Income Tax and Tax Benefit Instruments

Income Tax at India

An entity whose income exceeds the "maximum amount", which is not chargeable to the income tax, is an assessee and shall be chargeable to the income tax at the rate or rates prescribed under the finance act for the relevant assessment year, shall be determined on basis of his residential status.

Income tax is a tax payable, at enacted by the Union Budget (Finance Act) for every Assessment Year, on the Total Income earned in the Previous Year by every Person.

The chargeability is based on nature of income, i.e., whether it is revenue or capital. The rates of taxation of income are-:

Income Tax Slabs and Rates for the Assessment Year 2016-17

1.   Senior Citizen

2.   Super Senior Citizen

3.   Any NRI / HUF / AOP / BOI / AJP

1.    Individual resident aged below 60 years

Surcharge : 15% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal Relief in Surcharge, if applicable)

Education Cess : 3% of the total of Income Tax and Surcharge.

2.    Senior Citizen 60- 80 years

Income Slabs	Tax Rates
i. Where the taxable income does not exceed Rs. 3,00,000/-.	NIL
ii. Where the taxable income exceeds Rs. 3,00,000/- but does not exceed Rs. 5,00,000/-	5% of the amount by which the taxable income exceeds Rs. 2,50,000/-. Less : Tax Credit u/s 87A -100% of income-tax or Rs. 5,000, whichever is less.
iii. Where the taxable income exceeds Rs. 5,00,000/- but does not exceed Rs. 10,00,000/-	Rs. 25,000/- + 20% of the amount by which the taxable income exceeds Rs. 5,00,000/-.
iv. Where the taxable income exceeds Rs. 10,00,000/-	Rs. 120,000/- + 30% of the amount by which the taxable income exceeds Rs. 10,00,000/-.

Surcharge : 15% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal Relief in Surcharge, if applicable)

Education Cess : 3% of the total of Income Tax and Surcharge.

3.    Super Senior Citizen 80 years & above

Income Tax :Tax Calculator : AY 2016-17

Income Slabs	Tax Rates
i. Where the taxable income does not exceed Rs. 5,00,000/-.	NIL
ii. Where the taxable income exceeds Rs. 5,00,000/- but does not exceed Rs. 10,00,000/-	20% of the amount by which the taxable income exceeds Rs. 5,00,000/-.
iii. Where the taxable income exceeds Rs. 10,00,000/-	Rs. 100,000/- + 30% of the amount by which the taxable income exceeds Rs.10,00,000/-.

Surcharge : 15% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal Relief in Surcharge, if applicable)

Education Cess : 3% of the total of Income Tax and Surcharge.

4.    Any NRI or HUF or AOP or BOI or AJP

Income Tax :Tax Calculator : AY 2016-17

Income Slabs	Tax Rates
i. Where the taxable income does not exceed Rs. 2,50,000/-.	NIL
ii. Where the taxable income exceeds Rs. 2,50,000/- but does not exceed Rs. 5,00,000/-.	10% of amount by which the taxable income exceeds Rs. 2,50,000/-.
iii. Where the taxable income exceeds Rs. 5,00,000/- but does not   exceed Rs. 10,00,000/-.	Rs. 25,000/- + 20% of the amount by which the taxable income exceeds Rs. 5,00,000/-.
iv. Where the taxable income exceeds Rs. 10,00,000/-.	Rs. 125,000/- + 30% of the amount by which the taxable income exceeds Rs. 10,00,000/-.

Surcharge : 12% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal Relief in Surcharge, if applicable)

Education Cess : 3% of the total of Income Tax and Surcharge.

·         Abbreviations used :

·           NRI - Non Resident Individual; HUF - Hindu Undivided Family; AOP - Association of Persons; BOI - Body of Individuals; AJP - Artificial Judicial Person

Permissible Tax Benefits

Ministry of Finance has notified certain deductions from Gross Total Income of an assessee. Below are deductions as updated by finance act, 2015

1.     80C -

This section has been introduced by the Finance Act, 2005. Broadly speaking, this section provides deduction from total income in respect of various investments/ expenditures/payments in respect of which tax rebate u/s 88 was earlier available. The total deduction under this section is limited to Rs. 1.50 lakh only.

Includes claims (deductions in Annual income) for below instruments:

·         Provident Fund (PF) & Voluntary Provident Fund (VPF) : PF is automatically deducted from your salary. Both you and your employer contribute to it. While employer’s contribution is exempt from tax, your contribution (i.e., employee’s contribution) is counted towards section 80C investments. You also have the option to contribute additional amounts through voluntary contributions (VPF). Current rate of interest is 8.5% per annum (p.a.) and is tax-free.

·         Public Provident Fund (PPF): Among all the assured returns small saving schemes, Public Provident Fund (PPF) is one of the best. Current rate of interest is 8.70% tax-free (Compounded Yearly) and the normal maturity period is 15 years. Minimum amount of contribution is Rs 500 and maximum is Rs 1,50,000. A point worth noting is that interest rate is assured but not fixed.

·         Health Insurance Premiums:Premium paid toward health insurance premium for individual, spouse, wife and kids are subject to tax rebate under section 80D Deduction. Individual can claim deduction up to Rs. 25,000 per year for medical insurance premium installments. There is a chance that either you or your spouse is a senior citizen (60 years or above), the limit goes up to Rs. 30,000.

·         Life Insurance Premiums: Any amount that you pay towards life insurance premium for yourself, your spouse or your children can also be included in.^[8]Please note that life insurance premium paid by you for your parents (father / mother / both) or your in-laws is not eligible for deduction under section 80C. If you are paying premium for more than one insurance policy, all the premiums can be included. It is not necessary to have the insurance policy from Life Insurance Corporation (LIC) – even insurance bought from private players can be considered here.

·         Equity Linked Savings Scheme (ELSS): There are some mutual fund (MF) schemes specially created for offering you tax savings, and these are called Equity Linked Savings Scheme, or ELSS. The investments that you make in ELSS are eligible for deduction under Sec 80C.

·         Home Loan Principal Repayment: The Equated Monthly Installment (EMI) that you pay every month to repay your home loan consists of two components – Principal and Interest.The principal component of the EMI qualifies for deduction under Sec 80C. Even the interest component can save you significant income tax – but that would be under Section 24 of the Income Tax Act. Please read “Income Tax (IT) Benefits of a Home Loan / Housing Loan / Mortgage”, which presents a full analysis of how you can save income tax through a home loan.

·         Stamp Duty and Registration Charges for a home: The amount you pay as stamp duty when you buy a house, and the amount you pay for the registration of the documents of the house can be claimed as deduction under section 80C in the year of purchase of the house.

·         Sukanya Samriddhi Account : Sukanya Samriddhi Account meaning Girl Child Prosperity Scheme is a special deposit scheme launched by Prime Minister Narendra Modi on 22 January 2015 for girl child. The scheme of Sukanya Samriddhi Account came into effect via notification of Ministry of Finance. The notification details are Notification No. G.S.R.863(E) Dated 02.12.2014. Scheme will be governed by ‘Sukanya Samriddhi Account Rules, 2014’.

·         Per girl child only single account is allowed. Parents can open this account for maximum two girl child. In case of twins this facility will be extended to third child

·         Minimum deposit amount for this account is ₹ 1,000/- and maximum is ₹ 1,50,000/- per year

·         Money to be deposited for 14 years in this account.

·         Interest rate for this account is 9.1% per annum, calculated on yearly basis, Yearly compounded.

·         Passbook facility is available with Sukanya Samriddhi account.

·         From FY 2014-14 the interest earned on account will be tax exempted. As per Finance Bill 2015-16.

2.     National Savings Certificate (NSC) (VIII Issue):

·         NSC is a time-tested tax saving instrument with a maturity period of Five and Ten Years. Presently, the interest is paid @ 8.50% p.a. on 5 year NSC and 8.80% Per Annum on 10 year NSC. Interest is Compounded Half Yearly. While the minimum investment amount is Rs 100, there is no maximum amount. Premature withdrawals are permitted only in specific circumstances such as death of the holder. Investments in NSC are eligible for a deduction of up to Rs 150,000 p.a. under Section 80C. Furthermore, the accrued interest which is deemed to be reinvested qualifies for deduction under Section 80C. However, the interest income is chargeable to tax in the year in which it accrues.

·         Infrastructure Bonds: These are also popularly called Infra Bonds. These are issued by infrastructure companies, and not the government. The amount that you invest in these bonds can also be included in Sec 80C deductions

·         Pension Funds – Section 80CCC: This section – Sec 80CCC – stipulates that an investment in pension funds is eligible for deduction from your income. Section 80CCC investment limit is clubbed with the limit of Section 80C – it means that the total deduction available for 80CCC and 80C is Rs. 1.50 Lakh.This also means that your investment in pension funds up to Rs. 1.50 Lakh can be claimed as deduction u/s 80CCC. However, as mentioned earlier, the total deduction u/s 80C and 80CCC can not exceed Rs. 1.50 Lakh.

·         5-Yr bank fixed deposits (FDs): Tax-saving fixed deposits (FDs) of scheduled banks with tenure of 5 years are also entitled for section 80C deduction.

·         Senior Citizen Savings Scheme 2004 (SCSS): A recent addition to section 80C list, Senior Citizen Savings Scheme (SCSS) is the most lucrative scheme among all the small savings schemes but is meant only for senior citizens. Current rate of interest is 9.20% per annum payable quarterly. Please note that the interest is payable quarterly instead of compounded quarterly. Thus, unclaimed interest on these deposits won’t earn any further interest. Interest income is chargeable to tax.

3.     80D

1.     Payment of medical insurance premium. Deduction is available up to Rs.25,000/ for self/ family and also up to Rs. 25,000/- for insurance in respect of parent/parents of the assessee. In case of senior citizens, a deduction up to Rs.25,000/- shall be available under this Section. Insurance premiume of senior citizen parent/ parents of the assessee also eligible for enhanced deduction of Rs. 30000/-^[9]

2.     The premium is to be paid by any mode of payment other than cash and the insurance scheme should be framed by the General Insurance Corporation of India & approved by the Central Govt. or Scheme framed by any other insurer and approved by the Insurance Regulatory & Development Authority. The premium should be paid in respect of health insurance of the assessee or his family members. The Finance Act 2008 has also provided deduction up to Rs. 15,000/- in respect of health insurance premium paid by the assessee towards his parent/parents. w.e.f. 01.04.2011, contributions made to the Central Government Health Scheme is also covered under this section.

4.     80DD

·         Deduction of Rs.40,000/ — In respect of (a) expenditure incurred on medical treatment, (including nursing), training and rehabilitation of handicapped dependent relative. (b) Payment or deposit to specified scheme for maintenance of dependent handicapped relative. W.e.f. 01 .04.2004 the deduction under this section has been enhanced to Rs.50,000/- Further, if the dependent is a person with severe disability a deduction of Rs.1,00,000/– shall be available under this sectionBudget 2015 has Further Proposed to hike the limit from A.Y. 2016-17 to Rs. 75000 from existing Rs. 50,000/- and for person with severe disability to Rs. 1.25 lakh from existing Rs. 1 Lakh.

·         The handicapped dependent should be a dependent relative suffering from a permanent disability (including blindness) or mentally retarded, as certified by a specified physician or psychiatrist.Note: A person with severe disability means a person with 80% or more of one or more disabilities as outlined in section 56(4) of the “Persons with Disabilities (Equal opportunities, Protection of Rights and Full Participation) Act.,”

5.     80CCC

·         Payment of premium for annuity plan of LIC or any other insurer Deduction is available up to a maximum of Rs. 1,00,000/-

The premium must be deposited to keep in force a contract for an annuity plan of the LIC or any other insurer for receiving pension from the fund. The Finance Act 2015 has enhanced the ceiling of deduction under Section 80CCC from Rs.100,000 to Rs. 1,50,000 with effect from A.Y. 2016-17

6.     80CCD

·         Deposit made by an employee in his pension account to the extent of 10% of his salary.

Where the Central Government makes any contribution to the pension account, deduction of such contribution to the extent of 10% of salary shall be allowed. Further, in any year where any amount is received from the pension account such amount shall be charged to tax as income of that previous year. The Finance Act, 2009 has extended benefit to any individual assesse, not being a Central Government employee

7.     80CCF

3.                             Subscription to long term infrastructure bonds

4.                             Subscription made by individual or HUF to the extent of Rs. 20,000 to notified long term                          infrastructure bonds is exempt from A.Y. 2011-12 onwards. This deduction is discontinued 
                 w.e.f. A.Y. 2013-14.

8.     80CCG

·                              Investment under Rajiv Gandhi Equity Savings Scheme, 2013

·                             The deduction was 50% of amount invested in such equity shares or ₹ 25,000, whichever is                   lower. The maximum Investment permissible for claiming deduction under RGESS is 
                Rs.50,000.The benefit is in addition to deduction available u/s Sec 80C.

    9.     80DDB

·         Deduction of Rs.40,000/- in respect of medical expenditure incurred. W.e.f. 01.04.2004, deduction under this section shall be available to the extent of Rs.40,000/- or the amount actually paid, whichever is less.In case of senior citizens, a deduction up to Rs.60,000/- shall be available under this Section.Budget 2015 has proposed deduction of Rs. 80000/- for seniot citizen aged 80 year or More from A.Y. 2016-17

·         Expenditure must be actually incurred by resident assessee on himself or dependent relative for medical treatment of specified disease or ailment. The diseases have been specified in Rule 11DD. A certificate in form 10I is to be furnished by the assessee from a specialist working in a Government hospital.Budget 2015 has Proposed for the purpose of claiming deduction under the section assessee will be required to obtain a prescription from a specialist doctor instead of Certificate.

10.  80E

·         Deduction in respect of payment in the previous year of interest on loan taken from a financial institution or approved charitable institution for higher studies.

·         This provision has been introduced to provide relief to students taking loans for higher studies. The payment of the interest thereon will be allowed as deduction over a period of up to 8 years. Further, by Finance Act, 2007 deduction under this section shall be available not only in respect of loan for pursuing higher education by self but also by spouse or children of the assessee. W.e.f. 01.04.2010 higher education means any course of study pursued after passing the senior secondary examination or its equivalent from any recognized school, board or university.

11.  80EE

·         Deduction in respect of interest on loan taken for residential house property

·         Vide Finance Act 2013, an individual is allowed a deduction up to a limit of Rs 1,00,000 being paid as interest on a loan taken from a Financial Institution, sanctioned during the period 01-04- 2013 to 31-03-2014 (loan not to exceed Rs 25 lakhs) for acquisition of a residential house whose value does not exceed Rs 40 lakhs. However the deduction is available if the assessee does not own any residential house property on the date of sanction of the loan.

12.  80G

·         Donation to certain funds, charitable institutions etc

·         The various donations specified in Sec. 80G are eligible for deduction up to either 100% or 50% with or without restriction as provided in Sec. 80G

13.  80GG

·         Deduction available is the least of(i) Rent paid less 10% of total incomeii. Rs.2000 per monthiii. 25% of total income

·         (1) Assessee or his spouse or minor child should not own residential accommodation at the place of employment.(2) He should not be in receipt of house rent allowance.(3) He should not have a self-occupied residential premises in any other place

14.  80TTA

·         Deduction in respect of interest on deposits in savings account

·         Section 80TTA is introduced wef A.Y. 2013-14 to provide deduction to an individual or a Hindu undivided family in respect of interest received on deposits (not being time deposits) in a savings account held with banks, cooperative banks and post office. The deduction is restricted to Rs 10,000 or actual interest whichever is lower.

15.  80U

·         Deduction of Rs.50,000/- to an individual who suffers from a physical disability (including blindness) or mental retardation. Further, if the individual is a person with severe disability, deduction of Rs.75,000/- shall be available u/s 80U.W.e.f. 01.04.2010 this limit has been raised to Rs. 1 lakh.Budget 2015 proposed to amend section 80U to raise limit of deduction in respect of a person with disability from Rs. 50,000/- to Rs. 75,000 and for person with severe disability from one lakh rupees to one hundred and twenty five thousand rupees.

·         Certificate should be obtained on prescribed format from a notified ‘Medical authority’.

16.  87A

·         Rebate Of Rs 5000 For Individuals Having Total Income up to Rs 5 Lakh

·         Finance Act 2013 has provided relief in the form of rebate to individual taxpayers, resident in India, who are in lower income bracket, i. e. having total income not exceeding Rs 5,00,000/-. The amount of rebate is Rs 2000/- or the amount of tax payable, whichever is lower. WEF A.Y. 2014-15.

17.  80RRB

·         Deduction in respect of any income by way of royalty in respect of a patent registered on or after 01.04.2003 under the Patents Act 1970 shall be available as :-Rs. 3 lacs or the income received, whichever is less.

·         The assessee who is a patentee must be an individual resident in India. The assessee must furnish a certificate in the prescribed form duly signed by the prescribed authority along with the return of income.

18.  80QQB

·         Deduction in respect of royalty or copyright income received in consideration for authoring any book of literary, artistic or scientific nature other than text book shall be available to the extent of Rs. 3 lacs or income received, whichever is less.

·         The assessee must be an individual resident in India who receives such income in exercise of his profession. To avail of this deduction, the assessee must furnish a certificate in the prescribed form along with the return of income.