Category Archive : Income Tax Planning

Section 80GG : Deduction on Rent Paid

Section 80GG : Deduction on Rent Paid

Claim Deduction on Rent Paid under Sec 80GG

Introduction

Under Section 80GG, an individual can claim deduction on rent paid if he/she does not receive House Rent Allowance (HRA) even if he/she pays rent for accomodation. The individual can be either self-employed or salaried employee who is not eligible to avail the benefit of HRA exemption. Section 80GG is designed for such type of taxpayers.

Section 80GG : Deduction on Rent Paid

This section 80GG provides the deduction of house rent on fulfillment of certain conditions which we are going to dicuss in this article.

Eligibilty

For Whom?
  • Individuals who do not get HRA in their salary which includes even self-employed and professionals who do not get salaries as such. It can be claimed by an individual or a HUF.
  • It is not for those individuals who get HRA in their salaries. HRA is an important component of salary. It is given by employers to their employees to accommodate expenses on rent paid. HRA in salaries is claimed under another section of income tax 10(13A). It can be partially or fully claimed based on your actual expense on rent which is claimed by submitting rent receipts. If you get HRA in your salary and are not living in a rented space, the HRA component of your salary is fully taxable.
Conditions
  • To claim rent paid under section 80GG, you, your spouse, minor child or HUF you are a part of should not own a residential house in any place you are employed, operate your business or profession or in any other city where you are claiming benefit of a self-occupied house.
  • It means benefit of claiming tax deduction for claiming repayment of interest and principle of home loan and claiming 80GG together is not possible.
  • If you own a house in some another city, it is treated as rented out.
  • While claiming tax deduction under this section, you need to fill and submit form 10 BA which is declaration stating you satisfy the first 2 conditions.

What is the Amount that can be claimed?

Deduction under Section 80GG shall be the least of the following-

  1. Rs. 5,000 per month i.e. Rs. 60,000 per year
  2. Rent Paid Less 10% of Adjusted Total Income
  3. 25% of Adjusted Total Income
What is Agjusted Total Income?
  • Adjusted Total Income is calculated by deduction following incomes/deduction from Gross Total Income :
    1. Short Term Capital Gain from Equity Shares and MF
    2. Long Term Capital Gain (Equity as well as debt)
    3. Exempt Income Like Dividend on shares, Interest on PPF etc.
    4. Deductions from section 80C to 80U

Example

 Section 80GG : Deduction on Rent Paid
Section 80GG : Deduction on Rent Paid

If your adjusted total income is Rs.4 Lakhs and annual rent paid is Rs.2.4 Lakhs, then the least of the following will be allowed for deduction:

  1. Rs. 5,000 per month i.e. Rs. 60,000 per year
  2. Rent Paid Less 10% of Adjusted Total Income = (2.4 Lakhs – 10%(4 Lakhs)) = Rs.2 Lakhs
  3. 25% of Adjusted Total Income = 25%(4 Lakhs) = Rs.1 Lakhs

Important Points

  1. While claiming deduction under Section 80GG, employee shall furnish rent receipts or rent agreement. 
  2. Also he needs to fill Form 10BA which will prove that he is not claiming benefit of his self-occupied property.
  3. If Rent paid to the landlord exceeds Rs. 1,00,000, then he needs to furnish PAN to his landlord (Landlord needs to provide tenant details in his income tax return.)
  4. Following are the details required to be submitted for claiming deduction under section 80GG :
    • Name of the assessee
    • PAN
    • Full address of the premises along with Postal Code
    • Tenure (in months)
    • Payment Mode
    • Amount Paid
    • Name of landlord
    • address of the landlord.
    • PAN of the landlord is mandatory if rental is more than INR 1 lakh for the assessment year.
    • A Declaration confirming that no other house property is owned by the taxpayer himself or in the name of Spouse / minor child or by the HUF of which he is a member.
Sukanya Samruddhi Yojana

Sukanya Samruddhi Yojana

Key Features of Sukanya Samruddhi Yojana

Introduction

Sukanya Samruddhi Yojana (SSY) is a girl child prosperity scheme under the initiative taken by the Government of India (GOI) as a part of ‘Beti Bachao, Beti Padhao’ campaign.

Like ELSS, PPF, NSC, Tax Saver FDs, Investment in Sukanya Samruddhi Yojana is eligible for tax deduction under section 80C.

Sukanya Samruddhi Yojana

  • Sukanya Samruddhi Yojana (SSY) encourages the parents of girl child to raise funds for the education and marriage expenses. This scheme was launched by Prime Minister Mr. Narendra Modi on 22nd January 2015.
  • SSY is a government-backed saving scheme targeted at the parents of girl children. The scheme encourages parents to build a fund for the future education and marriage expenses for their female child.
  • The SSY account can be opened at any India Post office or a branch of some authorized commercial banks (SBI, ICICI etc).
 Sukanya Samruddhi Yojana
Sukanya Samruddhi Yojana

Eligibility

  •  Sukanya Samruddhi account can be opened only in the name of girl child by her parents or legal guardians.
  •  The girl child has to be below the age of 10 at the time of account opening.
  •  Multiple Sukanya Samridhhi accounts cannot be opened for a single girl child.
  •  Only two SSY accounts are allowed for a family i.e. one for each girl child.

Investment Limits

  • On 23 July 2018, the criteria for minimum annual deposit for the Sukanya Samriddhi Yojana account has been revised to Rs.250 from the earlier amount of Rs.1,000.
  • The minimum annual contribution to the Sukanya Samriddhi Account (SSA) is Rs.250 and the maximum of Rs.1.50 lakh in a financial year. Therefore, an SSA can be opened with a minimum deposit of Rs.250 and in multiples of Rs.100 thereafter.
  • You have to invest at least the minimum amount every year for up to 15 years from the date of account opening. Thereafter the account will continue to earn interest till maturity.

Rate of Return/ Interest Rate of Sukanya Samriddhi Account

  • Based on the Government Security (G-sec) yields, the Indian Government decides the rate of interest for the scheme on a quarterly basis. The interest rate is compounded on a yearly basis and is credited to the account. Subscribers can also opt for monthly interest. For a month, the rate of interest is calculated on the minimum balance that is present in the account between the end of the 10th and the last day of the month.
  • The Government has ensured that the Sukanya Samriddhi Account interest rate is lucrative enough for parents to be encouraged to invest more for the future security of the girl child.
  • The interest rate for the financial year 2019-2020 is revised to 8.4% from 8.5% earlier. The rate of interest pertaining to the last quarter (1 April 2019 – 30 June 2019) was 8.5%, and it is compounded on an annual basis.

Tax Benefit & Taxability of Income

  • Investment in SSY is eligible for tax deduction up to Rs. 1,50,000 under section 80C.
  • This scheme has Exempt-Exempt-Exempt (EEE) Status. It means that interest received on the investment made is not taxable. The investment made is also eligible for the tax deduction under section 80C up to Rs. 1,50,000 (in aggregate). Also the amount received on maturity (principal and the interest thereon, both are exempt from tax.

Other Important Points

A. Opening of the SSY Account

  • Sukanya Samriddhi Yojana Account can be opened anytime after the birth of girl child but before the completion of 10 years of her age. Amount is required to be deposited in the account for 15 years from the date of opening an account. After that deposits are not allowed, interest will be earned on the balance amount till the date of maturity/ marriage of girl child, whichever is earlier. Only one account can be opened for one girl child, and for maximum up to 2 girl child.
  • Guardian should submit his identity proof, address proof and birth certificate of girl child, while opening the account in her name. A girl child can operate the account on attaining 10 years of her age.

B. Withdrawal from SSY Account

  • Once a girl child turns 18 years of age, the account-holder can withdraw from SSY account to meet expenses of higher education or marriage. Amount of withdrawal shall be restricted to 50% of the balance available on 31st March of the previous year, in SSY Account.
  • Example : If Mr. Amit wants to withdraw the amount in August 2018 for his daughter’s higher education, then he will be eligible to withdraw 50% of the balance available as on 31st March 2018.

C. Maturity and premature closure of SSY Account

  • The account will be closed after 21 years from the date of opening or till the date of her marriage.
  • Example : If Mrs. Sujata Singh opens the Sukanya Samriddhi Yojana Account for her daughter Ms. Neha who is a girl child of 8 years. In this case, the account will be operative for 21 years i.e. till she turns 29 years.
  • Premature closure of account can be made only after completion of 5 years of the account. Account can be closed prematurely in following cases-
    1. Death of guardian
    2. Deposits causing genuine hardship to the depositor or on the girl child
    3. Money required for life threatening diseases
  • Maturity proceeds are directly paid to the girl child which gives her the financial independence.

Documentation for SSY

  1. SSY Account Opening Form
  2. Birth Certificate of girl child (mandatory)
  3. Identity proof (as per RBI KYC guidelines)
  4. Residence proof (as per RBI KYC guidelines)

Summary

The benefits of Sukanya Samriddhi Yojana are :

  1. Tax deduction under section 80C (up to Rs. 1,50,000 every financial year)
  2. Rate of interest slightly high (as compared to other investment options)
  3. Partial withdrawal allowed up to 50% (when the girl child turns 18 years)
  4. Tenure of 21 years (to make the girl child financially stable)
  5. Can be opened at any bank account or post office
  6. Tenure to make payment till 14 years of investment, from the date of first investment
  7. Allowed for maximum of 2 girl child, till the age of 10 years
  8. Rs.250 to Rs. 1,50,000 per year can be deposited

For more clarity, please refer the following video:

Thus, the parent gets a competitive interest rate on the Sukanya Samriddhi Yojana Account, in addition to a tax exemption under Section 80C of the Income Tax Act, 1961. There is no other deposit scheme in the country that offers such a high rate of interest, tax exemption, and security for the girl child.

ELSS Vs PPF

ELSS vs PPF Comparison

Tax Saving Tips

Introduction

In this article, we are going to discuss Equity Linked Savings Scheme and Public Provident Fund ie. ELSS vs PPF Comparison. Both are most popular tax saving options amongst the investors. However, both the investments have its own pros and cons. Let us understand the features of both investment options.

In our earlier articles, we have comapred ELSS vs Tax saving FDs and ELSS vs NSC.

ELSS vs PPF Comparison

Purpose of Investment

  • ELSS : In case of Equity Linked Savings Scheme (ELSS), both the purposes – building funds for long term goals and tax saving are served.
  • PPF : PPF is a Long-Term savings instrument meant for the self-employed and the workers of the unorganized sector.

ELSS vs PPF Comparison

ELSS vs PPF Comparison
ELSS vs PPF Comparison
What Are ELSS & PPF?
  1. ELSS : Equity Linked Saving Schemes are the diversified equity oriented mutual funds mostly invets in large cap stocks.
  2. PPF : PPF are Long-term Saving Instrument where Investment is done in Government Bonds. The main objective behind PPF is to avail the old-age security to the self-employed and workers of unorganized sector
Eligibility
  1. ELSS : Resident Individuals, HUFs & NRIs
  2. PPF : Only Resident Individuals & HUFs
Minimum & Maximum Investment
  1. ELSS : Minimum Investment = Rs.500, Maximum Investment = No limit
  2. PPF : Minimum Investment = Rs.500, Maximum Investment = Rs.1,50,000 (Investments can be made in lump sum or in a maximum of 12 installments in a financial year)
Rate of Return & Risk associated
  1. ELSS :
    • Rate of Return = 11%-14%
    • As the investments are linked with the market sentiments, it is riskier as compared to PPF.
  2. PPF :
    • Rate of Return = 8%
    • As the investments are made in Government bonds, it is a safer option with guaranteed returns.
Lock in Period
  1. ELSS :
    • Lock in period is 3 years
    • Partial Withdrawal : No partial withdrawal is possible during the lock-in period
  2. PPF :
    • Maturity period of PPF is 15 years. However, if account holders are in need of funds, and wish to withdraw before 15 years, the scheme permits partial withdrawals from year 7 i.e. on completing 6 years. Thus, lock in period can be said to be 7 years.
    • Partial Withdrawal : From 7th year of investment, investor can withdraw once in a year. (Limits are set by PPF rules) It allows to withdraw money for the purpose of Medical Treatment or higher education etc.
Taxability of Income
  1. ELSS : LTCG is taxable @ 10% without indexation benefit. Dividend is exempt from tax.
  2. PPF : It comes under Exempt-Exempt-Exempt (EEE) category. Interest and maturity amount is exempt from tax.

Conclusion

  • ELSS and PPF both are efficient tax saving options, each option has its own benefits. Investor should select the best suitable option according to his priorities.
  • If investor wishes to earn fixed interest with lesser risk, he can invest in PPF.
  • If investor wishes to take risk and earn higher returns in lesser time period, he can definitely invest in ELSS. Though the lock in period of ELSS is lower, this investment should be linked with mid-term and long-term financial goals. Therefore, the ideal time of withdrawal can be targeted between 5-7 years from the investment made.

For further details on this comparison, please watch our video on ELSS vs PPF. The link is given below.

ELSS vs NSC

ELSS vs NSC Comparison

Tax Saving Mutual Funds vs Post Office National Savings Certificate

Introduction

In this article, we will compare the investment options under section 80C – ELSS vs NSC. Both the investments, ELSS (Equity Linked Saving Scheme) and NSC (National Savings Certificate) are eligible for claiming tax deduction under section 80C.

In our earlier article, we have covered the similar comparison of ELSS vs Tax Saving FDs.

ELSS vs NSC Comparison

Purpose of Investment
  1. ELSS : ELSS investment serves both the purposes like tax saving as well as Wealth Creation for Long Term Goals.
  2. NSC : Whereas NSC is a popular small saving scheme, which was introduced with a purpose to encourage people to develop a habit of regular savings.

ELSS Vs NSC

ELSS vs NSC Comparison
ELSS vs NSC Comparison
WHAT ARE ELSS & NSC?
  1. ELSS :
    • Equity Linked Saving Schemes are the diversified equity mutual funds which are mostly Large Cap oriented funds.
    • Investment in Equity Market
  2. NSC :
    • National Savings Certificate arethe type of loan given that you give to the government at a predefined fixed interest rate.
    • It is fixed income investment option. Amount is invested in Government Bonds.
Who Can Invest?
  1. ELSS : Resident Individuals as well as NRIs can invest in ELSS
  2. NSC : Only Resident Individuals can invest in NSC
Minimum & Maximum Investment Amount
  1. ELSS :
    • Minimum Investment : Rs.500
    • Maximum Investment : No Limit
  2. NSC :
    • Minimum Investment : Rs.100
    • Maximum Investment : No Limit
Lock in Period
  1. ELSS : 3 years
  2. NSC : 5 years
Rate of Return & Associated Risk
  1. ELSS :
    • Rate of return : 11% to 14% per annum
    • As the name suggests, ELSS is equity linked savings schemes, therefore, the returns are dependent on the market conditions and hence there are chances of receiving negative returns on investment.
    • As the investment returns are linked with the market conditions, risk is high as compared to NSC.
  2. NSC :
    • Rate of return : 8% per annum
    • NSC is backed by Indian Government. Government declares interest rates every year, which may vary but, but there is no chance of having a loss of capital.
    • Investment is made in Government Bonds, therefore risk is very low.
Taxability of Income
  • ELSS : Long-Term Capital Gains (LTCG) on ELSS is taxable @ 10% without indexation benefit.
  • NSC : Interest accrued on NSC is reinvested in NSC and is considered as a fresh purchase. Therefore, interest of 4 years is also eligible for tax deduction under section 80C. However, interest of 5th year is fully taxable in the hands of the investor.
Best Suitable For
  • ELSS : First Time Investors who are willing to invest in equity market. Investors who wish to have a higher rate of return with lower lock-in-period
  • NSC : Conservative investors who do not wish to take higher risk and wish to invest small amounts at regular intervals and want a fixed periodic interest.

Conclusion

  • You will get the benefit of a tax deduction under Section 80C of the Income Tax Act in both investments, Equity Linked Savings Schemes (ELSS) and National Savings Certificate (NSC).
  • If you are looking for safety and a guaranteed return, NSC scores higher in both cases. It offers a fixed return of 8% per annum. However, in terms of returns over the long term, ELSS definitely scores over NSC.
ELSS Vs Tax Saving FDs

ELSS Vs Tax Saving FDs

Comparison of Tax Saving Mutual Funds & Fixed Deposits

Introduction

In this article, we are going to do a comparative analysis of Equity Linked Savings Scheme ie. ELSS Vs Tax Saving FDs. Both are the most popular tax saving options amongst the investors. However, both these investments have their own pros and cons. Let us understand the features of ELSS and Tax Saving FDs.

ELSS Vs Tax Saving FDs

Purpose of Investment

As far as the tax saving options are considered, Equity Linked Saving Scheme (ELSS) and Tax Saving FDs are both tax-saving instruments. Both the investments are eligible for a tax deduction of up to Rs.1.5 lakh under Section 80C of the Income Tax Act.

  1. ELSS :
    • ELSS are Tax Saving Mutual Funds which work like a Multicap funds and give returns in the way of capital gains.
    • The performance of ELSS depends on equity markets and thus, there is some amount of risk associated with it.
  2. Tax Saving FDs :
    • Tax Saving FDs give returns in the way of fixed returns.
    • There is no Market risk associated with tax saving FDs.

Comparison of ELSS Vs Tax Saving FDs

The comparison between ELSS and Tax Saver FD Investment is given below :

ELSS Vs Tax Saving FDs
ELSS Vs Tax Saving FDs
Nature of Investment
  1. ELSS : Investment in Equity Shares and Mutual Funds
  2. Tax Saving FDs : Investment in the Fixed Deposits of the Bank
Returns
  1. ELSS :
    • Rate of return is 11% – 15% p.a
    • ELSS can give negative returns too if stock market performance is not good. But if you invest for longer horizon, chances of negative returns are low.
  2. Tax Saving FDs :
    • Rate of return is 7-9% p.a. (Pre-Tax)
    • Tax Saving FDs cannot give negative returns.
Lock in Period
  1. ELSS : 3 years
  2. Tax Saving FDs : 5 years
Taxability of Income
  1. ELSS :
    • LTCG is taxable @ 10% without indexation benefit.
    • DDT @10% is applicable on Dividends.
  2. Tax Saving FDs :
    • Interest on Tax Saver FD is taxable at normal tax slab rates
Risk Associated
  1. ELSS : As the investments are linked with the stock market performance, it is riskier as compared to Tax Saver FD. Market risk comes into the picture.
  2. Tax Saving FDs : Investment in Tax Saver FDs is less risky than ELSS, as it offers guaranteed returns with principal amount.
Best Suitable For
  1. ELSS :
    • First time investors who are willing to invest in equity market. Individuals who are willing to take market risk associated with ELSS.
    • Investors who wish to have a higher rate of return with lower lock-in-period of investment.
  2. Tax Saving FDs :
    • Conservative Investors willing to earn fixed periodic interest

Impact of Taxes on Returns of Tax Saving FDs

As stated earlier, interest on Tax Saver FD is taxable at applicable tax slab rate. Let us now understand the impact of taxes on rate of return.

Impact of Taxes on Rate of Return of Tax Saving FDs
Impact of Taxes on Rate of Return of Tax Saving FDs
  • As we can see, that post tax returns on Tax Saver FD are reduced to 5.5%-7.5% from 8% of pre-tax returns.
  • It is clear from the above illustration that, investment in ELSS a better option as far as the rate of returns are considered.

TDS ON FD INTEREST

TDS is applicable on FD interest if it exceeds Rs. 10,000 (Up to FY 2018-19). As per the budget amendment, threshold limit of Rs. 10,000 is increased to Rs. 40,000. For further details with examples, please read our article TDS by Banks on FD and RD Interest.

Conclusion

  • ELSS and Tax Saver FD, both come up with a minimum lock in period. However, there is a large difference in the rate of return provided by them.
  • Investors those who are ready to take risks, have larger investment horizon and interested in investing in Equity can definitely choose ELSS over Tax Saver FD. On the other hand, taxpayers who wish to earn stable income with very low risk can opt Tax Saver FD.

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