under the chairmanship of the Collector of that district
- Fund set up by a State Government for the medical relief to the poor
- National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities
- An approved university/educational institution of National eminence
- National Sports Fund
- National Cultural Fund
- Fund for Technology Development and Application
- National Children’s Fund
- Chief Minister’s Relief Fund or Lieutenant Governor’s Relief Fund with respect to any State or Union Territory
- The Army Central Welfare Fund or the Indian Naval Benevolent Fund or the Air Force Central Welfare Fund, Andhra Pradesh Chief Minister’s Cyclone Relief Fund, 1996
- The Maharashtra Chief Minister’s Relief Fund during October 1, 1993 and October 6, 1993
- Chief Minister’s Earthquake Relief Fund, Maharashtra
- Any fund set up by the State Government of Gujarat exclusively for providing relief to the victims of earthquake in Gujarat
- Any trust, institution or fund to which Section 80G(5C) applies for providing relief to the victims of earthquake in Gujarat (contribution made during January 26, 2001 and September 30, 2001) or
- Prime Minister’s Armenia Earthquake Relief Fund
- Africa (Public Contributions – India) Fund
- Swachh Bharat Kosh (applicable from FY 2014-15)
- Clean Ganga Fund (applicable from FY 2014-15)
- National Fund for Control of Drug Abuse (applicable from FY 2015-16)
B. Donations which qualify for 50% deduction without any upper limit
- Jawaharlal Nehru Memorial Fund
- Prime Minister’s Drought Relief Fund
- Indira Gandhi Memorial Trust
- Rajiv Gandhi Foundation
C. Donations which qualify for 100% deduction subject to 10% of adjusted gross total income:
- Government or any approved local authority, institution or association to be utilised for the purpose of promoting family planning.
- Donation by a Company to the Indian Olympic Association or to any other notified association or institution established in India for the development of infrastructure for sports and games in India or the sponsorship of sports and games in India.
D. Donations to the following institutions are eligible for 50% deduction subject to 10% of adjusted gross total income:
- Any other fund or any institution which satisfies conditions mentioned in Section 80G(5)
- Government or any local authority to be utilised for any charitable purpose other than the purpose of promoting family planning
- Any authority constituted in India for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns, villages or both
- Any corporation referred in Section 10(26BB) for promoting interest of minority community
- For repairs or renovation of any notified temple, mosque, gurudwara, church or other place
Mode of Payment
A deduction can be claimed under section 80G only when the contribution is made to specified funds and institutions either via cheque or cash.
Effective from the assessment year 2018-19, a person can avail a maximum deduction of Rs 2,000 if the donation is made in cash. However, there is no maximum limit on the deduction amount if the payment is made via cheque or digital payment methods.
Earlier, the maximum limit allowed for donation in cash was Rs 10,000, but the Union Budget of 2017 reduced this to Rs 2,000 in order to curb tax filers from misusing this section by submitting fake donation receipts.
Please note that any donation made in kind such as in the form of clothes, food rations etc. cannot be claimed as deductions under this section.
Maximum Deduction limit under section 80G
Some donations qualify for either 50% or 100% tax deduction whereas some others qualify for the same deduction but up to a maximum limit of 10% of Adjusted Gross Total Income of the taxpayer. So, broadly they can be divided into 4 categories. It can be understood with the help of following illustration:
Donation made to some institutions is eligible for deduction without any upper limit while there are some others where the maximum amount of deduction is limited as per the prescribed provisions.
Category 1: Where deduction is available without any upper limit
- Institutions where 100% donation is eligible for deduction
- Institutions where 50% donation is eligible for deduction
Category 2: Where deduction is subject to maximum limit of 10% of Adjusted Gross Total Income
- Institutions where 100% donation is eligible for deduction
- Institutions where 50% donation is eligible for deduction
Benefits of filing Income Tax Returns
Income Tax Return
The earlier we file better for us. But most of us delay it till last few days left. It’s better to file the return of income before 31st July. Maximum number of people think that since we have paid our taxes what’s the point of filing return of income before the due date. This attitude is not correct, even our taxes have been paid off still we should e file our return before 31st July as we might lose certain benefits.
- Firstly, if you have filed some information incorrect you can file revise return and file it before the due date of filing.A revised return u/s 139 (5) can be filed before the expiry of 1 year from the end of assessment year or before the completion of assessment whichever is earlier. So late filing will attract penal provisions.as belated return cannot be revised.
But wef 1-4-16 belated return u/s 139(4) can now be revised. However return filed under notice u/s 142(1) cannot be revised.
- Secondly, interest on refunds is lost by late filing of return of income. The interest is calculated from 1st day of April of the assessment year to the date on which the refund is granted, if the return of income has been furnished on or before due date specified u/s 139(1). If the return is not filed before due date of filing the interest on refund will be granted from date of furnishing return of income to date on which the refund is granted. The rate of interest will be 1.5% per month or part of month comprised in the period from the date of furnishing of return of income or payment of tax whichever is later.
- Thirdly, there can be carry forward of losses if there is return of income is filed. Only house property loss and absorbed depreciation can be carried forward. Losses under head business income, speculation business, Capital loss and loss under running and maintaining of horses cannot be carried forward. Hence people who have such business loss or capital loss should file return of income before the due date.
- Fourthly, if there is no filing of return of income before the end of the relevant assessment year then u/s 139(1) then penalty of Rs 5,000 may be asked to pay by the income tax authority.
For senior citizens who have taxable income less than basic exemption limit then after filing the return any tax deducted on the interest income on FD’s etc then refund can be claimed on such TDS deducted.
Thus efiling has made the process very easy in order to avoid last day crash of the website it is better to file return of income before due date and avail the benefits as above.
Benefits of Filing Income Tax Return
1. Avoid Penalty & Prosecution Notices
if you have deposited any amount in your bank account during the demonetization period or have entered into the high-value transaction, then you must file your Income Tax Return, as the income tax department has launched ‘operation clean money’ and many people who have done such transactions are being questioned. The best way to avoid this situation is to file your income tax return before the due date.
2. Create Credibility for Loan:
If you planning to take a loan in coming years, then you better get your ITR’s in place. Income Tax Returns of last three years is one of the basic documents required for taking home loans & education loan for your children. This helps banks in judging your pay-back capacity.
3. Rectify Mistakes:
In Case, you have already filed your ITR for FY 2015-16 (AY 2016-17), and now you discover that you have a mistake in your return either misreported or under or over reported your income and expenditure, then this is the last chance for you to revise your return before the tax department comes to you. For instance, you have income from FD, but you did not report it on your income tax return.
4. Carry Forward Your Loss from Home Loan:
If you have been paying your home loan EMI, but have not filed your return till date, then it’s the best opportunity to file your ITR and report your home loan interest payment as “negative income from house property” and take benefit of it (to be set-off from future incomes).
5. Avoid the defective return notice
To err is a human tendency. Chances of mistake may increase if you file your return just before the due date. Taxman may issue a defective return notice under section 139(9) of the Income-Tax Act, asking for the proof/ justification for the mistake and mismatch. The failure to respond can result in heavy penalties.
6. Protection against Black Money:
Events like “Demonetisation” can happen anytime! Any income not reported to the income tax authority comes under the radar of black money. So, avoid the unnecessary trouble in your already complicated life. File your income tax return every year diligently and avoid the risk of your hard earned money being termed as black money by the Income Tax officials.
7. Getting Credit Cards:
Having your very own credit card, can be a lifesaver in many situations of paramount importance whether you want to buy an expensive valentine gift or pay EMI of your Car Loan or Electricity Bill and you still has some time before your salary credits in your account. But, for enjoying such privileges again ITR comes in play at the outset at the time of application of your credit card.
8. Avoid the hassles of late return filing
Filing a return is not like shopping for a commodity online. It requires a strategy and a certain amount of care while filling up the form. So, filing it before the due date will save you tonnes of troubles later. You may need to rectify and revise your return later if you do it in the last minute.
9. Funding Documentation:
If you believe your business has the capability to be turned into the next unicorn. Then only working relentlessly will not do! You need to make your business number speak for itself. Many investors study your business scalability, profitability and other cost parameters from your business income tax return at the time of due diligence.
10. Registration of immovable property
Some states require your income-tax return of the last three years for registration of immovable property. Also, a legal sanction to income whether taxable or not helps you pad up subsequently to account for the wealth or the property owned.
11. Carry forward of losses
The losses incurred by an individual or a firm, belonging to the financial year of the return filed, under the head “profits and gains of business and profession” both speculative and non-speculative as well as capital losses under the head “income from capital gains” can be carried forward. However, one can claim this benefit only if they have filed their income-tax return before the due date prescribed. Filing your tax return before the due date will eliminate the chances of losses not being carried forward.
12. Review and Revise your Income Tax Return:
Okay, we all have been in that situation where we make a mistake in ITR and find about it later. Filing return early makes sure that you get enough time to review all the details. However, those who are unable to avoid silly mistakes, the department gives you time to revise and re-revise your Income Tax Return. Although this is possible only if you file your return within the time frame of the due date.
13. Premium Filing at Premium Time:
Consider a situation where you are stuck in a lot of traffic. What will happen? Either you will get a clear pass or you will get late to your office. And we all know the possibility of getting a clear pass. Similarly, when thousands of people try to file their return at the same time, the website experiences high traffic and might crash. Leaving you, late for filing your return. So, why file your ITR during the rush hour when you can easily avoid it by filing it earlier than others.
Consequences of not filing ITR on Time:
Penalty payment: A return filed till 31 December of the AY attracts a penalty of Rs 5,000 (Rs 1,000 if income is below Rs 5 lakh), whereas a belated return filed between 1 January and 31 March of the AY attracts a late fee of Rs 10,000. While earlier late fee was not mandatory, after the introduction of Section 274F in Finance Act, 2017, you can’t escape paying it.
Interest payment: You are also supposed to pay interest under Sections 234A, 234B and 234C of the Income Tax Act, 1961 on due taxes each month until you file returns.
Setting off losses not allowed: You are not allowed to carry forward certain losses to subsequent years for set-off. For instance, capital losses can be carried forward for the next eight AYs and can be adjusted against gains during these years, but only if the return is filed by the due date.
No interest on refund: If any tax refund is due to you and you file the return in time, you can earn interest on refund claim, that is, the excess tax paid on your income during the year as per Section 244A. However, in case of belated returns, you may lose the interest that would be due on the refund amount.
No provision to revise returns: also, there is a window to file a revised return. This is because filing a revised return is allowed only when original return has been filed within the due date.
Tax Benefits on Tuition Fee
Tax Benefits for School Tuition Fee under section 80C
A part of money you spend on educating your kids can be claimed as tax deduction u/s 80C of I-T Act. The tuition fees paid in school for children are eligible for deduction. As this deduction u/s 80C, therefore the maximum limit allowed as deduction is Rs. 1, 50,000 (together with all other deductions u/s 80C & 80CCC). This deduction can be claimed by individual for maximum 2 children and is only allowed on actual amount paid as tuition fees to eligible educational institutions.
The government of India allows tax breaks & income tax exemption on the tuition fees paid by the individual for their children. To promote it must be noted that deduction is available only on the tuition fees part of the total fees paid. Higher literacy rate & education of the children within India, there is number of tax benefits which the person can take for reducing their taxable income.
the tax benefits available for payment of education or school tuition fees of children that are part of the salary structure of the salaried individual as well as taking an additional deduction under section 80C for making investments in children’s education.
What can you claim?
This deduction is available only for full-time courses and for fees paid to a recognized university, college, school or other educational institution in India. All tuition fees paid during pre-nursery, play school and nursery class are also included.
No deduction is available for fees paid for private or home tuition, coaching courses for admission in professional courses, part-time courses and distance learning courses. Also, there is no rebate on the other charges paid to schools or colleges, such as: late fees, development fees, transport charges, hostel charges, mess charges, library fees, scooter/cycle/car stand charges incurred for education, term fees, building fund, and donation or capitation fee.
Deduction cannot be claimed for tuition fees paid to foreign universities situated outside India. Also, tuition fee paid for self or spouse or other dependents, other than children, is not deductable.
To claim the deduction, you should submit payment receipts to your employer. However, if you fail to submit the receipts, you can also claim the deduction while filing your income tax return.
Look for other tax-saving investment avenues, only if you are still left with scope to save taxes after taking into account all such expenses that help you bring down the taxable income.
Eligibility of Tuition fees for claiming deduction u/s 80C
Persons paying any sum/ fees towards the education of their children can claim tax deduction provided following conditions are satisfied:
- Who is eligible: Deduction is available only to an Individual.
- How many Children? Deduction is available to a maximum of 2 children for each individual. Therefore, a maximum of 4 children deduction can be claimed, i.e. 2 by each parent.
- Maximum Limit: Deduction is available maximum up to INR 1.50 Lakh for each financial year for each parent respectively. Please note that aggregate amount of deduction under section 80C, 80CCC and 80CCD shall not exceed INR 1, 50,000 for the individual parent.
- Tuition Fees Paid to affiliated Educational institution, University, College, School within India: Deduction are available irrespective of the class attended by the child. But, the university must be situated in India. It can be affiliated to any foreign university.
- The deduction is available only for full-time education courses that include Nursery School, Creches & play schools.
- Deduction is available only on actual payment and not on the payable basis: For example, if fees is paid by the parent in April 2017 for the quarter ending March 2017 then fee paid will be eligible for deduction in FY 2017-18.
- Fee can even be claimed by Unmarried person/ divorced parent.
- Adopted Child’s school fees are also eligible for deduction.
How to Apply?
To apply, you need to get a receipt of the tuition fees from the institution and submit it to your employer. Additionally, it should reflect on your IT declaration form before you submit the receipt as a proof of investment.
Tax benefit for how many children?
The benefit applies for the fees paid for up to two children. So if a couple has four children, both can claim tax benefit as both have a separate limit of two children each.
Tax Deduction on Tuition Fees under Section 80C:
Section 80C of the Income Tax Act has provisions for tax deductions on tuition/education fees paid by a parent towards educating his/her children. Taxpayers can avail deductions to a tune of Rs 1.5 lakh under Section 80C, with other investments also eligible for this rebate. Parents can claim the tuition fee paid by them towards their children’s education as deductions, ensuring that they save tax even if they don’t have other tax saving instruments. Parents can claim the actual fee paid by them in a particular financial year.
Tax Deduction on Tuition Fees under Section 10:
Section 10 of the Income Tax Act offers an additional tool for taxpayers to save some of their tax. Under this provision, salaried individual taxpayers are eligible to save tax to the tune of Rs 100 per month per child. This amount can be availed for a maximum of 2 children per taxpayer, which means that an individual taxpayer is eligible for tax exemptions of Rs 200 per month. This amount can be claimed as exemption only in the financial year in which the fee was paid. In addition to this exemption, one can also claim exemption on hostel costs on his/her children. This hostel allowance is capped at Rs 300 per month per child, subject to a maximum of 2 children.
How to claim the tax exemption for Children education allowance?
The person would need to submit receipt issued by the Schools for the payment made during the financial year to their employer & also show in form 12BB before submitting proofs of investments at the end of the financial year.
For an Individual other than salaried employee, you would have to claim the deduction under VI-A schedule by showing the amount of fees paid under section 80C on the income tax return.
It is important to mention here that Children education allowance i.e. part of salary structure & fees paid towards tuition fees of the Children are both different deductions & is, therefore, can be claimed respectively within the limit prescribed as per the India income tax Act.
Non-eligibility of payments towards Tuition fees
- Deduction is not available for payment made towards Development fees, donation or charity, Private Coaching center, other expenses such as hostel expenses, mess charges, library charges or similar payments.
- Deduction is not available for payment made towards part-time courses.
- Deduction is not available towards payment made for school fees of self, spouse, brother or sister, father or mother or any other relative.
- Late school fees paid is also not eligible for deduction.
- Fees paid to a foreign university situated outside India would also not be eligible for deduction.
Not allowable Expenses:-
- Development fees or donation not eligible.
- Transport charges, hostel charges, Mess charges, library fees, scooter/cycle/car stand charges incurred for education are not allowed.
- Late fees are not eligible for deduction.
- Term Fees is not eligible for deduction.
- No deduction for part time or distance learning courses.
- No rebate for private tuition.
- Building fund or any donation etc. not allowed.
Conditions to qualify for deduction
- Only tuition fees paid for full-time education to regular educational institutions like schools, colleges, universities, etc. qualifies for deduction.
- Fees like admission fees, development fees, uniform fees or any other fees do not qualify for deduction.
- Deduction can be claimed whether the child attended the class or not.
- Payment of tuition fees to play schools or day care is allowed as deduction.
- Adopted child’s tuition fees are also eligible for deduction.
Other Important Factors:
- The tax benefits on this can be claimed by divorcees and unmarried individuals sponsoring a child’s education as well.
- The Section covers claims on education allowance for adopted children.
- You can claim deductions only on tuition fees and not on any other charges an institution levies. This could be hostel expenses, mess charges, transportation charges, library expenses, private coaching centers, and other similar expenses.
- Deductions can be claimed only for the fee paid to Indian institutions.
- Similarly, deductions are not applicable for the payment of school fees of your spouse, sibling, or parents. For example, you cannot claim tax benefits on the payment of your brother’s school fees.
- You cannot claim deductions on late payment of school fees.
Tax Benefits on Fixed Deposit
Fixed deposits are a popular investment option in the country, with banks offering a range of schemes specially designed to benefit customers. A fixed deposit is typically used as a savings cum growth instrument and can be an excellent way to get the most out of your money. As taxpaying citizens, most of us feel the pinch of paying tax but investing in fixed deposits could help you a decent amount of tax.
Tax saver fixed deposit (FD) is a type of fixed deposit, by investing in which, you can get tax deduction under section 80C of the Indian Income Tax Act, 1961. Any investor can claim a deduction of a maximum of Rs.1. 5 lakh by investing in tax saver fixed deposits.
- Lock-in period of 5 years
- Interest earned is taxable
- Rate of Interest ranges from 5.5% – 7.75%
Tax Benefits under Section 80C of the IT Act:
Section 80C of the Income Tax Act contains provisions for tax deductions from the gross total income of taxpayers. Individuals who have fixed deposit accounts are entitled to deductions up to Rs 1.5 lakh on the amount invested by them in FDs. While this section contains provisions for a number of investments, taxpayers with only fixed deposits investments can also use it to its fullest. The amount deposited into a FD can be claimed as deductions, subject to a maximum of Rs 1.5 lakh a year.
Eligibility to claim Tax Deductions:
The following are eligible to claim tax deductions on fixed deposits.
- Individuals who have a fixed deposit in their own name
- Hindu undivided families
Points to be aware:
1. Only Individuals and HUFs can invest in tax saving fixed deposit (FD) scheme.
The FD can be placed with a minimum amount which varies from bank to bank.
3.These deposits have a lock-in period of 5 years. Premature withdrawals and loan against these FD’s are not allowed.
4. A person can invest in these FD’s through any public or private sector bank except for co-operative and rural banks.
5. Investment in Post Office Time Deposit of 5 years also qualifies for deduction under section 80 (C) of the Income Tax Act, 1961.
6.Post Office Fixed deposit can be transferred from one Post office to another.
7. One can hold these FD’s either in ‘Single’ or ‘Joint’ mode of holding. In the case the mode of holding is joint, the tax benefit is available only to the first holder.
8. The interest earned is taxable as per the investor’s tax bracket and therefore, TDS is applicable. The interest on deposits is payable on either monthly/quarterly basis or can be reinvested. A person can avoid TDS deduction on the interest earned by submitting Form 15G (or Form 15H for senior citizens) to the bank
9. Nomination facility is available for these FDs.
10. Most banks offer slightly higher interest rates on FDs to senior citizens (as compared to the interest rate offered on the same FD to a non-senior citizen). This interest rate differential exists for tax saving FDs also.
Are Fixed Deposits valid for Tax Exemption?
As per the government and the announcement made by the Finance Ministry in 2006, an investment made in a tax saving fixed deposit which has a minimum of 5 years lock-in period is valid and eligible for a tax deduction as per section 80C of the Income Tax Act of 1961. The fixed deposit will need to follow the below mentioned guidelines to be eligible:
- The deposit maturity will need to be a minimum of 5 years, but it can be extended, to a period of up to 10 years, depending on the bank.
- The minimum amount under this deposit should be Rs. 100 and multiples thereof
- The maximum amount under the deposit should be Rs. 1.5 lakhs per year.
- The deduction is available for only individuals and Hindu Undivided Families
- There will be no premature withdrawal for these fixed deposits.
- These fixed deposit will also not have any loan facility attached to them
- TDS will be charged under this deposit, on the interest earned by the deposit if it is over Rs. 10, 000 for a year. The TDS will be paid at the end of the financial year.
The tax saving fixed deposits can be made in either a single or joint name, in case the wherein the tax saving fixed deposit are made in a joint account only 1 of the holders can claim the deduction as per section 80C of the Income Tax Act 1961.
Amount of Tax Deduction Permitted:
Account Holders can claim a maximum deduction of Rs 1.5 lakh from their gross taxable income. It should be remembered that this amount is a cumulative addition of all the deductions permitted under Section 80C and not on fixed deposits alone.
Benefits of Tax Saving Fixed Deposits
Fixed Deposit is a financial tool that has enjoyed iron-clad trust of the general population since decades, when it comes to savings. Since it is a bank-based investment product, closely monitored by RBI, investors are assured of its safe and low-risk nature. The money deposited is safe and is easily redeemable with interest once it reaches maturity.
- FD has a higher interest-earning potential than savings account
- FD allows only a one-time lump sum deposit
- TDS from the interest on FDs is applied
- Flexibility in the amount and tenure for investors
- Get tax deduction up to Rs.1, 50,000 under Sec 80C
- It is easy to get loan on the FD amount for lesser interest
- Premature withdrawals are not available
Advantages of the Fixed Deposits
1. Easy Availability
The Fixed Deposit scheme is available to all the public and private sector banks in India. You can open the FD, through internet banking as well. There is no need to go to the bank for opening FD if you have the KYC or “Know Your Customer” formalities done at the bank.
2. FDs open for to all
The FD has a wide and accommodative canvas. It is open to the individuals, private companies, public companies, the partnership firms, trust, societies, HUFS, NRIs, and others. Hence anyone can deposit money in an FD account and reap the tax exemption advantages.
3. Guaranteed Returns
FD offer greater interest than the saving accounts. The rate varies between 7 % to 8 %. The interest gains of an FD also vary with its tenure, so that a long-term FD accrues better interest gains. The fixed deposit interest rate comparison charts, available online, will reveal to you which bank is offering the greatest of returns.
The original monetary amount, which the depositor deposits in the FD, is exempt from taxation, under the Section 80C of the Income Tax Act. FDs are a widely used tax saving option by both salaried individuals and workers, and the business persons. The section offers an exemption of up to Rs 1.5 lakhs, towards an FD deposit.
Note: In order to save taxes, you should deposit the FD for a minimum period of 5 years. The maximum deposit limit, relating to tax exemption is Rs 1.5. lakhs.
FD investments are totally secure. No market fluctuation can affect the interest rates, as in the case of the Mutual Funds, and other market related financial schemes. The interest rate for an FD scheme also remains fixed during a given time period, until it reaches its maturity.
6. Automatic Renewal
FDs can also be renewed automatically. You do not even need to go to the bank for its renewal, as it can be managed through the internet banking.
7. Loan Facility
An FD can also be used for getting a loan. The loan facility helps the depositor to get the finances when he or she requires them. The loan may extend up to 90% of the principal and the interest that has been accrued on it.
8. Time Span
While an FD can be made for a period of a week as well, it can have a tenure of up to 20 years. Hence they are fine financial instruments towards making savings for old age, education, marriage, and other purposes.
9. Option of Opening Single or Joint Account
Two or more individuals can open FD together, through a joint account. Any of the account members can deposit, or withdraw money from the account. This makes the FD accounts easier to operate and maintain.
10. For HUFs
The members of any Hindu family can together form an HUF or Hindu Undivided Family, and open a Fixed Deposit. As HUF is taxed separately (from the individual members of the family), a family can save more on taxes by opening an HUF FD account.
11. For NRIs
NRIs can also open the FDs or Fixed deposit account and can invest in it by depositing INR, or any other foreign currency. The banks in India offer the customized FD plans for the NRIs, and some of them are non-taxable. For instance, the NRE (Non-resident External) account in India, opened by an NRI is not taxed upon by the Government of India. These accounts offer benefits including:
- A rupee FD for the foreign earnings
- All interest earned on the account is exempt from taxation
- The interest accrued at the maturity of the FD is fully repatriable
- NRIs can also take loan on the NRE FD account
12. FDs are Transferrable
The FD accounts are transferable, in that they can be transferred from one branch of a given branch to another.
How to Claim Tax Benefits?
Account Holders can claim the deductions under Section 80C of the IT Act when they file their income tax returns for a particular year. Supporting documents and relevant forms need to be filled out in the case of TDS as well and one should ensure that all information provided is accurate and up-to-date.
When to Claim?
Tax deductions under Section 80C can be claimed during a financial year only, i.e. if an individual opens a FD in June 2015, he/she can claim deductions for the financial year 2015-16 only. While there is no fixed time period for claiming benefits on TDS, it is advisable to plan it in such a way that the interest component is split over two years, thereby eliminating the need to pay TDS.
Disadvantages of the Fixed Deposits
Interest Rate can be lower than Inflation
Sometimes the inflation rate may be even higher than the interest rate of the FD.
1.No Increase in Interests
FDs have the same interest for their complete tenure. Hence the gains are fixed and would not increase.
FDs were earlier only good for short tenure savings, but now they have much greater tenures. While there are tax-free options PPF available, FDs can also be used for short-term savings which can offer greater returns. The secure deposits provide for the tax exemptions and are especially useful for those who have a low-risk appetite but want greater interest rates.
2. Interest are Taxed Upon
All interest gained on the fixed deposits are fully taxed upon. The income is denoted under the head “Income from the Other Sources” when you file your ITR to Income Tax Returns.
There are other financial instruments available, which provide you the benefit of tax-free savings. The PPF and the government bonds are a few of them.
3. TDS Taxation
Interests gained from a FD are also charged with TDS. Banks reduce it from the interest accrued at the end of each year. However, the depositor has the option to opt out of TDS, and pay all the interest at the maturity. The form 26 AS, is linked to the PAN card of the depositor and shows all the TDS deductions made towards the FD.